Peter Kenny: Could See A 5% Correction Before Election (Audio)

of one percent. Those minutes, by the way, showed officials were divided in July over the urgency to raise interest rates again. The Dow up twenty six points, up one tenth of one percent, NASTACK up a point a little change there, up by less than point one percent. The Tenure up five thirty seconds, had yield one point five five percent. Gold down four ninety the ounce the thirteen forty seven, a drop there of four tenths of one percent. Crude Oil West Texas Intermediate up thirty one cents forty

six eighty nine of barrel. Again they are of seventh cents of one percent. I'm Charlie Pellet and dance a Bloomberg business flash. Thank you Charlie Pellett. It's time now for the E t F Report. It is brought to you by E t F Exchange sixteen b n Y Melon's Annual E t F Symposium September twenty one in Dana Point, California. This essential conference is complementary for I

R R I A S, but space is limited. Register now at b n y melon dot com slash e t F. Let's go to Katherine Cowdery for the Exchange Traded Fund Report. Money is pouring into e t s this month billion dollars in the US in the first half of August. Bloomberg Intelligence analyst Eric Baltuna says it continues a breakneck call of sixty eight billion dollars since

the end of June. Is this goldilocks environment, right, You've got breaksit behind you, and you've got decent economic news but not too good and so there's really just no fear of the Fed. And plus I don't think there's anybody thinking they're going to raise before the election. Bell Junas as a flows are showing that investors are indulging their risk on appetite as more than ten different small cap e t f s have taken in money. In August,

they're going all the way. Small cap ets took in two point five billion, and about a dozen of them saw flows. So this tells me they're really all in right now. E t s that focus on industrial companies are leading all sectors and flows. So far this month, they've taken in eight one million dollars. One of the reasons, Beltuna says performance the industrial select sector Spidery t F is up five percent since July. That's your Bloomberg ETF report.

I'm Katherine Cowdery. This is taking Stock with Kathleen Hayes and Grim Fox on Bloomberg Radio. Well, stocks are fluctuating, still trying to figure out what to watch. The FED minutes did show a FED somewhat divided. As I've been talking to people on the show today along with my co host Pim Fox and looking at research notes, I'm seeing that some people are saying they appear slightly more hawkish. Some people are saying they're more held back by inflation.

Question is, though, what does this mean for the stock market? And as we watched so many of the retailers following short are we seeing signs that some weakness in the macro economy is spilling over into the business economy. We're very happy to be joined now by Peter Kenny, senior market strategist at Global Markets Advisory Group. Uh, Peter, welcome, Thank you, Kathleen. So uh just here quickly. From the stock market view, from the investing view, we got these

f onm C minutes. They didn't know how weak the GDP was with the second jobs report. Do you just put them on the back burner and say next or does this? Is there something you take away for the stock market well? As far as the markets concerned, what we're seeing from the Fed and from the interest rate conversation or landscape is that we're likely to see much

of the same unchanged outlook. In other words, we're seeing very mixed economic performance and a very divided f o MC that provides for an unchanged view moving forward, and that has provided for some significant risk on allocation of resources into equities. And that's a concern because we're seeing

pe ratios well above historical averages. The Dow Industrials, transports, and utilities have all seen a meaningful uptick in the in the price ratings ratio over the last twelve months and are are well into an area where we have historically seen a pullback. We're also seeing the same sort of themes in the Russell two thousand, nastac one s

and P five hundred. So as far as I'm concerned, this risk on appetite, which has driven valuations higher than they've historically been, is some cause for concern, But we're not seeing anything on the part of the FED which

is indicating that we should expect an economic slowdown. The issue for the FED is interest rates, and interest rates is not something that they can really engage in in September in terms of a race, it's not going to happen, And if it's not in September, it's not going to be before the elections, which means does it happen in December. That's far enough off in terms of the calendar for investors to not really have to focus on it. Peter, where's the money coming from that pushes stocks hire? Is

that the retail investor? Or? Is it institutions? I think it's institution and PIM I think it's institutional institutions. Globally, the US equity market is seeing a really significant influx of capital from around the world for very very clear reasons, whether it is the dividend field on US corporate issues, or whether it's the likelihood or the perspective prospects of an increase in prices of equities. This is the most relatively attractive place to be putting your money to work,

globally speaking. And you know, just look at negative rates in Japan, in EU are largely in some pockets of the EU, and you're seeing that this the U S equity market is the is the landscape that global investors are more than willing to put their money to work at because of the relative attractiveness and ren yields. So if that's the case, then we are Do you say, which of these three? Do you say stocks continue to rise, UM as A B spasses it? Do you say, oh, well,

back and forth, back and forth. You know, global investors want invest here. On the other hand, you know the earnings have been that great or is there a third possibility that stocks drive down? I mean, is the is this global demand for anything that looks better than anything else going to be a much of a driver for

this a year? Yeah, certainly, in the last of those three options, I think is the most likely, and this is why UM equity markets have historically not been able to whole evaluations UH as measured by P north of twenty for extended periods of time. And I think that we've seen over the last two weeks a real slowdown in activity in terms of volume and turnover, and we've seen a real moderation in terms of price gains. The

post Brexit rally has run its run its course. We're now in a post Brexit rally mentality in terms of the broader street, and we're seeing that there's no compelling reason at these valuations to put much capital at risk, in spite of the fact that the global environment does continue to sort of fuel the allocation events of cash into US equities and US corporate debt UM. I do

think that we've kind of reached an equilibrium. The goldilocks scenario that many have spoken about is going to add best provide for very modest, very incremental returns from here until we we hit some to sort of a real pivot point in terms of volatility, which will of course drive prices two more historically based valuations. Peter, You've got to simplify it for me because I just keep thinking that one of the reasons that stocks go up is

that somebody buys them. And I was looking at US companies. They've reduced their stock buy backs to the lowest level in four years. This is a report from the stock research firm trim Tabs. If you have US companies not buying back their stock, combine that with what you've just described as this perhaps overvalued stock market because of the pe levels. What happens when we get maybe a five to correction. Let's assume that that takes place, how many

people go under and what happens next. I do think that that takes place. I would not at all be surprised to see a five percent pull back between now and the elections, possibly more. And I do think it's going to be predicated upon a lack of corporate by backs, which has been a huge driver of price appreciation and equity markets, and coupled with extended evaluations. In that case,

we're going to have to wait to see that. Where the dust clear is because a lot of this volatility that we have coming up on us, certainly before the election, is going to be as a result of the elections, and based on the outcome of those elections, we're gonna we're gonna have a much more clarity as to what the interest rate scenario looks like going forward and what the corporate guidance looked looks like going forward. My sense

is that we do get that bull back. My senses that it represents an opportunity because I think over the next twelve months, the S and P five is likely to gain somewhere between six and a half and seven percent. That's so that would take us up to gosh, how far do the math quickly for me, Peter, the math would get us to uh twenty, that's not bad today. Yeah, I mean you certainly beat the return you'd get holding a lot of different kinds of bonds, that's for certain.

And so in the longer term twelve months, I'm I'm actually quite confident, okay, okay, So give me a longer term play. What are some names or that you would that you would buy now or hold onto now because look out over the election divide and you can you know you'll hold onto it make some money. Okay, So I would when you starting to reverse mining's miners, uh, they've had a huge run. I look for them to moderate, truckers and parts, huge run moderate, food meets and products

huge run moderate. So the stocks that I think will likely outperform in the next twelve months are at the industrials, medical stocks, pharma, and housing. UM. I think that you're going to continue to see all rotation into those names, and I think that they will lead the market higher. Thanks very much, Peter Kenny. He is a senior market strategists Global Marks Advisory Group. Is also an independent market strategist at Kenny and Co. We're gonna take you through

to the clothes on Wall Street. This is taking Stock. I'm Pim Fox my coast. Kathleen Hayes, this is Bloomberg.