Full Video Transcript Below:
CAROLINE WOODS: Joining me now Brian Levitt, global market strategist at Invesco Brian, great to have you back at the desk.
BRIAN LEVITT: Thank you. Great to be here.
CAROLINE WOODS: All right. So we’re looking at an S&P 500 at another record high. Does S&P. It’s above 6600. Make sense to you or is this market overpriced?
BRIAN LEVITT: I think it makes sense to me. I mean the thing about market highs is you’re going to hit a lot of market highs in your life. They happen about once every two weeks on average. Valuations are a bit extended, but at the same time, it’s still a good economic backdrop. Inflation at least inflation expectations are relatively stable. Fed’s going to cut supportive for equity markets. And retail sales actually came in better than expected. So even though the jobs market is cooling the consumer is still holding up. The consumer is still holding up. So the job market is cooling, the demand for workers is cooling, but the supply is also slowing as people are entering into retirement as there’s less immigration in the country. So the job market is slowing, but not particularly out of balance. Unemployment rate is low, wages, real wages are still positive, still positive growth on real wages. All of that supports the consumer.
CAROLINE WOODS: What is it though that’s driving this market higher right now? Is it the economy?
BRIAN LEVITT: Well you’ve had a lot of you had the concentrated move in the big tech names. That’s really a bit more of a 2024 story than this one. I mean, Yes, technology has done very well. But if you look at the percentage of stocks above their 200 day moving average, it’s not like it’s 20% right? You’re you’re well above half. So it’s a broader market. You’ve seen financials the big banks participate. The industrials are participating. So those sectors are usually attuned to a better economic environment. And so it’s Yeah it’s not just tech.
CAROLINE WOODS: It sounds like U.S.-China trade deal could be coming maybe even ahead of the November deadline. Things seem to be going well on that front based on what we’re hearing. What could that mean for this market?
BRIAN LEVITT: Well, seeing as we’re already, what, 36% off the liberation day lows. Yeah, this is a market that’s already forgotten about trade for the most part. And so that would just be another additional positive. I don’t think it’s a huge catalyst to move the markets significantly higher because, for the most part since liberation day, or really. April 9th, this market has come to the view of we will get some outcome. It may not be optimal to the free trade folks, but we will get some outcome that we can live with and move beyond. So again, the way to think about tariffs is it it will slow growth. The market assess that it will raise prices. But inflation expectations are contained. As long as businesses know the rules of the game will be OK. China US would just be another big step in that direction. So a positive but not a huge catalyst.
CAROLINE WOODS: How should we be thinking about a potential rate cut tomorrow. The Fed of course, kicking off a two day meeting today, the market widely expecting at least 25 basis points. How will the market react to that?
BRIAN LEVITT: Well it’s expected it’s already been baked. The way I would look at it, people are like why does the Fed have to ease. It’s not a big easing move. You’re still trying to get back to normal, right? We’re in a restrictive stance right now with the Fed funds rate well above the two year Treasury rate above the 10% year rate. So you want to start to move it lower to reflect what the bond market is already telling you, which is that you’ve had some slowdown in the economy. So start to bring rates down to what you would consider neutral. To be neutral can be debated, right? A lot of bright people can sit around and argue what neutral is, but it’s not for 25 to for 50. So we’ll start to lower rates to normalize the yield curve and look to re-accelerate economic activity from this period of, of moderating growth.
CAROLINE WOODS: So it doesn’t sound like it’s a rate cut that’s really going to drive this market higher and potentially not a trade deal with China. So if not those things, what is going to push this market higher or where is the market going from here I guess is the bigger question?
BRIAN LEVITT: The market I think the market’s going to continue to go higher. It’s going to continue to be in part an earnings story and earnings continue to look good I think continue to surpass people’s expectations. But I wouldn’t sleep on the rate cut. You know the Federal Reserve is going to be lowering rates, which helps smaller businesses, which have not participated as much in this rally. So small and mid-cap can start to participate. Deeper value can start to participate. So I would view the rate cut as helping to even further broaden what we’ve been seeing in this cycle.
CAROLINE WOODS: That was going to be my next question. Which areas of the market stand to benefit most from a Fed rate cut? So it sounds like this is going to be a value and small cap story is that in addition to a texture?
BRIAN LEVITT: Yeah in addition, I wouldn’t say it’s either or. I mean, these big tech names are going to continue to benefit. So long as we’re in this healthy backdrop and we have easier policy. What it does is it starts to it starts to broaden it out and also look beyond the borders of the United States. I know people don’t want to hear that, but lower rates when the ECB is no longer cutting and the Bank of Japan may have to raise rates, that narrows the rate differential, which means the dollar doesn’t rally the way it had, or maybe even continues to moderate. So stable the weaker dollar should start to unlock some of that value that continues to exist outside the United States.
CAROLINE WOODS: OK so dig into that a little bit more. Where should people be putting money to work right now?
BRIAN LEVITT: Yeah, I would say I think for the most part, if investors are sitting in big tech and are sitting in money markets, right? That’s been a very popular place to be on the income side, yields are going to come down on the short end, take advantage of the yields that are available to you as a fixed income. Yeah well I would say if you’re looking for income take available corporate bonds. On municipal bonds are still nice yields that people would have begged for six years ago on the equity side. Look, I don’t think we get rid of our big tech winners, but to the extent that we want to bring down the valuation of the portfolio and look to benefit from a re-acceleration of economic activity globally, that should be small and mid-cap and European stocks.
CAROLINE WOODS: What about commodities. Because we also have gold at all time highs, right? What does that tell you about investor sentiment. And would you put money to work in gold right now?
BRIAN LEVITT: I wouldn’t put money to work in gold right now. I’m more optimistic about the economy and what the central bank can accomplish here to want to pile into gold. Gold has done it very well for a long while here for a variety of reasons. One central bank buying. And that really started when the US froze Russian assets when they went into Ukraine. So the central bank buying and then, you know, people looking for a safe haven of sorts as there’s been political uncertainty in the world’s largest economy. And of course, that being the United States. So those two key trends, I don’t think that the US dollar is going away. We’ve seen treasuries catch quite a bit. So from my perspective, I’m not a big gold bug. If you are going to own a 3% to 5% can often do a lot in your portfolio, but I would rather continue to own equities and credit OK. So definitely still bullish. S&P is above 6600 right now year end. Where will it be. Let’s do a quick math. In my head, I think we could be close to 7,000.
CAROLINE WOODS: All right. We’ll leave it there Brian Levitt, always a pleasure. Thanks so much.
BRIAN LEVITT: My pleasure.
CAROLINE WOODS: That’s Brian Levitt, Global Market Strategist at Invesco.
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