Let's start with the jobs.
There's a lot of data this week. Let's start with the jobs numbers.
What did they tell you? What did they tell us about where we are
on the economy? It was a really big week and that was a
very powerful segment from Larry Summers and difficult to follow.
The jobs report was one of the indicators that we got
during the week that the economy is slowing, but it's still a healthy
economy. Employment is still strong, the
employment market is still tight. But the Fed should get a little bit of
help from a slowing economy. That said, I very much agree with what
Larry said regarding the third. Many other things that the Fed shouldn't
take this slowing for granted does mean that
inflation is going to keep working its way down.
They need to keep an eye on this risk because the risk of inflation staying
above their 2% target is still very much with us.
But the good news this week was relief in the bond market.
We saw yields across the curve come down, especially toward the end of the
week and that rally in fixed income rally and equity markets upon that very
lower and lower yield environment. What we saw is that may follow the tough
April April showers brought in some May flowers early in the month because it's
early in the month. So talk to us about growth.
You said it's a slowing economy. We heard Chair Jay Powell this week say
he doesn't see stagflation. Doesn't see the stag.
Doesn't see the inflation. Are you at all concerned about really
slowing growth to such a degree that should be worried about the economy?
I'm not worried about the economy yet. I would have to really see the jobs
growth number fall below 100,000 before we really started getting worried about
jobs. And the economy is very resilient
because it's a service oriented economy and we already went through a good
amount of inventory, liquidation and correction already.
And that often is a cause of at least small recession.
So a lot of risks there always tell risks.
But this economy, I think, has a real safe distance away from a recession.
And because of that, I think the Fed should stay focused on making sure
inflation keeps on working its way down to target.
But things have slowed down. I would say US GDP growth is still under
two, probably a little bit above a 2% trend, and that's healthy.
But inflation relative to that growth rate is still too high.
Earnings this season were another encouraging part of the
week. Really good news out of most tech
companies. Not bad news, but not as good as hoped
out of the non-tech. We'll talk about that specifically.
We've had such a bad vacation in the S&P 500 in the stock market generally on
that. What about earnings for the top guys,
the big tech, I suppose the rest, how do they compare?
Well, the biggest or what I call the grade eight, which would cut across big
cap tech and communications stocks and a couple consumer discretionary companies.
These great eight companies continue to lead the market upward and their
earnings growth will be over 50% on a year on year basis, whereas the other
492 companies of the S&P only about 2% earnings growth year on year.
So it's it's a bifurcated market. We're hearing a bunch of consumer
oriented companies, staples, retailers, fast food companies saying they're
seeing a slowdown. Nothing falling off a cliff, but slow
down and their customers are more price conscious.
What does that all tell the Fed? You heard Larry say there is certainly a
lot less cuts we're expecting than we did at the beginning of the year.
Do you expect any this year? Well, like I said, this was a week where
particularly the jobs report, but some other
service is a manufacturing ism type of report, says that the economy is still
slower manufacturing and slowing. On the service side, there's hopes for a
September cut. I don't think that be prudent.
I think it's better they wait until after the election December and just do
some real slow cutting next year. So give us some investment advice here.
Help us make some money. What are you particularly interested in
right now? I mean, it sounds like the big eight
sounds still pretty attractive. That's where the growth is, but that's
where they're extremely demanding valuations are.
What I'm doing is that, one, I do think the equity market is I think it could be
stormy the summer before the elections. So keep some dry powder.
I like financials and they've been doing well.
And part of that's because interest rates are still quite high.
There is risk they go higher longer term yields.
Banks make good money when employment strong, the economy is fine and interest
rates are high. And I a sector that I like.
Despite interest rates being high utilities, we see very effectively full
capacity utilization. So explain how that works, how I see
utilities particularly attractive right now.
It's finally after many, many years of no growth and shrinking demand for for
electricity in the United States. So many things have converged, whether
it be the data centers where there's rapid growth, electric vehicles,
cryptocurrency mining. Finally, we have in this digital
economy, which is the strong part of the economy, we've got we've got a lot of
electricity demand. You got a feed I air fed with
electricity. One last thought.
If you. On the consumer.
It's driven so much. Is it going to hold up?
Yes, the consumer is going to hold up. But this higher first has been a splurge
on consumer spending and kind of the reopening of the economy.
But the higher interest rates are definitely affecting a certain part of
the economy. And we're seeing continued slowness in
durable goods consumption, cars, the financing costs, or buying into people's
willingness to buy now. But service side will hold up.
The economy will hold up.
