[Carl Quintanilla] As she said, markets are higher on the last trading day of the month despite yesterday's losses. Dow and the S&P are still on pace to have their best months since January. The NASDAQ’s on pace for its fourth straight month of gains as investors continue to watch big tech after yesterday's sell-off. Let's bring in Liz Ann Sonders, Chief Investment Strategist over at Charles Schwab; Keith Lerner is Chief Market Strategist at SunTrust. Morning guys, good to see you both.
[Liz Ann Sonders] Hi Carl.
[Keith Lerner] How are you?
[Quintanilla] Liz Ann, let's try to game out what this headline and what Kayla's reporting may mean. Maybe delay some of these tariffs, get some back channel discussions warming up. What would that mean to the markets?
[Sonders] I think it would help but to Kayla's point about she needing to be involved for anything definitive to occur, I think, that would be probably the headline in advance of anything announced that probably would give some comfort to markets that there were--you know, that the highest level of players are actually having these conversations because I heard Larry's comments at the conference and what was a little bit disconcerting was the assertion that there really wasn't much in terms of formal negotiations going on and I think, the market had a little trouble with that.
[Quintanilla] We got the Mnuchin headline that we’re talking about, pretty good guidance out of hard core industrials like Eden & Cummins, and that’s drawing interest, even as we’re trying to see if the last few days of trouble for tech can come to an end.
[Lerner] Yeah, I think in general, this market has been extremely resilient and ending July up about 3%.And I think after the S&P being up nine years in a row, and having a big year last year, being up 5 or 6% this year is pretty good, especially in light of all of the headline risk that we’ve been talking about.
[Sara Eisen] So Liz Ann, I can’t get a straight answer on technology. Is this this opportunity of a lifetime, to buy some of these stocks on sale, or is there a complete rethink of this entire trade?
[Sonders] I think it’s too soon for any of us to know for sure. I would, I think it probably represents a consolidation phase, like this sector has gone through many times in this bull market. If you look at some of the technical, it’s not taking out some of the prior support levels. I don’t know that I would consider it the buying opportunity of a lifetime. I do think you are starting to see value players come into the market. Clearly not into the technology space, but you’ve seen pretty significant pick up by value over growth in the last few days. And because momentum broadly has been a characteristic that has been most rewarded, if that momentum shifts and finds it’s way into the more value-oriented places, it could take a little longer before tech finds that correction bottom.
[Eisen] Yeah, Keith, I mean Bob Pisani pointed out, we’ve had a few fake outs on that front before, in this bull market, where everyone says it’s finally time for value to shine over growth. And then the growth trade resumes, and those tech darlings are in demand. Is this time different? And are some of those tech stocks now looking like a good value, with Facebook trading at 23 times next year’s earnings?
[Lerner] I think again in context, even with this 5% correction in tech, it’s still tied for the best sector year-to-date. It also crowns the S&P since this bull market began. But I would say, short term I do agree with Liz Ann and it’s more likely to consolidate. I do think there’s going to be better areas of the market short term, to invest in. Whether that be financials, you talked about industrials earlier. If we have any positive news on the tariff side, I think there’s still an up side there. Energy’s acting great. Those are more value-type sectors. So I do think that some of this rotation we’ve seen recently is likely to continue, at least in the near term.
[Quintanilla] But Keith to you earlier point about being happy with 5% year-to-date, do you think the market is sort of tapped out here in terms of further gains for the year?
[Lerner] No, I don’t think we’re tapped out at all. I think it is a mid-term election year. It tends to be choppy. The fourth quarter is where we tend to see most of the gains. But in general, I think we’ve held in there really well. We’re looking at revenue growth this quarter of above 9%. That’s the best since 2011. So I think this rotation is actually healthy to kind of broaden out the market. And I think other parts of the market, like financials, like industrials, will pick up some of the slack from technology.
[Quintanilla] To his point Liz Anne, 99 days until the mid-terms. President tweeting a lot this morning about collusion not being a crime. Do you think mid-terms are going to affect the way we trade in the next three months?
[Sonders] I do think so. Now, what we don’t know yet is whether the 10% plus correction that we got concentrated in February was sufficient to be that mid-term corrective phase. The average mid-term draw down is 17%. That’s going back in the post-World War II period. It tends to be concentrated in the summer months. From the trough of those mid-term corrections, the subsequent one year return – not next calendar year, but from those troughs, whenever they occurred – is more than 30%. Now, the pattern doesn’t repeat itself perfectly of course, or this would be an easy trading game. I do think that there could be more volatility leading into the mid-term. And unless we’re completely rewriting history, to the extent that we got that and a bit more of a draw down, the chances that we get a lift once the uncertainly with regard to the mid-terms is past us, it wouldn’t surprise me.
[Quintanilla] Interesting. That's gonna add another layer of complexity to trading, if that, in fact does happen, after all that we've had to deal with all year long regarding trade and earnings and tax cuts and so forth. Liz Ann, Keith, we'll talk to you guys soon. Thanks again.
[Sonders] Thanks, Carl.
[Lerner] Great. Thanks, Carl.
“Courtesy of CNBC”
Keith Lerner, Investment Adviser Representative, SunTrust Advisory Services, Inc.
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