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New Constructs CEO David Trainer and Stifel Nicolaus Managing Director David Lutz on the outlook for the markets and how it will impact investors’ p...
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I both stocks landing in the red today as fears we told you medical's over Europe spooks investors so are we headed for another recession was it.
Time for a rally.
-- first street but I'll tell you about.
It's -- David lots of managing director at Stifel Nicolaus and for the bears.
We've got David trainer CEO of new constructs I've always gone with the -- let me start of there right now David trader.
Your perspective you know stocks fell today was an ugly -- but guess what they came back there was.
Some bottom feeding at that point people toward running around and saying maybe there's some opportunities here isn't that in and of itself a sign that people are too terrified.
It has I think you make a very good point people Rick recognize now that they've got to be selective about stocks.
The easy momentum growth story game it's over.
It's time -- -- roll their sleeves and be selective and that means there's a lot of excess in my opinion in the market that's got to come out so.
I think the Fed you know the -- with a string when it comes to growth and there -- disaster insurance but.
Overall they're very few good companies out there that's for the money is gonna -- got to be selective.
Let's go to the bowl and -- David David lucky obviously you expect stocks to rally at the end of the year but.
Got to tell you the guidance keeps getting revised lower and lower I Europe isn't going anywhere -- worrying about China.
What do you base load -- thinking on.
Well I'll tell you I mean today it was a great example we know about Spain's issues we knew that the -- had some issues we Greece and are arriving in happens tomorrow we don't anticipate great headlines coming out the next couple -- days.
Also we get GDP and multiple PMI numbers this week and none of this is gonna be great the problem is is that that's already baked into the market the market as well -- in the earnings growth is down.
Well aware of the concerns over there and there are some factors that we really need to look at the market -- absorbing lower earnings rather well -- party had 25% of the S&P report.
With most sectors led by financials beating a lower earnings far.
One other factor really pay attention to is a yield differential between the S&P and the ten year yield.
The SMP is now yielding almost 1% more than the ten year yield that's causing a lot of yield seekers -- -- -- equities finally we're getting sentiment indicators like retail AI eyes surveys and asset -- Peter surveys.
Very very bearish that's -- Contra indicator.
Alternately we think the combination of a Central Bank response and all so we're looking at the election in November removing a lot of uncertainty overhang.
Could certainly -- the SMP towards -- 16100 towards the end of the air.
OK so that let me go back to David trader then.
Not David let's make such an important point to that there are a lot of yield seekers were finally saying I'm done being scared sitting on the sidelines forget it.
At least -- -- I I pick out C drill because we have a lot of people picking that.
A year ago.
But could you it was unbelievable what I last I checked it was 78%.
And this is -- that's a four bucks off it's 52 week high ticker symbol SD RL.
And I would criticize simple what -- rather be in equities and and if I'm hearing you correctly David trainer you're saying okay -- and equities just be really really cautious.
What are you picking.
-- -- That's exactly right we'd like a lot of technology.
It's it's a lot of different names but they're all super high quality names in terms of return on invested capital mrs.
after scrubbing through the fine print in the footnotes and management discussion and analysis where a lot of good data goes to high.
You've -- on unwind a lot of funny pension accounting.
Companies are pulling out all the tricks these days to try and make their numbers look as good as possible.
So you've got to really be careful with -- the names we like a one you mentioned earlier like Microsoft a super strong business model low expectations.
Exxon -- of the company we like.
Several others and they all shared the same characteristics.
Very high returns on invested capital.
With expectations -- -- their stock price at a very low so is this is David my counterparty years mentioned.
You know expectations need to be low for -- to be in the stock but yet to be careful.
If the stock is not as profit where the company's not -- -- -- it may appear to be those expectations in the stock price might be a lot higher than they may appear on the surface.
Alright David let's see your turn what do you say to that and where you advising clients put money.
Well tell you need to look at the momentum on the market I mean you know about it so far bad news is being reacted as good news so far as you know as far as QE is concerned.
-- what we're looking at right now as the rotation from agriculture back in the metals and energy complex -- agriculture spent on an absolute terror lately we've had corn and soy surging anywhere from thirty to 50%.
In the last five weeks and a lot of that momentum has come out of the metal Agricole M metal and energy complex so there's a few things I would look at telling first of all with the refiners.
You know there are increasing their margins significantly because west Texas is trading at such a discount to Brent.
So a name like Valero PLO or even a name like currently court -- acts which is a barge operator that can capture the trend of these wider crack spreads and this movement of oil going overseas.
To be refined look at coal stocks Nat gas is breaking out it's breaking back above its 200 day moving average.
But look at the KO LE TF the -- ETF.
It's right in the -- 52 week lows we have a lot of coal earnings coming out this week which could leave some of the irritation.
I'm sorry some of the the issues that we fat as far as credit quality in that sector.
But look -- the agriculture sector itself I'd be very cautious about chasing quarter -- with the move that it's had in the last couple of weeks and I see a quick reversal out of these areas.
One thing that we're looking at -- fertilizer plays and right now the difference between where corn is trading at word name like potash is trading right now is nearing all time why can't let me -- Certainly an interesting trip that we got to go but call it new you like -- here KO well.
To be clear.
I would certainly I would certainly satellite -- -- we're just because among -- -- gas and I'd be short corn.
And I'd be long fertilizer names on that spread out to hang on long fertilizer we can remember that -- given David the street battle David -- and David trainer thank you so much -- thing guys will put your picks up on the day you.
