Introduction
David Bianco, DWS Group Americas CIO, joins 'Squawk Box' to discuss the U.S. equity market, its impact on the Fed's inflation fight, where to find opportunities in today's market, and more. For access to live and exclusive video from CNBC subscribe to CNBC PRO: cnb.cx/2NGeIvi
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Content
This morning we're talking about results from cnbc's latest delivering Alpha investor survey brings together the market intelligence of the nation's leading institutional investors, top strategists in our own CNBC contributors, 61 percent of those polls said, we've entered a new bull market.
The other 39 said, we are currently in a bear Market rally for more let's, bring in David Bianco, DWS group, America's, CIO, David, great to have you with us.
Good morning.
Uh, what do you think where do you fall on that survey? Well, I'm still cautious I've been cautious all year.
But it does look like it's been a great start of the year looks like the equity Market's trying to start the fireworks.
Early it's, been a great half.
We might get to a year.
You know, highs for the year I think that will depend on the inflation report at 8 30.
But the Market's doing well, I would argue that the challenges are still ahead.
The FED has not landed This Plane.
It needs to point, the nose down more.
Because one of the things that's happening here is this wealth effect from the equity.
Market is keeping spending power strong.
And the equity Market is going to make the fed's job.
A lot more challenging the equity market and also the housing market.
Yeah, because prices remain fairly resilient here.
And so you got to wonder, I mean, if dronepal was looking for a reset in the housing market, he's, not getting it there and he's, not getting any help from the equity markets.
Either the data does not suggest that they're done hiking.
And the data would suggest that there's more than one hike probably to go, which we know, right, we know, there's, at least one I think that's two.
Most are in favor of at least two and I'm beginning in you know, some of the investors I speak to are beginning to seriously consider three and that there's hiking going on for the rest of the year.
Why? As you said, uh, housing was supposed to be very sensitive to interest rates.
New housing starts at least are still very strong.
Labor markets.
Rock, Solid economy is buoyant not growing robustly, but not recession.
Not yet.
And now you've got this Equity Market.
Let me make this point.
Uh, it's.
Not a valuation point.
It's.
A wealth effect point.
The U.S Equity Market is 160 percent of U.S GDP, 40 plus years ago.
The last time we had this kind of inflation problem.
It was not even 40 percent of the US GDP.
So the wealth effect out of equities is four times as much as it was back.
Then the FED has to keep an eye on this Equity Market as part of its navigation.
We we have a decent road map of where the FED is going to go in the sort of the side effects that that two hikes at least two hikes will have in long, you know, higher for longer will have.
And yet we are still at these valuations.
One could argue if you are able that we've taken all of that into into account and that we are still at these levels.
Yeah and markets are smart.
But the s p is 20 times this year's earnings, I don't, see a whole lot of upside to the about 220 dollars of earnings I'm estimating for this year, Tech sectors, 30 times earnings, a certain big big companies in the tech sector that traded for 15 times earnings over the past 15 20 years while delivering terrific growth, uh, they're at valuations that are 30 times that why are these valuations? So high when interest rates are presenting a very fair and solid alternative I think there's a lot of liquidity out there in the FED needs to do something about that has your view changed at all or do you think it will change if we see a continued steep, climb in a two-year yield.
Well that has been uh, not just an indication of where investors think the fed's going to go.
But you know, perhaps the least risky opportunity as an alternative short-term, treasury bills.
You can make well over five percent over the next year or two 18 months in treasury bills.
I think you would want to make three-time times or maybe four times that in the equity Market over the coming year to not take that riskless opportunity, I don't think the equity Market has a great second.
Half I think the challenges that we've been talking about for a long time are still with us to get out of the business.
If you think if you want to stay somewhere for two years for five percent a year, you can't do better than that.
You can't figure out something I didn't say that we can't, uh, you can't find a stock better than that.
My friend who's still in the business says, you you have a nightlight.
Did you sleep with a night light on I mean, you can't find an opportunity in the stock market that's going to give you better.
You put 10 grand and five percent you get you get 500 at the end of the year think about how difficult you got.
You don't need Bitcoin think about how difficult it is no Titans over the past year, several years and decade.
So that's, the nature of the equity Market.
Do you really believe that there's more valuation and super earnings, when you're done the fed's gonna be cutting rates.
So your five percenter is going to come due and you're going to be looking at three percent, maybe three and a half, uh and and I think the 10-year treasury yield might be.
Did you ever say, bye, bye, bye in the last year of the stock market daily, no not this year.
So we missed the rally.
Yes, when would you say now, you can't say, it I, don't think now would be a good time to chase, no, okay, but that doesn't help anyone that listens for the last year we prefer we we like healthcare, and we like big, Banks and insurance companies which are benefiting tremendously from this.
Now, many investors have refused to look at foreign stocks, both Europe and Japan that's, an alternative to issue about.
You could have bought the qqqs, I mean, don't, you wish you had bought a nap.
Well, we we we're 35.
We do own these things we are at this.
And we've been overweight those things most of the the past handful of years and longer year-to-date, underweight, portfolios, I, I, manage underweight, big cap, Tech, yeah, I'm crying, a little bit about it, but I wouldn't change the sectors that have lagged I mean, Financial I think they're down for the for the first half of the Year Health Care is up single digits for the first half of the year it's, not about what's going to do that myself.
We expect from here and it's been a great year for big cap Tech.
We did sing in June some other broadening of the year, but you would you would expect clients to listen to you.
Now, even though the last year was not a good idea, please listen to the the strength of the arguments.
And the arguments are evaluation does matter that the quarter will get you, uh that won't get you a cup of coffee.
But yeah, the strength of the arguments is that what you tell your clients sorry about that 35 percent all right, let's, see the inflation data at 8 30.
that will determine whether we do hit it very high for year to date, but I would be careful in the big cap, Tech space, look for some alternative.