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Should investors be overweight US equities? - YouTube
Channel: Fox Business
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Federal Reserve is in focus this morning
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we are awaiting the release of the Fed
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minutes we are looking for insight on
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the central bank's decision to keeps
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rate rates steady and also what the Fed
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is thinking when it comes to winding
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down the four plus trillion dollar
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balance sheet joining us right now is
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Merrill Lynch and us trust vice-chairman
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and head of investment Solutions Group
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Keith banks Keith it's great to see this
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morning to see how important is the
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Federal Reserve news today and what are
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you expecting we'll hear I'm not sure
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today is going to be overly insightful I
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think what happened literally was the
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Fed was spending too much time arguably
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worried about wage inflation and what
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that would do in terms of driving
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overall inflation and I think what we've
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seen is they've since reconsidered that
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as you said in your in your intro Marya
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the the big pivot was one of them was
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the one of the major catalyst for why
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the market went from where it was in
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December to where it is today up eleven
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point two three percent but we're
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wondering how slow the economy really is
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earlier we had Gerry Stewart Ron who
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used to be the CEO of Toys R Us and he
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said don't believe that retail sales
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number last week actually the economy is
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running pretty strongly and so does that
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threaten this whole pivot idea well you
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know I we agree the economy is healthy
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we think you're gonna get you know
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between two to two and a half percent
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real growth this year in the economy but
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we don't think that level of growth is
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going to take inflation to a level that
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will concern the Fed so we think
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inflation will stay below their you know
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their objective of 2% I think it's
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around 1.7 1.8 percent now if you look
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at the PCE deflator so we need to see
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the economy healthy to justify the
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earnings growth expectations that are in
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the market right now and I think the Fed
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as they said they'll watch the data
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they'll be patient and we'll see how the
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year plays out Keith I'm glad you're
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bringing this inflation point up because
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we're seeing it a little bit in the
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average hourly earnings but the problem
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I think with the Fed is the asset
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inflation and they've talked about this
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numerous times are talking about asset
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inflation impossible bubbles do you
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think that's what could make the Fed
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move in the second half of this year to
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raise rates as they've indicated now
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it's it's a good point I think if if we
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see the markets continue to move our own
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forecast and from our CIO office as well
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as
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Bank of America Merrill Lynch research
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is we can move towards 2,900 toward the
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end of this year on the SP if the
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markets continue to do well and we get
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two and a half percent growth will the
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Fed kind of sit down again and say is it
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time to move further toward
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normalization possibly I'm not sure at
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that point in time that will be a real
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big negative for the markets if earnings
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are coming through if it looks like
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we're gonna get a reasonable 2020 which
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we think we will so there's as you know
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there's a lot of ingredients that go
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into the cake and I think you just have
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to sort them all out to figure out what
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the implications of any one move might
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be Keith how about the unwanted the
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balance sheet right now it's about fifty
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billion it's automatic at 50 billion a
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month and we're hoping that we see
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something in two minutes that get sheds
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light on whether or not thinking to
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reverse that if they do slow down that
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pace you think that changes the dynamic
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in the capital markets at all I don't
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think so I think what the the capital
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markets wanted to hear and see it does
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not on autopilot that they have the
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ability depending on what the data tells
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them to slow that down I think the
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initial thought was we're doing four
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rate hikes and oh by the way the balance
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sheet unwinds on autopilot so there you
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go I think you know and a lot of people
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believe and I think where you may have
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said it that the the endgame is three
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point five trillion to three point seven
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you can get there by the end of this
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year in a very natural way so I don't
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think people are going to be overly
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wound up unless they indicate for some
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reason they feel need to accelerate that
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which I don't we don't see so how do you
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want to allocate capital right now we
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are still overweight equities we made
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some shift last month we reduced our
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exposure to developed international
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markets just because Europe has got
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issues right now so we're overweight the
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u.s. or overweight large cap still very
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diversified and you know our feeling is
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that as as the economy demonstrates it
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will grow in that two to two-and-a-half
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percent and you see earnings following
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the equity markets will outperform fixed
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income but stay with high quality we
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like large capitalization stocks we like
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companies that have cash have cash flow
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little debt and pricing power because I
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think as you get further into the cycle
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by mid-year this year with this this
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expansion will be the law
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in history will eclipse the 1991 to 2001
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so you just want to be cognizant that
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although we do think this can go on for
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a while interesting stuff you know
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Europe they're talking about 1% growth
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for the economy of Europe you're right
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about that B Germany marginally that
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would be out of a recession it was like
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point three exactly okay it's great to
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have you on the program thank you thanks
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so much Keith banks joining us there
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