Raymond James’ chief investment strategist Jeffrey Saut is a master of the astute, crisp soundbite—a big reason he’s a go-to guy for the news media. To wit, the morning after the United Kingdom voted to leave the European Union, he was a ubiquitous TV presence, opining about Brexit on CNN, CNBC, Fox News, Fox Business Network and Bloomberg Television.
Now, in an interview with ThinkAdvisor, the sought-after Saut provides his outlook on the securities markets and the economy, and he discusses specific sectors and stocks in which he sees big opportunities. He also weighs in on a Trump or Clinton presidency.
Saut’s is a bullish voice in a world of market fears and bearish sell-offs. The strategist maintains the present state is a secular bull market that could well continue for another seven years and that, as such, intermittent downturns are the norm.
Though he anticipates heightened market volatility, he backs up his upbeat forecast for stocks with expectations for strong corporate earnings. And he sees little chance of interest rates rising in the immediate future.
Here are highlights from the popular pundit’s ThinkAdvisor interview:
Question: What effect will a new U.S. president have on the markets and economy?
Answer: Historically, it doesn’t matter who gets elected, though it matters to individual industries—there are winners and losers. I wish both candidates would drop out because I think the vice presidential candidates are better than either one of them.
Answer: Hillary Clinton is a liar. I’ve had dinner with Bill Clinton twice in the past three years, and I’d vote for him in a heartbeat. But I don’t care for Hillary. Donald Trump scares the hell out of me. He seems to be talking more about policy now; but [earlier] his [rhetoric] was reckless: You don’t go around talking about nuking somebody.
Question: What do you think he’d do about the U.S. economy?
Answer: Even though he scares me to death, Trump would probably be more business-friendly than Clinton. He’d roll back some rules and regulations that have been so harmful to small- and medium-sized businesses.
Question: Where are the market and economy headed?
Answer: The equity markets are going higher from this point over the next three to seven years. Things will get better in the economy, and stocks will be higher at year-end than they are now and higher again at year-end 2017.
Question: So, then, your forecast for corporate earnings must be quite optimistic.
Answer: The equity markets are transitioning from an interest-rate-driven bull market to an earnings-driven bull market. Even though earnings are going to [show] the sixth quarter of negative comparisons, it will be quite apparent over the next 12 months that earnings will come out stronger than people think. We made a profit-cycle trough in the fourth quarter of last year.
Question: Where do you see the biggest opportunities in stocks for next year?
Answer: I like technology. It’s trading at a PEG ratio [price/earnings to growth] of about 1.4 times. Utilities are trading at a PEG ratio of 3.4 times. Now, if you think utilities are going to grow twice or three times as fast as technology, I’ve got some swampland in Florida I’d like to sell you!
Question: Any other sectors that you like?
Answer: Energy. We think the price of crude oil has bottomed at around $25 a barrel and that by year-end it’s going to be above $60. It will trade higher than that in 2017—we’re using a price deck of $83 by the end of next year. I continue to like mid-stream master limited partnerships—such as Genesis Energy—and downstream MLPs as well.
Question: What else do you find appealing?
Answer: Healthcare. Baby Boomers [and War Babies] are moving into their 60s, 70s and 80s. This is a demographic that really puts a tailwind at healthcare’s back. You could pick a Johnson & Johnson, but some of the smaller, faster growing names like Dexcom make a lot of sense to me. Dexcom makes the best wireless glucose blood-monitoring system on the planet, and they’re growing at 40% a year.
Question: Any other sectors that you like?
Answer: Industrials make sense. Financials look cheap, like, JP Morgan, and some of the smaller-tiered banks such as the old community banks, which we think are eventually going to get acquired. We’ll probably go from 7,000 to 4,000 banks over the next 10 years because costly bank regulations make it almost impossible for small-tiered banks to exist.
Question: Do you generally prefer small cap to large cap stocks?
Answer: I like small caps and mid-caps. They tend to grow faster than large caps.
Question: What sectors do you not like?
Answer: “Safety” sectors, or “chicken trades,” such as consumer staples and utilities. A lot of people haven’t believed the rally and are nervous, so they buy alleged safety stocks.
Question: What’s your take, then, on the current market?
Answer: We’re in a secular bull market. They tend to last 14 or 15 years. We’re almost eight years into this one, so we ought to have another six or seven years left in it. Are there pull-backs and draw-downs? You bet. But I don’t consider a 20% decline or a 20% rally a bear or a bull market. That’s all in the context of a secular bull market.
Question: What’s the biggest threat to the markets right now and going into 2017?
Answer: If interest rates were to go up a lot faster than I think, that would be a threat. A policy mistake out of the D.C. Beltway. A black swan event, which nobody can predict—like a nuclear incident with North Korea or Israel bombing Iraq or Iran. You name it.
Question: You’re not anticipating interest rates rising anytime soon?
Answer: I don’t think the Fed will make the mistake it did in 2006, when it raised funds’ rates 17 straight times. Janet Yellen [Federal Reserve chair] isn’t going to do that. I think she’s a one-term Fed head and that she’s done. She ended the taper. She raised interest rates once. She avoided a double-dip recession. She’s going to start working off the $4.5 trillion balance sheet the Fed has. I think she’s already started to manage her one-term legacy.
Question: Do you identify bubbles anywhere?
Answer: I think the bubble is in sovereign debt. If you put a P/E ratio on the 10-year debt in our country, it’s north of 50 times earnings. We’ve made a low-water mark in interest rates and, I think, very, very slowly they’re headed higher.
Question: What’s your forecast for the bond market, then?
Answer: I don’t have a whole lot of interest in fixed income. In fact, I have zero interest in it. Over the longer cycle—the next three to five years—interest rates are going to be substantially higher than they are right now.
Question: And what about inflation?
Answer: Inflation is coming back. But I certainly don’t think it’s going to be to the degree it was in the 1970s or early 1980s. However, you can’t find a system in the history of the world that has had this much cash thrown into it and not have inflation come out the other side.
Question: Do you expect the market to be volatile for the balance of the year?
Answer: Historically, long periods of low volatility have always been followed by periods of higher volatility; and we’re probably going into a higher phase now because we’ve had a low-vol phase for a long time [with some exceptions].
Question: What about GDP growth?
Answer: I think the GDP troughed recently and is going to get stronger going forward.
Question: What about the direction of the U.S. dollar?
Answer: The dollar goes lower. I’ve been saying that the dollar has been topping for about 14 months, and I’m sticking with that.
Question: What are your thoughts about China?
Answer: I’ve been in a running argument with the China bears in this country for seven years. I don’t think that China will implode.
Question: How about emerging markets that aren’t as developed as China?
Answer: If your time horizon is long enough—since near-term volatility is pretty intense—emerging markets over the next three to five years are going to treat you just fine.
Question: What’s the impact of Brexit on U.S. markets?
Answer: It’s a non-event. But if Italy votes to pull out of the EU, that’s going to be a big deal because Italy is the gorilla in the room. [In contrast, the U.K.] never wholeheartedly embraced the EU.
Question: Raymond James has just completed its acquisition of Alex. Brown, which was America’s first investment bank, and rebranded it a division for sophisticated investors and institutions.
Answer: Right. Alex. Brown was a really nice white-shoe investment bank.
Question: Isn’t that still its image?
Answer: Yes, but they don’t have investment banking or a research department anymore. Basically, we bought 182 high-net-worth advisors.
— Related on ThinkAdvisor: