Is there a misprice in the market half ha the Halftime Report begins right now. Welcome, our Investment Team at the table today kourtney gibsons back, the president of loop capital markets. Also with us, the head of u. S. Equity strategies as jpmorgan. We begin where we usually do, the markets. Stocks looking to build on their gains in june. So much riding on whether the fed will cut Interest Rates or in the very least attempt to signal in their next meeting next week. Steve weiss, 2 from highs on the s p. Can we get there without a rate cut or signal that one is coming absolutely we can get there the market is trending up. The down days werent really down they were sort of nonevents. Up days had been much more significant. The market just wants to go higher, thats the bottom line look, it all comes down to trade. Thats the only thing that will matter as long as you get any breath about the market being positive, as the president last night, hey, i have no deadline for tariffs, the market responds positively. Matter more than the fed . Without a doubt. You want to debate that on the table . No, absolutely not but hes correct in the sense you have this june 20th meeting so theres a lot of volatility thats sitting in front of us over the next week however, i think when you look longer term, i think trade is an issue that stays with us through the 2020 election and if the market doesnt get its federate cut, i think the market has a temper tantrum if it gets its federate cut, stocks go higher. To answer your question in terms of the events i have, which is a fed meeting next week and china coming shortly after that g20, the more important event is trade longer term, of course, the fed is much more powerful and they can overcome perhaps some of the trade deficit but otherwise its your turn, china. You have 3,000 on your s p, right . What does the market need more, trade deal or rate cut i would agree we need more of a trade deal or at least reduction of noise on the trade side i think the reason why expectations have fallen so much and dovish look from the fed is economic data, which is trade related. I think if we get a breather on the trade side, all assets breathe easily. So the j. P. Strategists who had the ability in the past to make markets move. He says a deal on trade translates into a quick 5 in the broad markets and 10 to 20 rally in value stocks. I fully agree we think value is basically sitting in the session territory. When you look at the discount in which value stocks are trading are in line if not bigger than late 1990s when we had the big growth bubble. If you have sentiment around trade or a fed cut, i think you can get a short squeeze. Were calling this a tactical trade. We dont want to see outperforming value for many years you think short term tactically value can give you a pop in the short term . Or if youre an investor that can only invest in value stocks, obviously jpmorgan have investors that only be in shortterm value at this point they are in recession territory so if you have High Conviction in certain value names, this is the time you want to be scooping them up for sure especially if you happen to be Small Cap Value manager, Large Cap Value manager. This is the time if youre a pension fund you should put money to those buy to ultimately buy the bottom, if there is such a thing. Youre the value guy. Does that make sense to you it sounded like before the show, debravo, you were saying 20 value was the word. Thats absolutely correct not just trading at the levels it was trading in december when the market was down almost 20 or more but many cases trading low. I know you focus more on the technical than quant side but the fundamentals make sense. Its not Rocket Science if you get a trade deal, animal spirits return to the overall economy. You get a pickup in basic material demand, you should see pricing go higher, mining at Metal Companies go higher. Same thing with energy we will get to that later but we should see the same thing for oil and gas demand go up with that and finally talking about the major sectors of value, you should see some sort of rise in tenyear bonds and longerdated bonds that should show a steep and benefit financials i covered three sectors of the value area that fundamentally should perform well in a trade deal. Doc, where do you stand on this market right now . Are we all overly reliant on the fed i keep saying this coming to the rescue it seems to be what this is all about in june. Were likely just to get jawboning by the fed universally around the table we would say that i am one of the folks in the camp saying the past two months we will get a july rate cut. I still believe 25 basis points, not the 50 some folks have called out there i think that will be something that potentially drives us in july as far as the jawboning, is it enough to take us to a new high here i think in many cases the market was oversold so severely and so quickly on that one week period that we came back just as quickly. Unless you think now were overbought on the hopes of a rate cut or more than one. Do you what is your expectation for the feds i see two cuts in the second half, september and december. There you go. Nothing in july wow. Lets see how the job numbers come out next time around. If the house view with jpmorgan is right and theres no cut in july, do you think the market will hold in on that . Also depends on what happens at the g20 if you get a blowup and things diverge, then absolutely theres downside but if you see improvement and the fed is signaling they are paying attention, looking at the data quite closely, i think the market can hold up, especially given the position it is not that high. Can i give you an example of value versus growth. The stock tab loo, which i sold because growth was slowing, barely went for 19 . This is telling 19 times sales you and i were talking only one time sales guess who had a number come out ratifying guidance, uai. That is apples to bananas here and im not trying to make fun of you you know better to equate price of retails to a tech company. Im just saying in divergence of the two, uai should not be that cheap salesforce that i bought on decline have been up so high because it allowed them to use their currency. I think we should talk about this, the flip side of value versus growth is there are headwinds for growth im not saying just valuation thing. Particularly in f. A. N. G. Land you can slow down growth and increase expenses going forward. I dont know if that actually happens. Theres a debate on it. There is. I believe there are regulatory situations and different components of f. A. N. G. Vary widely as well. You have the netflix issues comparing whatever will happen with disney. But when you think about the facebooks and googles of the world i believe their compliance and regulatory costs will likely go up. But lets think about where are the advertisers going to go . If youre thinking about the fundamentals of the name, i dont believe there are other names out there that realistically when you think about facebook that are going to compete ultimately your close your eyes and hold on tight. Thats why those stocks are where they are looking yesterday, facebook down initially 2 on this news that zuckerbergs emails may have shown he knew about some of the privacy issues stock goes down just 2 and now its back to where it was because as doc and pete said a couple days ago at the New York Stock Exchange when we were there, its all in the stock the negativity is all in. But for all of these up and downs because of what kourtey said, you have a duopoly where are they going to go amazons been stuck for quite some time and your point is well made but heres the flip side the older i get, the more i try to simplify things if you have the doj and ftc trading their guns and theyre big guns, battle ship guns, you have to Pay Attention to that. Im not saying youre wrong. You have to Pay Attention. Im pointing to the expense side and saying thats real. Theyre paying attention and theyre respecting it. Lets be clear. That is on the expense side, however, that will be in the rearview and then we will get back and talk about no, thats a mistake. Are you saying facebook is adjustable then . No, im not saying that what im saying is i will start from the top again, value growth no, please dont. This is where it started. This is the context of value versus growth. Growth has some head winds. But growth with facebook to go back again you get the rise in expenses and im going to look at all of the opportunities particularly in that name. You talk about you getting older and simplification, as a millennial and looking at this marketplace, facebook, instagram, whatsapp, i can go down the list and the potential opportunities to sell to an advertiser why they should be spending money are unbelievable. The other issue is well see the regulation perhaps that we saw with the banks the big banks could afford to deal with the regulations. And they got bigger the smaler ones couldnt afford to deal with it could companies that dont make any money, smaller competitors that go out of business every day, targeted advertising, i pitched so many of those deals and i dont think any of them are still in business a year later. Who can deal with that alphabet and facebook. You look at the f. A. N. G. Complex looking at value growth, i would say f. A. N. G. Is somewhere between almost like a garp its valuation in line with the market valuation is nowhere where it used to be a few years ago. More value players owning facebook than home growth. How many are concerned the doj and ftc, all seven of us the money is there. [ all talking at once my point is so youre rightly concerned. So what are you telling people to do about it, not buy these stocks no, i own some google and i own some apples. These are not overweights for me i dont look at them right now and say this is where i have to put money right now. Last week we went through some names where i said we should put money and were too early one week in to go back to those names. But i made it very clear when i speak where i would put money. I dont have a burning desire to go right into the line of fire of the ftc and doj thats my point. If other people see more of the positive, the glass is half full, thats fine. I have thrown cold water on the high beta trade too. I get where youre coming from. Im not saying its uninvestable. I agree with you. I own apple and alphabet and i said yesterday im not buying anymore because the headlines keep coming and coming. And youre not going so them, which is key its a whole close your eyes, take your alkaseltzer, whatever you have to take and move on. Let move on ourselves to the next topic and that is what i think is an interesting call by brian belsky, friend of ours, takes his earnings estimates down to 165 from 174 he says the second half is going to be a grind more than likely but hes confident, as well as due brov cois, in the same number if were taking expectations down are we overly optimistic where the stock market itself can go you need overexpansion where is it going to come from rates have come down massively. If you look at the fed model, theyre quite attractive total equity yield or bond level but dividend plus buyback yield versus bond yield, you have a case for equities. Second half i think challenging earnings might grow 2 , 3 , 4 if youre lucky and thats priced in. I think the big question 2020, what do we get there i think were looking at 5 , 6 Earnings Growth if trade doesnt escalate it. Im throw this out there, how can it be as a collective group of investors or whatever so positive where a market can go from here at a time earnings are still not that great were celebrating a depressed earnings picture, right . Relatively. Earnings are okay. Well, but its relative to where it was last year last year was a fantastic year for earnings so were looking at it on a yearonyear basis yes, theres a deceleration in earnings thats clear. A dramatic one. Were not talking about one little half step backwards. Yep. Were talking about a dramatic decline in earnings. But again i think a lot of the earnings conversation is tethered to whats the outcome as it relates to the trade squabble and i think thats thats where the absence of visibility doesnt give you the trend. Talking about 3000 for the s p, thats not wildly bullish thats basically where it is so im not wildly bullish. To me it all depends on china, pure and simple. That will drive the Earnings Growth you get a relief there, and nice relief rally and the market wants to go up. I think it does as you point out, where are you going to go . 2 ten year, negative rates around the world it makes the equity risk premium look more attractive. Let me bring this other thing into the conversation and that is this new memo by howard marx. Oak trees howard marx this time its different he takes on that idea, and i wonder if were hearing a lot of that overarching theme that a lot of people are putting forth to justify where the market is s this time its different, they say. He says for that to be true, all of these things have to be right. There doesnt have to be a recession, continuous quantitative easing can lead to permanent prosperity, debt doesnt matter, strength without inverted yield curve does not have negative implications he says the bottom line is for any of those to be true, things have to be different this time. Things are different this time. They are different . I used to disagree and say its never any different when i had a manager come on me and spun this time its different, i would say done, see you later, its never any different. Why because the play books not written yet. We never had rates this low. We never had such a large percentage of sovereign debt negative by the way, he points out recessions, i would say the last 300 recessions were indicative by negative yield curve. Its only 50 50. But every session has an inverted yield curve. True, true. But not every inverted yield curve led to recession when you take a look, you never had negative rates on a tenyear in germany, japan or anywhere else to get you to negative yield curve. Thats why its negative. Even if it stays that way, thats going to be fine . Were just going to be accepting of it and say thats okay, rates are low all over the world, its depressed rates here and everywhere else and thats just fine it will lead to what howard marks says this permanent prosperity idea. Lets also not forget when you look at the Global Equity markets, not all markets globally are close to highs. Its really only the u. S. 50 , 60 internationally, theyre in different territories. A lot of the stocks in the s p, by the way, and theres a good point who says we need a brutal bear market like 2008 to be a recession . We came close last year that felt like a bear market. Earlier in the year we had a correction maybe instead of a gutwrenching tearyourface off bear market we have a couple recessions and muddle threw it. Thats not inconceivable its different. He also takes on the idea of what he calls profitless success. Companies like uber and lyft and willingness to pay high prices for the profitability downthe road companies that have better technology, earning prospects and ability to be disrupters rather than disruptive still are not worthy of infinity thus its possible to become overpriced and dangerous another ipo today. Every day. I hope they ensured amazon in 2000 based on that theory. For every Amazon Amazon theres a the sidewalk is littered with roadkill. There are always excesses in every markets. This is not 1999 or 2000 where the excesses are ubiquitous everywhere. All you have to do is look at uber and look at lyft. To howard marks point these are two stocks that dont make money. Might be years and years before either of them do, if and when they do make money maybe with Autonomous Vehicles and renting debrav cos card. But being given with what you said, is literally know idea when they will be profitable. But thats a thimbleful of market cap, thimble full compared to everybody else i can select those two and say heres two examples to howards point unless you say theyre emblematic of the bigger problem. Theyre not emblematic though i dont think. I think they got exactly what they deserved too. Neither one is ubers close to its ipo price but neither one came out smoking lyft had that pop only on the ipo squeeze and then it was over uber never really got its pop, in fact struggled to hold 40 most of the time its been a public company. And they blame the trade issues rather than their own fundamentals. Isnt that funny . Said last week or earlier this week. And theyre not even in china. For them to blame the market conditions, the market condition was just as cuban told you, scott, they waited too damn long to come out. And when they came out, they came out at such a rich valuation, they couldnt fill that thing at 60 billion valuation. When they came around to all of us looking to whos the greater fool that will pay 60, they couldnt get it. Talking about uber, of course. They were calling widows and orphans to try to get that thing at 60. And then they bring it out over in a triple digit and wonder why the thing just lays there when its burning cash like this . I mean its not those are two really small market caps relative to the market. Im just saying beyond meat goes up 600 in the blink of an eye. Right. Theres more than beyond meat in terms of ipos that have been successful. You can look at zoom. And i will go on the record and in full disclosure i hold it uber and lyft are very different. I own uber and will continue to own uber i couldnt buy the ipo because we were on the deal but ult m t ultimately i did buy that name and facebook and everyone else was up in arms, but uber is a gamechanger i fundamentally believe you talk about ride hailing this time its different. I dont care if youre a 70yearold grandmother or 12yearold. When youre talking about a ridehailing company, you say uber even if youre taking lyft. Like amazon, brought up amazon yourself youre arguing against yourself. Uber has im not arguing against myself it does not play. It doesnt when they go to autonomous driving vehicles, you know how much capital theyre going to absorb talk about the other avenues and other ways i feel like a buffer here taking heat from both sides. This notion of debrav cowhat mark said is profitless success, you dont look at any of the perceived excesses in any of that as a warning sign we should have looked back on said we should have paid more attention to that . Along with the list of nine things he said are being overly justified to say the rally deserves to be, where the stock market deserves to be . Two things, i fully agree there are some successes but for the most part theyre contained. We live in a world where access to capital is easy and very cheap. Absolutely. And when you talk abo