Sethi: Why We're Still Bullish on U.S. Stocks

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July 14 (Bloomberg) -- Douglas C. Lane's Sarat Sethi and Morgan Stanley's Adam Parker discuss the outlook for U.S. stocks on "Street Smart." (Source: Bloomberg)

Well right now?

I'm definitely in the bullish camp.

Short-term we might see some volatility but longer-term we are still bullish for the next 18-24 months.

You will get a rebound of earnings and get better unemployment numbers.

If the fed starts raising rates, you might get a slight pullback but people will be more comfortable with the economy for the right reasons.

We actually start to see job growth, but can you really start to see additional momentum in this market?

Or are we just catching up?

Part of it feeds on itself as well because as people get more confident, capital spending starts to improve and employment wages come back.

You see growth coming in you can get hurt in areas that are hurt with rising interest rates.

You want to be poised or growth companies are areas where you can have topline growth.

Do you see the capital expenditures coming?

Consumer sure have been spending.

You're starting to see lending from banks to consumers as well.

It seems like the business spending -- it's too early to focus on industrials.

I think capital spending is improving but probably less than the consensus view.

You have to look for backlog from the companies, are they growing?

That is a sign that customers are getting more confident.

Are they getting lots of orders relative to what they just shipped?

Think the days of companies building inventory in advance of recovery are pretty much over.

Exile want to back up a little bit.

Bloomberg read an interesting story today saying that if you look at mutual funds, we have had about $100 billion come in over the past 12 months.

10 times that of the prior 12 month.

So it seems like retail investors are finally saying, are we in the fourth year of this rally?

They're finally coming in.

Does that concern you at all?

Is sit on the committee for the largest private wealth network in the world.

No big deal.

We met a call to go overweight equities and cash relative to bonds in march of 2013. i think the network is put he filled with equities.

What happens in the retail business is when markets rally, they chase it.

If you get strong performance for four or five years, people are feeling more comfortable.

There's that notion that they get in at the top.

I think he could last for some time.

Save the valuation might not be that compelling, but what else am i going to put my money in?

There is volatility in emerging markets.

I think he could last for a while.

I don't disagree with that.

Where is the retail investor putting their assets?

Are they putting it into yield seeking equities because they are looking for bond substitutions?

If you look at the retail investor, that's an area you have to be careful because that is where valuations will start getting stretched.

The first sign of any uneasiness, that's when they start selling out.

When the investor source getting comfortable, the retail investor, the institutional investor can have a longer-term view and say i'm looking to beat my benchmark over 3-5 years him i'm not going to chase these rallies right now.

I generally agree that if yields back up, it will create weakness in utility stocks.

I have been recommending people by over reads because it is a fundamental underpinning.

In the case of mlps, i think it is better than reits which are purely rate-sensitive.

It seems like we are reporting on new deals every single week.

All the m and activity, does that concern anyone?

Historically, it was frothy at the top of the cycle.

It's different from what we learned in school.

Globalization, always has that risk that you're adding capacity at the top and creating some sort of depreciation on her cost.

M and a is probably safer.

This is a time where management is looking for how to create shareholder value.

Do i question some of the deals?

Absolutely, but some are doing it for the right reason.

You can get bigger distribution it's a cost that way but at the end of the day, if they don't grow the top line, you will not see that.

I don't want to go on a tangent for him and day deals, but historically they don't work out well.

In the short to medium-term, they are a good deal for shareholders and management.

In the long-term, they are not a great deal.

If they are destroying value longer-term, you don't want to be there.

Activist shareholders like carl icahn, they don't ever get into companies and say we want you to start making multibillion-dollar acquisitions.

They say we want you to break up and sell.

It could have changed a little bit.

They underperformed for a while.

If you look at the last two years, you've had a lot of deals were the acquirers have outperformed.

I think it is emboldening management teams to say maybe we should do this and take advantage of tax rates.

We have a busy week ahead.

We have yellen and housing starts on thursday.

I'm more interested in earnings.

Earnings for the next two or three weeks will drive for the market is going to go.

You have a lot of background noise by yellen and we know potentially where that's going to go.

If we don't get companies talking about inventories and topline growth and the retail market, that's an area we are looking to see.

If we see softness there, you can see the market pullback.

I'm focused on corporate earnings also.

I know the estimates are probably a little too high for the second half of the year.

Can they guide a little bit down but still say conditions are improving?

We will be watching all those earnings very carefully.

Good to see you guys.

I will see you guys in a

This text has been automatically generated. It may not be 100% accurate.

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