We Worry About U.S. Equities the Most: McCormick

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July 7 (Bloomberg) –- Barclays Global Head of Asset Allocation Jim McCormick discusses the British Pound, the U.S. markets, and what could possibly derail the U.K.’s recovery with Anna Edwards and Ryan Chilcote on Bloomberg Television’s “Countdown.” (Source: Bloomberg)

Head of asset allocation.

Let's start with the pound.

I showed up in this country and it was 2.10 to the dollar.

Every time we went back to the states, we got an extra suitcase.

It went down to the 1.30's. where do you see the pound going from here?

I think it will do generally well against most things eco-the bank of england will be the first major central bank to be raising rates.

Against the dollar, i would imagine we are probably about as far as we are going to go because the risk is that the fed is going to start needing to move rates as well.

What could trick the uk's economy up heading out to the rest of this year and into next?

Is it going to be something around the eurozone and the fight over deflation?

Is it the housing market in the you quake a -- in the u.k.? is it political risk?

There are still a lot of questions about exactly what happened in the u.k. concerns around, fundamentally, does this economy has a lot -- have a lot of momentum behind it?

The big risk is the need to recognize that the u.k. is a very interest-rate-sensitive economy.

If the rates go up, the impact could be quite significant.

Talk to us a little bit about the u.s. and where you see the market, in general, going be we are past 17,000 on the dow, to be exact.

Do you see that continuing?

Do you think that can be sustained?

I think the u.s. equity market is the market that we probably worry about most.

There are two reasons for it.

One is the valuations are beginning to get stretched.

I would not say it is exceptionally stretched, but we are getting there.

Our biggest concern for the second half of the year is that u.s. inflation is starting to go up.

U.s. rates probably need to go up and the market is not paying any attention.

Could we still have a positive return in the u.s. equity market the second half of the year?

Maybe, sure, but it is not going to be a particularly big one.

Do you think that the fed is behind the data, behind the reality of what is going on in the u.s. economy?

Should we be hearing some more hawkish thoughts from the fed?

It is a tricky word.

The truth is, inflation in the u.s. is picking up.

It seems to be a trend that will be sustained.

The fed is telling us we should not worry about it.

I think the worry is that the market seems to be of a view that the fed has already decided what is.

Even though they say it is dependent on the data.

They could easily say something more hawkish anytime in the next few months.

Suddenly, the entire sentiment started -- starts to change.

You mentioned that the market is punchy right now.

I'm -- i noticed that forward forecasts for earnings and p/e ratios go down a bit.

The valuations are only getting more -- i expected the valuations to only get more expensive.

That is not necessarily the case.

Does that mean we could have further to run?

I always worry about forward p/e because part of that is forecasts where earnings are going to be.

You look at adjusted p/e, 10 years of earnings that we already know, we are sitting at the highest level we have been at quite some time.

P/e is a tricky thing.

Certainly, forward p/e is not that bad, but that requires the forecast to be correct.

So a correction in the last 12 months -- in the next 12 months?

What if we are going to get a correction, we think it will most likely happen in u.s. equities.

We think equities are ok, but the u.s. is where we see those risks.

Jim mccormick stays with us.

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

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