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00:00LOOKING AT ALL THIS, I WANT TO BRING UP A CHART FROM OUR GTV LIBRARY. IT LOOKS REALLY OBVIOUS IN MANY REGARDS, BUT I AM GOING TO GO THROUGH THIS WITH THE AUDIENCE. WE HAVE THE S & P 500 IN TURQUOISE AND THE GOLDMAN SACHS BULL BEAR MARKET IN DECATUR, WHICH IS FLASHING RED. SUGGESTING WE ARE DUE FOR A CORRECTION. THIS HAS REACHED ELEVATED LEVELS. SOMETHING HAS GOT TO GIVE. WE PROBABLY DO NEED A GUT CHECK. MICHAEL: WE SEEM FAIRLY HEALTHY AT THIS POINT. WHAT YOU SEE IS MOVING FORWARD POST ANY CORRECTION, THE DIRECTION OF EARNINGS, IN THE BALANCE OF THE YEAR IS STILL POSITIVE. WE WILL LIKELY LEVEL LOFT IN 2019 BECAUSE YEAR-OVER-YEAR COPS BECOME MORE DIFFICULT. THERE IS A 94% CORRELATION BETWEEN THE DIRECTION OF EARNINGS AND OVERALL EQUITY MARKETS. WE ARE RECENTLY CONSTRUCTIVE. IT DOES NOT MEAN THAT RETURNS WILL CONTINUE AT THE SAME PACE WE HAVE SEEN THE PAST SEVERAL YEARS, BUT WHEN YOU LOOK AT THE FLIPSIDE, FIXED INCOME, MANY ARE CONCERNED ABOUT RISING RATES THAT ULTIMATELY WHEN YOU LOOK AT GLOBALLY DIVERSIFIED FOLIOS, ESPECIALLY BALANCED PORTFOLIOS, THERE IS YIELD TO BE HAVE AT A FRONT END OF THE CURVE WHICH IS A DIFFERENT ENVIRONMENT. CASH IS NO LONGER A DEAD ASSET CLASS. IF YOU THINK ABOUT A DIVERSIFIED PORTFOLIO, YOU MAY SEE A PULLBACK IN U.S. MARKETS WERE MODEST RETURNS MOVING FORWARD, WHICH IS THE BASIS OF WHAT GOLDMAN IS SAYING. FLATTER RETURN TALES BUT LOWER RETURNS IN GENERAL. WHEN YOU THINK ABOUT THE FIXED INCOME SIDE OF THE EQUATION, THE OPPORTUNITY IS A LITTLE BROADER FOR A DIVERSIFIED PORTFOLIO BECAUSE IT BUILDS OFF OF A RISK-FREE RATE THAT IS NOT THE FRONT OF THE CURVE. YOU CAN START GENERATING WITH A LITTLE SPREAD PRODUCT -- IF WE START TO SEE A BLOWOUT IN EMERGING MARKETS, THOSE SPREADS ARE BECOMING INTERESTING. THERE WILL BE OPPORTUNITIES FOR INVESTORS AND IT MAY NOT BE AS ROBUST DOMESTIC WAY, BUT THERE ARE OTHER SEGMENTS OF THE MARKET THAT CAN THEORETICALLY BOOST CONCERNS. -- BOOST RETURNS. RISHAAD: JOHN WILLIAMS OF THE NEW YORK FED WAS TALKING ABOUT A PUZZLE. THIS IS SOMETHING THAT WE HAVE TALKED ABOUT FOR AGES. WE HAVE THESE INCREDIBLY STRONG IMPLEMENT NUMBERS BUT NO WAGE GROWTH. THIS IS THE PUZZLE. WHY? MICHAEL: YOU'RE LOOKING AT AN ECONOMY THAT HAS BEEN TRANSITIONING, YOU HAVE HAD THE LABOR FORCE AGING AND DEMOCRATICS HAS A LARGE IMPACT. THE OTHER ELEMENT IS, A LOT OF ECONOMIC THEORIES LOOK AT DIFFERENT METRICS WHERE YOU SEE INFLATION PICK UP ONCE YOU REACH FULL EMPLOYMENT. AND WE HAVE PARTICIPATION RATE RELATIVELY LOW AND NEW ENTRANTS INTO THE WEBER FORCE IN CONJUNCTION WITH MANY RETIRING HIGHER WAGE WORKERS, WHERE YOU HAVE MILLENNIALS ENTERING THE WORKFORCE AT LOWER WAGE LEVELS, THAT IS A BIG DEAL. KATHLEEN: CONCERN SEEMS TO BE IN MARKETS ABOUT SOMETHING ELSE. THAT IS THE YIELD CURVE. IT MAY BE THAT THE MARKET IS SAYING, WE ARE PUSHING THAT ASIDE AND SAYING YOU'RE WILLING TO RAISE RATES WHEN WAGES ARE FLAT AND INFLATION HAS GONE TO ITS TARGET. LET'S LOOK AT ANOTHER CHART HERE. IT SHOWS THAT HISTORY CAN REPEAT ITSELF. THE SPREAD BARS -- THESE RED BAR S ARE RECESSIONS THAT HAPPENED AFTER THE YIELD CURVE INVERTED. THIS CURVE IS SO FLAT IT COULD INVERT. WE ARE KEEPING AN EYE ON THE DUAL MANDATE, INFLATION AND EMPLOYMENT. JEN WILLIAMS SAYS WE DON'T HAVE TO WORRY ABOUT A RECESSION BECAUSE THEY ARE PUSHED YIELDS DOWN ARTIFICIALLY. DOES THE MARKET BELIEVE THAT, DO YOU? MICHAEL: I THINK THE DIFFERENCE THIS TIME IS IT IS VERY DANGEROUS. I DON'T THINK YOU CAN DISCOUNTED BECAUSE THERE IS VALIDITY TO IT. WE HAVE A HUGE DIFFERENTIAL BETWEEN U.S. AND OVERSEAS RATES. THERE ARE A COUPLE ELEMENTS. WHEN WE ARE EMPHASIZING IS THAT WHILE YOU TEND TO SEE RECESSION OCCUR AFTER THE INVERSION, WE ARE NOT THERE. THERE COULD STILL BE SOME TIME BEFORE WE INVERT AND YOU TEND TO SEE AFTER AN INVERSION, IT COULD BE ANYWHERE BETWEEN SIX AND 24 MONTHS WHERE YOU SEE STRONG RETURNS. ONCE THAT INVERSION OCCURS, WE TEND TO SEE SOME LEEWAY. THIS TIME MAY HAVE NUANCES TO IT BECAUSE MANY PEOPLE DISCOUNT THE FACT THAT FOREIGN CENTRAL BANKS WILL REMAIN AT THESE LEVELS. I SAW A LITTLE CHATTER ABOUT JAPAN STARTING TO MOVE AND ALL THE SUDDEN YIELDS STEVE AND. I'M NOT CONVINCED THAT WE WILL INVERT IN THE NEXT MONTHS. KATHLEEN: WHERE'S THE S & P 500 IN 2019? MICHAEL: IT SHOULD BE HIGHER BY

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S&P 500 'Modest' Gains Expected in 2019, Clarfeld's Hans Says

Michael Hans, managing director and chief investment officer at Clarfeld Financial Advisors, talks about U.S. stocks, fixed income, the economy and Treasury yield curve. He speaks with Kathleen Hays and Rishaad Salamat on "Bloomberg Daybreak: Asia." (Source: Bloomberg)

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