Chris Wallis, CEO and CIO at Vaughan Nelson, sees little change to the choppy economic environment this summer.

June 4th, 2024

Lightly edited transcript

Dan Hughes: Welcome to the Vaughan Nelson podcast. With me today is CEO and CIO, Chris Wallis. Welcome Chris.

Chris Wallace: It’s great to be here Dan.

Dan: All right, Chris. Well, it’s been a pretty good gap. It’s been a few weeks since our last recording, and as we’re just checking right back in with you, start off with any updates or any changes that you have in your views over the near term.

Chris: Things seem to be playing out as we expected. We talked about the weakest part and the bottoming in the global industrial sector was going to be in this Q1, early Q2 period, and then things were going to pick up including reacceleration out of Europe and that’s certainly what the data is telling us.

We also talked about inflation firming and some of the disinflationary pressures that have been a tailwind for financial conditions were going to reverse and that certainly has come through in the data. We’ve talked about employment activity in the US, was going to soften just because it’s such a lagging indicator and that seems to be the case. And so what that’s created is just chop in the market. The market, there’s position for continued slowdown in industrial activity and that’s no longer the case. It was positioned for easing financial conditions and that’s no longer the case.

So we’ve seen a lot of chop so far over the last couple of months, and I think we’re going to continue to see this chop in the market. But at the end of the day, there’s really no change in our outlook. We have been in a little bit of a liquidity soft patch, and that’s tended to lead to some of the chop we’ve seen across global markets as well. But again, we can see on forward indicators that liquidity looks like it’s going to get better as well.

So I think as we move through the summer and into the fall, we’ll see a little better economic activity, a little better liquidity we’ll continue to see chop in the market as people try to reposition. But ultimately, we’re going to see better economic strength, firming inflation.

It’s not going to be stagflationary, although that’s the way they’re going to describe it in the US. Outside of the US, the growth is going to be better, and so it’s going to be less stagflationary conditions. But I think investors better get used to chop and better pick their spots on individual securities because again, I just don’t think we’re going to see any one single sector or theme play itself out for a while.
And then once we get through the elections, we’ll see what it looks like on the other side. 2025 promises to be much more interesting than 2024, for sure.

Dan: And one term you just used there [a] handful of times, you mentioned chop in the market, essentially just representing some of the volatility that we’ve seen. Anything that you’re watching, any indicators that you’d watch that would identify a smoothing out for the economic environment?

Chris: Not really, because this has less to do with economic fundamentals and less to do with liquidity conditions and more to do with investors being unsure of what to buy. So they’re trying to find that momentum in the market and the incremental investor is positioning for an outcome, and maybe it happens, but it doesn’t last as long as they thought. So then prices start to go down, then they sell and they try to reverse and go the other way.

So I just think we’re going to be in a whippy market for some time because for the last several years, if not decade, investors have just been thematic. And as we’ve talked about, we’re in a multi-year rebalancing, and it’s still very much underway and it’s going to affect currency values and capital flows, and it’s just going to create these choppy conditions that are going to frustrate investors that are used to being able to buy a theme, buy a meme, play a trend. And they’re going to find it increasingly frustrating.

Dan: Good. All right. Well, not too much else happening here, so we’ll wrap up with a quick one, but good to have you back and we’ll see you soon.

Chris: Sounds good.

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