WEBVTT - Margie Patel Talks Stocks in 2026 0:00:02.520 --> 0:00:07.960 Bloomberg Audio Studios, podcasts, radio news are. 0:00:07.840 --> 0:00:11.000 We begin this hour stocks just edging lower, with marky 0:00:11.000 --> 0:00:13.680 Btel of All Springs Global Investments, writing, we do not 0:00:13.760 --> 0:00:16.160 expect the stock market to broaden out materially in twenty 0:00:16.160 --> 0:00:19.040 twenty six. We think the strong sectors will continue to 0:00:19.079 --> 0:00:22.200 have high growth. Margi joins us now and MARKI thank 0:00:22.200 --> 0:00:24.280 you so much for being with us. You really are 0:00:24.320 --> 0:00:27.800 answering the question that Matt was just asking, which is 0:00:28.080 --> 0:00:30.520 how much do you see this outperformance of the rest 0:00:30.520 --> 0:00:32.320 of the world, of the rest of the four hundred 0:00:32.360 --> 0:00:34.559 and ninety three really taking hold next year. 0:00:35.920 --> 0:00:37.360 Well, I think for the rest of the world, it's 0:00:37.400 --> 0:00:39.560 really sort of a catch up after a long period 0:00:39.600 --> 0:00:42.559 of underperformance. And I think that the US still has 0:00:42.800 --> 0:00:45.479 some of the best fundamentals of any country in the world, 0:00:46.159 --> 0:00:48.720 and we have good momentum really this year. We saw 0:00:48.760 --> 0:00:51.080 it in the third quarter that should continue in the 0:00:51.200 --> 0:00:55.120 force and well into next year with the tax treatment 0:00:55.680 --> 0:00:59.480 lower was holding higher refunds and the very favorable capital 0:00:59.640 --> 0:01:02.880 expense treatment in the new tax bill. So we think 0:01:02.880 --> 0:01:04.679 that the US is going to be one of the 0:01:04.760 --> 0:01:08.520 better performing sectors next year in the world, really. 0:01:08.400 --> 0:01:09.240 And it does Hinge. 0:01:09.520 --> 0:01:12.920 In your view on AI remaining the dominant trade, how 0:01:13.000 --> 0:01:16.319 much is this on a currency adjusted basis versus overall 0:01:16.959 --> 0:01:18.040 in absolute terms? 0:01:19.160 --> 0:01:22.880 Well, I think the artificial intelligence trade is going to continue. 0:01:23.000 --> 0:01:25.559 But really, over the last few months, we've already seen 0:01:25.600 --> 0:01:28.600 some erosion in the price earnings ratios of some of 0:01:28.640 --> 0:01:31.640 the leading companies in AI. So the market is already 0:01:31.680 --> 0:01:35.360 making an adjustment if we're looking at some moderation from 0:01:35.400 --> 0:01:38.600 the extremely hot growth, which is probably likely, but still 0:01:38.600 --> 0:01:40.240 that says to me, that's going to be one of 0:01:40.240 --> 0:01:43.040 the sectors that have well above average growth when you 0:01:43.080 --> 0:01:44.119 look at the whole economy. 0:01:44.160 --> 0:01:45.640 So we still think that's a great sector. 0:01:45.800 --> 0:01:48.680 Well, what kind of broadening out do we get in earnings, Margie, 0:01:48.680 --> 0:01:52.160 because we have seen the mag seven earnings though still 0:01:52.800 --> 0:01:55.040 you know, massive double digit. 0:01:54.800 --> 0:01:58.040 Gains slow down and the rest of the. 0:01:57.800 --> 0:01:59.160 S and P at least says the S and P 0:01:59.200 --> 0:02:02.960 four ninety three starting to catch up to some extent, 0:02:03.040 --> 0:02:04.720 but it hasn't really been substantial. 0:02:04.760 --> 0:02:06.600 Does that change in twenty twenty six. 0:02:07.560 --> 0:02:08.480 Ye, I don't think so. 0:02:08.600 --> 0:02:10.880 I think the same sectors that have been strong for 0:02:11.160 --> 0:02:13.720 this year and a couple of years before are going 0:02:13.760 --> 0:02:17.600 to continue to be strong. The other sectors that I think, 0:02:17.680 --> 0:02:21.639 particularly for consumers, may be rather disappointing. So we still 0:02:21.639 --> 0:02:26.000 think it'll be technology industrials relating to the electrical grid 0:02:26.440 --> 0:02:29.520 and those will be the sectors, and aerospace defense will 0:02:29.560 --> 0:02:32.720 continue to be the strong sectors, and really I'll perform 0:02:32.800 --> 0:02:33.720 those other sectors. 0:02:34.000 --> 0:02:36.560 We've seen, you know, a year to date, all of 0:02:36.600 --> 0:02:39.800 the GIS sectors on the S and P five hundred 0:02:39.800 --> 0:02:43.440 are up, but real estate has barely budged. I wonder 0:02:43.440 --> 0:02:46.880 if that changes with interest rates coming down. Consumer staples 0:02:47.000 --> 0:02:49.919 is the second worst performer, and energy, oddly enough is 0:02:49.960 --> 0:02:50.960 the third worst performer. 0:02:51.040 --> 0:02:52.200 I guess because of oil. 0:02:52.800 --> 0:02:54.800 Right, but we're going to need so much energy to 0:02:54.840 --> 0:02:57.040 power these colossus data centers. 0:02:58.320 --> 0:03:00.720 Why doesn't it pay off? Well? 0:03:00.760 --> 0:03:03.400 I think really when you look at the data centers 0:03:03.520 --> 0:03:05.320 and the growth and power that we need in this 0:03:05.360 --> 0:03:08.000 country and other countries really is going to come from 0:03:08.000 --> 0:03:08.760 the gas side. 0:03:08.800 --> 0:03:10.720 So we think that gas will continue to be. 0:03:10.680 --> 0:03:14.560 In strong demand and really detached from the price of oil. 0:03:15.080 --> 0:03:17.880 And when you actually look at oil, though there seems 0:03:17.919 --> 0:03:19.560 to be a gluck today, if you look down the 0:03:19.639 --> 0:03:22.359 road a year or two, it may look like that 0:03:22.560 --> 0:03:26.080 the country's producing oil have really been under investing, so 0:03:26.200 --> 0:03:28.720 we may have not today, not tomorrow, year from now, 0:03:28.960 --> 0:03:31.160 have a big surprise to say, oh, we really need 0:03:31.200 --> 0:03:33.120 to invest more in oil. But we think the case 0:03:33.120 --> 0:03:36.880 for gas, especially in the US, the shale producers feeding 0:03:36.920 --> 0:03:39.360 into the electrical grid and the need for more power, 0:03:39.440 --> 0:03:42.040 it's really the only realistic source is going to make 0:03:42.080 --> 0:03:44.920 that sector very strong and really detached from what happens 0:03:44.920 --> 0:03:45.760 to the price of oil. 0:03:45.920 --> 0:03:49.040 How much market is really lean into the whole real 0:03:49.080 --> 0:03:53.080 world economy, the old world economy, or being dominant. We've 0:03:53.120 --> 0:03:55.320 seen that to some degree with the metal space so 0:03:55.400 --> 0:03:57.640 far this year. Do you expect that to continue next year? 0:03:59.320 --> 0:03:59.520 Yes? 0:03:59.600 --> 0:04:01.680 I think so, and I think the US is going 0:04:01.720 --> 0:04:06.120 to continue to be one of the strongest economies, particularly 0:04:06.120 --> 0:04:09.840 because the fundamentals are really on our side. When you 0:04:09.880 --> 0:04:11.720 look at the emerging markets, a lot of them have 0:04:11.720 --> 0:04:15.440 had a big comeback, but fundamentally their economies don't have 0:04:15.560 --> 0:04:17.839 what we need to really see the sort of sustainable 0:04:17.839 --> 0:04:19.960 growth in the US. It looks like we're on track 0:04:20.040 --> 0:04:22.720 to say two or maybe three percent next year, which 0:04:22.920 --> 0:04:24.680 would really put us near the high end of the 0:04:24.760 --> 0:04:27.279 range of sustainable growth around the world. 0:04:27.520 --> 0:04:28.120 I know that. 0:04:28.360 --> 0:04:30.000 Back in the day, Markie, you and I used to 0:04:30.000 --> 0:04:32.760 talk all the time about highle bonds and investment grade 0:04:32.800 --> 0:04:36.160 bonds and how fixed income fit into a portfolio. Increasingly 0:04:36.200 --> 0:04:39.440 you've talked about how equities have been a better proposition 0:04:39.880 --> 0:04:43.560 for a risk on move and frankly for returns than bonds. 0:04:43.560 --> 0:04:45.520 Do you think that that's going to shift come twenty 0:04:45.600 --> 0:04:46.160 twenty six. 0:04:47.960 --> 0:04:48.039 No. 0:04:48.120 --> 0:04:51.160 I think the bond market is a place of very 0:04:51.200 --> 0:04:55.359 small risk and very moderate returns. So you'll get, particularly 0:04:55.400 --> 0:04:57.760 in high yield, a little bit extra yield, maybe two 0:04:57.800 --> 0:05:02.200 percentage points maybe three percentage point more than the treasury yield, 0:05:02.320 --> 0:05:04.760 so say five and a half to six and three 0:05:04.839 --> 0:05:07.160 quarter or something like that. But you really can't look 0:05:07.200 --> 0:05:09.560 for much beyond that. If you look at the high 0:05:09.640 --> 0:05:12.240 old market, a lot of the poor quality issues have 0:05:12.279 --> 0:05:15.320 been siphoned off, gone into the loan market. So the 0:05:15.440 --> 0:05:18.040 US public high yield market has a default rate only 0:05:18.080 --> 0:05:21.760 about two percent, so it's actually quite safe on a 0:05:21.760 --> 0:05:24.479 relative basis, and the defaults have been more on the 0:05:24.520 --> 0:05:27.200 private credit side, which are more than twice that amount. 0:05:27.480 --> 0:05:28.839 And we think that'll continue. 0:05:29.040 --> 0:05:32.039 And as I said, no room for capital appreciation because 0:05:32.120 --> 0:05:34.920 most bonds in the high old university training above their 0:05:34.920 --> 0:05:37.719 face value, so we can have the old fashioned capital 0:05:37.760 --> 0:05:40.760 appreciation that we would talk about in years past. 0:05:41.040 --> 0:05:43.600 Just the math just isn't there, Margie. 0:05:43.600 --> 0:05:47.559 I'm just an equity simpleton, so this is a little 0:05:47.560 --> 0:05:49.400 bit too much for me to understand. Why do we 0:05:49.440 --> 0:05:54.320 have credit metrics getting better and better Torus and Slock 0:05:54.360 --> 0:05:57.400 put out a note about it today and defaults falling 0:05:57.640 --> 0:06:00.520 at the same time as bankruptcy is hit the highest 0:06:00.600 --> 0:06:03.480 level since just after the Great Financial Crisis? 0:06:03.480 --> 0:06:05.880 How does that work out well? 0:06:05.920 --> 0:06:10.040 Because the public high yield market, Number one, they have 0:06:10.080 --> 0:06:12.560 not gotten the poor quality issues and may have in 0:06:12.680 --> 0:06:15.800 other years because those have been siphoned off into the 0:06:15.800 --> 0:06:18.080 private credit market. So you just don't have those very 0:06:18.200 --> 0:06:22.640 vulnerable names. And secondly, during that period of zero interest rates, 0:06:23.279 --> 0:06:26.240 many high old companies took advantage of that to restructure 0:06:26.279 --> 0:06:28.919 their balance sheet, to pay off their bank lines, to 0:06:29.040 --> 0:06:32.080 issue new debt at very very low coupon rates of 0:06:32.120 --> 0:06:35.200 pre refund issues that might be callable or coming doing 0:06:35.240 --> 0:06:38.039 a couple of years. So actually the high old bond 0:06:38.080 --> 0:06:40.920 market as a whole has never had such a strong 0:06:41.040 --> 0:06:45.640 balance sheet overall. And secondly, the supply is really pretty 0:06:45.680 --> 0:06:50.159 modest compared to the insatiable demand for higher yielding securities. 0:06:50.400 --> 0:06:52.480 So we think the high old market is a little 0:06:52.480 --> 0:06:54.080 i would say, an island of turnquility. 0:06:54.160 --> 0:06:55.680 But it really looks pretty good. 0:06:55.880 --> 0:06:57.920 The only criticism is you aren't going to get those 0:06:57.960 --> 0:07:00.880 types of equity like returns that we see in other markets, 0:07:01.120 --> 0:07:03.080 especially if the FED is very much. 0:07:02.880 --> 0:07:06.400 On even keel relative stability. 0:07:06.640 --> 0:07:08.359 It'd be different case if the FED were going to 0:07:08.400 --> 0:07:10.960 slam on the brake's check up interest rates. But that 0:07:11.040 --> 0:07:13.200 doesn't look like that's on the horizon at all. So 0:07:13.360 --> 0:07:15.800 we think the high old market for what it is 0:07:15.960 --> 0:07:19.960 is a modest yield, modest risk, and some investors like that, 0:07:20.120 --> 0:07:22.120 and that's so for that it's a good sector. 0:07:22.560 --> 0:07:25.400 What does this mean for private credit? Margie? 0:07:25.400 --> 0:07:27.920 As we go into twenty twenty six, and I see 0:07:27.960 --> 0:07:32.240 all of these non bank lenders in Blue Owl, Apollo, KKR, 0:07:32.600 --> 0:07:37.880 Blackstone underwater for twenty twenty five, they haven't performed for 0:07:37.960 --> 0:07:40.600 equity investors well. 0:07:40.600 --> 0:07:44.800 And that reflects the fact that many many of transactions 0:07:44.800 --> 0:07:48.200 that were done were in the poor quality companies that 0:07:48.360 --> 0:07:53.360 really don't have the ability to improve their balance sheet 0:07:53.400 --> 0:07:55.800 to raise their growth and it was really just sort 0:07:55.840 --> 0:07:58.560 of play on spreads of the cost of money versus 0:07:58.680 --> 0:08:01.840 what they get. We think that'll continue, and actually that's 0:08:01.880 --> 0:08:04.520 a market that is now larger than the US high 0:08:04.560 --> 0:08:08.200 yield market. It's more than doubled in the last five years. 0:08:08.480 --> 0:08:11.200 So it's really a case of that's where all the 0:08:11.240 --> 0:08:13.560 marginal dollars have flowed to, and so that will be 0:08:13.600 --> 0:08:16.280 where the marginal risk will be. And I think that 0:08:16.520 --> 0:08:19.040 as we've seen when there are bankruptcies or blow ups 0:08:19.080 --> 0:08:21.680 in that market, it really hasn't washed over into the 0:08:21.720 --> 0:08:24.480 bank sector, hasn't washed over into the high yeld market 0:08:24.560 --> 0:08:28.000 with squads widening out, because the market has distinguished. Those 0:08:28.080 --> 0:08:31.680 companies that are under pressure got way too much money 0:08:32.000 --> 0:08:34.760 from the high old market, where it's more of a 0:08:35.040 --> 0:08:37.480 because of the better balance sheets and the credit outlook 0:08:37.800 --> 0:08:40.040 and moderate use of funds. When you look at high 0:08:40.080 --> 0:08:44.240 yield bonds, the purpose of why they're borrowing money more 0:08:44.320 --> 0:08:47.040 than more than half, maybe even close to three quarters 0:08:47.040 --> 0:08:50.640 in the last few years, have been to refinance other debts. 0:08:50.679 --> 0:08:53.600 So they aren't going crazy with paying themselves big dividends 0:08:54.040 --> 0:08:56.520 or to make acquisitions. It will turn out to be 0:08:56.559 --> 0:09:00.280 too risky, so that's really, it's a very attractive actor 0:09:00.320 --> 0:09:01.600 looking at the fundamentals. 0:09:01.600 --> 0:09:01.880 Really. 0:09:02.240 --> 0:09:04.719 MARKI Patel of all Spring Global Investments, wonderful to see. 0:09:04.840 --> 0:09:06.040 Thank you so much for being with us.