WEBVTT - Bloomberg Surveillance TV: December 31, 2024 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.600 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.440 --> 0:00:18.400 with Lisa Bromwitz and a Marie Hortenn. Join us each 0:00:18.480 --> 0:00:21.360 day for insight from the best in markets, economics, and 0:00:21.400 --> 0:00:24.720 geopolitics from our global headquarters in New York City. We 0:00:24.760 --> 0:00:27.400 are live on Bloomberg Television weekday mornings from six to 0:00:27.480 --> 0:00:31.000 nine am Eastern. Subscribe to the podcast on Apple, Spotify 0:00:31.200 --> 0:00:33.479 or anywhere else you listen, and as always on the 0:00:33.479 --> 0:00:35.840 Bloomberg Terminal and the Bloomberg Business app. 0:00:36.360 --> 0:00:38.040 All right, let's talk a little bit here about the 0:00:38.080 --> 0:00:40.720 outlook for equities, particularly as a lot of people look 0:00:40.760 --> 0:00:43.480 at this bullmarket and wonder whether it can continue into 0:00:43.520 --> 0:00:46.440 twenty twenty five. Price targets are coming in for the 0:00:46.560 --> 0:00:48.519 new year, and we should point out price targets for 0:00:48.600 --> 0:00:51.760 the past year, well, they were light. John Sofas though 0:00:51.800 --> 0:00:53.680 he was always bullish, and he had a good eye 0:00:53.720 --> 0:00:55.960 on what he saw and what he thought we would 0:00:55.960 --> 0:00:58.280 get in twenty twenty four. And now he's out with 0:00:58.320 --> 0:01:00.680 his note for twenty twenty five, seeing that the bullmarket 0:01:00.720 --> 0:01:03.080 has more room to run, writing that the pivot to 0:01:03.160 --> 0:01:07.160 easier monetary policy we believe supports our vue that the 0:01:07.200 --> 0:01:11.280 market for US equities is still mid cycle, and he 0:01:11.280 --> 0:01:13.520 says that the technology led double digit gains of the 0:01:13.600 --> 0:01:16.000 large cap stocks over the first three quarters of twenty 0:01:16.040 --> 0:01:19.720 twenty four, likely to broaden out to other sectors, styles, 0:01:19.959 --> 0:01:22.920 and market caps in twenty twenty five. Please say that 0:01:23.000 --> 0:01:25.319 John joins us right now here on the big program, 0:01:25.480 --> 0:01:28.479 kicking us off here on this December thirty first. Happy 0:01:28.480 --> 0:01:30.360 new year to you, John, and let's talk about those 0:01:30.360 --> 0:01:33.560 forecasts going forward. What supports some of these targets I'm 0:01:33.560 --> 0:01:36.560 seeing targets come in now, including yours, into the sixes, 0:01:36.600 --> 0:01:39.520 into the seven thousands for the S and P five hundred. 0:01:39.560 --> 0:01:41.720 Is this all earnings driven or are we going to 0:01:41.720 --> 0:01:45.520 see some multiple expansion as a part of that as well. 0:01:46.680 --> 0:01:48.880 Great to be on surveillance this morning with you, and 0:01:48.960 --> 0:01:51.880 happy new year to you and the whole Bloomberg team 0:01:51.960 --> 0:01:55.640 as well. I must say that with US it's a combination. 0:01:56.160 --> 0:01:58.440 It's always you want to see revenue growth. 0:01:58.320 --> 0:02:00.920 You want to see earnings grow of that's what matters 0:02:00.960 --> 0:02:01.880 most of the market. 0:02:02.160 --> 0:02:06.400 But I think overall there's room for multiple expansion to 0:02:06.440 --> 0:02:11.040 play a role in here the private investor over the 0:02:11.080 --> 0:02:13.280 years I've been in this business for forty one years 0:02:13.600 --> 0:02:18.000 has changed a lot over the years, and with what 0:02:18.040 --> 0:02:21.440 has taken effect in terms of retirement planning over the 0:02:21.480 --> 0:02:24.080 course of the last forty years in which we've seen 0:02:24.120 --> 0:02:26.359 to find benefit pension. 0:02:25.960 --> 0:02:28.880 Plans go by the wayside social security. 0:02:28.960 --> 0:02:32.400 The amount of income that it can provide or what 0:02:32.520 --> 0:02:37.400 percentage it provides an individual of income during retirement means 0:02:37.400 --> 0:02:40.720 people have to invest more. So we think many private 0:02:40.760 --> 0:02:45.080 investors today, instead of investing in five stocks for the 0:02:45.120 --> 0:02:49.440 actionable idea of the day, are investing much like institutions 0:02:49.520 --> 0:02:53.560 would for intermediate to longer term goals, and we think 0:02:53.600 --> 0:02:57.760 that supports higher multiples. While on the other hand, we 0:02:57.840 --> 0:03:03.160 think the effects of technology on all eleven sectors that 0:03:03.240 --> 0:03:06.800 has been shown since the financial crisis crisis right up 0:03:06.800 --> 0:03:09.840 to date through the pandemic and now with AI in 0:03:09.880 --> 0:03:13.160 the process, offers a lot of opportunity here we'll see 0:03:13.200 --> 0:03:14.400 equities move higher. 0:03:15.120 --> 0:03:17.480 We'll expand a little bit here on that theme of AI. 0:03:17.600 --> 0:03:19.120 That was a big part of the trade that we 0:03:19.120 --> 0:03:21.000 saw in the market, certainly in the first half of 0:03:21.040 --> 0:03:23.440 the year. A lot of questions though towards the second 0:03:23.480 --> 0:03:25.720 half of the year about when we start to see 0:03:25.880 --> 0:03:28.160 the material gains from that on the bottom line, on 0:03:28.200 --> 0:03:30.239 the top line for that matter as well. We see 0:03:30.240 --> 0:03:32.960 that in twenty twenty five, John, I. 0:03:32.880 --> 0:03:35.080 Think what we'll begin to see it more and more 0:03:36.040 --> 0:03:36.440 this year. 0:03:36.480 --> 0:03:40.440 It's been primarily the amount of investment that has been 0:03:40.520 --> 0:03:45.200 made in AI, both from within the technology sector itself 0:03:45.240 --> 0:03:48.440 but in the other sectors by managements that want to 0:03:48.480 --> 0:03:55.120 remain very vibrant and effective in attracting investors' attention in 0:03:55.200 --> 0:03:59.080 terms of creating greater efficiencies for revenue and earnings grows 0:03:59.280 --> 0:04:01.480 and on the other and we think it's the consumer 0:04:02.280 --> 0:04:04.440 is going to be a big part of the upgrade 0:04:04.840 --> 0:04:06.680 that began. 0:04:08.040 --> 0:04:09.200 This year and. 0:04:09.360 --> 0:04:13.200 Likely will gain some traction in twenty twenty five and 0:04:13.280 --> 0:04:14.000 on forward. 0:04:14.280 --> 0:04:16.080 But all this stuff takes a bit of time. 0:04:16.760 --> 0:04:22.760 But for investors who have patients, are diversified, know what 0:04:22.800 --> 0:04:25.520 they own, why they own it, and have right sized 0:04:25.600 --> 0:04:32.719 expectations about how different asset classes, different sectors cyclicals versus defensive, etc. 0:04:33.839 --> 0:04:35.280 Operate, this looks. 0:04:35.080 --> 0:04:39.320 Like a time of both opportunity and risk, and the 0:04:39.320 --> 0:04:43.200 main thing is to have some tolerance for fluctuation and 0:04:43.240 --> 0:04:47.360 a tolerance for risk that is realistic and right sized. 0:04:49.320 --> 0:04:51.719 John, how much of the bull case is dependent on 0:04:51.960 --> 0:04:54.680 capital flows from the rest of the world and the 0:04:54.760 --> 0:04:57.839 absence of kind of economic resilience in Europe or China. 0:04:58.240 --> 0:05:01.599 Do you see international investors bolstering the US market maybe 0:05:01.600 --> 0:05:02.960 more so than domestic. 0:05:03.360 --> 0:05:05.240 Gosh, you know, that's an awfully good question. 0:05:05.600 --> 0:05:08.760 I think over the years we've seen private investors from 0:05:08.760 --> 0:05:12.200 abroad increase their exposure to the US. 0:05:12.640 --> 0:05:13.360 A lot of that. 0:05:13.480 --> 0:05:18.719 Because of the influence of the technology sector, with the 0:05:18.760 --> 0:05:24.520 innovation that occurs here at the in the design stage 0:05:24.680 --> 0:05:28.520 of technology. But in addition to that, you know, the 0:05:29.440 --> 0:05:33.279 factor is in an uncertain world, the US strength of 0:05:33.320 --> 0:05:37.800 the US dollar also attracts foreign investors to invest in 0:05:37.839 --> 0:05:42.640 the US, while meantime central banks and sovereign wealth funds 0:05:42.720 --> 0:05:46.080 may actually stay at home. Many of those foreign funds, 0:05:46.560 --> 0:05:51.000 we think it's the individuals will continue to invest for 0:05:51.040 --> 0:05:54.919 diversification in the US. But John, you. 0:05:54.960 --> 0:05:58.159 Mentioned that point of the dollar, that it attracts international investors, 0:05:58.160 --> 0:06:02.480 doesn't it disincentivize bid so an investor in say Japan, 0:06:02.640 --> 0:06:06.840 hypothetically that maybe wanted that realm of safety or kind 0:06:06.839 --> 0:06:11.080 of innovative technology technological exposure. Maybe looks at the strength 0:06:11.080 --> 0:06:13.239 of the dollar in three months time, it says, actually, 0:06:13.400 --> 0:06:14.279 this isn't worth it. 0:06:15.360 --> 0:06:18.239 Well, actually, we would have to say that the strength 0:06:18.240 --> 0:06:21.960 of the dollar is relative. And I think where with 0:06:22.120 --> 0:06:24.880 the dollar strength where it is right now, for instance, 0:06:25.480 --> 0:06:30.479 it almost disincentivizes US investors from investing abroad because the 0:06:30.520 --> 0:06:33.800 foreign currencies are weak or versus the US dollar. On 0:06:33.839 --> 0:06:37.279 the other hand, for foreign investors where their currency is 0:06:37.320 --> 0:06:42.440 weak versus the US, investment in the US enhances dividends, 0:06:42.600 --> 0:06:48.599 enhances gains because investing in a stronger currency helps your 0:06:48.600 --> 0:06:51.839 performance if you're a foreign investor with a weaker currency 0:06:52.360 --> 0:06:55.600 when you reconcile your trades, or you don't get a 0:06:55.640 --> 0:06:58.560 loss in translation but gaining in translation. 0:06:59.320 --> 0:07:01.080 I am curious on here if you can talk a 0:07:01.120 --> 0:07:04.120 little bit here about how some of the policy decisions 0:07:04.320 --> 0:07:08.000 that we're expecting out of Washington could affect the performance 0:07:08.040 --> 0:07:11.400 of financial markets. And I want to start specifically on 0:07:11.440 --> 0:07:14.040 the teriff's side, because there are some concerns about the 0:07:14.080 --> 0:07:18.320 bottom line effects on corporations and obviously the inflationary effects 0:07:18.360 --> 0:07:19.040 on consumers. 0:07:20.440 --> 0:07:24.679 I have to say, Romaine that the greatest concern relating 0:07:24.720 --> 0:07:28.720 to tariffs, of course, is on the traditional sense of tariffs. 0:07:28.720 --> 0:07:34.720 Everybody can remember tariffs presaging the Great Depression at all. 0:07:35.320 --> 0:07:38.960 But the effect of tariffs during the first Trump administration 0:07:39.200 --> 0:07:42.960 and during the Biden administration, when he actually kept many 0:07:43.000 --> 0:07:47.880 of the Trump tariffs and even increased them, was not 0:07:48.040 --> 0:07:52.240 anywhere near as concern as might have been expected. We 0:07:52.320 --> 0:07:56.880 think the idea of some of the numbers that are 0:07:56.920 --> 0:07:59.840 thrown around by the President elect in terms of what 0:08:00.160 --> 0:08:03.360 might impose on tariffs, much of this, we would think 0:08:03.480 --> 0:08:07.040 is part of that art of the deal approach that 0:08:07.680 --> 0:08:12.960 the President elect takes when negotiating. But the other side 0:08:12.960 --> 0:08:15.800 of it is, if you consider the US economy versus 0:08:16.200 --> 0:08:19.640 producing economies, of all the goods that our consumers buy, 0:08:19.760 --> 0:08:24.360 both businesses consumers as well as individuals, we're buyers of 0:08:24.480 --> 0:08:28.640 size and so we're a very attractive place to sell 0:08:28.680 --> 0:08:31.400 your goods to, which might mean there's more wiggle room 0:08:32.120 --> 0:08:35.960 for countries that want to sell into our country or 0:08:36.600 --> 0:08:41.320 be export goods to us to win our import dollars. 0:08:40.880 --> 0:08:43.240 So to speak. And we think it'll be interesting to 0:08:43.240 --> 0:08:44.360 see how that works out. 0:08:44.480 --> 0:08:46.840 But we think most of the talk on the tariffs 0:08:47.520 --> 0:08:51.560 based on the cabinet and the experience of the cabinet, 0:08:51.559 --> 0:08:56.040 as well as the president's experience after having had four 0:08:56.120 --> 0:08:59.680 years in office prior to this. We think it'll be 0:09:00.120 --> 0:09:05.280 more of the bark, will be louder and much more 0:09:06.520 --> 0:09:09.720 create more fear than the actual bite. And we also 0:09:09.760 --> 0:09:13.720 think the negotiations will probably work out better because countries 0:09:13.760 --> 0:09:15.800 are going to look to want to keep the US 0:09:16.160 --> 0:09:17.680 as a major source of. 0:09:20.040 --> 0:09:21.680 Their exports. 0:09:21.960 --> 0:09:25.560 John great stuff as always always insightful all year long, 0:09:25.640 --> 0:09:27.760 and we expect that as well in twenty twenty five. 0:09:27.880 --> 0:09:30.120 Have a happy new year. John Stolf is there over 0:09:30.240 --> 0:09:34.240 at Oppenheimer Bloomberg survey showing that right now, the average 0:09:34.320 --> 0:09:36.400 the median price target right now for the S and 0:09:36.440 --> 0:09:39.600 P to end next year right around sixty six hundred. 0:09:39.679 --> 0:09:42.200 The highest estimate in that survey came from the man 0:09:42.200 --> 0:09:45.679 we were just talking to, seventy one hundred Chrety. We 0:09:45.720 --> 0:09:49.480 talk about this idea here of whether expectations heading into 0:09:49.520 --> 0:09:52.360 twenty twenty five are going to match up in the 0:09:52.400 --> 0:09:54.920 same way that we saw with those low to high 0:09:54.960 --> 0:10:07.920 expectations in twenty twenty two. We do want to turn 0:10:07.960 --> 0:10:10.600 our attention right now to the commodity space. And specifically 0:10:10.760 --> 0:10:14.120 energy oil markets. Well, they're pushing higher here in the 0:10:14.200 --> 0:10:17.240 last trading session of the year, this after we got 0:10:17.280 --> 0:10:20.480 a report that factory activity in China did expand for 0:10:20.600 --> 0:10:24.760 a third straight month. Pablo mulchinoff over at Raymond James. 0:10:24.840 --> 0:10:27.640 He's looking ahead to next year. He says that, well, 0:10:27.640 --> 0:10:31.800 they're forecasting oil prices to be largely range bound. However, 0:10:32.160 --> 0:10:35.320 the main energy story of twenty twenty five, which was 0:10:35.400 --> 0:10:38.320 also the main story of twenty twenty four, is set 0:10:38.360 --> 0:10:42.280 to be electricity rather than oil. Pablo joins us right 0:10:42.320 --> 0:10:44.520 now to talk a little bit more about that, and Pablo, 0:10:44.800 --> 0:10:46.560 let's talk about it here. I mean, if you had 0:10:46.559 --> 0:10:48.120 told me coming into this year that some of the 0:10:48.160 --> 0:10:51.600 biggest gains in the equity market would be utility and 0:10:51.640 --> 0:10:54.079 power companies, I would have said you're crazy. But here 0:10:54.120 --> 0:10:56.320 we are at the end of twenty twenty four talking 0:10:56.360 --> 0:11:00.200 about utilities and power companies that continue to continue to 0:11:00.200 --> 0:11:01.079 be the story next year. 0:11:02.440 --> 0:11:07.040 Yeah, and this is the derivative trade on AI. So 0:11:07.160 --> 0:11:12.080 the euphoria around AI touches what we might call the 0:11:12.200 --> 0:11:16.760 picks and shovels of the electric power industry. So the 0:11:16.880 --> 0:11:22.840 utility stocks, the equipment provider, So everything from you know, 0:11:22.920 --> 0:11:29.640 guest turbindes, wind turbines, solar panels, battery systems, and also 0:11:29.800 --> 0:11:34.520 the construction companies that are physically building all of this 0:11:35.480 --> 0:11:41.000 energy infrastructure to accommodate the boom in electric power consumption. 0:11:41.679 --> 0:11:44.080 Well, we talk about the building of this infrastructure, and 0:11:44.080 --> 0:11:46.680 you have obviously new infrastructure coming on here in the US, 0:11:46.720 --> 0:11:50.520 we have old infrastructure, old nuclear plants coming back online. Here. 0:11:51.240 --> 0:11:54.240 Is there enough out there, I guess if you will 0:11:54.960 --> 0:11:57.080 for these companies to draw on or are we going 0:11:57.120 --> 0:12:01.880 to be facing significant shortages in power given some of 0:12:01.920 --> 0:12:04.360 the demand needs out there that we know of, at 0:12:04.400 --> 0:12:06.480 least when it comes to all computing and AI. 0:12:07.679 --> 0:12:12.000 Well, our listeners do not need to worry about, you know, 0:12:12.160 --> 0:12:16.520 physically running out of electricity. You know at any point 0:12:16.600 --> 0:12:19.760 in the foreseeable future that that's not going to happen. 0:12:20.520 --> 0:12:25.719 What is true is that power prices are already trending up. 0:12:25.800 --> 0:12:29.000 In fact, they've been up since pre COVID by about 0:12:29.040 --> 0:12:33.600 twenty five percent, and we should expect power prices to 0:12:33.760 --> 0:12:38.400 continue moving higher in part because of the additional demand 0:12:38.640 --> 0:12:42.319 from the data center build out. And look, let's also 0:12:42.400 --> 0:12:47.000 keep in mind the geographic differences here, the bulk of 0:12:47.120 --> 0:12:49.760 the data center, or the largest portion of the data 0:12:49.760 --> 0:12:55.479 center buildout is happening around Washington, d C, Northern Virginia, Maryland, 0:12:56.160 --> 0:12:59.200 a little bit into Ohio. You know, there's not as 0:12:59.280 --> 0:13:03.000 much happening in the western half of the US. There's also, 0:13:03.040 --> 0:13:07.280 by the way, data center build out AI related in Europe, 0:13:07.480 --> 0:13:08.760 in parts of China. 0:13:09.160 --> 0:13:10.800 So this is a global story. 0:13:11.160 --> 0:13:15.920 By nor did Virginia has the largest portion, so naturally 0:13:16.080 --> 0:13:21.240 that's where the infrastructure needs to move forward at the 0:13:21.280 --> 0:13:24.560 fastest pace pavel. 0:13:24.640 --> 0:13:27.760 When I first learned about how utility grids worked, I 0:13:27.800 --> 0:13:29.800 was pretty surprised to learn that you can use both 0:13:29.800 --> 0:13:32.600 oil and natural gas, and sometimes natural gas can be 0:13:32.679 --> 0:13:36.440 cheaper in utility grids as well. There's a big conversation 0:13:36.480 --> 0:13:39.080 in the US right now about exporting a lot of 0:13:39.160 --> 0:13:42.120 extra natural gas and energy to Europe. But if you 0:13:42.200 --> 0:13:45.800 see this AI data center buildout in the US, do 0:13:45.880 --> 0:13:47.200 those flows get redirected? 0:13:49.679 --> 0:13:54.400 Natural gas going to Europe will be limited not so 0:13:54.640 --> 0:14:00.560 much by the ability of American gas for NEWS to 0:14:00.720 --> 0:14:05.840 pump as much as they want, but rather by Europe's need. 0:14:05.520 --> 0:14:07.400 To import LNG. 0:14:07.640 --> 0:14:11.840 And here's why I say that since Russian invaded Ukraine 0:14:11.840 --> 0:14:17.760 three years ago, Europe's consumption of natural gas is down 0:14:17.920 --> 0:14:21.520 by fifteen percent. I'm not talking about down fifteen percent 0:14:21.560 --> 0:14:26.560 from Russia. I mean that's practically at zero. By overall, 0:14:26.720 --> 0:14:29.760 Europe is using fifteen percent less natural gas. 0:14:29.800 --> 0:14:31.520 So guess what that means? 0:14:31.840 --> 0:14:37.480 Less need for natural gas from any source you know, US, Katar, 0:14:37.800 --> 0:14:42.320 Norway and Azerbaijan and so forth. So that's really where 0:14:42.360 --> 0:14:44.920 the constraint is going to come from. 0:14:45.360 --> 0:14:48.360 So there's no necessarily relationship between the natural gas needs 0:14:48.360 --> 0:14:51.120 of Europe or the natural gas needs of other folks 0:14:51.200 --> 0:14:53.840 in the United States versus say, the AI build out. 0:14:54.960 --> 0:15:00.600 We have plenty of natural gas in North America to both. 0:15:01.160 --> 0:15:06.080 So natural gas will certainly play a role, particularly in 0:15:06.120 --> 0:15:10.360 the eastern half of the US to support the data 0:15:10.360 --> 0:15:13.640 center boom. Now in the western half of the contraries, 0:15:13.720 --> 0:15:16.800 I said, AI is less of a factor. But keep 0:15:16.800 --> 0:15:19.840 in mind we also need to replace cold planks that 0:15:19.880 --> 0:15:22.760 are being retired, and this is why we're going to 0:15:22.760 --> 0:15:26.960 be following an all of the above strategy for the 0:15:27.040 --> 0:15:34.160 electricity mix natural gas, wind, solar, and in certain cases, 0:15:35.080 --> 0:15:38.200 but also long lead times nuclear as well. 0:15:38.760 --> 0:15:41.080 I am curious though, Pavel, do you think that at 0:15:41.120 --> 0:15:44.600 least here in the US, that government policies coming out 0:15:44.640 --> 0:15:47.360 of this new administration will be supportive of some of 0:15:47.440 --> 0:15:51.360 those renewable energy initiatives like wind, nuclear, et cetera. 0:15:53.760 --> 0:15:57.040 Number one thing we need to understand about government policy 0:15:57.120 --> 0:15:59.560 as it relates to electric power is that it is 0:15:59.600 --> 0:16:01.880 preductinently at the state. 0:16:01.640 --> 0:16:03.600 Level rather than the federal level. 0:16:03.800 --> 0:16:09.440 Electric utilities are regulated by state level utility commissions. There 0:16:09.520 --> 0:16:12.960 is a little bit of a role played by FERK 0:16:13.720 --> 0:16:17.080 and the Department of Energy in Washington, but number one 0:16:17.480 --> 0:16:20.000 is the state level regulation. 0:16:20.240 --> 0:16:23.560 So here's an interesting fact for some of your listeners. 0:16:24.040 --> 0:16:32.200 Twenty nine states have a renewable portfolio mandate for electric utilities, including, 0:16:32.280 --> 0:16:38.680 by the way, some red states like Texas, Missouri, and Montana. 0:16:39.720 --> 0:16:42.840 Yeah, and abition to see whether that holds and how 0:16:42.840 --> 0:16:46.280 that interplay between those states and the federal government goes forward. 0:16:46.400 --> 0:16:48.200 I do want to ask you a much more straightforward 0:16:48.280 --> 0:16:52.120 question about the oil market, and particularly about the mobility 0:16:52.440 --> 0:16:55.720 of oil. Obviously, there are a lot of concerns about 0:16:55.760 --> 0:16:59.480 geopolitical issues and the disruption flows of oil. You have 0:16:59.520 --> 0:17:02.000 the wars obviously going on in the Middle East, and 0:17:02.080 --> 0:17:05.720 elsewhere that have also disrupted the flow of oil. Do 0:17:05.800 --> 0:17:09.080 you see any sort of right sizing in that next 0:17:09.160 --> 0:17:11.359 year or are these sort of I guess issues that 0:17:11.359 --> 0:17:13.680 are going to just remain lingering for a good portion 0:17:13.760 --> 0:17:14.160 of the year. 0:17:16.280 --> 0:17:19.639 For the past twelve months, we have had two major 0:17:19.720 --> 0:17:22.360 wars Russia Ukraine and of course. 0:17:22.160 --> 0:17:23.800 What's happening in the Middle East. 0:17:24.880 --> 0:17:30.520 Despite that, oil prices have barely moved since January twenty 0:17:30.560 --> 0:17:34.320 twenty four. Or why because we also have to take 0:17:34.359 --> 0:17:37.320 into account what's going on with demand, and demand has 0:17:37.400 --> 0:17:41.119 been weaker than expected, in large part because of China. 0:17:41.640 --> 0:17:46.479 So number one question for next year is not so 0:17:46.600 --> 0:17:52.000 much geopolitics, it's good old fashioned supplying demand. What's going 0:17:52.040 --> 0:17:55.560 on in China with the economy, and by the way, 0:17:55.680 --> 0:17:59.360 with electric vehicle sales. Half of China's auto sales are 0:17:59.400 --> 0:18:03.399 now electric. That's a big deal. We're also watching the dollar, 0:18:04.000 --> 0:18:09.280 strengthening dollar as we have seen pressures commodity prices across 0:18:09.280 --> 0:18:10.600 the board, including oil. 0:18:11.440 --> 0:18:14.000 And the third thing we're watching is OPAK. 0:18:14.160 --> 0:18:20.000 Opak has been very disciplined since COVID with supply. At 0:18:20.040 --> 0:18:24.040 some point in twenty twenty five, OPAK will begin to 0:18:24.600 --> 0:18:30.280 unwind its production cuts, which means more barrels on the market, 0:18:30.680 --> 0:18:34.040 and that may put some pressure on the price of 0:18:34.119 --> 0:18:34.920 oil as well. 0:18:35.800 --> 0:18:39.000 All Right, Pablo Krits Pablo Mulchanov over at Raymond James 0:18:39.040 --> 0:18:41.360 a closer look here at the energy market the outlook 0:18:41.400 --> 0:18:53.199 for twenty twenty five. We begin this hour, though, with 0:18:53.280 --> 0:18:56.400 equity futures sitting on modest gains, stops hoping to snap 0:18:56.440 --> 0:18:59.679 a three day losing streak. Here on the final trading 0:18:59.760 --> 0:19:03.760 day of twenty twenty four, the SMP having a wonderful year, 0:19:03.800 --> 0:19:06.760 a blistering year, the index up about twenty four percent. 0:19:07.320 --> 0:19:09.960 Matt miskin O of John Hancock seen a limit though, 0:19:10.320 --> 0:19:12.800 to further gains, writing that it's going to be hard 0:19:12.880 --> 0:19:16.480 for equities to stomach much more upside. While we still 0:19:16.520 --> 0:19:19.360 prefer US equities based on the better fundamentals, we recognize 0:19:19.400 --> 0:19:22.399 the magnitude of outperformance in twenty twenty four is not 0:19:22.720 --> 0:19:26.000 likely to be replicated. Matt joined us right now to 0:19:26.040 --> 0:19:28.280 talk a little bit more about that outlook. And Matt, 0:19:28.960 --> 0:19:31.960 maybe we don't see the same gains we saw in 0:19:32.000 --> 0:19:34.760 twenty twenty three and in twenty twenty four, but should 0:19:34.800 --> 0:19:38.080 we expect at least some meaningful gains in twenty twenty five. 0:19:39.400 --> 0:19:42.199 It's certainly possible romaine, but what we're seeing here is 0:19:42.280 --> 0:19:46.119 heavy is the crown really for US equity leadership and 0:19:46.400 --> 0:19:51.400 US economic leadership. Frankly, after certain stints like this where 0:19:51.600 --> 0:19:55.760 US economy is just blown past most global economies, the 0:19:55.880 --> 0:19:58.320 US stallar has strengthened a lot, so it's up about 0:19:58.359 --> 0:20:01.520 six percent in twenty twenty four. A stronger dollar makes 0:20:01.600 --> 0:20:04.359 US less competitive on a global basis. It helps actually 0:20:04.400 --> 0:20:07.639 bring down inflation because we're buying stuff from abroad, but 0:20:07.760 --> 0:20:12.160 it is difficult to stomach for economic purposes. Then rates 0:20:12.200 --> 0:20:14.520 have been higher, so we have high quality bond yields 0:20:14.560 --> 0:20:16.920 ten ye yields higher on the year. That's a bit 0:20:16.960 --> 0:20:21.080 of a slowdown. And then there's massive expectations out of 0:20:21.119 --> 0:20:24.760 the US economy and markets into twenty twenty five. So 0:20:24.800 --> 0:20:26.960 the earnings estimates for twenty twenty five for the S 0:20:27.000 --> 0:20:29.879 and P five hundred are still about fifteen percent, so 0:20:29.920 --> 0:20:32.960 there's a lot of optimism. One of the biggest assets 0:20:33.000 --> 0:20:34.760 the S and P five hundred and US large cap 0:20:34.800 --> 0:20:37.240 stocks have had over the last several years has been 0:20:37.800 --> 0:20:43.080 conservative and more kind of bearish sentiment the sentiment dial 0:20:43.160 --> 0:20:46.760 has been turned up significantly to end twenty twenty four. 0:20:47.040 --> 0:20:49.119 We think that's becoming a bit of a liability as 0:20:49.119 --> 0:20:50.200 we walk into next year. 0:20:50.240 --> 0:20:52.760 Well, that's what I am confused about here. We talk 0:20:52.800 --> 0:20:55.160 about how crowded some of these trades are. We talk 0:20:55.200 --> 0:20:57.280 about the lack of hedging that we're seeing in the 0:20:57.280 --> 0:21:01.000 equity space, and the idea that you have valuations at 0:21:01.080 --> 0:21:03.080 least to some of these companies that at least by 0:21:03.119 --> 0:21:05.439 historical standards, would be stretched. I know there are some 0:21:05.440 --> 0:21:08.879 people that want to reinterpret history, But what do you 0:21:09.000 --> 0:21:12.200 do in that situation? Do you reallocate, do you stand 0:21:12.200 --> 0:21:14.360 by your conviction that maybe some of those stocks can 0:21:14.440 --> 0:21:15.040 go high or what? 0:21:16.359 --> 0:21:21.000 Yeah, momentum is not a fundamental factor, and momentum was 0:21:21.040 --> 0:21:24.240 the number one way to outperform, the only way to outperform, 0:21:24.280 --> 0:21:27.080 frankly in twenty twenty four. So what is momentum. It 0:21:27.119 --> 0:21:29.240 means you look at the best performing stocks of the 0:21:29.280 --> 0:21:31.840 last six to twelve months and you allocate. 0:21:31.400 --> 0:21:35.440 The most of those. So basically, chasing performance was rewarded 0:21:35.480 --> 0:21:36.320 in twenty twenty four. 0:21:36.640 --> 0:21:39.560 But to your point, Romain, there's other things that drive 0:21:39.640 --> 0:21:43.840 stock markets, whether it's valuations, whether it's earnings, and that 0:21:44.119 --> 0:21:46.800 those parts of the market have been left behind this year, 0:21:46.840 --> 0:21:48.880 and there's a bit of a dog's of the Dow 0:21:49.480 --> 0:21:53.639 type formula where usually the worst performers can sometimes become 0:21:53.680 --> 0:21:57.000 the best performers in the subsequent year this year ending 0:21:57.080 --> 0:22:00.439 this year, the dogs of the Dow kind of mantra 0:22:00.560 --> 0:22:04.320 looks more realistic as a potential turnaround or catalyst into 0:22:04.320 --> 0:22:05.800 twenty twenty five because. 0:22:05.600 --> 0:22:08.920 We are so stretched on the valuations. We're at about. 0:22:08.760 --> 0:22:10.720 Twenty two times on four pe on the S and 0:22:10.720 --> 0:22:13.080 P five hundred, the highest in history at least the 0:22:13.160 --> 0:22:16.040 last thirty years has been twenty four not there's about 0:22:16.119 --> 0:22:19.160 nine percent upside we can get on valuations. Earnings estimate's 0:22:19.160 --> 0:22:22.200 already great. Dimmiting yields are the lowest in history. So 0:22:22.359 --> 0:22:24.879 to your point, it's hard to eke out gains in 0:22:24.960 --> 0:22:26.240 the more expensive stuff. 0:22:26.359 --> 0:22:28.520 The better value stuff come around. 0:22:28.600 --> 0:22:31.880 Yeah, sorry, why do you believe that In the essence 0:22:31.960 --> 0:22:34.960 of when you see sell offs happening, you're seeing a 0:22:34.960 --> 0:22:37.600 lot of babies thrown out with the bathwater here. And 0:22:37.680 --> 0:22:40.520 if you believe that maybe some of these underperformers can 0:22:40.560 --> 0:22:43.760 come back next year, how much of a risk is 0:22:43.800 --> 0:22:48.120 there that just risk appetite alone goes along with it. 0:22:48.840 --> 0:22:51.280 Yeah, that's the tie that lifts all boats and the 0:22:51.359 --> 0:22:54.320 risk appetite. But what we're seeing look is into next 0:22:54.359 --> 0:22:58.080 year there's just hard to get more valuation upside on 0:22:58.119 --> 0:23:00.879 the other parts. It's not necessarily call that they're bad 0:23:01.040 --> 0:23:03.080 companies that there are going to see this, you know, 0:23:03.119 --> 0:23:06.080 really bad performance. It's more just saying the multiples can 0:23:06.119 --> 0:23:07.560 expand in more like mid. 0:23:07.400 --> 0:23:09.639 Cap stocks and small cap stocks first. 0:23:09.720 --> 0:23:13.800 Large cap stocks internationally also has been really a tough 0:23:13.800 --> 0:23:17.560 performance year. European equities are only up about two percent 0:23:17.600 --> 0:23:21.280 and US dollar basis, they're very cheap still, so what 0:23:21.320 --> 0:23:24.159 we could see is just a rotation or even I 0:23:24.200 --> 0:23:27.280 would say downside protection because the valuations are so much 0:23:27.320 --> 0:23:30.320