Speaker 1: Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amerie Hordernt. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: anywhere else you listen, and as always on the Bloomberg
Speaker 2: Terminal and the Bloomberg Business App. Keith Lerner of truest
Speaker 2: writing the S and P five hundred Ballmarket, just marked
Speaker 2: his third anniversary and delivered the sixth strongest six month
Speaker 2: rebound inner history. As we enter the final two months
Speaker 2: of the year, history is on a bull side. Keith
Speaker 2: joins us now for more. Keith, good morning, good more.
Speaker 3: I'm ready to be here.
Speaker 2: Great to see you.
Speaker 4: One.
Speaker 2: Are the toawl winds that you're so confident about right now?
Speaker 4: Well, I think the main thing, Rob Front, I think
Speaker 4: this board market deserves the benefit of the data, and
Speaker 4: we have all these of concerns. As one concern receives,
Speaker 4: we have another one to talk about, which makes it interesting.
Speaker 4: But the north storrow of this bull market has been simple.
Speaker 4: It's been profits, in our view, and those profit trends
Speaker 4: are still moving higher. Forward twelve month estimates for the
Speaker 4: S and P are moving higher, but they're also moving
Speaker 4: higher for the average stock. They're moving higher for the
Speaker 4: small caps as well. And we also have a global
Speaker 4: bull market. It's not just the SMP. We have ninety
Speaker 4: percent of global markets in up trends, and we're seeing,
Speaker 4: you know, the e fee maker of fresh fifty two
Speaker 4: week high emerging markets make fifty two weeks high.
Speaker 3: And then even as we get.
Speaker 4: Some kind of uncomfortable or some headlines around the tech trade,
Speaker 4: money's not leaving.
Speaker 3: It's rotating.
Speaker 4: And then lastly, this morning, look at the AAII sentiment
Speaker 4: this morning, it's up to forty nine percent barishness.
Speaker 3: That's the highest since May.
Speaker 4: And we're still as we're talking this morning, the downs
Speaker 4: at an all time high.
Speaker 2: I've asked this question fifty different ways. Earning it's a
Speaker 2: great job States for is not? When does the job
Speaker 2: States is stunt to matter to this market?
Speaker 3: It's a good question. I mean, you know, we.
Speaker 4: All talk about people talking about the y shaped.
Speaker 3: Economy we're talking talking about.
Speaker 4: We talk about the two speed economy and the two
Speaker 4: speed stock markets. So you know, at some point, you know,
Speaker 4: when you think about it, profit margins can benefit from
Speaker 4: wage growth slowing, but at some point you need that
Speaker 4: consumer spending to help the economy move forward. So I
Speaker 4: don't know the exact date, but I think that's part
Speaker 4: of the reason why you've seen moral weakness in some
Speaker 4: of the consumer discretion a space, the retail space. But
Speaker 4: we also have to remember the large cap market in
Speaker 4: particular is not driven by the low end consumer.
Speaker 5: Well, and frankly, I mean, we've got Kevin Gordon coming
Speaker 5: on later, and I love his comment in a note
Speaker 5: where he said we're transitioning from a vibe session to
Speaker 5: a vibe pression and how there seems to be this
Speaker 5: increasingly negative view of the economy, but it has not
Speaker 5: translated into what people actually do.
Speaker 1: Retail therapy seems to be the solution to everything.
Speaker 5: So at what point do you just ignore this and
Speaker 5: take a look at what companies are saying, whether it's
Speaker 5: the airlines, whether it's the retailers, especially on the high end,
Speaker 5: consumers are still spending.
Speaker 4: And that's right, and we're seeing it still leaving the
Speaker 4: credit data that we follow also, so you're right. I mean,
Speaker 4: if you look at the headline, so the consumer's sentiment,
Speaker 4: we just had sentiment really just at really low levels.
Speaker 4: But when you test that out from a stock market
Speaker 4: perspective a year later, the market tends to be up
Speaker 4: in a meaningful way. So I mean, I don't want
Speaker 4: to dismiss it because it is a two tiered economy,
Speaker 4: two tiered market, but a big pisture if you're investing
Speaker 4: in the S and P five hundred and you're investing
Speaker 4: in these tex stocks, and as I mentioned, even globally
Speaker 4: we're seeing some good activity as well. So when that
Speaker 4: turning point is it's hard to say. But in the
Speaker 4: first quarter we will see a little bit of a
Speaker 4: boost with some of the tax refunds.
Speaker 3: We're going to.
Speaker 4: See maybe hopefully more clarity on the terriff side, and
Speaker 4: maybe some more incentives on the business side. So I
Speaker 4: do think we'll see a little bit of an uptake,
Speaker 4: maybe on the marginal people feel a little bit better.
Speaker 1: Is it going to be inflationary?
Speaker 5: And this is really what FED officials are grappling with,
Speaker 5: and honestly, I don't envy them, given the fact that
Speaker 5: they are grappling between potentially allowing inflation to become unmoored
Speaker 5: or causing permanent scarring to the labor market. How much
Speaker 5: can they really cut if you do get that boost
Speaker 5: to consumption in the early part of next year.
Speaker 3: Yeah, it's a good question.
Speaker 4: It's a tricky situation for them as a lot of
Speaker 4: these different cross currents. But I will say there are
Speaker 4: maybe you know, a little bit of an uptick because
Speaker 4: of the AI spending because of the terrorists. But on
Speaker 4: the other side, we do have wages cooling somewhere. We
Speaker 4: have oil prices in the sixties, and what we led
Speaker 4: the program with was housing. Housing prices are softening as well,
Speaker 4: So that doesn't seem to me like a runaway inflation
Speaker 4: environment as a whole. And I would also say, you know,
Speaker 4: we still think the Fed ultimately moves towards three percent
Speaker 4: on the FED funds by the end of next year,
Speaker 4: whether they do it in December or January, I think
Speaker 4: people will kind of overfixiate on that. We also have
Speaker 4: to remember that, you know, on the way up, the
Speaker 4: economy was somewhat less interest rates sensitive, and it may
Speaker 4: be a little bit less interest rate sensitive as they cut.
Speaker 4: So I don't think that's the most important thing by
Speaker 4: far by for the markets.
Speaker 2: Do tax rebates change your outlook? Two thousand dollars checks?
Speaker 3: You know?
Speaker 4: I think what it does on the margin is it
Speaker 4: lifts up maybe a slight uptick on GDP?
Speaker 3: Is it a game change?
Speaker 6: And know?
Speaker 4: But I mean that's one of our main thesis as
Speaker 4: we move into next year, is getting a little bit
Speaker 4: more clarity and having a slight uptick in the overall economy.
Speaker 4: And you know, those tax stimulus checks do help out
Speaker 4: on the margins.
Speaker 2: The focus of the White House, you can fill the shift.
Speaker 2: It's all about a fullibility right now. The President said
Speaker 2: it almost directly yesterday following the rear of putting into
Speaker 2: the government shutdown. So when you look out to twenty
Speaker 2: twenty six and you've got a very narrow concentrated equity
Speaker 2: market and a consumer that's been struggling, and a president
Speaker 2: determined to do something about it going into the midterms
Speaker 2: next year, it's not going to be the trend for
Speaker 2: next year.
Speaker 4: Well, you know, a lot of the question right now
Speaker 4: is do we move out of tech?
Speaker 3: And we're still sticking with tech.
Speaker 4: I'm waiting for confirmation on some of the things we
Speaker 4: look at, relative price trends, relative earning trends, to go
Speaker 4: into this broading trade. We have to remember we came
Speaker 4: into this year and what was the big theme? It
Speaker 4: was the broading theme hasn't worked out. In fact, part
Speaker 4: of the even the movement over the last couple days
Speaker 4: of rotation back there is because they've underperformed so much
Speaker 4: so the one brand got stretched too much. So I
Speaker 4: think there's a case to be made for the broadening
Speaker 4: story again next year because of the uptick, because of
Speaker 4: the fedgelable cutting rates, and we've had such outperformance by tech.
Speaker 4: But I also look back at different cycles. I look
Speaker 4: back at the nineties, I look back on the two thousands,
Speaker 4: and the leaders of bull markets tend to lead to
Speaker 4: the end. Doesn't mean there's not some you know, intimated
Speaker 4: mean reversion periods, But Tech was the leader until most
Speaker 4: of two thousand and Emerging markets were the leader into
Speaker 4: two thousand and seven. So I expect, even though there's
Speaker 4: these worries in these concerns, I think tech will ultimately
Speaker 4: still lead.
Speaker 3: If you believe you're in a bull market, I think.
Speaker 4: Ultimately tech has to participate and likely lead, even if
Speaker 4: there's some bounts of underperformance.
Speaker 1: How much is this for tech heads?
Speaker 5: I win tails you lose in the sense that either
Speaker 5: they do really well and they continue to boom and
Speaker 5: the fedce cutting rates because the rest of the world's
Speaker 5: not doing so well, and so then they continue to
Speaker 5: boom even more because there's more cash looking to go
Speaker 5: to work, or you know, the whole world gets better
Speaker 5: and adapts to some sort of AI paradigm and they
Speaker 5: also benefit. So how much is that the reason why
Speaker 5: it's sort of in some ways the riskier free bet
Speaker 5: for a lot of people and their portfolios.
Speaker 4: Well, I think what happens with all these macro cross
Speaker 4: currents the news headlines from day to day. You see
Speaker 4: these kind of short term rotations in other areas, and
Speaker 4: then they when people feel uncomfortable where they go, they
Speaker 4: go right back to tech. So, but you raise a
Speaker 4: good point too. One of the main questions I'm getting
Speaker 4: today is are we in a tech bubble? And the
Speaker 4: other thing that keep in mind, going back with the FED,
Speaker 4: is the FED was raising rates in the late nineties
Speaker 4: two thousand.
Speaker 3: We're not doing that.
Speaker 4: We're still on a trajectory of actually moving lower. So
Speaker 4: I think I'd like to see a boarding I like
Speaker 4: to see, not a tree speed economy. I think most
Speaker 4: of us would like to see that as well. But
Speaker 4: I think you're right. I think if if things slowed down,
Speaker 4: money moves back to tech, and if things if the
Speaker 4: FED cuts rates, people still stick with tech because of
Speaker 4: the finance inside in the secular growth.
Speaker 5: If the FED is cutting in the face of inflation
Speaker 5: that has remained above the two percent target for more
Speaker 5: than five years, does that mean you should invest in
Speaker 5: the rest of the world and not necessarily the US.
Speaker 4: We're still team in USA. We've been Team USA for
Speaker 4: a long time. I think you know we did last fall.
Speaker 4: We increased our exposure to em we increase exposure to
Speaker 4: national develop and I think a lot of times people
Speaker 4: just think about, hey, it has to be either or,
Speaker 4: and I say this both with a bias, and our
Speaker 4: bias is still with the US. We still think that's
Speaker 4: the innovation. What we also look at is when we
Speaker 4: look at the last decade of international and the performance,
Speaker 4: you can overlay that with earning trends, and the earner's
Speaker 4: momentum for the US has been stronger that whole time.
Speaker 4: So what we're looking forward to, really say it's time
Speaker 4: to go even heavier into the international markets is to
Speaker 4: see those earning trends move up.
Speaker 3: We have seen better price action, valuations are cheap.
Speaker 4: Sentiment is has been negative coming into this year, but
Speaker 4: we still haven't seen the earnings. Now em emerging markets
Speaker 4: is more of a tech play relative to say the EFI,
Speaker 4: which is more of the kind of sickle financials, industrials
Speaker 4: and things of that nature.
Speaker 2: Okaith, can we just go through the tight set? What
Speaker 2: were you expecting to see and how quickly were you
Speaker 2: expecting to see it?
Speaker 4: I don't know that I had expectations when it was
Speaker 4: going to come through. It's listen, it's a cloudy period
Speaker 4: from our head of economics. So I feel bad for
Speaker 4: him every day, even though he had a little bit
Speaker 4: of a vacation, and for me and for what we do.
Speaker 3: I mean, I just go back to the profits.
Speaker 4: I'm focused on what the companies are saying, which tends
Speaker 4: to be more forward looking anyway. So and we also
Speaker 4: have to remember, I'd rather have data. But we also
Speaker 4: had jobs numbers earlier this year that were revised down
Speaker 4: by nine hundred thousand, so we all want the data.
Speaker 3: It's still the goal standard.
Speaker 4: It makes it cloudy, but I think we still have
Speaker 4: enough information from these private sources, along with what companies
Speaker 4: are telling us today, to say that the economy is
Speaker 4: still kind of muddling along. And then we also know
Speaker 4: some of the factors that we talked about next year
Speaker 4: why this should be potentially a little bit of of
Speaker 4: an uptake in our review. And then you know, we've
Speaker 4: talked a lot about the FED. Maybe this clouds their
Speaker 4: decision as well. I don't think the FED is the
Speaker 4: most important thing for this bull market to continue. I
Speaker 4: think it's probably more important for the rotation trade that
Speaker 4: the FED continues to cut rates and we move towards
Speaker 4: that three percent.
Speaker 3: On the tech side, it's not the main driver.
Speaker 4: So you know, all in all, we'll get through this,
Speaker 4: and you know, three or four months will be talking
Speaker 4: about something else. Maybe well, we're talking about the midterm
Speaker 4: elections by then, which will be coming as the main
Speaker 4: headline in twenty twenty six.
Speaker 5: Well, midterm elections are going to be determined by the economy,
Speaker 5: and the economy has seemed increasingly divorced from corporate earnings,
Speaker 5: which you've talked about at what point is that unsustainable?
Speaker 4: Yeah, it's I mean, it's going back to what we
Speaker 4: talked about earlier, you know, the you know, I think
Speaker 4: something else we have to think about, too, is we focused.
Speaker 3: A lot about job growth, but we still have.
Speaker 4: Almost you know, somewhere around one hundred and sixty million
Speaker 4: people work. And so I think what's also important, not
Speaker 4: just the monthly jobs numbers, is wage growth staying above inflation.
Speaker 4: And right now it is so as long as we
Speaker 4: can continue that happening, and we have those folks, you
Speaker 4: know that one hundred and sixty million people work in
Speaker 4: the consumer can still move forward, maybe not at the pace,
Speaker 4: but we still have this kind of you know, it's
Speaker 4: if you don't have a job, it's difficult. Some of
Speaker 4: the college kids we're seeing not getting a job, it's difficult.
Speaker 4: So that I think that divergence is likely to persist,
Speaker 4: especially as you throw on AI on top of that.
Speaker 5: Just real quick here going forward, what's more important to
Speaker 5: hatch against inflation or a slowdown?
Speaker 3: I think a slowdown. I think a slow down.
Speaker 4: I know our base case is for those reasons that
Speaker 4: we is a little bit of an uptick, but the
Speaker 4: labor market has been somewhat soft, and I mentioned already
Speaker 4: we are seeing some of those other factors like housing,
Speaker 4: oil prices are somewhere down, and even though wage growth
Speaker 4: is above inflation, wage growth is slowing, so you know,
Speaker 4: and that can change quickly. So I would say that
Speaker 4: the hedge against would be the slower economy. And that's
Speaker 4: why maybe you also, I mean you've seen a little
Speaker 4: bit of rotation. Maybe it's more specific, but some healthcare.
Speaker 1: You know.
Speaker 4: What I'd be looking forward to to say that the
Speaker 4: market's actually concerned about a slow down would be things
Speaker 4: like consumer staple starting to do better. We're not seeing
Speaker 4: that as of yet, but that's what we'll be watching
Speaker 4: early into the new year.
Speaker 2: Stay with US Multilomberg surveillance coming up after this. So
Speaker 2: stock rally on pause following the end of the longest
Speaker 2: government shutdown in history, Kevin Swab Kevin Gordon I was
Speaker 2: Swap likely saying it's likely we'll have to wait until
Speaker 2: the beginning at twenty six to get a clear read
Speaker 2: on the health of the labor market, raising the risk
Speaker 2: of a shocked to markets, especially if the Delight Jobs
Speaker 2: report are released all at once. Kevin Gordon joins us.
Speaker 2: Now for more, Kevin, good to see. Hello John Pharaoh,
Speaker 2: I'll get that right. Thanks for catching on withous. Let's
Speaker 2: talk about this market and the prospect of two thousand
Speaker 2: dollars checks. Has that changed the outlook for you this
Speaker 2: shift towards affordability.
Speaker 7: Well, I think the prospect of the checks, I mean,
Speaker 7: we'll see what the you know, how that actually nets
Speaker 7: out if we learned anything from the past five years
Speaker 7: of issuing out checks to Americans and directly giving them
Speaker 7: money in several rounds. Yes, you could argue it contributes
Speaker 7: to an inflation problem, but it also doesn't solve anything
Speaker 7: on the sentiment or the confidence front. As you pointed
Speaker 7: out earlier in the show, you know, alluding to this
Speaker 7: vi depression that we've started to think about. You know,
Speaker 7: cinemas only continued to get worse as inflation has remained
Speaker 7: sticky and above the FEDCE target, and price levels have
Speaker 7: been still so egregiously above where they were pre pandemic.
Speaker 7: So I'm not so sure that it's necessarily going to
Speaker 7: be an elixir for what ails a lot of the
Speaker 7: economy from a sentiment standpoint, and then I think from
Speaker 7: an inflation standpoint.
Speaker 6: More importantly, I certainly don't.
Speaker 7: Think it'll do anything to help bring inflation a little
Speaker 7: bit lower, because even if you take out what was
Speaker 7: a really strong disinflationary force in the September CPI, which
Speaker 7: was shelter. I know there's a lot of controversy around
Speaker 7: excluding certain components, but the core parts of inflation are
Speaker 7: still relatively sticky. If you do core services X, housing
Speaker 7: and CPI, you're still running above three percent on a
Speaker 7: year over year basis.
Speaker 6: That hasn't really bunched. You look at a year of a.
Speaker 7: Chart of just general year over year change in CPI
Speaker 7: that's hovering closer to three percent on average, not too so.
Speaker 7: There is a little bit of a difference in the
Speaker 7: inflation backdrop post pandemic, and we're sort of living in
Speaker 7: and experiencing at real time every day.
Speaker 2: The pass is this becomes a dated conversation because we
Speaker 2: don't have updated data. Yeah, I might not get another
Speaker 2: CPI report for quite a while. What's been the biggest
Speaker 2: problem for you the absence of data or the data
Speaker 2: we have seen.
Speaker 7: I think it's been the absence, and I think it
Speaker 7: will be the absence for a while.
Speaker 6: You know, as you alluded to in the quote.
Speaker 7: I'm getting sort of more convinced that it's going to
Speaker 7: take until probably the end of January, maybe well into
Speaker 7: to the end of the first quarter of twenty six
Speaker 7: until we get a clear read at least on something
Speaker 7: like the labor market, because we're looking at this data
Speaker 7: hole in October hol e not whol e, where you're
Speaker 7: likely going to miss. Even if you get some reports
Speaker 7: like the non farm payrolls report, it's probably not going
Speaker 7: to be clean. I mean, retroactively, you have to ask businesses,
Speaker 7: you know, for the Establishment survey, what the.
Speaker 6: Employment situation was like.
Speaker 7: I think the likelihood you get the household survey is
Speaker 7: pretty low, which that's not going to mean that the
Speaker 7: payroll number is meaningless, but I think it will take
Speaker 7: down a lot of the sort of you know, the
Speaker 7: scale of it, or at least the importance of it,
Speaker 7: because if you have the payroll number but you don't
Speaker 7: have the unemployment rate, we don't really understand what the
Speaker 7: supply situation is looking like. So because of that, and
Speaker 7: because you're going to then be missing revisions, and you're
Speaker 7: also past the reference period now for November. I mean,
Speaker 7: there's a whole list and I could go on, but
Speaker 7: I think all of that adding up gets you to
Speaker 7: a point where into the first quarter of twenty six
Speaker 7: you probably have maybe a little bit of a cleaner
Speaker 7: read on labor. Plus you get the benchmark provisions towards
Speaker 7: the beginning of next year. So that's going to also
Speaker 7: be a pretty key, pretty key driver.
Speaker 5: So let's talk about the vibe session turning into a
Speaker 5: vibe pression. The idea of how much you have seen
Speaker 5: sentiment data fall off a cliff. It has recently been
Speaker 5: gut checked by the hard data coming from the government
Speaker 5: that actually things are okay, and you're seeing that gut
Speaker 5: check if there is one right now coming from the earnings.
Speaker 5: Is this something that's sustainable, the sort of breakdown between
Speaker 5: the vibes and how people feel and what actually is
Speaker 5: going on in economic activity.
Speaker 7: Well, it's sustainable in the sense and I'll give it,
Speaker 7: you know, I'll give a hat tip for a vibe
Speaker 7: session coin by my pelk Kyla Scanlon. So we're sort
Speaker 7: of building on the framework that she established. But you know,
Speaker 7: I think that it's sustainable in the sense that it's
Speaker 7: become the norm, whether you like it or not. I mean,
Speaker 7: just look at the math, look at the data. Post pandemic.
Speaker 7: In the past five years, you've only continued to see
Speaker 7: sentiment get worse.
Speaker 6: I know you missed gets a ton of.
Speaker 7: Flack because of maybe a little bit of a political
Speaker 7: bias and how much is driven by that.
Speaker 6: But the current conditions component of.
Speaker 7: The you miss sentiment and nexis at an all time low,
Speaker 7: meaning you have a base of consumers saying this is
Speaker 7: the current environment is worse than the financial crisis. That's
Speaker 7: worse than the nineteen eighties, it's worse than the late
Speaker 7: nineteen seventies.
Speaker 6: So I think it's sustainable.
Speaker 7: In the sense that sentiment in this cycle, and I
Speaker 7: think for at least the near to medium term is
Speaker 7: not going to be an indicator and a forward looking
Speaker 7: indicator for the trajectory of the economy. And I think
Speaker 7: that's somewhat consistent with how the base of growth has
Speaker 7: been shaped this year, where it's become narrower, it's become
Speaker 7: increasingly driven by business investment. Clearly, as we've all talked
Speaker 7: about every single day, you know, the AI capex portion
Speaker 7: of that on the tech and the software side, the
Speaker 7: hardware and the software side. So I think it is
Speaker 7: consistent with what has happened in the economy and how
Speaker 7: things have developed. But I just don't think it's going
Speaker 7: to be that traditional leading indicator for the economy because
Speaker 7: it hasn't been.
Speaker 5: It's a leading indicator though, for politics, and there is
Speaker 5: a feeling right now that that is going to come
Speaker 5: with some proposals. And you were talking earlier about the
Speaker 5: two thousand dollars checks that could come out, And I
Speaker 5: just wonder whether the bond market is starting to price
Speaker 5: in or when it will start to price in a
Speaker 5: series of potential proposals. The jobstling could potentially be quite stimulative.
Speaker 7: Yeah, well, I think from the bond market's perspective, you know,
Speaker 7: when we came I sort of rewind back to a
Speaker 7: year ago when we were all putting our outlooks together
Speaker 7: for twenty twenty five, and collectively we were assessing, you know,
Speaker 7: what is the policy risk well from Washington but also
Speaker 7: on the monetary policy side, and you do have almost
Speaker 7: an equal set of head winds the tailwinds for the
Speaker 7: equity market but also the bond market. You think about
Speaker 7: things that are more growth negative, like tariffs. I mean,
Speaker 7: we do have elevated tariffs we're probably going to be
Speaker 7: living in a high tariff world for the foreseeable future.
Speaker 7: But you also have some form of fiscal stimulus coming
Speaker 7: from the big beautiful Bill, but also potentially coming from
Speaker 7: additional measures, whether it is checks, so in that sense,
Speaker 7: and I think you know, you pointing out the sort
Speaker 7: of the little move down that we've seen in the
Speaker 7: tenure over the past year, but if you zoom out
Speaker 7: over the past several years, it's kind of been in
Speaker 7: this stuck in this range, and that makes a lot
Speaker 7: of sense to us because of these competing forces that
Speaker 7: you have.
Speaker 6: So I don't see a whole.
Speaker 7: Lot of that changing, especially because the business investment environment
Speaker 7: is still so fertile and it's so strong right now,
Speaker 7: and you're expected to get a little bit of a
Speaker 7: bounce back in consumption with you know.
Speaker 6: When we get third quarter GDP.
Speaker 7: Of course, fourth quarter and then into first quarter of
Speaker 7: twenty six is going to be distorted by the shutdown.
Speaker 7: But there's still no indication because of the stock of
Speaker 7: the labor is still so high right now, there's still
Speaker 7: no indication that you're seeing this massive draw down in spending.
Speaker 7: And we've had some alternative data that have under underpinned
Speaker 7: that and emphasized that that have shown that, you know,
Speaker 7: retail sales haven't fallen off a cliff. The weekly Economic
Speaker 7: index from the Dallas FED is still pretty stable, so
Speaker 7: we've been able to see that the consumer is still
Speaker 7: broadly resilient.
Speaker 2: Can we just finish on the setup for twenty six
Speaker 2: in market? So twelve months ago a lot of people
Speaker 2: bowled up on by America. When we went to Damos,
Speaker 2: Switzerland last year, it was ridiculous, Yeah, how long everyone
Speaker 2: was one thing and that was the United States. What
Speaker 2: happened an out of consensus rally in Europe lasted for
Speaker 2: the first half of the year at least, but it
Speaker 2: was massive. How do you think it was set up
Speaker 2: with that in mind for twenty six.
Speaker 7: I think that, you know, to the extent you get
Speaker 7: a little bit of a reversal in some of the forces,
Speaker 7: like the falling dollar in the first half of this year.
Speaker 7: That was almost to the date a one half twenty
Speaker 7: twenty five story. The dollar is stabilized and it's actually
Speaker 7: last I checked, I think, the best performing out of
Speaker 7: the G ten so far in the second half.
Speaker 6: Of the year.
Speaker 7: So even if that stays relatively stable, or you get
Speaker 7: a bit of a pickup because you have price or
Speaker 7: you have rate cuts that are priced out.
Speaker 6: From the market.
Speaker 7: In terms of the FED, I think that can maybe
Speaker 7: work against some of the you know, the x US trade,
Speaker 7: particularly in Europe, but you know, the setup for the US.
Speaker 7: What I think has become really important to watch and
Speaker 7: this is this has sort of manifested over the past
Speaker 7: couple of weeks and importantly this week so far, where
Speaker 7: the breadth picture under the surface for the S and
Speaker 7: P five hundred has actually starting to improve. So there's
Speaker 7: been a little bit of closing of the gap between
Speaker 7: you know, the equal weighted index and then the cap
Speaker 7: weighted index, where even though you're seeing some digestion over
Speaker 7: the past couple of weeks, there has been a little
Speaker 7: bit of a catchup from the average stock, which is
Speaker 7: really important because by the end of October you're at
Speaker 7: twenty six percent of members in the index that were
Speaker 7: outperforming the index on a rolling three month basis. That's
Speaker 7: incredibly low relative to history. So anytime you go through
Speaker 7: that sort of washout down the CA spectrum and outside
Speaker 7: of the top ten, you really need to see that
Speaker 7: gap close in favor of the average stock, the so
Speaker 7: called average stock, and so far that's happening, so I
Speaker 7: think it's a relatively healthy sign. But what needs to happen,
Speaker 7: I think in the next four to five weeks is
Speaker 7: a pickup in what I think of as sort of
Speaker 7: the Holy Grail metric for bread, which is the share
Speaker 7: of companies that are above their two hundred day moving average.
Speaker 7: That's come back up to sixty percent. So I think
Speaker 7: if you continue to see that climb as the index
Speaker 7: health improves, then I think that has a you know,
Speaker 7: it gives.
Speaker 6: You a relatively solid set of for twenty.
Speaker 2: Six Stay with us more Bloomberg surveillance coming up after this.
Speaker 2: Bonio's inching car This morning. As trying to look ahead
Speaker 2: to the Central Banks December meeting, Lisa holmb of stroudis writing,
Speaker 2: we continue to believe that persistent labor market selfness and
Speaker 2: mounting pressure on lower income households will keep the FMC
Speaker 2: on track for December. Raika and Lisa John just now
Speaker 2: for more Lisa and more. Is that becoming a close
Speaker 2: to cool?
Speaker 1: It is?
Speaker 8: And I actually think the Fed is doing a pretty
Speaker 8: good job of keeping that optionality right. Powell came back
Speaker 8: out after the press conference saying it's not a done deal.
Speaker 8: Don't think it is. But at the end of the day,
Speaker 8: our view is that the data we have seen, particularly
Speaker 8: some of the layoff data, has deteriorated, and so they
Speaker 8: probably will prioritize, at least for this meeting the labor
Speaker 8: market over the inflation side of the equator.
Speaker 2: We taken this meeting by meting just twenty five at
Speaker 2: a time and work out where we land.
Speaker 1: I think we are and I think we should be.
Speaker 1: That's fair, right.
Speaker 8: The economy is, it's not bad, I mean growth wise.
Speaker 8: I actually think next year is going to be a
Speaker 8: kind of a weird year where growth can actually be okay,
Speaker 8: but the labor market probably continues to soften a little bit,
Speaker 8: possibly because of the reasons that growth is okay, the
Speaker 8: AI spend some of these numbers that are coming out capex.
Speaker 8: It's possibly in contrast to the labor market. But the
Speaker 8: FED is going to have to figure out which one
Speaker 8: what things do they prioritize in this and you know, December,
Speaker 8: I think they probably lean towards the labor market.
Speaker 1: Next year becomes a little bit more of a question.
Speaker 5: Let's say the FED does cut an additional twenty five
Speaker 5: basis points next month, and let's say they signal they
Speaker 5: are open to doing more next year.
Speaker 1: What are your clients.
Speaker 5: Going to do with some of their money market funds.
Speaker 5: Is that enough to kind of push them out into say,
Speaker 5: longer duration or even into fifty year alphabet bonds.
Speaker 8: Well, let's hold on the alphabet a second. But I
Speaker 8: think that I think that's the right call. Right, There's
Speaker 8: been a tremendous amount of money parked in money market.
Speaker 8: This has been a great call. I think some of
Speaker 8: that is going to find its way into longer duration
Speaker 8: as we continue to see yields fall or you know,
Speaker 8: we have seen it, and I think we're already starting
Speaker 8: to see some of that money shift.
Speaker 1: I think there's probably more to come.
Speaker 8: I mean, unfortunately, generally retail tends to be a little
Speaker 8: bit late to that, so that we may get the
Speaker 8: money in as we're reaching the bottom of the FED
Speaker 8: cutting cycle. But I do think that probably will be happening.
Speaker 1: So let's talk about the fifty year alphabet debt.
Speaker 5: Not necessarily whether or not you bought it or anything
Speaker 5: like that, but I am curious how much you are
Speaker 5: seeing fund managers pushed into greater risk in a way,
Speaker 5: they're looking for the same kind of income they're looking
Speaker 5: for outperformance.
Speaker 1: AI is the hot trade?
Speaker 5: How much do people almost feel forced to absorb this
Speaker 5: incredible glut of debt issue in so okay?
Speaker 8: So there's a lot of questions in that question. I
Speaker 8: think one of them is the market is shifting quite
Speaker 8: dramatically in terms of tech and what that means to.
Speaker 1: The bond markets.
Speaker 8: Right, some of these issuers are now going are forecasted
Speaker 8: to become the largest issuers in the corporate index in
Speaker 8: the next few years, kind of surpassing you know that
Speaker 8: some of the potentially surpassing some of the verizons and
Speaker 8: the AT and ts, the larger non.
Speaker 1: Bank issuers, and so that's a really.
Speaker 8: Structural and fundamental shift that I think investors need to
Speaker 8: get their heads around.
Speaker 1: What does it mean.
Speaker 8: You know, Meta's issued massive amounts of debt just in
Speaker 8: the last six weeks. Their balance sheet and the structure
Speaker 8: of the company in terms of how they fund is
Speaker 8: changing dramatically. So I think there's a big question as
Speaker 8: to what does tech look like in the corporate index
Speaker 8: in a year's time versus.
Speaker 1: What it was maybe six months ago.
Speaker 8: I think investors are looking at that, but you know,
Speaker 8: there are other opportunities out there that aren't I wouldn't
Speaker 8: say aren't as crazy risky.
Speaker 1: You know, look at.
Speaker 8: Taxi that municipal bonds. I think maybe last time I
Speaker 8: was on the show, we might have talked about them.
Speaker 8: They underperformed treasuries at one point this year six and
Speaker 8: a half percentage points.
Speaker 1: This is not a crazy risk trade. Are you saying
Speaker 1: that the other is crazy risky.
Speaker 8: I'm saying that you can buy local government debt at
Speaker 8: pretty reasonable yields compared to treasuries and actually have some
Speaker 8: alpha generation potential there because they have underperformed this year.
Speaker 1: You know, Alphabet Google.
Speaker 8: Didn't exist fifty years ago, so I'm just putting that
Speaker 8: out there. I'm not saying it's not going to exist
Speaker 8: in fifty years time, but there are questions about that
Speaker 8: and their funding mechan.
Speaker 2: You keep aluting to it slowly, and we'll keep coming
Speaker 2: back to it. Are you worried about code for credit?
Speaker 8: Spreads are tight, and I think that there is probably
Speaker 8: a repricing that's going on in the tech sector, and
Speaker 8: I think those curves need to steep in. There are
Speaker 8: some interesting issuers that are coming today. Like possibly today actually,
Speaker 8: but I don't think we can paint them all with
Speaker 8: the same broad brush.
Speaker 2: As they issue more, does it make it a higher
Speaker 2: quality indexterraal level quality index.
Speaker 8: So we were just doing some work on this yesterday
Speaker 8: and I'll credit Morgan Stanley. They're the ones who came
Speaker 8: up with the stat They said they think that the
Speaker 8: top the big four hyperscalars can probably issue seven hundred
Speaker 8: billion without impacting their readings. So you know, I have
Speaker 8: I don't have better insight than them. These guys have
Speaker 8: been looking at this very closely. I have of what period,
Speaker 8: I don't know what that if that was a year's
Speaker 8: a couple of seven with they don't think that is
Speaker 8: what the issuance will be. They were just saying that's
Speaker 8: what they think they.
Speaker 2: Were Ultimately, that's a green light for them to issue to.
Speaker 8: Borrow and by the way, the cost of equity versus
Speaker 8: cost of debt, they might as well be funding in
Speaker 8: the debt markets. So I think there's a lot of
Speaker 8: issuance to come. There's a lot of a lot of
Speaker 8: data centers that we built.
Speaker 2: Guys stay with us. More Bloomberg surveillance coming up after
Speaker 2: this Bloomberg Economics estimating the shutdown was subtract one point
Speaker 2: three percentage points from fourth quarter GDP. The feder Reserve
Speaker 2: now how going to shake off the data fog ahead
Speaker 2: of their December meeting. Christina camp Many of Invesco writing,
Speaker 2: we expect clarcy on the calendar the US data flow
Speaker 2: within the few days coming out of a shutdown, but
Speaker 2: expect data to be noisy at best, with the potential
Speaker 2: for market blas to discount data extremes. Christina joins US
Speaker 2: Now for more. Christina, Good morning, Mornie. Thanks May now
Speaker 2: about payrolls being released in it and not just CPI,
Speaker 2: what's your base case?
Speaker 9: Look, I don't know if we get the data or not,
Speaker 9: but I think either way, we know that the data
Speaker 9: is going to be really noisy, so we finally will
Speaker 9: start getting data flow. But I think we have more
Speaker 9: murky water coming probably into your end, and there's a
Speaker 9: lot of questions of do you get both payroll reports
Speaker 9: on the same day. And I think the extremes exactly
Speaker 9: like we said, are going to be discounted. And I
Speaker 9: think we have to go back to what the story
Speaker 9: has been all year that you've had really weak sentiment
Speaker 9: data that keep kept getting re anchored by decent or
Speaker 9: hard to your one data. And then the breakdown came
Speaker 9: in the summer when you got the revisions to the
Speaker 9: labor market data and weakness, and now we've had no
Speaker 9: real data. So it's just been this very weak sentiment data.
Speaker 9: So where do we go from here? Do we have
Speaker 9: the hard data re anchor? And I think I think
Speaker 9: that's like a really important path forward. And I think
Speaker 9: you look at the consumer too. Even though sentiment data
Speaker 9: has been so weak, the consumer spending numbers and the
Speaker 9: credit card data numbers have still been robust. So you
Speaker 9: still have this bifurcation of like, well, which is it?
Speaker 9: You don't feel good, but you're still spending.
Speaker 2: He rise upon it at in the summer, the start
Speaker 2: of August at Your Life, Job's report changed the conversation.
Speaker 2: Coming out of the summer, we caught up with you,
Speaker 2: and consensus start to develop into the idea that the
Speaker 2: Federal Reserve was going to start an easy cycle. They
Speaker 2: went twenty five, they went twenty five. Is that now
Speaker 2: developing into a prolonged pause at the Federal Reserve?
Speaker 9: So Powell clearly came back and pushed back aggressively on
Speaker 9: the markets pricing at the October press conference, and I
Speaker 9: appreciate wanting to have some kind of flexibility and not
Speaker 9: be priced over one hundred percent for December, like that's
Speaker 9: reasonable from the FED.
Speaker 1: For me, I have a harder.
Speaker 9: Time with is even the pushbacks at the October meeting,
Speaker 9: and you've started to hear more noise and grumbling around
Speaker 9: the FED, and I think probably a noisier FED is
Speaker 9: here to stay, and you're gonna hear like a wider
Speaker 9: range of voices.
Speaker 1: But for me, it's hard to say you supported.
Speaker 9: One ease in September and you're going to dissent in October.
Speaker 9: We're talking about monetary policy that has long legs and
Speaker 9: is a blunt instrument, So easing twenty five being okay
Speaker 9: with twenty five but not fifty feels like a challenging.
Speaker 1: One for me.
Speaker 9: So we've always kind of been in the camp of
Speaker 9: you deliver seventy five to one hundred similar to last year,
Speaker 9: and then you can sit on your hands and say,
Speaker 9: let's see how this actually feeds through the economy. So
Speaker 9: I still our base case is still that they can
Speaker 9: go in December.
Speaker 2: Even when the kind of city Fed.
Speaker 9: We we did not, But there's so many moving parts,
Speaker 9: and I think the realities they'll probably still be flying
Speaker 9: blind data wise. And when you're flying blind, I don't
Speaker 9: think that means Cowell talked about on the brakes or pausing.
Speaker 9: I don't think that means you like avert course and
Speaker 9: change change the direction.
Speaker 1: I think a lot of people agree with you.
Speaker 5: I mean, right now the pricing and FED Fund's futures
Speaker 5: is more than fifty percent for that December rate. Could
Speaker 5: I just wonder why we're not seeing any kind of
Speaker 5: steepening in the yield curve given the fact that probably
Speaker 5: early next year we are going to get some stimulus checks,
Speaker 5: We probably are going to get some fiscal efforts coming
Speaker 5: from Washington.
Speaker 1: So look, I think.
Speaker 9: We've been in the camp to have a seper yeald
Speaker 9: curve for much of the year, and I think the
Speaker 9: frustrating part we've gone in bits and bounts of like
Speaker 9: we've steep in, we've flattened it back.
Speaker 2: Has been the.
Speaker 9: Long end for US, and you think about all of
Speaker 9: the fiscal dynamics in the US, and obviously the US
Speaker 9: is the US, so it has that benefit in markets
Speaker 9: and it is the most robust deepest market, so it
Speaker 9: has that benefit. But we're at the low end of yields,
Speaker 9: intens and bonds, and I don't know that we're discounting
Speaker 9: or like fairly pricing in the tax policy risks. You're
Speaker 9: going to have stimulus next year, So do we need
Speaker 9: to like even if the FED eases, do long end
Speaker 9: rates need to be lower?
Speaker 1: I don't think so.
Speaker 9: Because of where we are, are we pricing and inflation risk.
Speaker 9: Inflation's kind of been sticky.
Speaker 5: There's one argument that if you have a FED that's
Speaker 5: cutting rates, people have gotten accustomed to getting income on
Speaker 5: their cash are going to look for other places to
Speaker 5: get their income, and they're not necessarily going to go
Speaker 5: straight into equities. They're going to go its duration, and
Speaker 5: so they're going to lock in those yields, which will
Speaker 5: keep a lid on how high yields can go regardless
Speaker 5: of the backdrop of the deficit and inflation and all
Speaker 5: of these other concerns.
Speaker 1: What's your take on that argument.
Speaker 9: I think I think the argument about all in yields,
Speaker 9: certainly for credit and front end high quality paper, I
Speaker 9: think that's a real argument and it exists out there.
Speaker 9: Even though as a rates person It's a frustrating argument
Speaker 9: because you say, like why not Barbell and be in
Speaker 9: the front end and you in treasuries or in rate
Speaker 9: product and then afturf. But I think that it's a
Speaker 9: different dynamic for thirty years, and I think that that
Speaker 9: thirty year point globally, that's steepening in all of the pressures.
Speaker 9: There is a global phenomenon like look at what's going
Speaker 9: on in thirty year JGBS and under the new government,
Speaker 9: this kind of combination of reflationary policy and a much
Speaker 9: weaker yen and much it's like you're pushing on all
Speaker 9: of the limits and something's going to break. And I
Speaker 9: think we've learned this year that all of these markets
Speaker 9: are interconnected and what goes with one will affect others.
Speaker 2: So Tanya Bonio, it has been a bit of a
Speaker 2: pain tride this year. Tries this morning at four point
Speaker 2: zero nine percent ended last year, last training day of
Speaker 2: the year, four fifty seven. That Bonio's lower, not high
Speaker 2: on the year so far.
Speaker 5: You know what we haven't mentioned yet today twenty five
Speaker 5: billion dollars of thirty or notes coming out at one
Speaker 5: pm an auction today. If thirty year notes six months
Speaker 5: ago that would have been exciting.
Speaker 1: Right now people are like, yeah, there's.
Speaker 2: Plenty of suggesting it's not exciting. Gety, Well, I think.
Speaker 5: It's still exciting, but I think the other people are
Speaker 5: less excited about it. So I'm not going to beat
Speaker 5: the drum as much because you know, I don't feel
Speaker 5: like getting hateail this show.
Speaker 2: We care, we should care?
Speaker 5: Okay, Well, I think people should care because ultimately this
Speaker 5: is a testament to how much people are actually looking
Speaker 5: at the global dynamic as well as the sort of
Speaker 5: potential buyers versus the inflation picture, which could potentially surprise them.
Speaker 2: A lot of supply coming into credit as well, the
Speaker 2: same look.
Speaker 9: At the corporate supply, and a lot of it has
Speaker 9: been all this AI related very long dated issuance which
Speaker 9: has been absorbed with ease. And like we talk about
Speaker 9: the credit market, I mean, credit spreads are very tight,
Speaker 9: so you have to sit there and say, like, what
Speaker 9: are the risks out there?
Speaker 2: This is the Bloomberg Surveillance Podcast, bringing you the best
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