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Speaker 1: Bloomberg Audio Studios.

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Speaker 2: Podcasts.

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Speaker 3: Radio. News.

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Speaker 1: This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube.

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Speaker 2: Let's check in with a professional who does this stuff for a living on a global basis. Christina Huber, she's a chief market strategist for the Mann Group. Christina, I'd love to get your thoughts. We heard from Fed Chairman Warsh last week at Jackson Hole. I'd love to get your thoughts on kind of what you heard and maybe what do you think it means for the markets?

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Speaker 4: Well, I think Fed Chair Warsh was sufficiently vague, which is what I had expected. But he certainly reiterated how hawkish he is, how intolerant he is of above target inflation. However, we're getting to the point now where he's likely going to need to show that he is actually tough on inflation. But thus far, he has the credibility, markets have given him credibility for this. And I think it's certainly sustainable for a bit longer before he really is forced to act. He also said, of course, that he thinks the U.S. economy is quite resilient. So all signs point to a hike in the near term. So those were my key takeaways. I don't think this was a huge speech. Sometimes Fed chairs use the Jackson Hole speech as an opportunity to launch some monumental new policy or signal a big change. I think certainly there are significant changes afoot, and he alluded to some of them, including less communication, certainly forward guidance. And I think that is likely to result in significantly more confusion for markets.

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Speaker 5: Well, he did say no more forward guidance, but then it seemed like at the end of his speech, he actually did give forward guidance. Like you said, he seemed very hawkish. He talked about how inflation was a problem, how he had faith in the job market, and the market seemed to be responding as if it were forward guidance. Is there a meaningful difference?

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Speaker 4: Oh, that's a great question. Not that meaningful a difference, but I think that it will seem like more of a difference as we move forward. Yes, this is part of his introduction to the world as the new Fed chair is to make sure they know he thinks that where inflation has been for the last several years is not acceptable. But I think going forward, there will be more nuances and we'll realize where there are deficits because we're no longer getting forward guidance and we'll likely see it in market volatility, including bond market volatility.

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Speaker 2: Christina, we're seeing the 10-year Treasury yield 4.72%, obviously much higher than we've seen it over the recent past year. Higher for longer. A, do you believe in that higher for longer thing? And if so, is that a challenge? Is that a headwind for equities?

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Speaker 4: Oh, I absolutely believe we'll be higher for longer because there are so many forces that are conspiring to keep yields elevated on the long end. not the least of which, of course, is an enormous amount of debt that's growing every day. And I do think this could be a very significant headwind for equities, especially the long duration equities like technology. So we're actually at a crossroads right now where I think the environment could get materially worse for equities because it doesn't have that underpinning of lower rates.

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Speaker 5: You think that's true even with all of the excitement around AI and markets having continued to set records for months and months and months?

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Speaker 4: I do think that. Certainly, they will go through periods of excitement, but the reality is that we haven't seen that much in the way of demonstrable change as a result of AI. This lower inflation environment, for example, that I think many hope we'll get to, and we're likely to get to at some point, has not arrived as a result of AI. So this is all about now spending on AI, which is, of course, inflationary in the shorter term. And of course, again, we can't ignore those bigger issues like the incredible increase in debt that we're seeing. We have a much larger fiscal deficit than had been anticipated because of the war in Iran. And that shows no signs of going away anytime soon.

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Speaker 2: Christina, what's the fixed income call here? I mean, again, you can just clip some of these government coupons in 430 on the short end of two years, 10 years, 470, 520 on the 30. Those are pretty nice coupons here. Do I need to take credit risk above and beyond that?

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Speaker 4: So I think, first of all, I would favor the shorter end of the curve for sure in this environment. And I do believe that it makes sense to take thoughtful credit risk. That for investment-grade credit, some of it has, of course, better ratings than the U.S. And so it's important, in my opinion, to be well diversified. And also there are some pretty significant opportunities out there in the credit space both within, but also more importantly, outside of any AI-related debt.

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Speaker 5: You said you expect inflation to come down. I assume that means you think that interest rates are going to be going up. Do you see that as happening in the future?

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Speaker 4: So I certainly do believe we're going to see rates go up in the shorter term. We'll probably get one to two rate hikes this year, even if Chair Warsh is inclined to sit on his hands. I think we have an FOMC that is far more inclined to hike rates in the shorter term. That seems to be what we've gotten from the most recent FOMC minutes, as well as some of the speeches that we've heard recently. So I think this committee is moving towards higher rates on the short end. And that is, however... not necessarily going to combat inflation and get it to target anytime soon. Keep in mind that some of the inflation we're seeing today is being driven by supply shocks, not demand. And it's a lot harder to control that via monetary policy tightening.

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Speaker 2: Christina, thank you so much. We appreciate it. As always, Christina Hooper, Chief Market Strategist at The Mann Group.

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Speaker 6: Stay with us. More from Bloomberg Surveillance coming up after this.

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Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

00:07:44
Speaker 6: Let's check in.

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Speaker 2: With Tracy Manzi. She's a senior investment strategist. At Raymond James, one of my favorite kind of midsize investment banks out there. I've competed against them all along my career. There's some really, really smart people down there, Tampa, St. Pete and some other places. Tracy, thanks so much for joining us here. I'd love to get your thoughts on kind of maybe what we heard from Fed Chairman Warsh out there in Jackson Hole last week. How does that impact maybe your outlook for some of these markets here?

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Speaker 3: Yeah. So I think Chair Walsh came in with a job to do. He really needed to clean up some of the communication missteps that he had back in July. And I do think that he did that. He provided a lot more clarity, at least at how he's looking at the market. And I would say that I came away with three big takeaways, one being September is really a live meeting and of what we're going to see in terms of the Fed decision I think you raise the bar for the Fed to stay on hold that said we don't think that the Fed is going to have to. High grades here- but the onus really is on for the data to come in better than expected and I think he introduced some new elements. into how he's looking at the markets. Not only did he talk about that he's really taking a deep dive and looking at the breadth of what's going on in inflation, but also the speed in which inflation starts to get back down to their target.

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Speaker 5: You mentioned that he gave a little clarity to the markets that they were definitely looking for. What did What moments in the speech or what parts of the speech do you feel like gave clarity to the markets? Because a lot of it was things he had said previously, although you're right, the market seemed to have reacted as if he did give additional clarity.

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Speaker 3: Well, I think some of the comments that he had echoed what we heard in the July meetings. He did come out with more of a hawkish tilt than I may have expected from Chair Warsh. But what he did say is he reiterated the fact that 2% PCE is the target. He did say that, which I thought was an interesting comment, that he sort of downplayed the two inflation numbers that have come in better than expected. He said in his mind that didn't broadly change the trend. So that does put the onus on the data coming up to really deliver. We do think that when you look ahead in the inflation outlook should start to improve and that should give some comfort to the Fed that it is moving in the right direction. But certainly he did give a little bit more color where he's been very tight lipped about how he views the economy and the last two press conferences that he had after the FOMC meetings.

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Speaker 2: Tracy, how are you thinking given that Backdrop there from the Fed here. How do you think about allocations here, stocks, bonds here? Because we have hitting stocks hitting all time high seemingly on a daily basis. But boy, I can clip some really nice coupons out there. How do you think about that?

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Speaker 3: Yeah, so what we're telling our advisors here at Raymond James is that that income story that you just talked about in fixed income is the best that it's been in years. And look, yes, interest rates have moved higher this year. We've had the war with the US and Iran. That's complicated, the inflation backdrop. growth has been a little bit- higher than expected but we do think that the backdrop for- fixed income is going to be better going forward in with stocks at all time highs and bonds- at the upper end of the range that we've been trading and I mean I know we hear this higher for longer all the time you just talked about it in your last say in your last segment. But if you step back and you look at it broadly, we've been in a 375% to 5% range in the 10 years since the Fed stopped hiking rates in 2023. And now we're back at that upper end. You're right. You can clip a really good coupon. We always tell our advisors that the best predictor of forward returns in the bond market is the starting yield. And with yields on the ag close to 5% right now, you can have pretty good clarity that you can earn 5%. I think that that is a good rate of return for you to get. And when we look at it, you know, if you're going to be balancing your portfolio between stocks and bonds. If you're a little over allocated to stocks because you had such a run up in the equity prices, it's a good time to take a step and say, hey, this is a good time to reallocate back to my strategic allocation because you're basically getting paid to have the optionality of when we do have, if and when we do have an economic downturn. Bonds look really attractive here. I mean, you can have rates go up a little bit, and you've got that income cushion to support you from having losses. But if we do get into an economic slowdown and rates did go back down to that 4% level or 375, you're looking at potentially double-digit returns. So I really like the optionality here. I think bonds look compelling. I know there's a lot of nervousness, but I wouldn't shy away from them.

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Speaker 5: What about stocks? Do you see this as a time of maybe the end or ending of the really pretty spectacular run that we've seen over the last few years?

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Speaker 3: Well, there's no doubt that valuations are high in the stock market. We've just come through a very strong earning cycle. We do expect that to continue. If you look ahead, we have very strong growth in every quarter. the- S. and P. five hundred going for the rest of the year. When we look at what our forward outlook is for the equity market we still see equities moving higher on a twelve month target eighty two fifty is our S. and P. five hundred target so you know there is some some upside here still with just given. The resilience of the economy the strength in corporate earnings we expect that to continue.

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Speaker 2: So, Tracy, what screens well for you guys right here? Is it a factor? Is it a sector, an industry?

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Speaker 3: You know, some of our favorite sectors in the equity market, we still like tech. Yes, tech has had a good run. But when we look ahead, you know, they're still posting the strongest earnings growth of all of the sectors. We think that the AI build-out is going to have knock-on impact into the industrial sectors. That's another one of the sectors that we like. And we do like health care.

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Speaker 2: Tracy, thanks so much for joining us. Always appreciate getting a few minutes of your time. Tracy Manzi. She is a senior investment strategist at Raymond James down there in Tampa, St. Pete.

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Speaker 6: Stay with us. More from Bloomberg Surveillance coming up after this.

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Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

00:14:59
Speaker 2: Sarah Hunt joins us here in studio, partner and chief market strategist at Alpine Saxon Woods. Sarah, what did you make of the speech last week from our Fed chairman, Mr.

00:15:08
Speaker 4: Warsh?

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Speaker 7: I think that the market had some expectations of him, especially after the earlier speeches that were, that didn't, let's just say they didn't hit the way that I think that they were intended to. And I think that he did a good job of redefining. Here's my job. Here's what I want to do. Here's what's here. What's what I think is wrong. Here's the parameters that I'm looking at, but I don't think that you're going to get the same kind of consistent talk and handholding that we've had since arguably the financial crisis.

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Speaker 5: Yeah, he made a big point of saying, don't call this forward guidance. But he did give a trail map, so to speak, which sounded a lot like forward guidance. And it feels like the markets all reacted as if it were forward guidance. Do you think he's like weaning us off of it?

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Speaker 7: You know, it's one of those things where markets are always going to look for information. They're always trying to parse out what's going to happen, right? Remember, there was a briefcase indicator. There was a sandwich indicator.

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Speaker 5: There were a whole lot of things. He wore a gray tie.

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Speaker 7: Back in the day, there were a lot of other things that people relied on besides speeches. And I think that, you know, there was some concern post the first two that there was not an attack on inflation. And I think that he is trying very hard to make that case. Adding a couple more variables makes it possible, I think, to say, you know, let's see what happens with the data that's coming right now. August has been traditionally kind of up and down. And, in fact, I think the last time there was a big Fed panic move was because of data that came in in August and then it sort of later disappeared. wasn't so bad as we got through September and October. So we'll see what happens. I think that if you don't see a huge change in the data or if it's mildly benign, it gives them room to wait a little bit longer, but we'll see. I don't know if they want to wait. I know that there are a couple who don't, but there's still nine that do. So let's see how that goes.

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Speaker 2: Earnings have been Better than good, better than excellent, quite frankly, particularly on the second quarter here. Is that enough to support this market, do you think, here? Because it feels like, man, the market doesn't feel that expensive.

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Speaker 7: Well, it certainly has been, right? So absent the earnings growth and absent the fact that that's been fantastic, I think you would have much more trouble digesting all of the other things that are going on, including what's going on right now with oil prices. But I think that what came out last week and I think what came out of NVIDIA was we see a strong– environment going forward. And we don't see that backing down the way that people have been concerned. We're already worrying about 2027, right? Because it's September, about to be. And that's where we start to shift into what are next year's earnings. So I think that that was a good forward look. And I think that if you see things continuing, and you're seeing good earnings on not just the technology front, but on other fronts as well. And you're seeing pretty strong cash flow. For the technology companies, they're spending it. For a lot of other companies, they're using it in different ways. So I think that that looks pretty benign at the moment. And it has to be, given where valuations are, I think.

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Speaker 5: You mentioned oil prices. And obviously, this morning, we were seeing escalating tensions.

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Speaker 2: I just saw them today. Boy, they're up big.

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Speaker 6: I know.

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Speaker 5: I mean, it's shocking. And they've been going up for a while. I'm wondering how you mentioned that, but how are you factoring that in and escalating tensions in as well?

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Speaker 7: So because the tensions have escalated and de-escalated a number of times, you've had very much of a roller coaster for the oil prices. It hasn't been a straight line higher. It's been higher and then lower and then higher. I think that this is a consequence, obviously, of what happened over the weekend and the concern that we are now going to be back in a hostility situation. I don't know that this was— I don't know that that's going to happen. I don't think anybody knows yet. We're not going to get— we' re not going to hear what the plan is. We're just going to see what happens. And the fact that there was kinetic action makes people much more concerned, and that's where you're seeing the rise in oil prices this morning.

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Speaker 6: If that doesn't.

00:18:36
Speaker 7: Repeat or if we get a week where things calm down, I think you see oil prices calm down again. There was also some discussion over the weekend of how much oil got through, how much Saudi Arabian crude got through. You know, it's hard for us to see that from the outside because a lot of this is going on in the dark without transponders. And so we're working on how that goes. That took the oil price down last time. Let's see what happens going forward.

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Speaker 2: Yeah, boy, just looking at it, I hadn't even really paid attention to it this morning. But, boy, WTI crude oil is up 3.8%. $ 3. 17 a barrel now at $ 86. 57 a barrel for WTI. Brent, $ 91. 18, so higher oil there. So that kind of goes back to, Sarah, what do you think the underlying inflation is, and how does it impact just corporate earnings in general, do you think?

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Speaker 7: So right now, the biggest problem for inflation is probably more for consumers than it is for corporations, depending on what you do and what sector you're in, right? Because if transportation costs are a large part of what your cost basis is, if you're an airline, this is a problem. If you are in other sectors, it's less of a problem. The transportation issue has been up and down. I think it's been problematic for consumers because it's mostly food and energy that are taking the brunt of this. Now, that's probably going to continue. We've got some issues that are going on with the growing season because of weather. We've got some issues that are going on because of fertilizer. So higher commodity prices are something that is concerning. The problem is that raising rates doesn't necessarily attack that, except by lowering demand, and then that hurts your employment picture. So there's a lot of puts and takes, which is why I think the Fed is not necessarily as much on target to do something in September, because I do think that they see that tension.

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Speaker 3: Yep, absolutely.

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Speaker 2: Sarah, thank you so much for joining us. As always, Sarah Hunt, she's a partner and chief market strategist at Alpine Sachs and Woods.

00:20:22
Speaker 6: Stay with us. More from Bloomberg Surveillance coming up after this.

00:20:34
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m.

00:20:40
Speaker 4: Eastern.

00:20:40
Speaker 1: Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube.

00:20:46
Speaker 2: Let's check in with Tracy McMillian right now, Global Head of Asset Allocation Strategy at Wells Fargo. Tracy, given what we heard from Fred Chairman Warsh last week, what's your view on stocks, bonds, commodities, all this investing stuff?

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Speaker 3: Well, good morning, Paul.

00:21:07
Speaker 8: So our view really hasn't changed. We didn't feel like Chairman Warsh really said anything that was that new, although his tone was more hawkish and he was probably more informative than he's been in his previous communications. But that did not change our view that we like stocks over bonds. And we prefer commodities as well as another favorable position in our allocations.

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Speaker 5: What was it about the speech that made it seem like there was no, or I guess that made you feel like he didn't quite say anything super substantial? I feel like people are quite divided on this. He was, as you say, quite hawkish, but you're still favoring stocks. That makes you a little bit unique among the people we've talked to this morning.

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Speaker 8: Well, we are still favoring stocks because even though we do anticipate a couple more rate increases, we don't think that that is going to be enough to overcome really the spectacular earnings and revenues that we've been seeing from companies, not just this past quarter, but the last quarter. And a lot of the forward guidance also has us excited about the potential for higher earnings next year that we think will drive prices higher.

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Speaker 2: Tracy, what's your AI play these days? I guess we started off a few years ago just buying the chips. And I think that's probably still a decent play, but it's broadened out for a lot of people. How are you guys approaching the AI investment theme these days?

00:22:55
Speaker 8: Yeah, it's broadened out for us as well. And we do still like information technology. That is one of our favorite sectors. We like semiconductors, hardware, storage in that area. But we've also added communication services, especially on valuations. And we like materials that are part of that build out of the data centers.

00:23:21
Speaker 5: You don't think you don't see things slowing down or you don't feel like you feel like the growth is going to remain as robust as it was in spite of like data center objections and potentially expensive credit and things like that.

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Speaker 8: Yeah, so overall growth in terms of GDP, we do see modestly slowing, but that has, in.

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Speaker 3: Our view, more to do with the consumer.

00:23:47
Speaker 8: Than it does with CapEx spending and investment spending, which we do think will continue at a rapid pace. And, you know, I think that one of the things we kind of have to keep in mind is that there's a constraint, but not necessarily a in terms of what is permissible, but what is possible, because demand for chips are still exceeding the chip supply. So, you know, that's a constraint that is something that we think is going to continue to make, you know, make those prices attractive for.

00:24:28
Speaker 3: You know, the next few quarters.

00:24:31
Speaker 7: Yeah.

00:24:32
Speaker 2: Tracy, what are we doing in the bond market here? I can clip a two-year government coupon. Treasury's 4.35% or so. That's a nice living for a lot of people. Do I need to take credit risk above and beyond that?

00:24:43
Speaker 8: It is a nice living for a lot of income investors that have really suffered over the last couple of decades. And they're finally starting to see yields that are relatively attractive by historical standards. In terms of taking credit risk, the credit spreads are still very narrow. So there's not a lot of incremental gain that investors can get from that credit risk. But, you know, we think that investment grade credit is a perfectly good way to gain some additional income. And we'd stay at the short end of the curve because we're not interested in taking that inflation risk at the longer end.

00:25:25
Speaker 3: Of the curve right now.

00:25:27
Speaker 2: Tracy, thanks so much.

00:25:28
Speaker 6: We appreciate it.

00:25:29
Speaker 2: Tracy McMillian, she is global head of asset allocation strategy at Wells Fargo.

00:25:33
Speaker 1: This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, 7 to 10 a.m. Eastern, on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal. Thank you.