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Speaker 1: Let's get to our guest to Marvin Lowe is with

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Speaker 1: US Marvin and senior global macro strategist at State Street

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Speaker 1: Global Markets. He joins from Boston, where I'm sure things

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Speaker 1: are a little chilly there. Um, not too chilly in

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Speaker 1: the market today, kind of a warm and fuzzy feeling.

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Speaker 1: It looks like the fit is beginning to express a

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Speaker 1: little bit of openness that at least the tempo of

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Speaker 1: these rate hikes, Marvin may get adjusted to something a

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Speaker 1: little less than than seventy five basis points. What does

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Speaker 1: that mean for the for the outlook for equities as

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Speaker 1: we look into I mean, it's it's it's an encouraging

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Speaker 1: development for sure. Um. You know, we know we can't

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Speaker 1: go forever UM or else earls. We've shut down the

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Speaker 1: world from from a financial signing perspective, So you know,

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Speaker 1: it's nice to have that in terms of, uh, something

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Speaker 1: that we could see in the short term. Kind of

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Speaker 1: Having said that, equities have been you know, pretty um

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Speaker 1: excited about it. Probably probably a little bit too excited

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Speaker 1: about it, because getting to fifty and you know, seeing

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Speaker 1: the end doesn't necessarily mean that we're need to cut

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Speaker 1: anytime soon. Um And I think that, and I think

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Speaker 1: that the markets are reading a lot into the fact

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Speaker 1: that the FED is slowing, and that doesn't necessarily mean epivot.

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Speaker 1: What do we know about the lag effect of the

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Speaker 1: right increases that we've seen so far? You know, and

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Speaker 1: we're going to get some dout of this week consumer confidence,

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Speaker 1: home sales, initial jobless claims. Those are all legging indicators.

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Speaker 1: We probably yet to see the full effect of the

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Speaker 1: hikes so far. How of close are we getting to

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Speaker 1: the risk of overtightening here? Yeah? I mean, you know,

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Speaker 1: what we know about the lag is that they that

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Speaker 1: it exists. Um, you know, first and foremost we know

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Speaker 1: it exists, and there are signs that the lags are

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Speaker 1: certainly starting to emerge. Um, it's a very unusual cycle

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Speaker 1: right now because the two most important data points for

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Speaker 1: the FED around the size of the job market, you know,

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Speaker 1: the the unemployment rate and how it feeds into inflation,

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Speaker 1: are probably the most laggius, if you will, of all

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Speaker 1: the data points out there, but they're the most important. So, um,

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Speaker 1: the risk of over overtight things there because they do

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Speaker 1: need to see stability on those fronts to be comfortable

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Speaker 1: that they're at least getting to a point where there's

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Speaker 1: some stability around it. So UM, you know, I really

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Speaker 1: questioned over the course of the last couple of months

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Speaker 1: whether or not UM a recession is a policy mistake

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Speaker 1: or to a certain degree of policy goal, given the

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Speaker 1: lags UM, and given just how unbalanced the employment market

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Speaker 1: appears to be at this point, or a necessary consequence

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Speaker 1: of you putting the genie back in the bottle when

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Speaker 1: it comes to inflation. Boy was I was struck by

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Speaker 1: some of Yeah, it really is difficult. I wouldn't like

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Speaker 1: to be in that position, talk about threading a needle.

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Speaker 1: What do you make as some of these numbers though,

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Speaker 1: that we had from retailers today, Look at Best Buy

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Speaker 1: up nearly, Abercrombie up more than one percent today, very quickly, Marvin,

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Speaker 1: are you somewhat bullish on on retail? Has has the

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Speaker 1: damage that has been inflected in some of the equities

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Speaker 1: for these companies, has it been overdone? Well? You know,

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Speaker 1: certainly they were UM the the center of the storm,

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Speaker 1: if you will. It was It was the easiest kind

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Speaker 1: of part of the discussion to say, oh, you know,

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Speaker 1: retail is going to struggle with everything that's going on. UM,

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Speaker 1: and we saw that early on it was driven by

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Speaker 1: income rather than kind of a broad based syfe movement. UM.

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Speaker 1: I still think that there's I still think there's what's

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Speaker 1: shop going into next year in this somewhat challenging and

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Speaker 1: volatile environment. I know you've got a strong preference for

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Speaker 1: fixed income when it comes to putting money to work.

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Speaker 1: Why is that? And where are you're looking? You know,

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Speaker 1: it's it's um, it's it's an unfortunate aspect of kind

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Speaker 1: of the environment that we're in. But UM, I do

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Speaker 1: think it's gonna be hard to avoid a recession. UM.

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Speaker 1: And I think fixed income at these levels UM, and

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Speaker 1: kind of given how bonds seemed to be recoupling with

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Speaker 1: the economic cycle, if you will, as we get um

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Speaker 1: further along in this tightening cycle, UM, I think provides

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Speaker 1: a little bit more clarity in terms of at least

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Speaker 1: what direction, um, those prices are going to go. So

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Speaker 1: talk to me a little bit about more fixed income

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Speaker 1: is a pretty broad category. Are you looking more at

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Speaker 1: the high yield space away from sovereign or good quality corporate?

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Speaker 1: Give me a sense of duration and whether or not

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Speaker 1: this would include markets offshore? Sure? So um, Uh probably

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Speaker 1: first and foremost is trying to figure out what treasuries

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Speaker 1: are going to do relative to this fight environment. And

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Speaker 1: I do think that we do get duration outperforming in

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Speaker 1: the event that UM these recession concerns that I have

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Speaker 1: ultimately emerged. So kind of this curve flattening that we've

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Speaker 1: seen UM not necessarily UM having a lot more room

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Speaker 1: to run, given how inverted the curve is already, but

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Speaker 1: duration should outperform in that kind of environment. So it's

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Speaker 1: kind of starting there UM that that ultimately will support

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Speaker 1: probably better quality corporate credits UM from a duration perspective,

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Speaker 1: as well as their ability from a claims paying perspective

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Speaker 1: to withstand some of those recessionary concerns that are out

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Speaker 1: there UM. When we kind to think about it from

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Speaker 1: from an offshore perspective, UM, I do think that there

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Speaker 1: are compelling UM stories around various emerging markets, particularly those

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Speaker 1: that are further along in their hiking cycle, further along

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Speaker 1: in getting inflation in check and ultimately offering some real

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Speaker 1: yields that UM aren't necessarily offered in a lot of

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Speaker 1: the other parts of the world. So, you know, emerging

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Speaker 1: markets a big thing. But but but thinking about it

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Speaker 1: that way is probably how I would approach. So you

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Speaker 1: don't prefer equities. Does that you're telling us that you

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Speaker 1: don't think that the bottom is in yet? Is there

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Speaker 1: more to run here? You know what I mean? The

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Speaker 1: challenges that we uh that we were getting to valuations

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Speaker 1: that made things more attractive, and within a very short

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Speaker 1: period of time we went from you know, maybe more

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Speaker 1: fairly valued, maybe a little bit over valued, back to

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Speaker 1: what seems expensive. So, UM, we're kind of back in

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Speaker 1: a discussion where things aren't cheap going into a recession. UM,

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Speaker 1: it's gonna be a stock pickers year, for sure. They're

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Speaker 1: gonna be winners as we get longer into this tightening cycle,

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Speaker 1: which will get to a plateau within the foreseeable future. UM,

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Speaker 1: I would prefer equities in the second half of the year,

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Speaker 1: once we really know how much further the FED has

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Speaker 1: to go and what type of recession or environment we're

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Speaker 1: looking at. So when you put that trade on, what's

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Speaker 1: the theme? I mean, are you defensive? Is it consumer

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Speaker 1: related issues? Uh, that that you'll really be looking at

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Speaker 1: more so, let's say than technology. You know what I do?

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Speaker 1: I do think I do think consumer gets thrown into

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Speaker 1: large basket. So we have to pick which consumer um

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Speaker 1: pool is going to perform better UM and certainly the

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Speaker 1: volatility that we've seen recently just shows how uncertain that

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Speaker 1: world is UM. I do think, I do think that

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Speaker 1: a recession is going to bring a lot of the

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Speaker 1: economic um environment back to back to a place that

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Speaker 1: we understand, so longer duration if I love, if I

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Speaker 1: like long duration bonds, I ultimately do like long duration

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Speaker 1: equity assets. I wouldn't say no technology UM, but particularly

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Speaker 1: how much we've seen in terms of of of UM

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Speaker 1: of cuts as well as you know, ultimately the the

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Speaker 1: amount of erosion that we've seen in those prices over

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Speaker 1: the course of the last year. So you know, again,

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Speaker 1: I would look for probably that that's safer growth kind

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Speaker 1: of environment going next year. And energy, reminder, remains to

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Speaker 1: be a very interesting type of sector. As we go

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Speaker 1: into a more environmentally friendly environment, we still need energy,

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Speaker 1: so supply becomes an issue. So I would look at

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Speaker 1: it that way, all right, Marve and Lowe's senior global

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Speaker 1: macro strategist at State Street Global Markets, Thanks for joining us.

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Speaker 1: This is Bloomberg