WEBVTT - Fed Minutes Show Several Officials Nod to Rate-Hike Scenario 0:00:02.520 --> 0:00:07.000 Bloomberg Audio Studios, Podcasts, radio News. 0:00:08.680 --> 0:00:12.960 This is Bloomberg business Week Daily reporting from the magazine 0:00:13.000 --> 0:00:17.639 that helps global leaders stay ahead with insight on the people, companies, 0:00:17.640 --> 0:00:22.560 and trends shaping today's complex economy. Plus global business, finance 0:00:22.600 --> 0:00:25.880 and tech news as it happens. The Bloomberg Business Week 0:00:26.000 --> 0:00:31.480 Daily Podcast with Carol Masser and Tim Steneveek on Bloomberg Radio. 0:00:32.000 --> 0:00:34.760 It is a Fed Wednesday, not a decision, but we're 0:00:34.800 --> 0:00:37.400 getting the Fed minutes from that first meeting of twenty 0:00:37.440 --> 0:00:41.160 twenty six, happened on January twenty eighth. You know, that's 0:00:41.200 --> 0:00:43.839 the meeting when the Fed kept rate steady and you 0:00:43.920 --> 0:00:46.600 had two FED governors Chris Waller and Stephen Meyern, voting 0:00:46.640 --> 0:00:49.440 against the decision in favor of lowing rates by a 0:00:49.520 --> 0:00:51.680 quarter of a point. So we are waiting for them 0:00:51.720 --> 0:00:53.599 to cross. They will cross any moment from now. 0:00:53.680 --> 0:00:55.960 Beetcher Powell also back then talked up a quote clear 0:00:56.000 --> 0:00:58.240 improvement in the US outlook, and so the job market 0:00:58.280 --> 0:01:02.160 shows sign of steadying, studying signaling a cautious optimism. 0:01:02.280 --> 0:01:04.720 All right, let's head to DC, and outside the Federal 0:01:04.720 --> 0:01:06.720 Reserve is our own Michael McKee Mike. 0:01:08.120 --> 0:01:11.880 Okay, here's the headline. In a very newsy set of minutes, 0:01:12.240 --> 0:01:16.199 Several participants indicated that they would have supported a two 0:01:16.319 --> 0:01:20.440 sided description of the committee's future interest rate decisions, reflecting 0:01:20.520 --> 0:01:25.360 the possibility that upward adjustments could be appropriate. The focus 0:01:25.360 --> 0:01:28.959 of the January meeting on inflation largely rather than jobs, 0:01:29.200 --> 0:01:34.000 and concern that bringing it down had stalled. Officials anticipated 0:01:34.040 --> 0:01:36.920 inflation would move down this year, but the pace and 0:01:37.000 --> 0:01:42.520 timing remained uncertain. The continuing rise in prices driven by tariffs, 0:01:42.600 --> 0:01:46.000 the minute say the effects would likely start to diminish 0:01:46.040 --> 0:01:50.360 this year, and ongoing moderation and housing prices would also help. 0:01:50.920 --> 0:01:55.160 High productivity growth from technology might also put downward pressure 0:01:55.240 --> 0:01:58.880 on inflation, and a few participants mentioned that companies were 0:01:58.920 --> 0:02:01.920 telling them they are on mading more operations to try 0:02:01.920 --> 0:02:07.760 to offset some price increased needs. Most participants, however, cautioned 0:02:07.800 --> 0:02:10.720 that progress toward the two percent objective might be slower 0:02:10.880 --> 0:02:14.640 and more uneven than generally expected, and judged that the 0:02:14.760 --> 0:02:19.799 risk of inflation running persistently above the committee's objective was meaningful. 0:02:20.240 --> 0:02:24.200 Some cited reports from business contacts expecting to raise prices 0:02:24.240 --> 0:02:27.680 this year. The labor market the committee's big concern last 0:02:27.720 --> 0:02:30.720 year was less of a concern this year. The vast 0:02:30.800 --> 0:02:34.280 majority of participants judged the minutes say that labor market 0:02:34.320 --> 0:02:38.440 conditions had been showing some signs of stabilization and that 0:02:38.600 --> 0:02:42.320 downside risks to the labor market had diminished. Still, most 0:02:42.360 --> 0:02:46.440 agreed downside risks to the labor market remained in place, 0:02:46.520 --> 0:02:52.480 particularly as the labor supply diminished. Overall, the economy appeared 0:02:52.480 --> 0:02:55.640 to be expanding at a solid pace, with resilient consumer 0:02:55.720 --> 0:03:01.200 spending and robust business investment, particularly in technology, although suggested 0:03:01.360 --> 0:03:03.639 a lot of that was due to spending by higher 0:03:03.639 --> 0:03:08.720 income consumers. Lower income spending was soft. There was a 0:03:08.760 --> 0:03:12.880 long discussion of markets, with several commenting on high asset 0:03:12.960 --> 0:03:18.960 valuations and historically low credit spreads. Some saw vulnerabilities in AI, 0:03:19.440 --> 0:03:24.520 including elevated equity valuations and gains concentrated in a small 0:03:24.600 --> 0:03:29.600 number of companies. Several highlighting concern about the private credit sector, 0:03:29.840 --> 0:03:33.680 and others commented on risks associated with hedge funds and 0:03:34.000 --> 0:03:37.440 rising leverage. Finally, the January meeting is when the Open 0:03:37.480 --> 0:03:41.280 Market Committee elects its officers for the year. J Powell 0:03:41.360 --> 0:03:44.000 again named chair of the Committee, but the minute, say, 0:03:44.080 --> 0:03:47.120 until the selection of their successors at the first meeting 0:03:47.160 --> 0:03:48.520 of twenty twenty seven. 0:03:48.760 --> 0:03:50.680 Gotta say, Mike, it sounds like they all had their 0:03:50.720 --> 0:03:53.440 readings that morning because the meeting, right, it sounds like 0:03:53.480 --> 0:03:56.080 they covered a lot of stuff. Hang on for a second, 0:03:56.080 --> 0:03:57.920 because I want to see what you think is of 0:03:58.000 --> 0:04:02.000 most important importance. Thank you the Bloomberg audience. Having said that, 0:04:02.560 --> 0:04:05.480 just taking a look at equity markets firming up a 0:04:05.520 --> 0:04:07.880 little bit on the S and P and the Dow, 0:04:08.040 --> 0:04:10.960 but pretty much NAZEQ one hundred, staying where it was 0:04:11.040 --> 0:04:14.160 prior to the Fed Meat Fed minutes coming out. If 0:04:14.200 --> 0:04:16.680 I look at the Treasury curve, you are looking at 0:04:16.680 --> 0:04:19.400 pretty much the ten and five where they were prior 0:04:19.480 --> 0:04:22.120 to the release of the minutes. Looking at the shorter 0:04:22.240 --> 0:04:24.880 end of the Yeald curve, slide uptick, the two year 0:04:24.960 --> 0:04:27.400 yield moving from like three forty five to three forty six, 0:04:27.520 --> 0:04:30.039 kind of back there. So I would say, not much 0:04:30.120 --> 0:04:33.040 market reaction, which is kind of interesting, Mike. What is 0:04:33.400 --> 0:04:36.360 most notable because investors seem to be taking this in stride. 0:04:37.600 --> 0:04:40.080 Well, this is the first commentary from anybody at the 0:04:40.120 --> 0:04:44.440 FAD about the possibility of rate increases several is referred 0:04:44.520 --> 0:04:48.400 to only two or three members, and we kind of 0:04:48.440 --> 0:04:51.200 know who those members might be. But the idea that 0:04:51.240 --> 0:04:54.840 they did put the idea out there is something that 0:04:54.880 --> 0:04:57.640 we haven't seen in years, and so it does become 0:04:57.720 --> 0:05:00.640 a significant talking point as we go forward ward and 0:05:00.760 --> 0:05:05.520 watch to see what inflation does. The emphasis clearly shifting 0:05:05.560 --> 0:05:09.280 to inflation at this meeting from last year's focus on jobs. 0:05:09.680 --> 0:05:12.239 Hey Mike, A couple the headlines that are worth repeating. 0:05:12.320 --> 0:05:16.239 Several more cuts of inflation declinents as expected, yet most 0:05:16.240 --> 0:05:20.279 caution disinflation could be slower than expected. What could lead 0:05:20.320 --> 0:05:22.000 to slower disinflation. 0:05:23.120 --> 0:05:26.160 Well, they're concerned about tariff price increases and maybe they 0:05:26.160 --> 0:05:29.839 don't fade out as fast. And then additional demand in 0:05:29.880 --> 0:05:32.480 the economy because we're going to get some stimulus from 0:05:32.560 --> 0:05:35.719 tax refunds and because of all the spending on AI 0:05:36.400 --> 0:05:40.600 might also push prices higher. So there's concerns that inflation, 0:05:41.400 --> 0:05:44.440 while it may not rise significantly, could stabilize at a 0:05:44.560 --> 0:05:48.440 higher than desired level and that might lead the FED 0:05:48.480 --> 0:05:49.760 to have to do something about it. 0:05:50.160 --> 0:05:52.960 Hey Mike, A lot going on. Obviously, there's Fed minutes. 0:05:53.000 --> 0:05:56.080 We had some economic news today as well, we also 0:05:56.120 --> 0:05:58.440 had Kevin Hassett out there on a New York Fed 0:05:58.480 --> 0:06:01.920 tariff study, and I got to about that. He is, 0:06:01.960 --> 0:06:05.479 of course President Trump's NEC director, and he says that 0:06:05.520 --> 0:06:07.919 a New York Fed study showed that the US companies 0:06:08.880 --> 0:06:13.920 bearing most of the tariff burden is an embarrassment and 0:06:13.960 --> 0:06:17.280 the people associated with it should be disciplined. He spoke 0:06:17.279 --> 0:06:20.000 about this earlier on CNBC. Here's exactly what he had 0:06:20.040 --> 0:06:21.840 to say. He said, what they've done is they put 0:06:21.839 --> 0:06:24.440 out a conclusion which has created a lot of news 0:06:25.120 --> 0:06:28.160 that's highly partisan, based on an analysis that wouldn't be 0:06:28.200 --> 0:06:31.440 accepted any first semester ECON class. I've been in that 0:06:31.480 --> 0:06:34.920 first semester ECON class. So, Mike, FED researchers found nearly 0:06:35.040 --> 0:06:38.160 ninety percent of the economic burden from tariffs last year 0:06:38.200 --> 0:06:40.360 were born by US companies and consumers. Let's say, you, 0:06:40.480 --> 0:06:42.760 Mike McKee and the folks that you talked to the 0:06:42.800 --> 0:06:47.000 economic community, who really bears the cost of those tariffs. 0:06:47.920 --> 0:06:52.000 Companies and consumers in the United States. Mister Hassett's comments 0:06:52.440 --> 0:06:55.880 seem to have adopted the attack dog language of the 0:06:56.120 --> 0:06:59.560 Trump administration much more than even Kevin had done before. 0:06:59.640 --> 0:07:01.880 Maybe because he's not a candidate for a FED chair 0:07:01.920 --> 0:07:03.800 at this point. But you got to point out that 0:07:03.839 --> 0:07:07.320 the New York Fed, by saying ninety percent is picked 0:07:07.400 --> 0:07:10.920 up by Americans, is the outlier here because of study 0:07:10.920 --> 0:07:15.040 by the University of Chicago found ninety nine percent, study 0:07:15.200 --> 0:07:19.960 by the CBO found ninety five percent, the Kiel Institute 0:07:19.960 --> 0:07:23.480 in Germany found ninety four percent. So all of these 0:07:23.520 --> 0:07:28.640 people found that Americans are buying ninety percent or more 0:07:29.520 --> 0:07:32.000 or paying ninety percent or more of the tariffs. So 0:07:32.280 --> 0:07:35.440 I think mister Hassett is look at it the wrong way. 0:07:35.480 --> 0:07:38.560 And obviously the Trump administration doesn't like criticism. 0:07:39.000 --> 0:07:42.160 Okay, good to have that on the program, Mike. Just 0:07:42.200 --> 0:07:43.840 before we let you go, that the jobless boom a 0:07:43.880 --> 0:07:46.800 most read story on the Bloomberg terminal about the unprecedented 0:07:47.080 --> 0:07:50.560 jobless boom in the US. How economists are warning that 0:07:50.600 --> 0:07:52.920 the US economy is vulnerable to shocks because the labor 0:07:52.960 --> 0:07:55.720 market is not growing. Some are predicting that economic growth 0:07:55.720 --> 0:07:58.960 will slow due to stagnant labor markets. Camp productivity increase 0:07:59.000 --> 0:08:03.520 as the result well productivity of technology. Excuse me, as 0:08:03.520 --> 0:08:04.040 a result of. 0:08:04.000 --> 0:08:08.120 Technology, Well, that can happen. The question is how fast 0:08:08.120 --> 0:08:11.480 does the technology get adopted and how quickly and how 0:08:12.000 --> 0:08:16.920 deeply does it get adopted to drive productivity significantly higher. 0:08:17.240 --> 0:08:21.000 The concern about the labor market and the jobless recovery 0:08:21.160 --> 0:08:23.800 is reflected in these minutes, and members of the Open 0:08:23.800 --> 0:08:27.200 Market Committee did talk about that as a possibility, a 0:08:27.240 --> 0:08:30.600 possible risk to the economy, although as I said, inflation 0:08:30.760 --> 0:08:32.800 was sort of their number one concern this time. 0:08:32.840 --> 0:08:35.080 All right, so appreciate it as always our own Michael 0:08:35.120 --> 0:08:38.440 McKee down there outside the Federal Reserve. Were actually inside 0:08:38.440 --> 0:08:40.880 the Federal Reserve because it's kind of still cold outside, 0:08:40.960 --> 0:08:43.960 I think, Mike, Thank you so much. Safe travels back, 0:08:45.240 --> 0:08:46.040 stay with us. 0:08:46.080 --> 0:08:49.000 More from Bloomberg Business Week Daily coming up after this. 0:08:52.720 --> 0:08:56.720 You're listening to the Bloomberg Business Weekdaily Podcast. Catch us 0:08:56.800 --> 0:09:00.400 Live weekday afternoons from two to five pm Eastern on 0:09:00.440 --> 0:09:04.120 Apple CarPlay and Android Auto with the Bloomberg Business app ord. 0:09:04.240 --> 0:09:05.760 Watch us Live on YouTube. 0:09:07.040 --> 0:09:10.360 Hey listen. Investor is definitely keeping a watch on economic 0:09:10.440 --> 0:09:13.720 data fed expectations for what else is a top of 0:09:13.760 --> 0:09:16.840 mind is someone who's been looking at the recent volatility 0:09:16.920 --> 0:09:19.679 in the markets. He says it's typical of a major 0:09:19.679 --> 0:09:23.400 investment cycle, and that's some dynamics around the fear of 0:09:23.480 --> 0:09:26.760 AI disruption or contradictory. It is the view of our 0:09:26.760 --> 0:09:29.200 next guest. He is Mike Wilson of Morgan Stanley. He 0:09:29.280 --> 0:09:31.800 was among the rare forecasters who held on to a 0:09:31.800 --> 0:09:35.160 bullish few last April, even as stock sank in the 0:09:35.200 --> 0:09:39.000 aftermath of sweeping US tariff's. His conviction proved correct, with 0:09:39.040 --> 0:09:41.520 the S and P, as you know, rebounding to a 0:09:41.600 --> 0:09:44.280 record as President Trump dialed down his trade war. He 0:09:44.280 --> 0:09:46.000 does see the S and P rally I think about 0:09:46.040 --> 0:09:48.000 sixteen percent this year, but that was his call him 0:09:48.000 --> 0:09:50.199 in November. We'll see if he has an update. We 0:09:50.200 --> 0:09:53.559 welcome Mike Wilson. He's chief US equity strategist, chief investment 0:09:53.600 --> 0:09:56.480 officer for Morgan Stanley. He's in New York City. Might 0:09:56.520 --> 0:09:59.760 good to have you here. And someone who has followed 0:10:00.120 --> 0:10:02.880 Mike's call and writes calls, I should say, and writes 0:10:02.880 --> 0:10:05.440 about him a lot is our own Alex Sevenover. She's 0:10:05.480 --> 0:10:09.360 Bloomberg News equities reporter. She's here in studio. We want 0:10:09.400 --> 0:10:12.480 to talk about the markets, Mike. Are we in the 0:10:12.520 --> 0:10:15.800 midst of a new bull market and earning cycle? Especially 0:10:15.800 --> 0:10:18.000 from any of the lagging areas of the index. That 0:10:18.120 --> 0:10:20.600 was your call in mid November. Is that a call 0:10:20.679 --> 0:10:21.400 you still stick to. 0:10:23.160 --> 0:10:26.040 Yeah, well, good afternoon. First of all, I would say yes. 0:10:26.080 --> 0:10:28.240 I mean, you know, the story we actually started writing 0:10:28.240 --> 0:10:30.840 about in May of last year, which is a midyear update, 0:10:31.080 --> 0:10:34.960 was exactly that. I think our view still remains out 0:10:34.960 --> 0:10:39.920 of consensus around this idea that Liberation Day marked the 0:10:40.040 --> 0:10:42.520 end of what we call a rolling recession. So we're 0:10:42.520 --> 0:10:45.400 actually not only in a new earning cycle, we're in 0:10:45.400 --> 0:10:48.440 a new economic cycle. And that's why we're seeing the 0:10:48.480 --> 0:10:51.760 broadening out now, because there have been many parts of 0:10:51.760 --> 0:10:53.840 the economy that have been sort of mired in a 0:10:53.880 --> 0:10:56.640 recession for the last three years or so and they're 0:10:56.679 --> 0:11:00.240 just now starting to emerge. Areas like consumer goods, it's 0:11:00.480 --> 0:11:03.920 some of the financial sector, industrials obviously we're just getting 0:11:03.920 --> 0:11:06.280 a boost from AI campex, but also getting a boost 0:11:06.320 --> 0:11:09.800 from you know, basically underspending for the last several years. 0:11:10.040 --> 0:11:12.760 Parts of technology are still doing quite well, and so 0:11:12.840 --> 0:11:15.160 that broadening out is that is the real story. And 0:11:15.200 --> 0:11:18.560 we doubled down on that in November because the evidence 0:11:18.640 --> 0:11:20.520 was coming through, and you know, in May we didn't know, 0:11:20.679 --> 0:11:23.080 but now we know. I mean that the earnings growth 0:11:23.160 --> 0:11:25.680 for the media and stock and the Russell three thousand 0:11:25.760 --> 0:11:27.920 is now running double digit growth year every year. That's 0:11:27.920 --> 0:11:30.000 the first time we've seen that in four years. So 0:11:30.160 --> 0:11:32.679 it's happening. The question, you know, the question now is 0:11:33.000 --> 0:11:36.000 how long can it last? You know, what could derail that? 0:11:36.600 --> 0:11:38.120 And you know, what do you pay for? I mean, 0:11:38.120 --> 0:11:40.160 those are always the questions. But but the but the 0:11:40.240 --> 0:11:43.400 first part of your question is resounding. Yes, we are 0:11:43.440 --> 0:11:46.439 in a new earnings and economic cycle and the market 0:11:46.440 --> 0:11:47.679 has figured it out. 0:11:48.160 --> 0:11:50.760 Man, it's been pretty remarkable to see that you've got 0:11:50.880 --> 0:11:55.080 this stock volatility at the single stock level, also at 0:11:55.080 --> 0:11:56.680 the sector level, but when you look at the S 0:11:56.720 --> 0:11:59.280 and P five hundred, it actually hasn't really done much 0:11:59.280 --> 0:12:01.360 this year. What is it going to take to break 0:12:01.440 --> 0:12:03.600 us out of this range? And what could be the 0:12:03.640 --> 0:12:06.360 catalyst to get us past that elusive seven thousand level 0:12:06.400 --> 0:12:07.480 that everyone's waiting for. 0:12:08.600 --> 0:12:10.520 Yeah, that seems to be the question. I mean, obviously, 0:12:10.600 --> 0:12:12.920 stock investors don't mean if you can make money in 0:12:12.960 --> 0:12:15.200 other areas, that's fine. I think that's the real main 0:12:15.240 --> 0:12:18.000 message is that the market is not going anywhere at 0:12:18.040 --> 0:12:20.240 d SMP level, But there are many sectors that are 0:12:20.240 --> 0:12:21.920 doing well and that's the name of the game. Now 0:12:22.200 --> 0:12:24.720 to your question, I think what's going to break us 0:12:24.720 --> 0:12:27.160 out ultimately are two things. Number One, there is some 0:12:27.360 --> 0:12:32.760 uncertainty around the AI capex cycle and the disruption that 0:12:32.920 --> 0:12:36.280 perhaps it could cause in the labor market and other areas. 0:12:36.320 --> 0:12:38.440 So I think we're in one of those testing periods. 0:12:38.480 --> 0:12:38.680 Now. 0:12:38.720 --> 0:12:41.120 We worked about that this week. We think that ultimately 0:12:41.920 --> 0:12:44.000 it's a little bit premature to kind of throw a 0:12:44.040 --> 0:12:46.720 cold blanket on the AI cycle. It's just getting going 0:12:47.360 --> 0:12:50.439 from our standpoint. And then secondarily, I think we have 0:12:50.480 --> 0:12:54.480 a new FED chair nominee with Kevin worsh and the 0:12:54.520 --> 0:12:58.640 market always tests the new FED chair, whoever it is, 0:12:59.000 --> 0:13:02.400 when they come into into power office. And so first 0:13:02.440 --> 0:13:04.440 we have to go through the you know, the nominate, 0:13:04.520 --> 0:13:06.959 the confirmation hearings, and then we've got to learn a 0:13:06.960 --> 0:13:09.000 little bit more about what he really intends to do 0:13:09.160 --> 0:13:11.960 so that you know, that could lead to this, you know, 0:13:12.080 --> 0:13:14.480 the market kind of struggling for another month or two. 0:13:14.800 --> 0:13:17.000 And then ultimately we think once he takes office, we 0:13:17.040 --> 0:13:20.040 think that'll that'll be another catalyst for why the market 0:13:20.120 --> 0:13:22.480 can have a really good second half, and we stand 0:13:22.520 --> 0:13:24.880 by our seventeen hundred dollars price target for the SMP 0:13:25.000 --> 0:13:25.840 by the end of this year. 0:13:25.920 --> 0:13:28.480 Okay, so those are all the reasons and more that 0:13:28.480 --> 0:13:30.720 that you think we could see a sixteen percent increase 0:13:30.880 --> 0:13:33.080 in the S and P five hundred this year. What 0:13:33.280 --> 0:13:35.920 changes your mind, Mike? What could happen between now and 0:13:35.960 --> 0:13:38.080 the end of the year that could cause you to 0:13:38.120 --> 0:13:41.200 go back and sharpen the pencils, break out the excel 0:13:41.280 --> 0:13:43.240 and say, wait a second, we've got to recalculate this. 0:13:44.640 --> 0:13:47.880 Yeah, well, we do that every week anyways because we 0:13:47.960 --> 0:13:49.960 have to. But but I would say, you know, what 0:13:50.000 --> 0:13:52.760 would change our view is probably the things that are 0:13:52.760 --> 0:13:55.080 going right now. So for example, if we would see 0:13:55.120 --> 0:13:58.400 the earning cycle start to deteriorate, and then that could 0:13:58.400 --> 0:14:02.080 happen cent O four cast, but if the earnings revisions 0:14:02.320 --> 0:14:04.640 would just start to narrow again or start to really 0:14:04.679 --> 0:14:07.120 break down, that would be clearly something that would change 0:14:07.160 --> 0:14:10.000 our view. The second would be that, you know, the 0:14:10.520 --> 0:14:14.320 fear around Kevin worsh being kind of a balance sheet hawk, 0:14:14.840 --> 0:14:17.640 where you know he's going to maybe shrink the balance 0:14:17.640 --> 0:14:19.760 sheet and we're going to have a little bit of 0:14:19.800 --> 0:14:24.080 an liquidity problem potentially that would cause multiples to come down. 0:14:24.120 --> 0:14:25.840 We don't think that's going to be the case this year. 0:14:25.920 --> 0:14:28.040 That might be a story for twenty twenty seven. Well, 0:14:28.080 --> 0:14:30.480 we'll think about it then, but maybe we're wrong on that. 0:14:31.080 --> 0:14:33.080 The other one, of course, is you get another exogenous 0:14:33.120 --> 0:14:34.800 shock of some kind, and I think, you know, the 0:14:34.840 --> 0:14:38.080 one I mentioned earlier is starting to weigh on stocks 0:14:38.080 --> 0:14:40.320 here in the short term, which is this concern that 0:14:40.720 --> 0:14:44.000 you know, AI is happening so fast and it's you know, 0:14:44.080 --> 0:14:46.200 it's migrating now into the corporate world, that we're going 0:14:46.280 --> 0:14:48.840 to see a big labor cycle. That's not our view, 0:14:49.360 --> 0:14:52.120 but it could happen. And so there are those would 0:14:52.160 --> 0:14:54.280 be the top three. I would say that could derail 0:14:54.360 --> 0:14:55.760 our positive view for this year. 0:14:57.000 --> 0:14:59.840 We've heard time and time again that big text profits 0:14:59.840 --> 0:15:02.120 are going to slow, that it's time to rotate, and 0:15:02.200 --> 0:15:04.560 anyone who said that for the last few years has 0:15:04.600 --> 0:15:06.480 been wrong on that. Do you think that this year 0:15:06.560 --> 0:15:08.400 is different? And when you think about the end of 0:15:08.440 --> 0:15:10.760 twenty twenty six, when we close out, who are going 0:15:10.800 --> 0:15:12.080 to be the new winners? 0:15:12.360 --> 0:15:14.160 And I love that you went there, because Mike, it 0:15:14.160 --> 0:15:16.560 feels like the last three years, people have said, get 0:15:16.560 --> 0:15:19.680 away from big tech, diversify, and yet that's where we've 0:15:19.680 --> 0:15:22.040 seen so much of the games. It's great, it's a 0:15:22.080 --> 0:15:22.520 great yes. 0:15:22.680 --> 0:15:23.920 Well, I mean, I think a lot of people also 0:15:23.960 --> 0:15:25.400 made the other side of the call, which is to 0:15:25.640 --> 0:15:27.920 kind of upgrade small caps or the equal weighted s 0:15:27.920 --> 0:15:30.120 and p We didn't do that. You know, we don't 0:15:30.120 --> 0:15:32.720 get everything right, but we waited until November to make 0:15:32.760 --> 0:15:36.560 that call because our view is not that tech earnings 0:15:36.560 --> 0:15:38.720 are going to collapse. It's that the rest of the 0:15:38.760 --> 0:15:42.000 market's earnings are going to improve, and that's what usually 0:15:42.080 --> 0:15:46.760 drives relative performance. So it's really the spread between sort 0:15:46.760 --> 0:15:50.120 of the mag seven or large cap growth stacked earnings 0:15:50.120 --> 0:15:53.240 growth and the other four hundred and ninety three stocks 0:15:53.320 --> 0:15:55.640 or the other equal weighted index, whatever you want to 0:15:55.680 --> 0:15:58.400 call it. And that spread is narrowing now. And so 0:15:58.440 --> 0:16:01.240 the areas that we have been you know, recommending, is 0:16:01.280 --> 0:16:03.600 based on where that earnings growth is accelerating the most. 0:16:03.640 --> 0:16:07.560 That would be things like consumer goods or financials, some 0:16:07.600 --> 0:16:10.600 of the industrial segments, some of the small MidCap areas, 0:16:10.920 --> 0:16:13.040 and we stand by that that that that's what we're seeing, 0:16:13.120 --> 0:16:14.960 and that that's what we think is going to continue 0:16:15.560 --> 0:16:16.440 for the rest of this year. 0:16:16.480 --> 0:16:17.880 And that's really the story. 0:16:17.920 --> 0:16:20.640 It's not a it's not an anti tech or anti 0:16:20.760 --> 0:16:23.080 large cap growth call. It's more of a just a 0:16:23.120 --> 0:16:26.080 bullish call on all these parts of the economy and 0:16:26.160 --> 0:16:29.120 the market that have been under earning because of this 0:16:29.240 --> 0:16:30.000 rolling recession. 0:16:30.520 --> 0:16:32.160 So is it fair mic to say that you like 0:16:32.240 --> 0:16:34.080 the equal weighted version of the S and P five 0:16:34.120 --> 0:16:35.600 hundred more than the main index. 0:16:36.600 --> 0:16:39.120 Absolutely that that was our one of our lead calls 0:16:39.200 --> 0:16:42.360 in the November outlook, and and that has worked so far, 0:16:42.480 --> 0:16:45.080 so not on avoid hopefully that continues. And based on 0:16:45.120 --> 0:16:47.120 what we've seen so far this year in the earnings 0:16:47.320 --> 0:16:49.000 and what we see kind of in this you know 0:16:49.040 --> 0:16:51.760 that the economy itself, which which I think quite frankly 0:16:51.800 --> 0:16:54.200 is booming at the moment because you have capital spending 0:16:54.560 --> 0:16:58.320 increasing and consumer spending holding up, that that's a much 0:16:58.360 --> 0:17:00.400 better environment for the app. 0:17:00.720 --> 0:17:03.200 Hey, Mike, two things I just real quickly. I'm curious 0:17:03.200 --> 0:17:05.000 about do you think that White House is still a 0:17:05.119 --> 0:17:08.919 risk to financial markets? Are with midterms looming, do you 0:17:09.000 --> 0:17:12.320 think that the President and his team are going to 0:17:12.320 --> 0:17:17.000 be very careful about unsettling things in the financial markets. 0:17:17.080 --> 0:17:19.040 Many have said he certainly keeps an eye on it. 0:17:19.080 --> 0:17:21.879 Maybe that's the checks and balances on the White House. 0:17:21.920 --> 0:17:25.640 And secondly, Kevin warsh if indeed he does become fed cheer, 0:17:25.680 --> 0:17:27.200 will he be an independent fed. 0:17:28.920 --> 0:17:29.120 Yeah? 0:17:29.200 --> 0:17:31.159 No, I think I mean, look, I think that this 0:17:31.280 --> 0:17:35.960 administration and the president you know, specifically has shown that 0:17:36.160 --> 0:17:37.399 you know, they're going to he's going to kind of 0:17:37.480 --> 0:17:41.240 operate in his speed, and so I don't anticipate that 0:17:41.280 --> 0:17:44.760 we're going to see, for example, you know, this administration 0:17:44.760 --> 0:17:47.639 and trying to lose momentum in what they're trying to achieve, 0:17:47.680 --> 0:17:49.920 which which means more of the same. Quite frankly, it's 0:17:49.920 --> 0:17:51.760 going to be you know, it's going to be active, 0:17:51.960 --> 0:17:55.840 and that creates you know, periods of volatility, uncertainty. 0:17:55.320 --> 0:17:56.199 Whatever you want to call it. 0:17:56.240 --> 0:17:58.040 But I mean, I think the mission that what they're 0:17:58.040 --> 0:18:00.840 trying to accomplish is now crystal clear, trying to rebalance 0:18:00.880 --> 0:18:03.160 the economy on three different planes at the same time, 0:18:03.480 --> 0:18:05.240 and I think you're having some success with that. That's 0:18:05.240 --> 0:18:08.840 why we're seeing productivity increase already, we're seeing GDP increase, 0:18:08.880 --> 0:18:12.040 We're seeing earnings you know, broaden out, and so as 0:18:12.040 --> 0:18:13.880 long as they're seeing results like that, I think they're 0:18:13.880 --> 0:18:17.160 going to stay the course. With respect to the FED independence. 0:18:17.160 --> 0:18:19.640 I mean I've probably had a bit different view here. 0:18:19.720 --> 0:18:22.359 I mean, as far as I can tell. I mean, 0:18:22.400 --> 0:18:25.399 the FED independence has been sort of fading for the 0:18:25.400 --> 0:18:28.200 better part of twenty years really since the financial crisis, 0:18:28.280 --> 0:18:30.960 and we're not staying independent. I don't mean they're under 0:18:30.960 --> 0:18:33.200 the thumb of the White House. I mean is that 0:18:33.359 --> 0:18:37.120 they have to play ball in terms of their role 0:18:37.320 --> 0:18:40.160 to help the government fund itself, Okay, And we saw 0:18:40.160 --> 0:18:43.520 that after the financial crisis. We saw that in twenty twelve, 0:18:43.760 --> 0:18:45.760 We saw that, you know when you know, we had 0:18:46.040 --> 0:18:49.240 a regional banking stress in twenty twenty three. So the 0:18:49.280 --> 0:18:54.920 FED is obligated to, you know, help financial markets operate. 0:18:55.000 --> 0:18:58.400 I mean like it's their third mandate. They even call 0:18:58.440 --> 0:19:00.679 it that. So so that to me is where the 0:19:00.680 --> 0:19:04.800 FED independence has been challenged for better part of two decades. 0:19:05.160 --> 0:19:06.400 And I think that's going to continue. 0:19:06.440 --> 0:19:07.840 I think the FED and treasur are going to work 0:19:07.840 --> 0:19:11.359 closer together, okay, climber to the two thousand World War 0:19:11.440 --> 0:19:13.640 two period. And that's a good thing because that means 0:19:13.880 --> 0:19:15.040 they're going to figure it out. 0:19:14.920 --> 0:19:16.879 All right, well, we all want you back here, so 0:19:17.000 --> 0:19:19.800 feel free to stop Buyer Studio anytime. Mike Wilson, chief 0:19:19.880 --> 0:19:23.720 US equity strategist, chief investment Officer over at Morgan Stanley, 0:19:23.720 --> 0:19:26.160 and of course are Alex Evanova. 0:19:26.400 --> 0:19:30.240 This is the Bloomberg Business Week Daily Podcast. Listen live 0:19:30.320 --> 0:19:33.320 each weekday starting at two pm Eastern on Apple car 0:19:33.320 --> 0:19:36.280 Play and Android Auto with the Bloomberg Business App. You 0:19:36.320 --> 0:19:39.520 can also listen live on Amazon Alexa from our flagship 0:19:39.560 --> 0:19:43.480 New York station. Just Say Alexa played Bloomberg eleven thirty. 0:19:44.920 --> 0:19:47.200 So US Treasury yields. We did see you move up today. 0:19:47.240 --> 0:19:50.800 Earlier on some strong economic date including reports on housing. 0:19:51.520 --> 0:19:53.920 New residential construction in the US rose to a five 0:19:53.960 --> 0:19:56.119 month high in the month of December that as home 0:19:56.200 --> 0:19:59.720 builders boosted production to take advantage of lower barring costs 0:19:59.720 --> 0:20:01.960 that work out there. The advance, we should point out 0:20:02.000 --> 0:20:05.440 was broad based, both single family home starts and apartment 0:20:05.480 --> 0:20:08.280 projects rising at years end, the number of one family 0:20:08.320 --> 0:20:11.960 homes started was tim the highest since the month of February. 0:20:12.080 --> 0:20:14.880 The stronger construction numbers suggest that builders were growing more 0:20:14.880 --> 0:20:17.000 confident at year's end, even as they continue to sell 0:20:17.040 --> 0:20:19.760 off a bloated inventory of new houses for the full year, 0:20:19.800 --> 0:20:24.120