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Speaker 2: This is Bloomberg Business Week Insight from the reporters and
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Speaker 2: The Bloomberg Business Week Podcast with Carol Masser and Tim
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Speaker 4: Are no doubt about it.
Speaker 5: Starting with the US stock trade, as a course of
Speaker 5: Wall Street strategists is warning about higher stock volatility. You
Speaker 5: got Morgan Stanley's Mike Wilson saying the latest to sound
Speaker 5: the alarma on economic growth worries. Other market forecasters include
Speaker 5: over at JP, Morgan Chase, RBC Capital Markets, all tempering
Speaker 5: bullish calls for twenty twenty five.
Speaker 4: You know what's really the catalyst here.
Speaker 5: You've had Trump's tariffs really stoking fears of slowing economic growth,
Speaker 5: and you also had the President and the administration making
Speaker 5: some talks about the US economy not such great ones
Speaker 5: over the weekend.
Speaker 1: Well, let's get with it with the Bloomberg Intelligence Chief
Speaker 1: Act Strategy Gina Martin Adams. She joins us here in
Speaker 1: the studio.
Speaker 3: Gina.
Speaker 1: The plunge in the S and P five hundred's most
Speaker 1: influential group big Tech. We got the S and P
Speaker 1: five hundred going below it's two hundred day moving average
Speaker 1: for the first time since November of twenty twenty three.
Speaker 1: It's off at least well more than eight percent from
Speaker 1: its high. The Nasdaq one hundred off about twelve percent
Speaker 1: from its high. How much is tech weighing on the
Speaker 1: overall trade?
Speaker 2: A lot.
Speaker 6: I think it's one of three monstrous issues weighing on stocks.
Speaker 6: It has been the case most of the year. If
Speaker 6: you look at the MAG seven, for example, they peaked
Speaker 6: all the way back in December. They're down sixteen percent
Speaker 6: as of yesterday from their.
Speaker 4: Almost bear more weakness.
Speaker 6: Yeah, pretty significant decline in the MAG seven. Of course,
Speaker 6: a lot of that is selected stocks Tesla and Navidia
Speaker 6: weighing heavily there. But nonetheless that in and of itself
Speaker 6: is creating a big drag on the index. But it's
Speaker 6: more than that. Clearly, the Doge firings and the concern
Speaker 6: about the ultimate consumer outlook as a result of that
Speaker 6: have been weighing on consumer stocks. At the same time,
Speaker 6: you do have the tariff chatter, which is creating sort
Speaker 6: of stalled activity to the with the lack of a
Speaker 6: better descriptive term and a lot of uncertainty, and a
Speaker 6: lot of that tariff chatter impacts tech as well. I
Speaker 6: think this is a little bit underappreciated. If you look
Speaker 6: at the companies in the S and P five hundred
Speaker 6: with their greatest cost of goods sold, exposure to overseas economies,
Speaker 6: its tech and communications stock, so those groups being the
Speaker 6: biggest market cap share also really drove so much of
Speaker 6: the optimism over the last two years, and that's now unlinding.
Speaker 5: So it's not a case of just repricing, because we've
Speaker 5: talked about, right, what a tremendous run up we've seen
Speaker 5: over the last couple of years. So at some point
Speaker 5: you got to expect some of that to come out
Speaker 5: of the markets.
Speaker 4: Is it still just a repricing or we've gone beyond that.
Speaker 3: Yeah.
Speaker 6: I think up until this weekend it really was about
Speaker 6: a reset of expectations that were far too robust. I mean,
Speaker 6: this is something we started talking about in December. Our
Speaker 6: fair value models were detecting that inside the market, the
Speaker 6: S and P five hundred was priced for greater than
Speaker 6: twenty percent earnings growth to emerge this year, which is
Speaker 6: the next two impossible tasks. This just doesn't happen unless
Speaker 6: you're bouncing out of her session. So it seemed almost
Speaker 6: impossible for the market to satisfy those expector for the
Speaker 6: companies to satisfy those expectations embedded in market prices. There
Speaker 6: was also, though, this underlying narrative, if you will, in
Speaker 6: the market that the president was inordinately going to pay
Speaker 6: attention to the market as a guidepost. And he obliterated
Speaker 6: that theme. You and the weekend, I think he just
Speaker 6: crushed it. And that's what's happening today is he just said,
Speaker 6: I don't we are going to have short term pain
Speaker 6: for long term gain. I don't actually pay that much
Speaker 6: attention to the equity market. He completely just blasted that
Speaker 6: whole theme out of the water.
Speaker 4: We got clues, I'm trying to.
Speaker 1: Think the clues last week, but he said I'm not
Speaker 1: paying attention to it. But then he also said a
Speaker 1: few minutes later, it's the globalists who are causing the
Speaker 1: sell off. So that indicated to me that he was
Speaker 1: sort of paying attention to it.
Speaker 6: Well, the globalists are causing the sell off because the
Speaker 6: globalists recognized that tariffs are coming. Yeah, right, tariffs are coming,
Speaker 6: And even though he is saying, ah, they may or
Speaker 6: may not come, I'm using these as a negotiating tool. Incrementally,
Speaker 6: we have had more and more tariffs implemented so far
Speaker 6: this year. Maybe not as much as he originally said,
Speaker 6: but we have had more.
Speaker 1: Do you buy it that he's not paying attention to
Speaker 1: the market. I know you said it. That idea got
Speaker 1: obliterated over the weekend. But look what happened during his
Speaker 1: first term. I mean, there were tweets, there were social
Speaker 1: media posts every time there was a new record. He
Speaker 1: did the same thing in the Biden administration.
Speaker 6: I think we've rewritten history of what happened in his
Speaker 6: first term. If you look back at twenty eighteen, it
Speaker 6: was one of the most volaile years on record. We
Speaker 6: had vall mcgeddon the first part of that year, We
Speaker 6: had a twenty percent correction in stocks in the second
Speaker 6: half of that year. He didn't jump into the equity
Speaker 6: market to save the day by reversing tariffs in the
Speaker 6: second half of twenty eighteen. There's only so much that
Speaker 6: he pays attention to the market. But we've rewritten that
Speaker 6: narrative somehow in our minds Now, Yes, in the first
Speaker 6: year of Trump's term, we had magnificent returns to equities
Speaker 6: because he put forward tax reform, which is a net
Speaker 6: beneficial sort of has a net beneficiary beneficial impact to
Speaker 6: earnings growth, and then we didn't get to tariffs until
Speaker 6: twenty eighteen.
Speaker 4: It's the reverse today.
Speaker 6: Tariffs have a net downside to economic and earnings growth
Speaker 6: that is inescapable. He recognizes this in his commentary. We
Speaker 6: hope that we might get to some kind of tax
Speaker 6: reform and some kind of domestic programs to substitute for
Speaker 6: the loss of earnings momentum from tariffs and some of
Speaker 6: the geopolitical risks that have emerged as well. But it's
Speaker 6: a hope, and hope is not a strategy. So the
Speaker 6: market is saying, Okay, real time things are a lot
Speaker 6: worse than we were hoping for.
Speaker 5: If it is the strategy and it comes to fruition,
Speaker 5: so tariffs first, then tax cuts later. Is that enough
Speaker 5: to juice the markets and have them come back and
Speaker 5: provide a floor, or it could be.
Speaker 6: It could be it depends upon what kind of tax
Speaker 6: reform we get. Our best guess is based upon the
Speaker 6: promises in the campaign. We will get about half as
Speaker 6: much a benefit as we did in twenty seventeen, just
Speaker 6: doing the math on the numbers. But it depends on
Speaker 6: how far earnings expectations have been suppressed with respect to
Speaker 6: tariffs and what comes out of those negotiations in the
Speaker 6: second half of this year. It's still very much up
Speaker 6: in the air.
Speaker 1: So it raises the question about valuations. Do you know,
Speaker 1: which Carol was alluding to a little earlier, the idea
Speaker 1: that people have said, by many measures, stocks are expensive
Speaker 1: right now, they're out of line with historical standards from
Speaker 1: a pe perspective. Are we starting to see them come
Speaker 1: back to earth?
Speaker 6: That's a great question, something we actually wrote about today
Speaker 6: for tomorrow, and the answer is no. Unfortunately, the reality
Speaker 6: of the US equity market is we were so far
Speaker 6: above our valuation bogies that even with the seven percent
Speaker 6: or so correction that we've had in stocks so far,
Speaker 6: we're still near all time high valuation levels set in
Speaker 6: the post pandemic period. That's only for US stocks, though,
Speaker 6: and it's really specifically for large cap stocks. I still
Speaker 6: think that the international opportunity is there even with the rerating.
Speaker 6: This is a year where international stocks are just likely
Speaker 6: to shine with the programs that are being initiated, and
Speaker 6: small caps have derated again. Small caps have had an
Speaker 6: absolute horrible February and early March so far, and they
Speaker 6: have derated once again to be at discounted levels.
Speaker 5: Is there anything just kind of final question, final thought
Speaker 5: at this point, anything about the selling that we're seeing
Speaker 5: that makes you a little bit nervous. I mean, the
Speaker 5: VIX is twenty eight. It's not like it's up to forty, and.
Speaker 6: That actually makes me nervous. Okay, the fact that the
Speaker 6: VIX has We've talked about this a lot on our
Speaker 6: team call actually this morning, is what's happening here with
Speaker 6: volatility because low volatility stocks are absolutely pummeling high volatility
Speaker 6: stocks right now, but the VIX is only incrementally moved higher.
Speaker 6: You love a huge spike in the VIX because those
Speaker 6: are usually affiliated with bottoming formations in the equity market,
Speaker 6: like we had with the Japanese yen meltdown last summer.
Speaker 6: We had a VIXED spike all the way to near forty.
Speaker 6: I think it even got above forty in today, very
Speaker 6: clear sign of panic. We don't have any panic emerging yet. Instead,
Speaker 6: we just have this sort of sea sawing upward direction
Speaker 6: of volatility. The last pattern like that that we saw
Speaker 6: was twenty twenty two, which was obviously a horrible year
Speaker 6: for stocks. That was also the last time we saw
Speaker 6: such an extreme underperformance by US equities compared to rest
Speaker 6: of the world.
Speaker 1: That was that when that Yen blow up happened, Carol.
Speaker 1: That was back in August. The S and P ffvend
Speaker 1: was out about fifty two hundred. It's at fifty six
Speaker 1: hundred down, so about another eight percent to go to
Speaker 1: get back to there.
Speaker 4: Happy Monday, everybody for it. News all around, Gina, Thanks
Speaker 4: so much.
Speaker 5: Jean Martinadas, Bloomberg Intelligence, Chief equity Strategist.
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Speaker 5: We're gonna stay with the markets, but also broaden out
Speaker 5: and get a c suite view. I mean, we've talked
Speaker 5: so much this year, often about how European markets are
Speaker 5: out performing the US market by a wide margin. Stocks
Speaker 5: fifty is up about ten percent year to day, while
Speaker 5: the S and P is now down I think close
Speaker 5: to five percent in twenty twenty five.
Speaker 1: With a view on that contrast and the continued electrification
Speaker 1: of our world, Let's head on over to London and
Speaker 1: to Gwenell Hewett, executive vice president of Europe Operations, over
Speaker 1: at Schneider Electric. It's based in France. Schneider manufactures electrical
Speaker 1: power products. The company's ADRs trade in the US this
Speaker 1: year down roughly about five percent. Gwenell, welcome, first up
Speaker 1: the global market environment today, geopolitics. How difficult is it
Speaker 1: to do business in this economy, in this market.
Speaker 7: Well, I think that's what we are looking for is
Speaker 7: some strong position in Europe in order to shape what
Speaker 7: would be the future of the industry in Europe. And
Speaker 7: in that sense it can be as an electro shock
Speaker 7: right to switch gears. I mean, for the past years,
Speaker 7: the Europe and Union has been regulating quite a bit.
Speaker 7: Now we need to project that into concrete investments, into
Speaker 7: a very friendly environment for industry, and that's what we're
Speaker 7: expecting right now, right you.
Speaker 4: Are expecting a friendly environment for industry.
Speaker 7: Exactly. I mean the European Commission just announced a week
Speaker 7: ago a clean industrial deal in order to promote and
Speaker 7: accelerate the development of the industry in Europe. That's what
Speaker 7: we need. We need a European industry that is much stronger.
Speaker 7: We need to build and to boost its manufacturing footprint
Speaker 7: within Europe. We need to compete globally, and the European
Speaker 7: Commission has a world to play in that sense. Of course,
Speaker 7: we have a very strong assets. The first one is
Speaker 7: being a very large internal market. But at the same
Speaker 7: time we have very strong industrial players, so we need
Speaker 7: to leverate on that. And the problem is that in
Speaker 7: the past years there are a lot of regulation, sometimes
Speaker 7: over regulation, and now we need to come around more incentives.
Speaker 7: How to accelerate through more incentives, friendly environment instead of
Speaker 7: only compliance and just regulating in a very difficult way.
Speaker 5: Now, I do want to ask you though about the
Speaker 5: US market versus the rest of the world. I mean,
Speaker 5: how do you describe the demand that you're seeing from
Speaker 5: your US customers? And from what I understand, you guys
Speaker 5: produce about eighty three percent of what you sell in
Speaker 5: North America locally, but tell us about North American demand,
Speaker 5: US demand specifically, and then what you are seeing in
Speaker 5: terms of demand.
Speaker 4: Outside the United States, is it strong?
Speaker 5: In both areas, How would you describe it for each Well,
Speaker 5: so just to.
Speaker 7: Put it simple, a model for Schneider Electric is a
Speaker 7: very much local model. So what we sell in the
Speaker 7: US is produced in the US, what we sell in
Speaker 7: Europe is produced in Europe, et ceterace. That's really very
Speaker 7: much important, especially in geopolitical context that you're seeing today.
Speaker 7: The mega trends that are below that that are below
Speaker 7: the business is around energy transition, it's around data centers,
Speaker 7: in electrification, digitarization and all that remains across the world.
Speaker 7: So I can tell you today that yes, we have
Speaker 7: huge demand in the US and we are building factories, expanding, etc.
Speaker 7: But Europe is also an area of growth. Why because
Speaker 7: we had in the past years the EU Green Deal
Speaker 7: favoring renewable energy development, favoring also energy efficiency, and this
Speaker 7: is taking off. So when you look at our numbers, yes,
Speaker 7: we created growth also in Europe. So that's why you know,
Speaker 7: we have to remain awful because the sustainability has set
Speaker 7: that we have built across Europe is still valid.
Speaker 1: What about in the US when it comes to the
Speaker 1: switch to renewables, because we've heard from the President that
Speaker 1: he does not favor the policies of the last administration.
Speaker 1: He likes to call the Green New Deal the Green
Speaker 1: New scam, and he talks about drilling here in the US,
Speaker 1: not the switch to renewables. How does that affect your business?
Speaker 7: But you know, let me come back to Europe, because
Speaker 7: at the end of the day, this is an asset
Speaker 7: that we have built in Europe. So how to continue
Speaker 7: differentiated by developing the own technology in Europe? And a
Speaker 7: lot to be done. Look at electrification. Electrification in Europe
Speaker 7: is stagnant, so we need to accelerate. I don't want
Speaker 7: to give the impression that everything is done in Europe.
Speaker 7: On the contrary, we have to fight for more electrification
Speaker 7: because again this is a challenge. More digitalization, more renewable enhance,
Speaker 7: more investment into the network. This is not a done deal.
Speaker 7: So that's why when it comes to Europe, you have
Speaker 7: big numbers, big targets in terms of decombonization, in terms
Speaker 7: of renewable energy, in terms of energy efficiency. We need
Speaker 7: to turn that into reality already in Europe.
Speaker 1: But in the US, if you don't see those policies
Speaker 1: coming from the federal government, do you start to see
Speaker 1: companies moving away from that and that affects your business.
Speaker 7: Well, again I told you we have very much across
Speaker 7: the world, and in US we have a much local
Speaker 7: for local, we have our own customers. We have a
Speaker 7: huge trend over there. And then makeasurrens that I was
Speaker 7: discussing about around digitalization exctrification is still happening. So let's
Speaker 7: not opposed one to each other. I think that we
Speaker 7: have to look at each and every market and within
Speaker 7: these mega trends, which one can accelerate faster depending on
Speaker 7: the context that we foster. And in Europe again it's
Speaker 7: not a don deal, so that's why it's not against
Speaker 7: Europe against us. On the contrary, each and every region
Speaker 7: has their own pathway. The question is that now with
Speaker 7: the job politics, everybody is, you know, looking around I
Speaker 7: think that we need to focus on the own market
Speaker 7: and being the most local company is really an asset.
Speaker 4: So it sounds like you no and and forgive us.
Speaker 5: I think we're just you know, came in Monday and
Speaker 5: we saw a global sell off, and I think we're
Speaker 5: trying to get you have a great dvantage point in
Speaker 5: terms of looking around the world and in terms of
Speaker 5: business and really trying to understand when you guys sell
Speaker 5: big time. North America is your biggest market, AGEA Pacific
Speaker 5: is just right behind it.
Speaker 4: Western Europe. Of courses, you've been saying very very important.
Speaker 5: Uh, and then you know you've got almost five billion
Speaker 5: dollars in the rest of the world. So you really
Speaker 5: have this great snapshot of what is going on globally.
Speaker 5: And I think we're trying to assess as we watch
Speaker 5: the US market come down, with our European markets also
Speaker 5: under pressure, that are we starting to see some kind
Speaker 5: of global slow down? It sounds like from what you
Speaker 5: are saying that you're not worried about it. Whether it's
Speaker 5: a US recession or global recession, that's not necessarily something
Speaker 5: that's in the cards from what you're seeing.
Speaker 4: Is that fair?
Speaker 7: You know why I'm so optimistic is that I'm looking
Speaker 7: at the mega trends that we at Schneider are positioned. Okay,
Speaker 7: it's climate change, it's energy transition, it's electrification, it's digitalization.
Speaker 7: Those mega trends are not slowing down. So that's why
Speaker 7: we are still optimistic. And to give you one example,
Speaker 7: you're saying it's maybe it's challenged in Europe today, there
Speaker 7: is a discrepancy between commitments that leaders have been taken
Speaker 7: and the reality of the projects that are de flopping.
Speaker 7: So we need to accelerate. So that's why I really
Speaker 7: want to continue pushing and showing that even in a
Speaker 7: country or in a region that is so committed to
Speaker 7: the energy transition, we need to continue having attention. I
Speaker 7: give you one number, just you know, to fulfill the
Speaker 7: commitment that we have in Europe for renewable energy, we
Speaker 7: should develop thirty gigawatt of wind a year and now
Speaker 7: we're developping only seventeen gigawat. So just to showcase you
Speaker 7: that in reality the path the acceleration should be made
Speaker 7: also in Europe.
Speaker 5: Good stuff and some perspective on a day where it's
Speaker 5: very easy to get distracted, probably rightfully so by the
Speaker 5: markets and concerns about the outlook, but certainly some optimism
Speaker 5: from Granell Hewett. She's executive vice president of Europe Operations
Speaker 5: at Schneider Electric, joining us from London on this Monday.
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Speaker 1: Well, we heard a lot about the equity market just
Speaker 1: now from Charlie. I want to talk bonds because bond
Speaker 1: traders are signaling an increased risk that the US economy
Speaker 1: will stall as President Donald Trump's chaotic tariff rollouts and
Speaker 1: federal workforce cuts threatened to further restrain the pace of growth.
Speaker 1: We've got with us Michael McKenzie's Bloomberg News rates reporter.
Speaker 1: He joins us here in the Bloomberg Interactive Broker's studio. Michael,
Speaker 1: as you write, there was speculation that the president would
Speaker 1: pour stimulus on an expansion it would keep upward pressure
Speaker 1: on treasury yields. That is not at all what's happening.
Speaker 1: What's happening instead.
Speaker 8: Well, I investors had to tear up the rule book.
Speaker 8: They came into this year thinking Okay, this is Columbie's
Speaker 8: going to get pumped up a lot by deregulation, and
Speaker 8: that the Trump administration was going to be pro business.
Speaker 8: And that's not really how it's panned out. And I
Speaker 8: think some of the datas come on the disappointing side.
Speaker 8: And you're beginning to get a sense here that the
Speaker 8: cuts in government's government spending. If you think back to
Speaker 8: last year, we had a big tail wind from government
Speaker 8: spending under the Biden administration. So when even when the
Speaker 8: markets started pricing in rate cuts last summer and the
Speaker 8: Fed duly delivered in September the fifty basis point rate cut,
Speaker 8: lo and behold, the economy held up, and by the
Speaker 8: end of the year the Fed was saying we're pretty
Speaker 8: much done. So the mark is now having to get
Speaker 8: its head around the risk or trying to price in
Speaker 8: the risk of Okay, if growth's going to slow, how
Speaker 8: much is it going to slow? And from discussions with
Speaker 8: a number of traders in the last week or so,
Speaker 8: it seems to be if the data continues to point
Speaker 8: to a deterioration, then the Fed probably going to have
Speaker 8: to start resuming rate cuts at some point and probably
Speaker 8: gets the funds rate down about three and a half.
Speaker 8: And right now, that's where the market's pricing in at
Speaker 8: least three rate cuts this year, which will get you
Speaker 8: down to three and a half. So that's kind of
Speaker 8: where we are at the moment.
Speaker 5: Does the bond market equally reflect the nervousness that we're
Speaker 5: seeing in the stock market. I think we were talking
Speaker 5: with Mike McKee earlier and you talked about spreads are
Speaker 5: still pretty narrow on different segment of the bond market.
Speaker 5: So does what we're seeing right now in the treasury
Speaker 5: trade equate with the selling we're seeing in the stock market.
Speaker 8: The other fact that's behind the rally we've seen in
Speaker 8: the treasure So think back to in mid January. We
Speaker 8: peaked at four eighty on the ten year, four to
Speaker 8: sixty on the five year. Ten years now back down
Speaker 8: to four to twenty and the five years below four percent. Now,
Speaker 8: these are big rallies, and essentially that's reflecting the hit
Speaker 8: to risk assets. So when I was talking to investors
Speaker 8: at the beginning of this year, they were saying, the
Speaker 8: one case we're buying treasuries with a new adminstration coming
Speaker 8: in is going to be that if you get a
Speaker 8: hit to risk assets, you want to own the fives
Speaker 8: a ten year sector that's really paid off and that
Speaker 8: can continue to pay off if we continue to see
Speaker 8: more pressure on risk assets.
Speaker 5: But are you saying, then the moves that we've seen
Speaker 5: in yields already this year, the backing off, it's all
Speaker 5: of this nervousness already factored in, Michael to some extent.
Speaker 8: But I think you need another catalyst here. I mean,
Speaker 8: there's a lot more volatiley in treasuries. The treasury volatility
Speaker 8: remains much higher than equity volatility, and that's just the
Speaker 8: constant having to sort of go back and forth with positions.
Speaker 8: We've been swinging around a lot in tight ranges to
Speaker 8: some extent, but the market is volatile and there is
Speaker 8: some deterioration and liquid at the margin.
Speaker 1: The ten year four point two percent is the yield
Speaker 1: that we're seeing right now. Carolyn and I were talking
Speaker 1: about this earlier as we were preparing for this afternoon.
Speaker 1: Isn't this what Trump wants to see? He wants to
Speaker 1: see the ten year yield fall.
Speaker 8: It does, And I think is what's interesting is talking
Speaker 8: to some bond investors lately saying this is an administration
Speaker 8: that they think wants short term pain, longer term gain. See,
Speaker 8: it's been an administration that says, look, we're gonna take
Speaker 8: some we're gonna make some cuts to government spending. You're
Speaker 8: going to have a bit of turmoil, bit of you know,
Speaker 8: sort of turbulence, but they are hoping that this will
Speaker 8: get the economy back on track. And what a key
Speaker 8: part of that is you keep rates down. So Scott
Speaker 8: Besson has come out and said I want lower ten
Speaker 8: year yields. He doesn't want to specify at what level.
Speaker 8: But if you get keep ten year yields down, you
Speaker 8: are going to see more mortgage refinancings. And I think
Speaker 8: one thing that does anyone who thinks that we're going
Speaker 8: into recession needs who ask the question do you see
Speaker 8: balance sheet stress at the consumer and corporate level? If
Speaker 8: you don't, it's hard to make a case for recession.
Speaker 8: More importantly, though, look at the value of house prices today.
Speaker 8: You can now extract home equity from your house, so
Speaker 8: that will help buttress any kind of weakness we get
Speaker 8: in the economy. So I think the general tone of
Speaker 8: the ball market is the risks are rising, but we're
Speaker 8: not quite quite yet there to say, okay, this is
Speaker 8: a recession coming. That said, the real question here is
Speaker 8: is the FED going to actually look past potential inflationary
Speaker 8: consequences of tariffs and really look at a slow down?
Speaker 8: And that's why the next couple of monthly payroll reports
Speaker 8: coming out are going to be very important for this market.
Speaker 5: Is it just kind of interesting, though, Michael, that we
Speaker 5: went from earlier in the year, you know, just NonStop
Speaker 5: American exceptionalism, to all of a sudden using the recession
Speaker 5: word pretty pretty regularly.
Speaker 8: Or it's been banded around. I don't in general, talking
Speaker 8: to investors, they don't see a recession imminent. They don't
Speaker 8: really see this. More importantly though, think back to what
Speaker 8: happened last year. We had a big rally in. So
Speaker 8: the tenure got last year, got after September and the
Speaker 8: rate hikes just before the Fed started, the tenure fell
Speaker 8: all the way down to three to eighty, but then
Speaker 8: it started rising in because lo and behold, if you
Speaker 8: drop interest rates, it helps the economy. Now, the question
Speaker 8: here is how much of a hit is this administration
Speaker 8: going to do with government spending? Bearing a minder course
Speaker 8: that we still have Congress to decide on on one
Speaker 8: big beautiful bill, and lo and behold, if you're going
Speaker 8: to have tax cuts coming at the end of it,
Speaker 8: I would suspect the bomb market could whip around again.
Speaker 5: So that would be enough to make up all the
Speaker 5: tariffs and possibly more tariffs to come.
Speaker 8: If you combine that with deregulation, if you now allow
Speaker 8: banks to buy more treasuries, if you cut all the
Speaker 8: red tape around small businesses, I think you could lay
Speaker 8: the case for a second half recovery. And then of
Speaker 8: course you have the problems of what is the ultimate
Speaker 8: inflation re impact of these tarifts that are coming through.
Speaker 8: I mean, I think right now it's a trade war
Speaker 8: that's really curting sentiment. You've certainly seen that on equities.
Speaker 1: The FED said to me next week, what is the
Speaker 1: outlook and what's happening in the bond market signal about
Speaker 1: expectations for the FED for this year.
Speaker 8: Well, if we look at the Marsh meeting, no one's
Speaker 8: expecting any move. I think the key here is May.
Speaker 8: We've been sort of dancing around pricing in about a
Speaker 8: fifty percent od odds for a rate cut by May.
Speaker 8: So it's in coint oustrochery and I think you're going
Speaker 8: to have to see more. Obviously, you get inflation this week,
Speaker 8: then you'll have another couple of months of payrolls and
Speaker 8: inflation to come before that May meeting, and that's I
Speaker 8: think will be the ultimate arbiter whether or not the
Speaker 8: FED can go or not.
Speaker 1: And if inflation comes in heart that's not great, nurse.
Speaker 8: I think that puts the FED in a really tough spot.
Speaker 8: I mean, I think at the moment they're okay, but
Speaker 8: they really they want to see inflation still trending down.
Speaker 8: They still want see signs of disinflation, and if they
Speaker 8: get a hot number, that's going to complicate things. Particularly
Speaker 8: if we see what happened in the last Friday's payrolls report.
Speaker 8: We did see U six unemployment pickup. If that continues,
Speaker 8: then you're gonna hear more chatter about stagflationary outcomes.
Speaker 4: What are you watching regularly? Like, what's top of mind
Speaker 4: for you as we kind of go through this.
Speaker 8: It's every tape bomb that comes out of Washington and
Speaker 8: from Donald Trump. I think that's because he keeps flipping around.
Speaker 8: So everyone's got this kind of what are they really
Speaker 8: going to do? And it's that uncertainty that I think
Speaker 8: is driving people to say, you know what, I'm going
Speaker 8: to put my money in the five year I think
Speaker 8: the five year Treasury will tell you it's below four
Speaker 8: percent today, couldn't get below four percent at the end
Speaker 8: of last week, but it's now below four percent. So
Speaker 8: that's telling you that there's a bit of bit of concern.
Speaker 8: There's a flight to quality trade going on, and I
Speaker 8: think that's the one thing to keep watching.
Speaker 1: I thought he was going to say, like White Lotus,
Speaker 1: three boys, like Severance, fan of off the places. By
Speaker 1: the way, she's great, and that I love you to
Speaker 1: stop back in the nineties with hell you gotta read
Speaker 1: I think New York Times profile on her a couple
Speaker 1: of weeks ago, just like she's awesome.
Speaker 4: Yeah, I mean anything to step away from this.
Speaker 1: Yeah, what are you watching? Anything?
Speaker 7: I can right now?
Speaker 4: Michael McKenzie Love Love Love, Bloomberg News Rates reporter joining
Speaker 4: us here in studio. Oh, bromuc, I'll about you.
Speaker 8: Let me drive.
Speaker 2: Oh no, no, no no, this is not a toy.
Speaker 3: He's going to drive an please gravest. I don't want
Speaker 3: to drive.
Speaker 7: It's a good question.
Speaker 2: Good this is the drive to the clothes that longs
Speaker 2: for me.
Speaker 3: A thing.
Speaker 2: Well, don on Bloomberg Radio.
Speaker 5: All right, everybody, we've got just about eighteen minutes to
Speaker 5: go until we wrap up this trade on this Monday.
Speaker 5: Having said that, you just heard from Charlie and Bill Maloney,
Speaker 5: we are definitely off our worst levels of this session.
Speaker 5: Kind of bouncing around here, but still down two point
Speaker 5: seven percent of the S and P five hundred Dow
Speaker 5: Jones Industrial average, a decline of just shy of two
Speaker 5: hundred points. We were down more than one thousand points
Speaker 5: on the Doubt one point now a decline of eight
Speaker 5: hundred and sixty five points, and the Nasdaq one hundred,
Speaker 5: which is dominated by that tech trade, it is down
Speaker 5: three point nine percent, down seven hundred and ninety points.
Speaker 1: May curious with Max Wasserman, thanks on a Daylight today.
Speaker 1: He's founder and senior portfolio manager of Miramar Capital. Max,
Speaker 1: you argue that the market is finally starting to recognize
Speaker 1: the risk of overvalued Nasdaq and the S and P
Speaker 1: five hundred given the current market conditions, is it still
Speaker 1: overvalued to you?
Speaker 3: Well, thank you for having me on, and the answer
Speaker 3: is yes. I mean, the only thing that's surprising us
Speaker 3: is that we've been saying this for the past six months,
Speaker 3: that it took so long. But you know, the momentum
Speaker 3: has a funny way of turning on you when everybody
Speaker 3: can justify, you know, earnings going up the multiples of
Speaker 3: thirty one to thirty five times on these large cap tech.
Speaker 3: When it markets sours, it can take them right back down.
Speaker 3: So we think they're starting to recognize that the multiples
Speaker 3: are still too high on the NASDAK. We think the
Speaker 3: general market is not priced like that, and there's a
Speaker 3: lot of opportunity there. But given the fact that the
Speaker 3: Nasdaq one hundred and the top s and P five
Speaker 3: hundred stocks is pure NASDEC basically this is why you're
Speaker 3: getting this major sell off.
Speaker 1: How were you prepared for today's selloff? How were you
Speaker 1: invested ahead of this? If you thought that if this
Speaker 1: isn't surprising to you, well.
Speaker 3: You know, we've been lowering our tech exposure for a while.
Speaker 3: I mean we have investments we're diving and growth shop.
Speaker 3: We have in investments in the broadcoms, the Apples, and
Speaker 3: the Microsoft, but we were underweighted technology. We've been putting
Speaker 3: more money into staples, which nobody wanted. On energy we like,
Speaker 3: and healthcare. You couldn't give healthcare stocks away. I mean,
Speaker 3: one of our largest holdings, like an av V, is
Speaker 3: making fifty two week highs. We just tend to think
Speaker 3: there was better value. We still like the growth in tech,
Speaker 3: but we're not willing to pay thirty to forty times
Speaker 3: earn needs for this.
Speaker 5: So is this just a valuation reset, is this just
Speaker 5: a potentially somewhat fundamental reset based on Washington policies, or
Speaker 5: is this the US economy starting to come undone.
Speaker 3: I don't know if it's coming undone or maybe we're
Speaker 3: just taking a better look at the US economy. I
Speaker 3: think we're starting to say that the economy is showing
Speaker 3: signs of slowing down, and you have policies out there
Speaker 3: that are basically saying that they could hurt the economy.
Speaker 3: And if you go back to the fact that in
Speaker 3: December that the Fed told you that they're not going
Speaker 3: to be cutting interest rates, which Wall Street desperately always wants,
Speaker 3: and because they had stubborn inflation. So there's a lot
Speaker 3: of things that are stopping that ignission of a further
Speaker 3: multiple expansion. I just don't think you're going to get
Speaker 3: multiple expansion. I think you're going to get a little
Speaker 3: bit of a contraction as it's showing, and the market's
Speaker 3: going to come back down to an equilibrium on where
Speaker 3: the fundamentals eventually show. But I think it's going to
Speaker 3: take another quarter soon for us to understand what are
Speaker 3: the tariffs what is the unemployment really going to look like?
Speaker 3: What is the Fed really going to do in the meantime?
Speaker 3: An uncertainty? Who wants to pay thirty forty times for
Speaker 3: these tech earnings right now?
Speaker 2: Max?
Speaker 1: Do you buy it that the President is not paying
Speaker 1: attention to the market, or rather, maybe a different way
Speaker 1: to describe his comments over the weekend, saying that there
Speaker 1: would be pain.
Speaker 3: You know, it's very hard for me to get ahead
Speaker 3: of any politician.
Speaker 1: People keep telling me that when I ask these questions, but.
Speaker 3: When you look long term, there seems to be some
Speaker 3: inherent contradictions. But he did say that there could be
Speaker 3: some short term pain, and his policies don't seem to
Speaker 3: be quarter by quarter. And for a president always just
Speaker 3: say he looks at the stock market, he's telling you
Speaker 3: he's not looking so closely. To me, it's the Fed.
Speaker 3: The Fed is telling you that they're confused. They sort
Speaker 3: of want to cut interest rates, but they're stubborn inflation
Speaker 3: and they don't know what inflation is going to look
Speaker 3: like with tariffs, if there's real tariffs, and how long
Speaker 3: they last, because we don't know what the tariff looks
Speaker 3: like because it's on again, off again, and we don't
Speaker 3: know if April second's really going to be reciprocal, what's
Speaker 3: going to be excluded. But it's very hard to run
Speaker 3: monetary policy with allo of the uncertainties. And when the
Speaker 3: when the Wall Street wants FED cuts and they're not
Speaker 3: giving it to them just yet, I think more usure
Speaker 3: is going to be put on the FED to eventually
Speaker 3: start cutting interest rates.
Speaker 4: Are you more of a buyer or seller in this environment?
Speaker 3: Well, it depends right now. A lot of our stocks
Speaker 3: to be candid with your running very strong, so our
Speaker 3: top positions are hitting some fifty two weeks highs, So
Speaker 3: we're gonna we're waiting here. I am looking through the
Speaker 3: tech rubble once we start to get a little bit
Speaker 3: more of a sell off to just nibble here and there.
Speaker 3: Good companies are paying us dividences that we like. We
Speaker 3: still like some of the large cap tech. We just
Speaker 3: think they need to come down more. And we're starting
Speaker 3: to see it. I mean, we can't. We like the
Speaker 3: Googles of the world, we like the Broadcoms, and we
Speaker 3: like the Microsoft. But you know it's sort of are
Speaker 3: we catching a falling knife? But you know, for nibbling purposes, yes,
Speaker 3: we would start because you're never going to time it perfectly.
Speaker 3: But when you have these great companies selling off twenty
Speaker 3: percent and still trading in the high twenties low thirties,
Speaker 3: you could get another ten percent here on the Nezduck
Speaker 3: sell off. But the equal weighted part of the market
Speaker 3: is showing strong science. Look at the staples, Look at
Speaker 3: healthcare right, look at it. Look at financials that are
Speaker 3: taking a hit today. There could be some compelling valuations
Speaker 3: coming there.
Speaker 1: I will note that there are one hundred and twenty
Speaker 1: four stocks in the US right now, Carol that are
Speaker 1: hitting fifty two week highs IBM one of them. Another
Speaker 1: one is TUTSI Roll.
Speaker 3: You guya like chocolate, right, and we like Hershey, so
Speaker 3: it's the same thing.
Speaker 6: Yeah.
Speaker 5: I mean, I'm looking at the S and P five
Speaker 5: hundred equal weighted index just down about one point four percent,
Speaker 5: So not as bad as what we're seeing in the
Speaker 5: S and P five hundred at this hour. What about
Speaker 5: on the fixed income side of things, are you anticipating
Speaker 5: that yields along the US Treasury curve continue to go lower?
Speaker 3: Well, that's the quandary we've been telling people for the
Speaker 3: last six months. Just focus on the short term one
Speaker 3: to three years, we just don't think you're paid because
Speaker 3: we still think inflation stubbor And then we don't know.
Speaker 3: Do we think the tenure could come down to four? Yes,
Speaker 3: but I think it could equally go up to four
Speaker 3: eight five, depending on what the policies play out. So
Speaker 3: we just don't think you're being rewarded to go long term.
Speaker 3: We would still say stay short term, stay high quality.
Speaker 3: We still like us treasures here. We still think they're
Speaker 3: not a bad value because the spreads on corporates and
Speaker 3: even unis aren't just there to take the risk.
Speaker 4: Yeah, that's something that right, the spreads are still pretty narrow, correct, correct.
Speaker 1: Speaking about the big picture of the market right now,
Speaker 1: do you think we're going to bounce off of this
Speaker 1: and this is sort of the low of this most
Speaker 1: recent cell offware? Is there moved to go further down?
Speaker 1: You say things are still overvalued.
Speaker 3: You know, I talked to some friends of my really
Speaker 3: good friend of mine is a great trader, and he's
Speaker 3: telling me at fifty five thirty or something on the
Speaker 3: S and P could break through. I'm listening to a
Speaker 3: lot of great tech glanists saying that you'll get a
Speaker 3: bounce here. It's hard for me to tell because emotions
Speaker 3: can run to extremes. As we know it. Think emotions
Speaker 3: ran the extreme to bring the NASDIK up so much
Speaker 3: for two years in a row, and it could take
Speaker 3: you down a little bit. I would look at this
Speaker 3: as an incredible opportunity for good companies. Find the companies
Speaker 3: you really like, find the valuations that make sense, and
Speaker 3: you average into them. We're right now, we're looking selectively
Speaker 3: protect if they get sold up more bit more of
Speaker 3: a sell off there.
Speaker 5: Hey, Max, just got about twenty five seconds left here?
Speaker 5: How much have you been looking overseas? The eurostocks fifty
Speaker 5: still it's up about ten percent so far in twenty
Speaker 5: twenty five. Opportunity overseas and just quickly, well, you know.
Speaker 3: We don't look much overseas because we buy such global
Speaker 3: companies in the currency risk and sometimes I get very
Speaker 3: upset with the tax structure of how the dividends come back,
Speaker 3: so we have to when we invest overseas, it has
Speaker 3: to be tax friendly countries with US, and there's only
Speaker 3: a few countries that do that, so we're mainly buying
Speaker 3: domestic global countries, all right, got it?
Speaker 7: Hey, listen.
Speaker 4: Good to check in with you. Max Wasserman.
Speaker 5: He's founder and senior portfolio manager of Mira Mark Capital,
Speaker 5: joining us from Northbrook, Illinois.
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Speaker 8: Yeah