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Speaker 2: But we're also going to talk about jobs and the
Speaker 2: economic fundamentals and all that fun stuff. And for that,
Speaker 2: Michael McKee is joining us. Bloomberg Economics. No, you're not
Speaker 2: Bloomberg Economics. What your policy correspondent?
Speaker 3: Well, economics.
Speaker 4: It is a.
Speaker 5: Title like that's the.
Speaker 4: Thing red Sox analysts for I mean there's that too.
Speaker 2: I gotta ask, are you surprised about the depth of
Speaker 2: the reaction, like people trying to talk about a fifty
Speaker 2: bases point cut in September, terminal rates being revised, lower
Speaker 2: the bond rally.
Speaker 6: I don't.
Speaker 3: I don't ever get surprised by market reactions. I love
Speaker 3: it said this. I've said this before and I'll say
Speaker 3: it again. The fat has a reaction function. The markets
Speaker 3: have an overreaction function, and they always go too far,
Speaker 3: too fast, and then they come back a little bit
Speaker 3: to sanity at some point. Because you get a hurt
Speaker 3: instinct when some kind of news breaks and the markets
Speaker 3: were leaning towards a bad report, and so this just
Speaker 3: you know, pushed them in a direction they already wanted
Speaker 3: to go. And I'll leave it to smarter people like
Speaker 3: just to tell you why they want to do that,
Speaker 3: but and whether or not lower rates are going to
Speaker 3: be good for equities or not. But at this point,
Speaker 3: I think it's today you just kind of look past
Speaker 3: what happened in the markets, and Monday.
Speaker 1: You come back.
Speaker 5: Can't do that, this is the fun part for us.
Speaker 3: But go ahead, well Monday, Monday, you come in and
Speaker 3: you start thinking about what does this mean for the
Speaker 3: overall economy. I'm telling everybody takes Saturday and Sunday just.
Speaker 7: Well.
Speaker 8: Have actually Austin Goulsby will be on Bloomberg Television noon.
Speaker 8: I believe that's on our Eco go page here. So
Speaker 8: when it comes to someone like that, who's obviously on
Speaker 8: the federal reserve, what are you looking to potentially hear
Speaker 8: from him? And what do you want to kind of
Speaker 8: gauge here now coming out of obviously the Fed decision,
Speaker 8: and because he at the beginning of July, he was
Speaker 8: kind of one of the first people that really, we
Speaker 8: know he's dubbish, but he started indicating that he felt
Speaker 8: like cuts were coming pretty soon. Yeah.
Speaker 3: Well, the chairman was very certain during his news conference
Speaker 3: that everybody was in agreement that they should pause, and
Speaker 3: I'm wondering if that's exactly true or if he was
Speaker 3: maybe seeing what he wanted to see. And obviously, the
Speaker 3: market is saying today that the FED made a mistake,
Speaker 3: So do they think how do they defend themselves to
Speaker 3: the idea of a mistake? And does this lock in September?
Speaker 3: And obviously what do they think of a fifty basis point.
Speaker 3: I don't think it's something that they want to do,
Speaker 3: so I don't think that'll be a big deal.
Speaker 2: I mean, I know that the markets overreact and the
Speaker 2: FED onder I get all that, But if the market
Speaker 2: has to price in a fifty bases point cut or
Speaker 2: even an intermeting cut, then the FED has the enviable
Speaker 2: job of having to walk back expectations to kind of
Speaker 2: get that out of the market.
Speaker 5: How did they do that when they also have to
Speaker 5: acknowledge like things are going to beeker.
Speaker 3: That's why they don't want to do that. They they
Speaker 3: wouldn't do an intermeding cut unless there was some real
Speaker 3: collapse in the economy. And we did get one hundred
Speaker 3: and fourteen thousand jobs. It's what the Fed had been
Speaker 3: looking for. They'd been looking for a more gradual ratchet down.
Speaker 3: This was a fairly dramatic move, but it's not out
Speaker 3: of It's not an abnormal result for the economy. And
Speaker 3: the unemployment rate is four point three percent and that's
Speaker 3: still historically low. So yes, things deteriorated, perhaps more quickly
Speaker 3: than they anticipated, but they're not going to panic at
Speaker 3: this point.
Speaker 2: Okay, Mike, Actually stay with us, Hank tight for this segment,
Speaker 2: we're going to bring in Jonny Bailey. She's chief workforce
Speaker 2: analyst at employee Bridge, joining us now from Florida. Jony,
Speaker 2: give us your take on the numbers, Like they weren't terrible.
Speaker 2: I understand the job market's slowing, but what's your take.
Speaker 9: If you can see that we have a cooling job market,
Speaker 9: you know, and it's been coming for some time, you know,
Speaker 9: over the last really even eighteen months. Most of the
Speaker 9: job growth has been in the healthcare sector, in the
Speaker 9: government sector.
Speaker 10: And in leisure and hospitality.
Speaker 9: But there's been many sectors that haven't been adding that
Speaker 9: robust job growth. Manufacturing, professional business services has been struggling.
Speaker 9: The temporary help sector has really been struggling. So I
Speaker 9: think we're seeing more of the same. But this report
Speaker 9: showed some signs of real weakening when you look at
Speaker 9: the unemployment numbers. That is certainly what concerns me the most.
Speaker 9: That we tipped up to four point three percent. We're
Speaker 9: up to seven point one million unemployed people in the
Speaker 9: United States and right now, I can't tell you that
Speaker 9: that's going to change very quickly. I think we're going
Speaker 9: to see more of that for the rest of this year.
Speaker 8: What if any When it comes to inflationary costs or
Speaker 8: driving people to go back into the workforce.
Speaker 9: Oh, I think you are spot on when it comes
Speaker 9: to that. We are seeing people enter back into the workforce,
Speaker 9: so that that is a good sign. Even labor participation
Speaker 9: tipped up to sixty two point seven percent, so people
Speaker 9: are coming back. They have to come back to work,
Speaker 9: and that is due to inflationationary costs. You know, we're
Speaker 9: seeing people not only you know, need both parents maybe
Speaker 9: to work in a family, but some taking second jobs,
Speaker 9: looking for part time work or maybe gig work to
Speaker 9: kind of supplement their incomes. So yes, unemployment will continue
Speaker 9: to grow as we start to see more people participating
Speaker 9: in the overall workforce. And unfortunately, job openings are starting
Speaker 9: to decline month over month. I think we're down to
Speaker 9: about eight point one million job openings and now we
Speaker 9: have seven point one million unemployed workers. So you know,
Speaker 9: there's still more jobs than there are unemployed people, but
Speaker 9: that gap is really narrowing, and it could reverse that.
Speaker 9: We will have more unemployed people than we do have
Speaker 9: open jobs in the US in the next couple months.
Speaker 3: One thing we saw in the report today that would
Speaker 3: be ordinarily even a red flag is a drop in
Speaker 3: temporary health services hiring. Basically, are you finding that companies
Speaker 3: don't want to add anybody at this point?
Speaker 9: Yes, you know, unfortunately the temporary help sector has been
Speaker 9: hit the hardest over the last two years.
Speaker 10: We've been seeing declines.
Speaker 9: In you know, job growth for gosh, I think since
Speaker 9: March of twenty twenty two, so again this month is concerning.
Speaker 9: There was a loss of twenty two thousand jobs in
Speaker 9: this sector, and you know, it really points to employers
Speaker 9: are going to let their temporary workers go first and
Speaker 9: try to hold on to their permanent staff before they
Speaker 9: need to lay them off, and it has a profound
Speaker 9: impact on the overall temporary health industry. Has been a
Speaker 9: softness across the board. Certainly, I see it at Employee Bridge.
Speaker 9: I'm also the chair of the board for the American
Speaker 9: Staffing Association, and I can tell you the entire industry
Speaker 9: is feeling it across the board.
Speaker 10: We're hopeful, you know.
Speaker 9: As we look at coming into the holiday and the
Speaker 9: peak season, that employers are going to start adding to
Speaker 9: their payrolls and hopefully twenty twenty five is a much
Speaker 9: better year, but it would point to a challenging economic
Speaker 9: climate right now and certainly concerns because employers are not
Speaker 9: adding temporary workers, you know, to their payrolls.
Speaker 8: Where are we still seeing bright spots within the labor force?
Speaker 9: Jny, Well, you know, bright spots, I will say, can
Speaker 9: still be in that healthcare sector. There's a tremendous amount
Speaker 9: of job growth in healthcare and I expect those trends
Speaker 9: to continue.
Speaker 10: You know, we have been seeing construction jobs start to
Speaker 10: come back, and.
Speaker 9: If you look at the horizon, I do expect that
Speaker 9: we will see a resurgence in manufacturing. We're just not
Speaker 9: seeing that right now, but many plants are being you
Speaker 9: know built across the country and those jobs will come
Speaker 9: back in the US. I also think if you look
Speaker 9: at the breakdown of unemployment, certainly having education, college degree,
Speaker 9: you know, put you in a much better position.
Speaker 10: My concern in this.
Speaker 9: Month's report was actually those lower wage jobs, you know,
Speaker 9: really not coming back and being eliminated. And when you
Speaker 9: look at unemployment, we saw the largest jump in unemployment
Speaker 9: in twenty five years of age and older. For individuals
Speaker 9: that have not completed their high school diploma. It went
Speaker 9: almost it went up almost a full point. We saw
Speaker 9: that up to six point seven percent. So those low
Speaker 9: wage jobs are certainly being impacted. College degree it's still
Speaker 9: down to about three and a half percent unemployment, so
Speaker 9: certainly lower than that four point three percent, So education
Speaker 9: skills experience, those jobs are still out there and in demand.
Speaker 3: Is this something the situation we have now with employment
Speaker 3: that a FED rate cut is going to fix?
Speaker 10: It will certainly help, you know.
Speaker 9: I think most employers right now are being very focused
Speaker 9: on you know, cost containment and where they're investing, and
Speaker 9: with where interest rates are right now, you know, their
Speaker 9: purse strings are just a bit tighter. So when when
Speaker 9: we talk to our customers at employee Bridge and certainly
Speaker 9: employers across the board, you know, they are saying that
Speaker 9: they are waiting, you know, for the FED to cut
Speaker 9: rights and that they're hopeful that when that happens, things
Speaker 9: will start to pick up and they will start to
Speaker 9: make those hiring decisions.
Speaker 10: Again and move forward.
Speaker 9: So I would say, from everything we're hearing on the
Speaker 9: front lines, yes, that will help.
Speaker 8: You know, Jenny willly have about twenty seconds left. But
Speaker 8: we've seen when it comes to women in entering the
Speaker 8: labor force coming out of COVID, it's been a bit
Speaker 8: of a struggle, more so compared to prior to that.
Speaker 4: But what do we sing on that front?
Speaker 9: Yeah, you know, I think that there's more flexibility for
Speaker 9: women in the workforce right now than there's probably ever
Speaker 9: been before. Employers want to hire, you know, a device workforce,
Speaker 9: they want women to come back, and they're offering more flexibility.
Speaker 9: So options are out there, and I do think we're
Speaker 9: seeing women enter back as well.
Speaker 8: Great to hear Jenny Bailey, chief Work Analysts here and
Speaker 8: apparently the chair of the American Staffing Association. Of course,
Speaker 8: Mike McKee over our own at Bloomberg.
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Speaker 2: Intelligence Radio, Alex Steele, Paul Sweeny's off on the beach
Speaker 2: just mentioned is here, as well as John Tucker. Yeah,
Speaker 2: we haven't seen those chunky moves in the bond market
Speaker 2: in the front end since guess when, oh twenty twenty
Speaker 2: three March, the less VB action there, So let's for
Speaker 2: a perspective on like the type of sort of panic
Speaker 2: buying if you will, coming into the front end.
Speaker 8: Also, the Atlanta Fed GDP now for the third quarter
Speaker 8: coming in around two and a half percent, and then
Speaker 8: the ECFS you function in the terminot's where you can
Speaker 8: see the economic forecast for GDP annually as well as
Speaker 8: quarter over quarter, still seeing strong growth here. So I
Speaker 8: know people are potentially spooked by this job number coming
Speaker 8: in below one hundred and fifty thousand, But again, when
Speaker 8: you're looking at some of the economic projections here, still
Speaker 8: pretty strong growth here overall for the US.
Speaker 2: It's such a good perspective, which begs the question, then
Speaker 2: when you have a sell off that's triggered by that
Speaker 2: growth scare, what do you do then when the underlying
Speaker 2: data is still okay? Well Matt Stuckey is chief portfolio
Speaker 2: manager of equities at Northwestern a mutual Wealth Management and
Speaker 2: he joins US now, So to that point, when you
Speaker 2: see the NASDAC off three percent, do you buy the dip?
Speaker 11: Well, good morning, thanks for having me. Look, I think
Speaker 11: before you rush into any kind of buying and selling
Speaker 11: activity on a day like today, revisiting kind of where
Speaker 11: you're at from a risk allocation is probably where you
Speaker 11: need to start. And so if your way underweight risk assets,
Speaker 11: maybe today's a better entry point. But again, I think
Speaker 11: it's it's important to always kind of center whatever trading
Speaker 11: activity you make based on kind of your long term
Speaker 11: risk tolerance, because that's likely to be tested in the
Speaker 11: coming months.
Speaker 8: So how are you advising clients to position? What are
Speaker 8: you suggesting that they buy? What are you suggesting that
Speaker 8: they sell? When it comes to equities.
Speaker 11: With inequities, Look, I mean we we have been somewhat
Speaker 11: vocal about our concern about concentration building in the S
Speaker 11: and P for the last year or so, and and
Speaker 11: to kind of counteract a little bit of that growing risk,
Speaker 11: you know, we've recommended clients kind of use a little
Speaker 11: bit of a value tilt within their portfolio in the
Speaker 11: S and P space, maybe an equal weighted exposure as
Speaker 11: well to mix in some diversification. You know, we also
Speaker 11: have been somewhat positive about the optionality that we think
Speaker 11: exists in US small caps and midcaps, where you know,
Speaker 11: from evaluation perspective prior to July, you know, things were
Speaker 11: fairly compressed and dislocated versus the S and P, and
Speaker 11: we thought it could work in a variety of economic outcomes,
Speaker 11: one being a mild recession which kind of catalyzes some
Speaker 11: aggressive FED rate cuts, or you know, a soft landing
Speaker 11: scenario which still allows the FED to cut maybe just
Speaker 11: by less that broadens out the economic participation into its economy.
Speaker 12: You know.
Speaker 11: At this point now, though, you know, I think we
Speaker 11: got to have longer term horizon for that to play out,
Speaker 11: because it does look like incrementally the labor market is
Speaker 11: accelerat to the downside, and we're likely to be in
Speaker 11: some chocolate of waters here for the next few months.
Speaker 2: So you mentioned the Russell, and now we're looking at
Speaker 2: the Rustle down over four percent. We haven't seen this
Speaker 2: kind of slide since June of twenty twenty two.
Speaker 5: I mean, I appreciate that it's looking for value. Is interesting.
Speaker 5: How do you manage? Then we had a minor run up.
Speaker 2: And then here we are down again, the most in
Speaker 2: two years.
Speaker 11: Well, you know, we're talking about our within equity allocation.
Speaker 11: I think it's important for your listeners to understand that
Speaker 11: within the global context of our portfolios, our aggregate equity
Speaker 11: position has been underweight with a preference for high quality
Speaker 11: fixed income, and so we're thinking about a little bit
Speaker 11: of offense in that part of the equity portfolio because
Speaker 11: we have a defensive position in fixed income, which is
Speaker 11: in a day like today, you know, really proving it's
Speaker 11: worth from a diversification perspective. So, you know, our message
Speaker 11: to CLI clients on days like today is that this
Speaker 11: is likely to be the environment we deal with for
Speaker 11: the next few months of volatility back and forth, especially
Speaker 11: in areas like small caps, which not only have higher cyclicality,
Speaker 11: but also higher beta associated with them.
Speaker 4: Matt.
Speaker 8: Something I'm curious about is whether or not, especially because
Speaker 8: PAL did signal that rate cuts could come as soon
Speaker 8: as that September eighteenth rate decision here. But Bank of
Speaker 8: America actually had some interesting data that they put in
Speaker 8: their flow show for Michael Hartnett this morning, where the
Speaker 8: S and P five hundred has advanced more than thirty
Speaker 8: percent in the past nine months, compared to an average
Speaker 8: gain of just two percent and a dozen prior occasions
Speaker 8: since nineteen seventy nine leading up to a first rate cut.
Speaker 8: So I'm kind of wondering when you have such a
Speaker 8: big run like that in risk assets, how much of
Speaker 8: that was they sell the news, especially because of small caps,
Speaker 8: and that run up to what FED was signaling there, Matt.
Speaker 11: You know, I thinking through kind of prior cycles and
Speaker 11: kind of connecting that to what the FED has been doing. Look,
Speaker 11: it's not uncommon prior to the first rate cut for
Speaker 11: for markets to corrally and make new all time highs. However,
Speaker 11: to your point earlier about you know, the sell the
Speaker 11: news kind of message here. You know, rate cuts when
Speaker 11: they happen for you know, a response to a decline
Speaker 11: macroeconomic situation which looks like you know, indeed, if it
Speaker 11: starts in September, that's what the FED is going to
Speaker 11: be using as the rationale have a very different equity
Speaker 11: outcome versus rate cuts that are company with the soft landing,
Speaker 11: and so we'll have to wait and see which economic
Speaker 11: outcome we get, but it certainly kind of ratchets up
Speaker 11: the risk profile and the skew of outcomes if we've
Speaker 11: had so much for a run up into that first cut,
Speaker 11: And from my perspective, it is somewhat of evaluation driven
Speaker 11: rebalance there.
Speaker 2: When you mentioned fixed income, where on the curve do
Speaker 2: you think still provides the most value on a price
Speaker 2: appreciateciation basis?
Speaker 11: Sure, I mean this is kind of the more recent
Speaker 11: kind of area that we've changed our fixed income allocation.
Speaker 11: You know, for the last four or five years, we've
Speaker 11: been under rate duration wise. During twenty twenty three, we
Speaker 11: moved our duration back into kind of alignment with the
Speaker 11: Bloomberg Barclays Act in between that you know, five and
Speaker 11: six kind of year range, and most recently a couple
Speaker 11: of months ago, we extended even further to an access
Speaker 11: duration position in our fixed income portfolios. With a very
Speaker 11: high credit rating of double a plus in that position.
Speaker 11: And we accomplish that just with a small position in
Speaker 11: TLT in our model portfolios, which moved our duration out
Speaker 11: a year or so. And you know, the thought there
Speaker 11: is is that, you know, as the Fed is starting
Speaker 11: to ease policy, as inflation is less of a headwind
Speaker 11: to fixed income pricing, you know, this is a position
Speaker 11: that's a really nice diversify in an environment like we're
Speaker 11: dealing with today.
Speaker 8: All Right, Matt, thanks so much for joining us. The
Speaker 8: great getting your perspective, especially on a volatile day like today.
Speaker 8: So Matt Stucky, chief portfolio manager and of equities at
Speaker 8: Northwestern Mutual Wealth Management, joining us on zoom from Milwaukee, Wisconsin.
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Speaker 5: So let's get to the economic part of this.
Speaker 2: Bill Lee is chief economist in Milkan Institute and he
Speaker 2: is joining us. Now, Hi, Bill, the market is taking
Speaker 2: this job. Support is like a total disaster, like a
Speaker 2: complete growth scare, is that the right way of looking
Speaker 2: at it.
Speaker 13: I spend my entire career warning people not to overreact
Speaker 13: to one data point, and it looks like the markets
Speaker 13: that continuing to do that market is never disappointed and
Speaker 13: always overreacting in right now, all I can say is
Speaker 13: that how can you have a recession when the entrepreneur
Speaker 13: rate is between four and four and a half, which
Speaker 13: most people think is where the natural rate is supposed
Speaker 13: to be.
Speaker 6: The second thing is that the.
Speaker 13: Numbers are showing that the unapployment rate has gone up
Speaker 13: because the labor force has grown more than the population.
Speaker 13: The layoffs are starting to mount up this month, but
Speaker 13: this is the first month of layoffs that we've seen,
Speaker 13: So for me, I think the recession calls and your
Speaker 13: fears in the markets are way overreaction.
Speaker 8: And I'm glad you brought that up, Bill, because Alex
Speaker 8: and I earlier were talking about the latest alien fed
Speaker 8: GDP NOW number for the third carter coming in at
Speaker 8: two and a half percent, and as you know that
Speaker 8: those numbers can be volatile, but still, when you're looking
Speaker 8: at kind of the trajector you're here for, economic growth
Speaker 8: still looks pretty solid when you're talking about the dynamics
Speaker 8: within the labor market and particularly the participation rate.
Speaker 4: How much does that plan into.
Speaker 8: Especially when you see a number drop like that, as
Speaker 8: far as who's coming into the workforce and who's leaving it, that's.
Speaker 13: Really critical, Jess, And I'm glad you brought that up,
Speaker 13: because as much as people point to the SAM rule
Speaker 13: and the unopplanneer rate rising as being a recession indicator,
Speaker 13: a lot of indicators and historical relationships like that have
Speaker 13: just not worked so well long as the you'll curb
Speaker 13: been inverted, for example, and people have said, oh my god,
Speaker 13: that's always a good indicator that in a receect. So
Speaker 13: so I think we have to look at carefully at
Speaker 13: that composition of the labor force. And what we see
Speaker 13: is that immigration and other factors have and people just
Speaker 13: wanted to work now because it's easier to get to
Speaker 13: work uh, and there are more jobs readily available, so
Speaker 13: people are encouraged to participate and try to try to
Speaker 13: try to get more jobs.
Speaker 6: Now.
Speaker 13: The bad part about this is that consumers have been
Speaker 13: spending like crazy, as we know, uh, and savings rates
Speaker 13: have been dropping. Now the rich people have been dipping
Speaker 13: into savings. But you know, median worker and the lower
Speaker 13: half the population have really been resilting to a lot
Speaker 13: of credit in order to make ends meet, and and
Speaker 13: and part of that making ends meet is getting a
Speaker 13: second and third job, because most jobs that are available
Speaker 13: right now are leisure, hospitality, and sectors in the economy
Speaker 13: where they just just aren't that high. So for me,
Speaker 13: the real problem out there is the growing bifurcation in
Speaker 13: the population of rich and poor. And I think we're
Speaker 13: going to start to see more and more of that
Speaker 13: as we go toward the election.
Speaker 2: I mean, yeah, that shape recovery. Your economy just keeps
Speaker 2: getting more ca shaped. Your old Alma mater a city
Speaker 2: group I came out with their call. It's one hundred
Speaker 2: and twenty five basis points for this year in terms
Speaker 2: of cuts fifteen and September fifteen, November twenty five for December.
Speaker 2: That feels like one of the more dubvish calls out there.
Speaker 2: Do you think that's an economy that needs that kind
Speaker 2: of move?
Speaker 13: Well, I'm glad we're not there anymore because the need
Speaker 13: to attract client attention is something that I don't need
Speaker 13: to worry about anymore. And I feel sorry for Andrew Hollendhorse,
Speaker 13: who's still in the business of trying to distinguish themselves
Speaker 13: from every other economists out there. I think that's a
Speaker 13: bit overboard from my experience at the FED. I think
Speaker 13: the reaction at the Board and among all the district banks,
Speaker 13: they'll be saying, you know, we're normalizing the economy. The
Speaker 13: need for large number of rate increases is really not there,
Speaker 13: and if we were to do it, it would signal
Speaker 13: to the markets that there's some thing to really worry
Speaker 13: about and that we're panicking. And the need to panic
Speaker 13: right now is avoiding the impression of panicking right now
Speaker 13: is at the paramount for the FED.
Speaker 6: So I think we're going to see twenty.
Speaker 13: Five basis points in September, and maybe if the data
Speaker 13: continue to deteriorate like this, they'll talk about a more
Speaker 13: continued set of rate increases and probably hint at three.
Speaker 13: But if the data starts to turn around a bit
Speaker 13: and stabilize and normalize and we don't see an acceleration
Speaker 13: in the worstening, I think they're going to say, you know,
Speaker 13: possibly too.
Speaker 8: Where do you see average job growth coming in over
Speaker 8: the next twelve months? With the expectations that the FED
Speaker 8: is going to begin its rate cutting cycle.
Speaker 6: Yeah.
Speaker 13: I think when we look at where the payrolls are weakening,
Speaker 13: it's exactly in those sectors where the FED wants it
Speaker 13: to weaken, the intrasensitive sectors. In fact, one surprising part
Speaker 13: of the numbers is how strong construction continues to be.
Speaker 13: But I think the FED is going to start saying,
Speaker 13: if we are successful in normalizing interest rates and normalizing
Speaker 13: the economy, we'll see payrolls and household employment growth somewhere
Speaker 13: in the one hundred thousand, tw one hundred and twenty
Speaker 13: thousand range.
Speaker 6: That's normal.
Speaker 13: And so everything we've seen up until now at the
Speaker 13: two hundred level is way above normal and not sustainable.
Speaker 5: Here's my broad question. Also, how it relates to tech.
Speaker 2: Hyper scalers are spending gazillions of dollars that's a technical
Speaker 2: term in terms of spending for AI. Can we have
Speaker 2: a meaningfully weaker economy with that kind of capac spend?
Speaker 13: Great point, because as we see in the numbers this month,
Speaker 13: one of the surprising sources of job of job decline
Speaker 13: payroll decline is in information systems. Now, fortunately, most of
Speaker 13: that almost half of that is because of broadcasting and
Speaker 13: newspapers and publishing. But there is a component that talks
Speaker 13: about where the hyperscalers are and that also shows a
Speaker 13: small set of job the payroll declines, and I think
Speaker 13: what we're seeing is that companies are having to rationalize
Speaker 13: their finances and to say, if we're going to spend
Speaker 13: a lot on capex, that means that we're using capital,
Speaker 13: AI and other types of innovations to substitute for labor,
Speaker 13: and especially labor that's very expensive labor. So right now,
Speaker 13: if you don't have the right skill set in the
Speaker 13: IT high tech industry, your jobs are on the line
Speaker 13: because you can have to prove to the employer that
Speaker 13: you're you're going to be a value added producer going
Speaker 13: forward in a world where AI threatens to take over
Speaker 13: a lot of the skilled jobs, skilled jobs like you know,
Speaker 13: entry level programmers, where software itself is being written by
Speaker 13: the AI software that's being installed.
Speaker 8: So with Jackson Hole obviously coming up at the end
Speaker 8: of this month, so we'll have a lot of different
Speaker 8: FED speakers between now and then in LX a few weeks.
Speaker 4: I know Alex is excited about that obviously. That September eighteenth, decision.
Speaker 8: Being the next meeting for the Federal Reserve WIL to
Speaker 8: decide on rate cut expectations. But how many rate cuts
Speaker 8: are you really forecasting, either for this year or over
Speaker 8: the next twelve months, Because, like we've been talking about
Speaker 8: so much, Alex and I, the economy is still strong.
Speaker 8: I mean, it doesn't seem like this is going to
Speaker 8: necessarily need to be an aggressive rate cutting cycle like
Speaker 8: something you would have seen during the pandemic or the
Speaker 8: Great Financial Crisis or coming out of the dot com
Speaker 8: bubble bursting here with the economic growth still pretty sturdy here,
Speaker 8: So what are you for seeing here?
Speaker 13: That's a great question, because I think the real boat onus,
Speaker 13: on shairpal Now is at Jackson Hole to calm Lamarks
Speaker 13: and say we're not in a recession, we're not panicking.
Speaker 6: We are in a normalizing situation.
Speaker 13: That has to be as primary message, and in doing
Speaker 13: so he will try to hint more at the expect
Speaker 13: two cuts possibly three for the rest of this year,
Speaker 13: and nowhere near the levels of fifty pace points initially,
Speaker 13: and we'll front loaded with two the COVID of two cuts,
Speaker 13: and we'll have to continue with two more for the.
Speaker 6: Rest of the year.
Speaker 13: That would be the wrong message to said, because right
Speaker 13: now markets are way over excited about the possibility of recession.
Speaker 13: I think his job in Jackson Hall will be calm
Speaker 13: to the markets and calm expectations, and to restore a
Speaker 13: sense of historical perspective as to what is normal and
Speaker 13: what is a normal FED reaction to what's going on,
Speaker 13: which is moderating interest rates because they are restricted right now,
Speaker 13: there's no question, But we don't need to panic and
Speaker 13: cut them so aggressively.
Speaker 2: All right, Bill, we appreciate it was great to talk
Speaker 2: to you again. It's been a while for me, Bill,
Speaker 2: the chief economist at Milk and Institute.
Speaker 5: Really good to get that perspective.
Speaker 2: So sort of walking that tightrope then of having to
Speaker 2: work back some expectations now for more FED cuts, but
Speaker 2: keep showing that the economy does need a little bit
Speaker 2: of support. That is another kind of tight rope balancing
Speaker 2: that the Fed's going to have to do over the
Speaker 2: next few weeks.
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Speaker 2: on YouTube. All right, you just heard a market check there.
Speaker 2: It is ugly out there. I go back to Cameron
Speaker 2: christ Macroman. He writes her Bloomberg that says, who's going
Speaker 2: to save the market?
Speaker 5: Help me be one? You're my only hope.
Speaker 2: Who's the only hope? Is it going to be Nvidia?
Speaker 2: Is it going to be Powell? Is it something else?
Speaker 2: Ben Emmons is chief investment officer and founder at fed
Speaker 2: Watch Advisors. He joins us, Now, Ben, what saves the market?
Speaker 12: Yeah, it would be the feth if I say feed
Speaker 12: Watch Advisors, because you know, this is clearly a Loucal
Speaker 12: for fifty basis boys right now, right because of this
Speaker 12: week Bayrold data. Then again, you know, drilling the report,
Speaker 12: it's a lot about technology jobs. I guess this is
Speaker 12: what Powell really said. It's like the leags are showing
Speaker 12: up in the economy, right. The variable lags of policy
Speaker 12: and technology gets hit but at the most and guess what,
Speaker 12: that's social down the most today in the market. So
Speaker 12: I think alex is a fifty base boy cut that
Speaker 12: the FED would have to deliver. Of course it's not
Speaker 12: going to do it, but I do think that this
Speaker 12: report sets us up for the September media for sure,
Speaker 12: as Powell's sort of signaled it, so Marcus will eventually
Speaker 12: rebound from this. It looks like to me it was
Speaker 12: obviously overshooting to the downstrom both yields and stars, and.
Speaker 8: Especially coming off the back as you know, beIN from
Speaker 8: how signaling that those rate cuts are coming as soon
Speaker 8: as a September Here, I mean, how much of this
Speaker 8: really changed from the last forty eight hours, because obviously
Speaker 8: we did get that manufacturing data yesterday. Of course we
Speaker 8: had the jobs dated this morning, but we already saw
Speaker 8: this decline really ramping up yesterday after a huge balance
Speaker 8: at a huge rally with the NASDAC up around three
Speaker 8: percent on Wednesday, and obviously the S and P five
Speaker 8: hundred posting it's best FED day in about two years here,
Speaker 8: So how much of this is kind of like a
Speaker 8: re rotation here moving into other corners of the market
Speaker 8: when you had speculative areas like small caps really get
Speaker 8: ahead of themselves, especially in July and now moving maybe
Speaker 8: toward these kind of divid in paying corners of the
Speaker 8: market here.
Speaker 12: Yeah, I think it's totally right. Yes, you know, there's
Speaker 12: a really nice rotation function on the Boombook terminal that
Speaker 12: shows exactly that you see precisely deportation playing out the
Speaker 12: sextici you described. So it is also about that people
Speaker 12: look at this like, you know, there's an election playing
Speaker 12: out here too. You know, Harris catching up really quick
Speaker 12: to Trump in the polls, raising a lot of money.
Speaker 12: So the Trump trade that's fading, and that Trump trade
Speaker 12: was very associated with small caps against the backdrop of
Speaker 12: an economy that's just softening. I don't think this is
Speaker 12: the two thousand and seven suddenly we're in a recession
Speaker 12: moments right with the back then the idea, But I
Speaker 12: do think the yuk of steepening indicates, yeah, the eclumns
Speaker 12: on a much slower path and you're getting lower payrolls.
Speaker 12: And you know, small caps don't do that great initially
Speaker 12: on that type of news. So there's a combination of two.
Speaker 12: I think that rotation will continue. That's why I think
Speaker 12: that the shell of the tech stocks is probably getting
Speaker 12: overshot to the downside, makes these stocks over sold, and
Speaker 12: that's why I think you can expect the rebound coming
Speaker 12: in once they settle out there.
Speaker 2: When you mentioned this is a clear call for the
Speaker 2: FED to cut like right now, gun calls for fifty
Speaker 2: basis points now from City JP Morgan, you also mentioned that,
Speaker 2: I guess my dumb question here is why.
Speaker 5: I mean, I understand that the report wasn't great.
Speaker 2: There's obviously you can look at some potential seasonality, like
Speaker 2: the permanently unemployed people. A lot of them are temporary unemployed.
Speaker 2: In terms of the overall number. You could also make
Speaker 2: an argument there is a weather factor, even though I
Speaker 2: understand some of the headlines showed no, but why the urgency?
Speaker 12: Yeah, And that's the puzzle of it. Alex like to
Speaker 12: know why that sentiment shifts suddenly. But I think that
Speaker 12: people are looking at maybe the accumulation of data and
Speaker 12: so claims are steadily rising, The full we gaverage is
Speaker 12: steadily rising. We're closer to that Zamble trigger, not exactly.
Speaker 12: You know, Mike and kea at a nice spreadsheet this
Speaker 12: morning on the show, and it says like you're just
Speaker 12: a tenth of whatever percent away from that trigger. But
Speaker 12: I think that's that it's a psychology ultimately, even the
Speaker 12: Poul says that that rule is just a statistical measure,
Speaker 12: nothing else. So it's psychology here that plays a role.
Speaker 12: And you know, ultimately it's about like the fat can
Speaker 12: really cut rates one and it could move more of
Speaker 12: the restriction. And if you're drill the reports, you say,
Speaker 12: there's definitely reasons why you don't have to cut with
Speaker 12: like slashing rates because espaceally, you also have strong job
Speaker 12: gains in healthcare and construction and financial activity and leisure,
Speaker 12: which which have been engines of growth in the economy
Speaker 12: the last several years. So that's not by the weakness
Speaker 12: systems really the technology jobs in itself. So I think
Speaker 12: it's more about psychology that we're fed, you're behind the curve,
Speaker 12: you got to move. Why people are trading the fifty
Speaker 12: base point cut, which as we know, is unlikely to
Speaker 12: be delivered September more than twenty five. So it's more
Speaker 12: like the Fed now gets enough evidence to remove the
Speaker 12: restriction of this policy, and this report just cements that
Speaker 12: that that goal for the to.
Speaker 8: Alex's point, JP Morgan City seeing basically these FED dealing
Speaker 8: two half point rate cuts, but then also you have
Speaker 8: Goldman Sacks over there they added a third quarter point
Speaker 8: rate cut in November to their prior forecast. Also Bank
Speaker 8: of America, who had been holding out for rate cuts
Speaker 8: in the beginning of December, they said they now see
Speaker 8: to look for the first move in actually September here,
Speaker 8: So when you're looking ahead over the next couple of
Speaker 8: weeks for other indicators when it comes to the economy,
Speaker 8: next week's a little bit lighter on the economic calendar,
Speaker 8: but we still have some services related data coming out
Speaker 8: as well. But then the week after that, obviously we'll
Speaker 8: have another update when it comes to CPI on August fourteenth.
Speaker 8: So what are you looking ahead between now and then,
Speaker 8: because next week's also a huge earnings week still on
Speaker 8: the back of coming out of these big tech earnings,
Speaker 8: because you have a lot of consumer focused names that
Speaker 8: are going to be reporting.
Speaker 12: Yeah, I would look at those because that's where I
Speaker 12: think the issue is currently. Right, if you look at
Speaker 12: the current sell of today in the S and B,
Speaker 12: what's the worst performing as sectors The consumer discretionary, right,
Speaker 12: So I think that's where the economic pain point is
Speaker 12: currently today in the markets. So these are earnings from
Speaker 12: these consumer companies are obviously key to watch for any
Speaker 12: kind of significant demand slowdown. Neil McDonald's was I think
Speaker 12: it kind of a wake up goal earlier this week
Speaker 12: that it showed, like, you know what, these consumers aren't
Speaker 12: so out there, you know, eating left and right everything,
Speaker 12: and are more conservative or getting more conservative, so that
Speaker 12: I think it was the first precursor for what the
Speaker 12: consumer sectors really showing that it is this slowdown that
Speaker 12: we've been anticipating, against the sentiment that you once again highlight.
Speaker 12: It's amazing, right, all of a sudden, we're getting a
Speaker 12: repurported Every bank jumps all over one another to add
Speaker 12: more raycuts. Well at first they were reluctant to put
Speaker 12: out ratcuts, right. So I think it's that combination of
Speaker 12: that that bit of the you know, exaggerated sentiment that
Speaker 12: we know over all these years of aline oshaps after
Speaker 12: favoral reports, against the true economic environment, which is slowing.
Speaker 12: I don't think this is the recession moments, but we
Speaker 12: definitely have to concefen is probably overtightening here, therefore they
Speaker 12: can change.
Speaker 5: All right, Ben, we gotta leave it there. Thanks a lot.
Speaker 2: Ben Emmons joining us there from fed Watch Advisors. He's
Speaker 2: the founder and CEO of that.
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Speaker 2: All right, let's get to Amazon. Isn't a tech company?
Speaker 2: Isn't an e commerce company? I feel like this is
Speaker 2: always a question. Putam Goyle is joining us. She's senior
Speaker 2: US e Commerce and retail analyst at Bloomberg Intelligence. Amazon
Speaker 2: stock is down by about twelve percent. I know it's
Speaker 2: a tough tape, so it's hard to really parse out,
Speaker 2: but put them help me understand why the decline in Amazon.
Speaker 7: The decline is largely due to the operating margin guidance,
Speaker 7: which came in below street expectations, as they're investing more
Speaker 7: in Capex, which is really on the AI site to
Speaker 7: support the cloud business. Now, you could argue that they
Speaker 7: did also talk about the consumer and it being weaker
Speaker 7: and it trading down. But I think you know, when
Speaker 7: the consumer trades down, Amazon can still do well and
Speaker 7: take share because they press the pedal on price and
Speaker 7: convenience pretty hard, which draws them the attention that they need.
Speaker 8: So when you look at Amazon and mov function, maz
Speaker 8: and is the ticker symbol on this. So, like Alex
Speaker 8: was talking about down twelve percent, it's actually the worst
Speaker 8: performer in the S and P five hundred and also
Speaker 8: dragging down the com communication the consumer discretionary sector down
Speaker 8: over five percent right now.
Speaker 4: So when it comes to especially when you think.
Speaker 8: Of spinders that feed into in video, because that was
Speaker 8: something that when it comes to those customers, because we
Speaker 8: won't hear from Nvidia until August twenty eighth, so a
Speaker 8: lot of people coming into this week we're looking toward
Speaker 8: in Vidia's customers because if you looked at say Amazon
Speaker 8: or even Meta Alphabet and others who you know, if
Speaker 8: you combined their CAPEX spending over the prior four quarters
Speaker 8: before this earning season, it was around one hundred and
Speaker 8: fifty billion dollars. So the thing was, well they pull
Speaker 8: back or not. For the most part, we still saw
Speaker 8: a lot of spending. So I'm kind of wondering from
Speaker 8: that equation, Punam, what are you seeing there as far
Speaker 8: as what this could potentially mean for a stock like
Speaker 8: in Video because obviously this is more of a discretionary
Speaker 8: type company when it comes to Amazon. But when it
Speaker 8: comes to the spending, how do you parse.
Speaker 10: That sure stuf? For Amazon?
Speaker 7: The one thing you have to keep in mind that
Speaker 7: there were behind the AI wave, right, so they're investing
Speaker 7: more into AI than maybe some of their peers, and
Speaker 7: we think that's the reason that you're seeing a tickup
Speaker 7: in the second half from the thirty point five billion
Speaker 7: in the first half. Now, when it comes to some
Speaker 7: of their counterparts, they've been ahead of the curve and
Speaker 7: they could, depending on where their sales come out and
Speaker 7: where consumer demand is, they could continue at a steady
Speaker 7: pace or even pull back a little because they are
Speaker 7: somewhat ahead of the curve.
Speaker 2: This is a super basic, dumb question. As they ramp
Speaker 2: up their AI stuff, how does that help them with
Speaker 2: e commerce? And so that's such a huge chunge of
Speaker 2: their business. Like I know that the AWS is a
Speaker 2: sexy growing part, but when you look at revenue, whether
Speaker 2: it's e commerce or online stores, it's still double what
Speaker 2: AWS brings in.
Speaker 5: How does AI help that?
Speaker 7: AI is actually a big big deal in the retail
Speaker 7: space and the e commerce space. So when you think
Speaker 7: about AI, what it helps them do is it helps
Speaker 7: them across all facets of their e commerce business, whether
Speaker 7: that's search, right, So you go into the Amazon search
Speaker 7: for and let's say you know you're used to typing
Speaker 7: in I want to black dress, but now you don't
Speaker 7: have to. You can say going to black tie event, right,
Speaker 7: and they should be able to populate addresses that gover that.
Speaker 7: So conversion is one of the biggest pain points in
Speaker 7: e commerce. You're going online to browse more than you
Speaker 7: are to buy, whereas you're going in store to buy
Speaker 7: more than you are to browse. So I think as
Speaker 7: what AI can do in a meaningful ways improve conversion
Speaker 7: because you can get the results that you're looking for faster,
Speaker 7: you can improve the shopping journey, you can get customers
Speaker 7: to find what they want more easily, and not just that. Right,
Speaker 7: they're using AIA just for the search, but they're using
Speaker 7: it in customer service, they're using it for inventory, they're
Speaker 7: using it and they're automated shopping platforms like the Roofs
Speaker 7: or the Alexa. So there's a lot that's happening with
Speaker 7: generative AI, especially which we think will help drive retail
Speaker 7: higher for a long time.
Speaker 8: We only have about a minute left here, but you've
Speaker 8: talked about also how when it comes to the margin
Speaker 8: equation for Amazon, how you're seeing that expanding over the
Speaker 8: long term. And as you know, Alex, when you think
Speaker 8: of the discretionary sector margins coming out of COVID, that
Speaker 8: was such a big issue because of the inflationary pressures.
Speaker 8: So I'm wondering Punin when you're thinking about that, because
Speaker 8: if you're not an Amazon, or maybe like a home
Speaker 8: durable like a home depot, a lot of those other
Speaker 8: retailers are struggling. So what are you seeing from the
Speaker 8: margin aspect maybe more broadly, or what can Amazon tell
Speaker 8: us kind of moving forward what that means for discretionary
Speaker 8: type of companies in the retail space.
Speaker 7: Sure, so remember Amazon is a retail company, but it's
Speaker 7: also a tech company, right. The marketing opportunity for Amazon
Speaker 7: really comes from the tech side. So the cloud business,
Speaker 7: which is about one hundred billion dollars, we estimate that
Speaker 7: going into two hundred billion dollars with a forty percent margin.
Speaker 10: There you go.
Speaker 7: You just added another forty billion dollars in profit. And
Speaker 7: then when you look at the AW, when you look
Speaker 7: at the advertising business, fifty billion dollars run rate going
Speaker 7: to one hundred billion dollars, which we think carries higher
Speaker 7: margin than AWS, you're looking at adding about another fifty
Speaker 7: billion at the minimum or more operating income. So right
Speaker 7: there alone, you're reaching about one hundred billion dollars in
Speaker 7: operating income in the next five years additionally to what
Speaker 7: you have today. And that's the profit driving part of Amazon.
Speaker 7: And you can argue that ads are supported by the
Speaker 7: growing retail business.
Speaker 5: Punam, we got to leave it there up against a break.
Speaker 5: Thank you very much.
Speaker 2: Putnam Gooyle, Senior EUS Commerce analysts for Bloomberg Intelligence.
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Speaker 2: This is the Bloomberg Intelligence Radio. So the latest right
Speaker 2: now is that city adjusting its fed rate call. They
Speaker 2: see a fifty basis point cut in September and November,
Speaker 2: and twenty five basis points in December. So things are
Speaker 2: moving fast and furious. What's also being fast and furious
Speaker 2: is Intel stock. I just want to start there because
Speaker 2: it's whenever you have a company like Intel mentioned something
Speaker 2: like liquidity very high up on their earnings, that's never
Speaker 2: really a good sign. That stock is now plummeting twenty
Speaker 2: eight percent. I want to bring an anarag Rana Bloomberg
Speaker 2: Intelligence senior technology analyst.
Speaker 5: You can also hit on Apple as well, but anarag
Speaker 5: I just what happened here?
Speaker 11: Yeah, I mean.
Speaker 14: Mentel is going through restructuring right now, so I mean
Speaker 14: this is just a fallout from that, because remember right now,
Speaker 14: data center is where all the investments are going in
Speaker 14: and in Vidio GPUs is what everybody wants. So that's
Speaker 14: really not playing in the you know, sweet spot of
Speaker 14: what Intel does, big turnaround story, and you know, it
Speaker 14: seems some issues there.
Speaker 8: And as you know, that stock has already been under
Speaker 8: tremendous pressure.
Speaker 4: This year alone too.
Speaker 8: So usually when there's cost cutting efforts, when you hear
Speaker 8: those kind of magic words, usually investors will gravitate toward that,
Speaker 8: especially when you think of say, as you know, Hona
Speaker 8: rog Meta at the end of twenty twenty two when
Speaker 8: it first announced, it's a big tranch of job cuts
Speaker 8: and cost cutting efforts. But with this and especially the
Speaker 8: intricacies that you were just talking about, what exactly is
Speaker 8: it that investors need to see in order to have
Speaker 8: more conviction for a stock like this.
Speaker 14: I think sales growth needs to pick up because at
Speaker 14: the end of the day, unless you see that, you know,
Speaker 14: that's not going to translate into.
Speaker 6: Cash flows and bottom lines.
Speaker 14: You know, in the case of Meta, you know there
Speaker 14: was exus spending, but at the same time, you know
Speaker 14: their digital assets were still being used very aggressively by public,
Speaker 14: you know, whether it's Instagram or WhatsApp, and mean, there's
Speaker 14: no shortage of assets over there. So two different and
Speaker 14: distinct stories in the tech land.
Speaker 5: What do you make of Apple?
Speaker 2: Then it wasn't terrible at all if you're taking a
Speaker 2: look just at the opening market, considering the selloup that
Speaker 2: we're having, and Apple stock is actually up two point
Speaker 2: four percent best stainer as today in.
Speaker 4: The S and P five hundred, Yeah, it was.
Speaker 14: You could say that tech is right. I mean Apple
Speaker 14: is right now the cleanest story in techland only because
Speaker 14: they are not spending billions in capex. They are seeing
Speaker 14: some improvement on their top line and with the promise
Speaker 14: of potentially a refurs cycle on the iPhone coming over
Speaker 14: the next twelve to twenty four months, So things are
Speaker 14: looking good for Apple from a on a relative basis
Speaker 14: when you look at companies like Amazon or Microsoft.
Speaker 8: That's right, and especially because Apple in the first quarter
Speaker 8: it was worst performance relatives to the S and P
Speaker 8: five hundred one of it is worse since the dot
Speaker 8: com bubble burst. But if you look at where it
Speaker 8: was from mid April to now, up almost thirty percent
Speaker 8: in that span.
Speaker 4: So even though there were concerns.
Speaker 8: About China and is the latest earnings report still there's
Speaker 8: more optimism on all the other side of that. So
Speaker 8: what improvements when it comes to China?
Speaker 4: Have you seen there?
Speaker 8: Yeah?
Speaker 14: I think April is when the company came out and
Speaker 14: said that there, you know, numbers in China are not
Speaker 14: as bad as news agencies and analysts were making it
Speaker 14: out to be. And I think that led to a
Speaker 14: reversal of the stock at that point, and since then
Speaker 14: they did a very big AI event, which surprisingly went
Speaker 14: very well because Apple's been criticized over the past few
Speaker 14: years of not innovating enough. So I think those two
Speaker 14: factors really changed the investive perception of Apple in terms
Speaker 14: of as a company and its fundamentals. And now we
Speaker 14: are waiting for the iPhone sixteen you know presentation, which
Speaker 14: is going to be somewhere around the September time frame,
Speaker 14: and with that will come the next level of you
Speaker 14: could say, hardware refash cycle. So things are looking good
Speaker 14: for Apple, not so much for the other tech players
Speaker 14: at this point.
Speaker 2: Before we let you go, I mean, I understand you
Speaker 2: said that Apple's not spending boat loads in the same
Speaker 2: way on AI, but don't we want them to do that?
Speaker 5: Like at some point are they going to be behind
Speaker 5: on that then?
Speaker 14: So think about it this way. People are dying to
Speaker 14: have their large language model on the Apple distribution network.
Speaker 14: They don't have to spend the money opening I can
Speaker 14: do all of that spending. They will just license it
Speaker 14: and to have it on their phone. This is another
Speaker 14: way for them to say, why do I need to
Speaker 14: make data centers when I can rent the data centers
Speaker 14: whenever I need them. So they have a fairly different
Speaker 14: strategy when it comes to capital allocation as compared to
Speaker 14: the other companies.
Speaker 5: All Right, I super appreciate it.
Speaker 2: Thanks a lot on our ground up Bloomberg Intelligence senior
Speaker 2: US technology analyst joining us.
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