1 00:00:02,400 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,400 Speaker 2: with Lisa Bromwitz and am Marie Hordern. Join us each 4 00:00:18,480 --> 00:00:21,360 Speaker 2: day for insight from the best in markets, economics, and 5 00:00:21,400 --> 00:00:24,720 Speaker 2: geopolitics from our global headquarters in New York City. We 6 00:00:24,760 --> 00:00:27,400 Speaker 2: are live on Bloomberg Television weekday mornings from six to 7 00:00:27,480 --> 00:00:31,000 Speaker 2: nine am Eastern. Subscribe to the podcast on Apple, Spotify 8 00:00:31,200 --> 00:00:33,479 Speaker 2: or anywhere else you listen, and as always on the 9 00:00:33,479 --> 00:00:37,120 Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Brian Levitt of 10 00:00:37,200 --> 00:00:41,120 Speaker 2: Investo writing, market drawdowns and volatility are almost always the 11 00:00:41,200 --> 00:00:44,879 Speaker 2: result of policy uncertainty. Investors main need to brace themselves 12 00:00:44,880 --> 00:00:48,040 Speaker 2: for additional volatility, but I suspect we know this drill. 13 00:00:48,240 --> 00:00:50,120 Speaker 2: Frian joins us now for more Bran, good morning, I'm 14 00:00:50,159 --> 00:00:52,920 Speaker 2: going to see you. Is the peak uncertainty behind us yet? 15 00:00:53,120 --> 00:00:53,199 Speaker 3: No? 16 00:00:53,280 --> 00:00:55,240 Speaker 4: I don't think the peak uncertainty is behind us. Although 17 00:00:55,320 --> 00:00:58,480 Speaker 4: I don't want to be overly negative. I'm just reflecting 18 00:00:58,560 --> 00:01:01,600 Speaker 4: on coming off of a period volatility had been quite low, 19 00:01:01,720 --> 00:01:05,720 Speaker 4: so I think ultimately it'll be a good environment for stocks. 20 00:01:05,720 --> 00:01:08,080 Speaker 4: But it's going to be a little bit more difficult. 21 00:01:08,120 --> 00:01:10,880 Speaker 4: We have inflation at the upper end of the comfort zone, 22 00:01:10,920 --> 00:01:14,880 Speaker 4: which isn't terrible unless the Federal Reserve thinks they may 23 00:01:14,920 --> 00:01:16,920 Speaker 4: have to take a different approach. And we still have 24 00:01:16,959 --> 00:01:19,600 Speaker 4: to deal with the uncertainty around trade and industrial policies. 25 00:01:19,640 --> 00:01:22,080 Speaker 5: So there's more to come on this. I don't you know. 26 00:01:22,120 --> 00:01:24,199 Speaker 5: Investors probably looked at. 27 00:01:24,080 --> 00:01:26,440 Speaker 4: What happened with Canada and Mexico with regards to the 28 00:01:26,480 --> 00:01:29,720 Speaker 4: tariffs and said, Okay, all good. I suspect that's probably 29 00:01:29,760 --> 00:01:31,920 Speaker 4: not the case. We'll have some volatility in here, but 30 00:01:32,400 --> 00:01:34,919 Speaker 4: that doesn't change the fact that it's still a good 31 00:01:34,959 --> 00:01:36,280 Speaker 4: backdrop for risk assets. 32 00:01:36,319 --> 00:01:38,840 Speaker 2: In the meantime, we're just eighteen ands and consensustrits to 33 00:01:38,840 --> 00:01:41,240 Speaker 2: start twenty twenty five. In the FX market, the dollar 34 00:01:41,280 --> 00:01:43,600 Speaker 2: is weak and not stronger. In the bond market, yields 35 00:01:43,600 --> 00:01:45,679 Speaker 2: are lower, not higher. And if you look at equities 36 00:01:45,680 --> 00:01:48,720 Speaker 2: on a geographic basis, Europe is outperforming the United States. 37 00:01:48,760 --> 00:01:50,160 Speaker 2: Do you want to fight that or pile in? 38 00:01:50,760 --> 00:01:51,680 Speaker 5: I would pile in. 39 00:01:51,920 --> 00:01:55,280 Speaker 4: I think the reality is we've had such a prolonged 40 00:01:55,320 --> 00:01:58,520 Speaker 4: period of us OL performance driven by a handful of names. 41 00:01:58,560 --> 00:02:01,480 Speaker 4: What we've all been wan is some broadening out in 42 00:02:01,520 --> 00:02:04,920 Speaker 4: these markets. Now, just because things like small caps or 43 00:02:04,960 --> 00:02:08,720 Speaker 4: European stocks were cheap didn't mean that they were going 44 00:02:08,760 --> 00:02:09,440 Speaker 4: to outperform. 45 00:02:09,520 --> 00:02:11,880 Speaker 5: You needed some catalysts. And what you have right. 46 00:02:11,720 --> 00:02:14,880 Speaker 4: Now is of course easing in different parts of the world. 47 00:02:15,160 --> 00:02:18,840 Speaker 4: You have valuations a little bit more extended in the 48 00:02:18,919 --> 00:02:23,720 Speaker 4: United States. You have high, higher nominal growth improving expectations 49 00:02:23,760 --> 00:02:27,880 Speaker 4: in Europe. So yeah, it's a better backdrop you think 50 00:02:27,960 --> 00:02:30,480 Speaker 4: from You remember that period we all remember at twenty 51 00:02:30,639 --> 00:02:33,880 Speaker 4: nine through twenty nineteen where nothing could perform but US 52 00:02:33,960 --> 00:02:37,000 Speaker 4: growth stocks. We were in a very low nominal growth world. 53 00:02:37,080 --> 00:02:40,560 Speaker 4: So now we're in a better or improving nominal growth environment. 54 00:02:40,639 --> 00:02:42,600 Speaker 1: So the story you just told about Europe is not 55 00:02:42,639 --> 00:02:44,639 Speaker 1: as exciting as a story that other people say, which 56 00:02:44,680 --> 00:02:47,320 Speaker 1: is this is the beginning of actual spending of actual 57 00:02:47,360 --> 00:02:51,720 Speaker 1: stimulus in addition to a disinflationary trend that can eventually 58 00:02:51,800 --> 00:02:54,960 Speaker 1: allow ECB rate cuts. Are you basically saying you don't 59 00:02:55,000 --> 00:02:57,760 Speaker 1: buy some of the optimism that this is really the 60 00:02:57,840 --> 00:03:01,680 Speaker 1: moment that Europe could join together there issue euro bonds 61 00:03:01,720 --> 00:03:04,799 Speaker 1: to support the bend stocks and inject some stimulus in 62 00:03:04,840 --> 00:03:05,760 Speaker 1: the overall economy. 63 00:03:05,880 --> 00:03:08,079 Speaker 4: Well, We've seen this before, so you know, fool me 64 00:03:08,200 --> 00:03:10,640 Speaker 4: wants shame on you fool me twice shame. I mean, 65 00:03:10,639 --> 00:03:14,200 Speaker 4: it's that how goes So I don't so I'm not 66 00:03:14,240 --> 00:03:16,560 Speaker 4: ready to say that this is the moment. The way 67 00:03:16,600 --> 00:03:19,040 Speaker 4: I look at Europe right now is not good or bad. 68 00:03:19,080 --> 00:03:21,880 Speaker 4: It's better or worse, and things are getting better than 69 00:03:21,919 --> 00:03:24,640 Speaker 4: where they were. We had this long environment where things 70 00:03:24,639 --> 00:03:27,960 Speaker 4: were generally getting worse. The fact that floating rate mortgages 71 00:03:28,000 --> 00:03:31,200 Speaker 4: exist in a lot of parts of Europe wasn't necessarily helpful. 72 00:03:31,240 --> 00:03:35,440 Speaker 4: But now we've got this easing environment, sentiments picking up. 73 00:03:35,480 --> 00:03:36,600 Speaker 5: I would look at it. 74 00:03:36,600 --> 00:03:40,680 Speaker 4: More as a cyclical recovery in sentiment and a better 75 00:03:40,720 --> 00:03:45,160 Speaker 4: policy environment, rather than necessarily viewing it right now as 76 00:03:45,280 --> 00:03:46,760 Speaker 4: as a bigger structural story. 77 00:03:46,800 --> 00:03:47,720 Speaker 5: We need some proof on that. 78 00:03:48,040 --> 00:03:51,320 Speaker 1: There are some contradictions in the story. On one hand, 79 00:03:51,360 --> 00:03:54,360 Speaker 1: if you have growth improving, doesn't that tie the hands 80 00:03:54,400 --> 00:03:56,080 Speaker 1: of central banks in terms of how much they can 81 00:03:56,080 --> 00:04:00,760 Speaker 1: cut rates, leaving benchmark borrowing costs to a higher pace, 82 00:04:00,800 --> 00:04:02,400 Speaker 1: which typically pressure stocks. 83 00:04:02,560 --> 00:04:04,720 Speaker 4: Well, different parts of the world of different answers. I mean, 84 00:04:04,720 --> 00:04:07,240 Speaker 4: I think in Europe, in the UK, we're going to 85 00:04:07,320 --> 00:04:10,160 Speaker 4: need to see interest rates continue to move lower in 86 00:04:10,200 --> 00:04:13,360 Speaker 4: the United States. The point I was getting at is 87 00:04:13,400 --> 00:04:16,680 Speaker 4: I like inflation at the upper end of the comfort zone. 88 00:04:16,760 --> 00:04:20,120 Speaker 4: You know, people have been wanting weaker, you know, rates 89 00:04:20,120 --> 00:04:23,640 Speaker 4: to come down. In September, the FED Fund Implied Future 90 00:04:23,640 --> 00:04:26,680 Speaker 4: said rates would be below three percent at the end 91 00:04:26,680 --> 00:04:30,159 Speaker 4: of this year. What would have happened between then in 92 00:04:30,920 --> 00:04:32,640 Speaker 4: end of twenty twenty five that rates had to be 93 00:04:32,640 --> 00:04:36,000 Speaker 4: below three percent. That's a bad economic outcome. So the 94 00:04:36,080 --> 00:04:39,360 Speaker 4: fact that we've reassessed that now we're not pricing and tightening. 95 00:04:39,400 --> 00:04:40,560 Speaker 5: We've just backed out. 96 00:04:40,440 --> 00:04:42,960 Speaker 4: The rate cuts, which suggests that this is going to 97 00:04:42,960 --> 00:04:46,760 Speaker 4: be pretty good growth environment. Inflation at the upper end 98 00:04:46,800 --> 00:04:49,479 Speaker 4: of the comfort zone, to me, is a better environment 99 00:04:49,560 --> 00:04:51,720 Speaker 4: than where we were for a decade where we couldn't 100 00:04:51,720 --> 00:04:55,320 Speaker 4: get it into the comfort zone because higher nominal growth 101 00:04:55,320 --> 00:04:59,000 Speaker 4: a cruise to corporate profitability. Now, the risk to all 102 00:04:59,080 --> 00:05:02,280 Speaker 4: of this is, obviously if inflation jumps and the Fed 103 00:05:02,320 --> 00:05:05,279 Speaker 4: has to tighten, we are clearly not priced for that. 104 00:05:05,279 --> 00:05:09,200 Speaker 4: That's where equity valuations get hit. That's end of cycle stuff. 105 00:05:09,279 --> 00:05:11,840 Speaker 4: But I still think inflation's going to moderate. We saw 106 00:05:11,839 --> 00:05:14,600 Speaker 4: it a bit with the producer price index. Seems like 107 00:05:14,640 --> 00:05:17,720 Speaker 4: wages are moderating, shelters moderating, So I don't think it's 108 00:05:17,720 --> 00:05:20,360 Speaker 4: as big of a concert CPI, what was that last Monday? 109 00:05:20,520 --> 00:05:22,080 Speaker 4: I think that was a bit of an overreaction the 110 00:05:22,080 --> 00:05:23,040 Speaker 4: market's recovered from. 111 00:05:23,120 --> 00:05:24,240 Speaker 3: But what about tariffs? 112 00:05:24,240 --> 00:05:26,719 Speaker 6: Could they be a hit to inflation to go above 113 00:05:26,760 --> 00:05:28,400 Speaker 6: that range you seem too very comfortable with. 114 00:05:28,560 --> 00:05:31,880 Speaker 4: Yeah, I suppose they could be, except if it's a 115 00:05:31,880 --> 00:05:33,960 Speaker 4: little bit of a different environment than twenty eighteen. But 116 00:05:34,000 --> 00:05:36,960 Speaker 4: if you use twenty eighteen as an example, you saw 117 00:05:37,000 --> 00:05:41,919 Speaker 4: one off price shocks in products rather than broad based inflation, 118 00:05:42,080 --> 00:05:44,640 Speaker 4: and actually you started to get a hit to sentiment, 119 00:05:44,960 --> 00:05:47,919 Speaker 4: and that hit to sentiment actually caused markets to start 120 00:05:47,960 --> 00:05:50,559 Speaker 4: to think about a recession by the fourth quarter. 121 00:05:51,040 --> 00:05:53,159 Speaker 5: And you know, most people don't remember, as the Fed. 122 00:05:53,040 --> 00:05:56,560 Speaker 4: Actually was easing in twenty nineteen, not raising rates. Now 123 00:05:56,839 --> 00:06:00,920 Speaker 4: it's a different environment because inflation's at the end of 124 00:06:00,960 --> 00:06:05,159 Speaker 4: the comfort zone rather than in a deflation environment. But 125 00:06:05,560 --> 00:06:09,960 Speaker 4: historically tariffs don't lead to broad based inflation. 126 00:06:10,000 --> 00:06:11,839 Speaker 6: What do you think causes more angst in the market. Is 127 00:06:11,839 --> 00:06:15,120 Speaker 6: it the actual tariffs or is it the continued policy 128 00:06:15,160 --> 00:06:18,680 Speaker 6: uncertainty about tariffs might becoming tariffs might be coming every single. 129 00:06:18,400 --> 00:06:22,240 Speaker 4: Week uncertainty, and that was the story of twenty eighteen, 130 00:06:22,640 --> 00:06:27,760 Speaker 4: was that it was sort of a trade policy by 131 00:06:27,839 --> 00:06:31,839 Speaker 4: tweet at that time, and each time each week we 132 00:06:32,000 --> 00:06:34,920 Speaker 4: got something new and it was very difficult to had 133 00:06:34,960 --> 00:06:38,120 Speaker 4: to respond to and business sentiment really got hit. If 134 00:06:38,160 --> 00:06:41,120 Speaker 4: you look at capital expenditures back then in the beginning 135 00:06:41,120 --> 00:06:43,400 Speaker 4: of the trade where they were positive year over year, 136 00:06:43,520 --> 00:06:46,560 Speaker 4: by mid to late twenty nineteen they were negative year 137 00:06:46,640 --> 00:06:47,040 Speaker 4: over year. 138 00:06:47,160 --> 00:06:49,239 Speaker 5: So that's the challenge. 139 00:06:49,040 --> 00:06:51,919 Speaker 4: The risk to this is just a prolonged period of 140 00:06:51,960 --> 00:06:53,120 Speaker 4: policy uncertainty. 141 00:06:53,320 --> 00:06:54,240 Speaker 5: Tariffs, I think. 142 00:06:54,080 --> 00:06:57,480 Speaker 4: We could all agree lead to a less optimal economic 143 00:06:57,520 --> 00:07:00,960 Speaker 4: outcome right almost by definition, but we can deal with that. 144 00:07:01,000 --> 00:07:03,040 Speaker 4: Businesses just need to know the rules of the game 145 00:07:03,080 --> 00:07:05,000 Speaker 4: in order to proceed with confidence. 146 00:07:05,040 --> 00:07:07,440 Speaker 2: FED Governor Chris Waller doesn't seem too worried at SOLL 147 00:07:07,600 --> 00:07:10,040 Speaker 2: listening to him speaking over the long weekend. My baseline 148 00:07:10,080 --> 00:07:12,760 Speaker 2: view is that any imposition of tariff's will only modestly 149 00:07:13,320 --> 00:07:16,880 Speaker 2: increased prices and in a non persistent manner. Lisa going 150 00:07:16,920 --> 00:07:19,600 Speaker 2: on to say, I favor looking through these effects. He's 151 00:07:19,600 --> 00:07:21,800 Speaker 2: alluded to this before, reiterated it again. 152 00:07:22,080 --> 00:07:23,600 Speaker 3: Some people have agreed with him. 153 00:07:23,640 --> 00:07:25,720 Speaker 1: However, he has been an outlier as he did seem 154 00:07:25,760 --> 00:07:29,040 Speaker 1: more hawkish last September and now seems to have shifted 155 00:07:29,040 --> 00:07:31,040 Speaker 1: his tune, and some people are talking about maybe. 156 00:07:30,800 --> 00:07:33,280 Speaker 3: His conditions for FED chair. 157 00:07:33,720 --> 00:07:36,840 Speaker 1: That said, other FED officials have echoed this, both on 158 00:07:36,880 --> 00:07:39,640 Speaker 1: the record and off the record, saying essentially, in the 159 00:07:39,680 --> 00:07:42,200 Speaker 1: past they have been more of a suppressor of growth 160 00:07:42,200 --> 00:07:44,880 Speaker 1: than they have been in ignition of inflation. 161 00:07:45,000 --> 00:07:45,520 Speaker 5: He's running. 162 00:07:45,560 --> 00:07:47,200 Speaker 2: I think we've said that before. A lot of people 163 00:07:47,200 --> 00:08:00,440 Speaker 2: believe that's the case. Brant On Invesco so a Coronati City, saying, 164 00:08:00,480 --> 00:08:04,000 Speaker 2: we do characterize ourselves as fundamental optimists, but we also 165 00:08:04,080 --> 00:08:07,240 Speaker 2: recognize there's some important macro tail winds need to unfold 166 00:08:07,440 --> 00:08:09,960 Speaker 2: which would transition us from a no cycle regime to 167 00:08:10,000 --> 00:08:13,480 Speaker 2: something more like an early cycle. Bankdrop Scott joined us 168 00:08:13,520 --> 00:08:15,520 Speaker 2: now from MOSK. Scott, Welcome to the program, Sir. I 169 00:08:15,520 --> 00:08:17,040 Speaker 2: want to pick up a note. Pick up on a 170 00:08:17,040 --> 00:08:19,240 Speaker 2: note that you put out just last week when you 171 00:08:19,600 --> 00:08:22,960 Speaker 2: said tamer tariff talk. Now, Scott, I want to understand 172 00:08:22,960 --> 00:08:25,320 Speaker 2: whether you believe the tamer tariff talk is ultimately in 173 00:08:25,360 --> 00:08:27,800 Speaker 2: the driving seat of what we're seeing take place across 174 00:08:27,800 --> 00:08:29,800 Speaker 2: Stokes bonds and foreign exchange. 175 00:08:30,440 --> 00:08:32,600 Speaker 7: Well, I think we keep going from a threat to 176 00:08:33,240 --> 00:08:36,760 Speaker 7: let's push things out and step back and better analyze 177 00:08:37,160 --> 00:08:41,400 Speaker 7: the tariff situation, and that's been ongoing now for the past, 178 00:08:41,480 --> 00:08:44,840 Speaker 7: you know, several weeks. What I think is important here, though, 179 00:08:44,960 --> 00:08:47,800 Speaker 7: is that I think the market has been concerned regarding 180 00:08:48,440 --> 00:08:51,959 Speaker 7: Trump red wave and tariffs for several months now, and 181 00:08:52,040 --> 00:08:55,360 Speaker 7: I think it's been preparing for it psychologically, but probably 182 00:08:55,400 --> 00:08:58,320 Speaker 7: not an actual positioning angle yet. 183 00:08:58,480 --> 00:08:59,880 Speaker 8: I think that's still out there. 184 00:09:00,080 --> 00:09:03,400 Speaker 7: But all told, what's happening is that you have ongoing 185 00:09:03,480 --> 00:09:06,079 Speaker 7: tearff rhetoric, but at the same time, we're seeing a 186 00:09:06,120 --> 00:09:09,560 Speaker 7: little bit more movement in terms of cost cutting initiatives, 187 00:09:09,559 --> 00:09:12,400 Speaker 7: which are pretty apparent now, And what that does is 188 00:09:12,440 --> 00:09:15,160 Speaker 7: begin to give you a more balanced effect of the 189 00:09:15,240 --> 00:09:18,760 Speaker 7: aggregate Trump policy now versus what we were looking at, 190 00:09:18,800 --> 00:09:19,679 Speaker 7: say a few months ago. 191 00:09:19,920 --> 00:09:21,400 Speaker 3: So translate that into positioning. 192 00:09:21,440 --> 00:09:24,720 Speaker 1: How much are you seeing essentially less growth from some 193 00:09:24,800 --> 00:09:28,480 Speaker 1: of the cost cutting versus some of the pro growth 194 00:09:28,520 --> 00:09:30,920 Speaker 1: measures that some people were talking about from the Trump 195 00:09:30,920 --> 00:09:34,839 Speaker 1: administration than that that still needs to get priced into equities. 196 00:09:35,800 --> 00:09:37,560 Speaker 7: Well, at least it's a really good question. So I 197 00:09:37,559 --> 00:09:39,960 Speaker 7: think what we're looking at here. Just looking at the 198 00:09:40,080 --> 00:09:42,719 Speaker 7: S and P performance, you have about four percent year 199 00:09:42,760 --> 00:09:45,960 Speaker 7: to date. Look at where your leadership's coming. First off, 200 00:09:46,040 --> 00:09:48,480 Speaker 7: where's it not coming from? And it's not coming from 201 00:09:48,559 --> 00:09:52,840 Speaker 7: tech and consumer discretionary. You're seeing broadening work under the surface. 202 00:09:52,920 --> 00:09:55,880 Speaker 7: In fact, the SMP top fifty for the first time 203 00:09:55,920 --> 00:09:58,960 Speaker 7: in quite a while now are no longer leading the 204 00:09:59,080 --> 00:10:02,360 Speaker 7: charge for the SMP. So broadening's happening. And I think 205 00:10:02,400 --> 00:10:05,880 Speaker 7: what this reflects is a couple of things. An ongoing 206 00:10:06,080 --> 00:10:10,280 Speaker 7: positive sentiment around the underlying economic direction, a little bit 207 00:10:10,360 --> 00:10:13,920 Speaker 7: less concerned about tariffs in their own right now, and 208 00:10:13,960 --> 00:10:16,280 Speaker 7: what that does do is begin to set up, I think, 209 00:10:16,320 --> 00:10:19,240 Speaker 7: for a healthier S and P outlook as we go 210 00:10:19,360 --> 00:10:20,760 Speaker 7: into the balance of the year. 211 00:10:21,200 --> 00:10:23,280 Speaker 1: Do you believe Scott As we were just talking to 212 00:10:23,320 --> 00:10:28,160 Speaker 1: Bank for America Elis Galou's Galuu about that the faster 213 00:10:28,400 --> 00:10:31,960 Speaker 1: inflation today than what we saw in twenty seventeen in 214 00:10:31,960 --> 00:10:36,479 Speaker 1: twenty eighteen effectively ties the hands of the Trump administration 215 00:10:36,720 --> 00:10:39,720 Speaker 1: to go really tit for tat into a full blown 216 00:10:39,760 --> 00:10:40,280 Speaker 1: trade war. 217 00:10:41,720 --> 00:10:43,079 Speaker 8: I think potentially it does. 218 00:10:43,160 --> 00:10:45,160 Speaker 7: I think it's too soon to make that call, though, 219 00:10:45,240 --> 00:10:48,440 Speaker 7: I think there's no doubt that when you're looking at tariffs. 220 00:10:48,480 --> 00:10:51,560 Speaker 7: The part of this bigger program is that you at 221 00:10:51,559 --> 00:10:54,280 Speaker 7: some point are going to need revenue offsets to be 222 00:10:54,400 --> 00:10:59,160 Speaker 7: positive to contend with what happens from the deficit math 223 00:10:59,559 --> 00:11:04,000 Speaker 7: as you go to extend TCJA and potentially lower corporate 224 00:11:04,080 --> 00:11:05,319 Speaker 7: taxes in other places. 225 00:11:05,559 --> 00:11:06,120 Speaker 8: All totally. 226 00:11:06,360 --> 00:11:08,920 Speaker 7: What's happening here is that you've got a combination of 227 00:11:08,960 --> 00:11:10,760 Speaker 7: forces that are at work that are going to need 228 00:11:10,800 --> 00:11:14,880 Speaker 7: to be addressed. Inflation is going to at some level 229 00:11:15,360 --> 00:11:17,160 Speaker 7: be a little bit of a hand tied to how. 230 00:11:17,000 --> 00:11:19,080 Speaker 8: Aggressive you get potentially with tariffs. 231 00:11:19,160 --> 00:11:21,360 Speaker 7: But our view with terriffs is, for a while now 232 00:11:21,400 --> 00:11:24,960 Speaker 7: has been it's less about the concern with inflation, more 233 00:11:25,000 --> 00:11:28,760 Speaker 7: about the concern with gross margins and other supply chain disruptions. 234 00:11:28,960 --> 00:11:32,320 Speaker 7: So they're still in our view of moving conversation around 235 00:11:32,360 --> 00:11:36,320 Speaker 7: where the inflation dynamic fits in here. We're comfortable with 236 00:11:36,440 --> 00:11:40,760 Speaker 7: the current backdrop right now. We're comfortable with FED funds 237 00:11:40,760 --> 00:11:43,360 Speaker 7: and the expectations for a cut or two this year. 238 00:11:43,520 --> 00:11:46,920 Speaker 7: We're comfortable with ten years hovering in this four fifty range. 239 00:11:47,280 --> 00:11:49,400 Speaker 6: Scott, how do you start pricing in some of their talentation? 240 00:11:49,600 --> 00:11:51,400 Speaker 6: Though we can see from other countries. 241 00:11:51,480 --> 00:11:52,840 Speaker 3: If those terrors that. 242 00:11:52,840 --> 00:11:55,600 Speaker 6: Trump has talked about, which besides China, we haven't seen 243 00:11:55,640 --> 00:11:58,600 Speaker 6: them yet. But if the ones he's talked about actually come. 244 00:11:58,440 --> 00:12:01,880 Speaker 7: Into effect, well I think we're going to have to 245 00:12:01,880 --> 00:12:02,280 Speaker 7: get there. 246 00:12:02,320 --> 00:12:04,120 Speaker 8: I think that's an ongoing concern. 247 00:12:04,640 --> 00:12:07,480 Speaker 7: Again, all told, we have to expect teriffs, you have 248 00:12:07,520 --> 00:12:12,600 Speaker 7: to expect retaliatory actions by countries affected. But importantly, when 249 00:12:12,600 --> 00:12:15,720 Speaker 7: we're looking at the aggregate tariff setup, be careful here. 250 00:12:15,880 --> 00:12:19,560 Speaker 7: When you're looking at a teriff on Canada, Mexico, a 251 00:12:19,679 --> 00:12:24,439 Speaker 7: more specific country related tariff that probably is a negotiating 252 00:12:24,480 --> 00:12:26,480 Speaker 7: tool towards accomplishing. 253 00:12:25,840 --> 00:12:26,680 Speaker 8: Some other purpose. 254 00:12:27,040 --> 00:12:28,960 Speaker 7: When you get on the path of say ten percent 255 00:12:29,000 --> 00:12:32,880 Speaker 7: across the board, that maybe maybe gets dialed back to some. 256 00:12:32,800 --> 00:12:36,120 Speaker 8: More balanced number, say five percent or so. 257 00:12:36,520 --> 00:12:39,240 Speaker 7: What ends up happening, though, is the importance of that 258 00:12:40,280 --> 00:12:43,880 Speaker 7: is number one in our view. How it fits into 259 00:12:44,000 --> 00:12:49,439 Speaker 7: the revenue generation deficit math. The retaliatory part comes into play. 260 00:12:49,679 --> 00:12:52,000 Speaker 7: But here's where you also have to begin to factor 261 00:12:52,040 --> 00:12:54,880 Speaker 7: in the fact that a strengthening dollar over the past 262 00:12:54,880 --> 00:12:58,520 Speaker 7: couple of months may at some level begin to price some. 263 00:12:58,600 --> 00:13:02,160 Speaker 8: Of this in. We're certainly not immune to the issue. 264 00:13:02,200 --> 00:13:05,839 Speaker 7: We are at the margin, so quite concerned about it, 265 00:13:06,000 --> 00:13:09,440 Speaker 7: but just trying to make the point here that identifying 266 00:13:09,520 --> 00:13:12,760 Speaker 7: tariffs alone as an issue, I think probably is the 267 00:13:12,840 --> 00:13:14,720 Speaker 7: wrong way to look at this. The right way is 268 00:13:14,720 --> 00:13:17,920 Speaker 7: that it's part of a bigger Trump package that's working 269 00:13:18,000 --> 00:13:21,000 Speaker 7: its way through the system and through Congress right now 270 00:13:21,280 --> 00:13:23,440 Speaker 7: and through the markets, and I think what the market 271 00:13:23,520 --> 00:13:26,520 Speaker 7: is telling you is that it's pretty comfortable all told, 272 00:13:26,800 --> 00:13:30,520 Speaker 7: with the balance that we're seeing between tariff's potential tax 273 00:13:30,559 --> 00:13:33,520 Speaker 7: reform and then what's happening on the cost reduction front. 274 00:13:33,559 --> 00:13:35,640 Speaker 3: Well, Scott keyword, there is potential. 275 00:13:35,720 --> 00:13:39,200 Speaker 6: It might take months to see those tax cuts get 276 00:13:39,240 --> 00:13:41,320 Speaker 6: on board when it comes to the House and the 277 00:13:41,360 --> 00:13:44,120 Speaker 6: Senate in Congress. How is important for the markets to 278 00:13:44,120 --> 00:13:46,480 Speaker 6: be able to have both at the same time, the 279 00:13:46,600 --> 00:13:48,480 Speaker 6: tariffs but also the tax cuts. 280 00:13:49,120 --> 00:13:52,520 Speaker 7: Yeah, it's a good question, because tariffs presumably can hit sooner, Okay, 281 00:13:52,520 --> 00:13:55,920 Speaker 7: so they get modeled in terms of our twenty five expectations. 282 00:13:56,200 --> 00:13:59,520 Speaker 7: Tax reform probably is a twenty six issue. Again, for 283 00:13:59,600 --> 00:14:02,559 Speaker 7: several months now we've said Trump We're at sweep. An 284 00:14:02,640 --> 00:14:04,960 Speaker 7: issue we have is that you need to see some 285 00:14:05,120 --> 00:14:09,679 Speaker 7: focus on the spending side because that deficit math continues 286 00:14:09,720 --> 00:14:12,000 Speaker 7: to linger as an issue for this year. We've been 287 00:14:12,000 --> 00:14:16,120 Speaker 7: talking about the bond market vigilantesection perhaps coming back into 288 00:14:16,160 --> 00:14:19,040 Speaker 7: the picture. We haven't seen that right yet, But I 289 00:14:19,080 --> 00:14:21,880 Speaker 7: think the key point here is that the market is 290 00:14:21,920 --> 00:14:25,520 Speaker 7: beginning to price a forward fairly aggressively where we think 291 00:14:25,600 --> 00:14:29,360 Speaker 7: underlying earnings expectations go. That's a bigger issue for us 292 00:14:29,440 --> 00:14:33,160 Speaker 7: right now, Emory, than are the terriffs themselves. Our concern 293 00:14:33,280 --> 00:14:36,560 Speaker 7: is that the market is already pricing in fairly heady 294 00:14:36,560 --> 00:14:40,640 Speaker 7: earnings growth presumptions for the next several years. That in 295 00:14:40,680 --> 00:14:44,000 Speaker 7: our minds, is not necessarily negative, but what it does 296 00:14:44,080 --> 00:14:46,960 Speaker 7: do is put a really big focus on earnings growth 297 00:14:47,000 --> 00:14:50,240 Speaker 7: to continue to deliver as we go into twenty five, 298 00:14:50,360 --> 00:14:53,120 Speaker 7: twenty six and beyond. So, by no means is this 299 00:14:53,240 --> 00:14:57,200 Speaker 7: a coast is clear environment. There are still many hurdles 300 00:14:57,200 --> 00:14:59,040 Speaker 7: that we're going to have to be navigating. So I 301 00:14:59,080 --> 00:15:02,360 Speaker 7: think a big message for us is expect volatility. It's 302 00:15:02,400 --> 00:15:05,240 Speaker 7: going to be a persistent feature of this market, and 303 00:15:05,320 --> 00:15:07,840 Speaker 7: at this point we're we want to be conditioned to 304 00:15:07,920 --> 00:15:09,640 Speaker 7: be buyers into said volatility. 305 00:15:09,760 --> 00:15:22,600 Speaker 2: Hi, Scott, appreciate your view, Sir Scott Kronavit City, more 306 00:15:22,600 --> 00:15:26,040 Speaker 2: Ecoate and fired speak on deck after recent inflation and 307 00:15:26,080 --> 00:15:28,640 Speaker 2: retail sales prints whipsaw trade US through the last week. 308 00:15:28,920 --> 00:15:31,680 Speaker 2: Niina Richardson of ADP writes, and consumer strength is due 309 00:15:31,680 --> 00:15:34,320 Speaker 2: in large parts of the solid job market, cracks are 310 00:15:34,320 --> 00:15:37,880 Speaker 2: forming beneath the surface and threaten to spillover to the consumer. 311 00:15:38,080 --> 00:15:39,880 Speaker 2: Nata joins us. Now for more naed a good morning. 312 00:15:39,920 --> 00:15:41,680 Speaker 2: It's going to see you as always. Let's start with 313 00:15:41,680 --> 00:15:43,000 Speaker 2: those cracks. Where are they? 314 00:15:43,600 --> 00:15:46,760 Speaker 9: Well, they're really in the good sector. But bigger picture, 315 00:15:46,920 --> 00:15:50,880 Speaker 9: bigger level here, the consumer and the worker have been aligned. 316 00:15:50,920 --> 00:15:51,920 Speaker 3: They've been in lockstep. 317 00:15:52,000 --> 00:15:55,240 Speaker 9: The consumer's done well, the labor market's done well, and 318 00:15:55,320 --> 00:15:58,840 Speaker 9: vice versa. Consumers are driving the labor market hiring. If 319 00:15:58,840 --> 00:16:01,040 Speaker 9: you look at where the end is streets are taking off, 320 00:16:01,080 --> 00:16:05,520 Speaker 9: it's in healthcare and leisure and hospitality. These are consumer oriented, 321 00:16:05,560 --> 00:16:09,200 Speaker 9: consumer facing industries. So, yes, there's cracks. We saw them 322 00:16:09,280 --> 00:16:12,000 Speaker 9: last week with the retail spending. If the consumer starts 323 00:16:12,000 --> 00:16:14,560 Speaker 9: to folter, what does that mean for hiring in the 324 00:16:14,600 --> 00:16:15,280 Speaker 9: labor market. 325 00:16:15,360 --> 00:16:16,320 Speaker 3: That's what I'm watching. 326 00:16:16,560 --> 00:16:20,880 Speaker 1: So that particular sector, the experiences sector, for you, will 327 00:16:20,880 --> 00:16:23,120 Speaker 1: be the tell that this is truly a labor market 328 00:16:23,120 --> 00:16:23,840 Speaker 1: that's turning over. 329 00:16:23,960 --> 00:16:24,560 Speaker 3: Is that correct? 330 00:16:25,160 --> 00:16:27,360 Speaker 9: It is one of the tells because when I also 331 00:16:27,440 --> 00:16:30,120 Speaker 9: look at what else is happening in the labor market, 332 00:16:30,320 --> 00:16:33,440 Speaker 9: business services aren't performing the way they did in the 333 00:16:33,480 --> 00:16:36,800 Speaker 9: first half of twenty twenty four. We've seen a sluggishness 334 00:16:36,800 --> 00:16:40,040 Speaker 9: in professional business services. So what carries the torch for 335 00:16:40,120 --> 00:16:43,640 Speaker 9: this market? If the consumer's under pressure, the consumer feels 336 00:16:43,680 --> 00:16:46,720 Speaker 9: the pinch, there's nothing to take up the slack, and 337 00:16:46,760 --> 00:16:47,480 Speaker 9: that's the issue. 338 00:16:47,520 --> 00:16:48,200 Speaker 3: It's not good. 339 00:16:48,280 --> 00:16:51,960 Speaker 9: It's not manufacturing, it's not professional services. There's nothing left. 340 00:16:52,400 --> 00:16:55,600 Speaker 1: It's not tech, and we're seeing those tech layoffs consistently 341 00:16:55,640 --> 00:16:58,080 Speaker 1: announced across the board. We were just talking about Southwest 342 00:16:58,080 --> 00:17:02,160 Speaker 1: announcing their first round of involuntary layoffs in their fifty 343 00:17:02,400 --> 00:17:06,959 Speaker 1: year history. Are these headlines just one offs or is 344 00:17:07,000 --> 00:17:09,760 Speaker 1: this growing to become a trend that you're watching in 345 00:17:09,840 --> 00:17:12,919 Speaker 1: terms of efficiencies and that turning to job cuts in 346 00:17:12,960 --> 00:17:13,560 Speaker 1: a way that it. 347 00:17:13,480 --> 00:17:15,040 Speaker 3: Hadn't over the past couple of years now. 348 00:17:15,160 --> 00:17:18,399 Speaker 9: I've consistently said, and it's true that the labor market 349 00:17:18,440 --> 00:17:22,600 Speaker 9: is solid. You're seeing solid overall growth. It's the craps 350 00:17:22,600 --> 00:17:25,760 Speaker 9: beneath the surface that we're watching. For example, new hires. 351 00:17:26,640 --> 00:17:29,680 Speaker 9: We tend to match at ADP individuals, but sometimes it's 352 00:17:29,720 --> 00:17:32,199 Speaker 9: great to just look at the cohort of crops of 353 00:17:32,520 --> 00:17:35,600 Speaker 9: new hires this year versus last. There's been no pay 354 00:17:35,640 --> 00:17:40,400 Speaker 9: growth in this crop. Why well, companies are hiring less tenured, 355 00:17:40,680 --> 00:17:43,639 Speaker 9: less skilled workers now than they did last year. Is 356 00:17:43,640 --> 00:17:46,359 Speaker 9: that a signal of a trend that more highly skilled 357 00:17:46,400 --> 00:17:48,320 Speaker 9: workers are not as in demand as they were a 358 00:17:48,400 --> 00:17:51,679 Speaker 9: year before. That's definitely we're something we're watching, and we 359 00:17:51,720 --> 00:17:56,320 Speaker 9: see that across industries, especially in financial services and information. 360 00:17:56,440 --> 00:17:58,320 Speaker 9: These are typically highly skilled industries. 361 00:17:58,400 --> 00:18:00,359 Speaker 6: You know, your research is at sixty percent of US 362 00:18:00,400 --> 00:18:04,399 Speaker 6: workers live paycheck to paycheck. Last week we found out 363 00:18:04,440 --> 00:18:06,919 Speaker 6: inflation is still quite hot. At what point do you 364 00:18:06,960 --> 00:18:10,679 Speaker 6: see these workers, these consumers pushing back exactly. 365 00:18:10,960 --> 00:18:13,880 Speaker 9: We've been waiting for this. We've been waiting for consumer 366 00:18:13,960 --> 00:18:17,760 Speaker 9: resilience to turn to consumer reluctance because of higher inflation. 367 00:18:18,080 --> 00:18:21,399 Speaker 9: It has not happened, except last week we saw the 368 00:18:21,400 --> 00:18:23,760 Speaker 9: beginning of that. Now, it could just be a cold 369 00:18:23,760 --> 00:18:26,919 Speaker 9: weather month, but the broad based slowdown in retail sales 370 00:18:26,960 --> 00:18:28,800 Speaker 9: suggests to me that it was more than just a 371 00:18:28,840 --> 00:18:31,800 Speaker 9: really cold January. Something else could be afoot and it 372 00:18:31,800 --> 00:18:35,800 Speaker 9: could be that these higher price levels are starting finally. 373 00:18:35,359 --> 00:18:35,960 Speaker 3: To make a dent. 374 00:18:36,240 --> 00:18:37,879 Speaker 9: We won't know until we get a little bit more 375 00:18:37,960 --> 00:18:38,360 Speaker 9: data on. 376 00:18:38,280 --> 00:18:38,560 Speaker 3: That, though. 377 00:18:38,760 --> 00:18:41,600 Speaker 1: You said that the prices or the wages that people 378 00:18:41,640 --> 00:18:43,560 Speaker 1: are earning when they come in are the same for 379 00:18:43,600 --> 00:18:45,800 Speaker 1: the incoming class this year as they are last year. 380 00:18:46,119 --> 00:18:48,439 Speaker 1: How much could that be due to the use of 381 00:18:48,600 --> 00:18:52,359 Speaker 1: certain efficiency tools and I'm talking about machine learning to 382 00:18:52,720 --> 00:18:55,200 Speaker 1: offset some of the roles that some of the highly 383 00:18:55,200 --> 00:18:57,920 Speaker 1: skilled individuals coming in would have to have to hold. 384 00:18:57,960 --> 00:19:00,159 Speaker 1: I mean, how messy is this data because of these 385 00:19:00,240 --> 00:19:03,120 Speaker 1: bigger trends that are forming the labor market. 386 00:19:03,280 --> 00:19:05,600 Speaker 9: When you think about where the slowdown is happening in 387 00:19:05,720 --> 00:19:09,679 Speaker 9: business services, those entry level jobs are increasingly those that 388 00:19:09,800 --> 00:19:12,480 Speaker 9: can be automated. This is new for the knowledge worker 389 00:19:12,560 --> 00:19:16,080 Speaker 9: skill base, and so that trend is something that could 390 00:19:16,160 --> 00:19:19,080 Speaker 9: have a through line from cyclical to structural. 391 00:19:19,320 --> 00:19:20,120 Speaker 8: And that's what's. 392 00:19:19,960 --> 00:19:22,160 Speaker 9: Really hard about the labor market now. With all these 393 00:19:22,200 --> 00:19:25,960 Speaker 9: technological advances and the demographic changes, we don't know how 394 00:19:26,040 --> 00:19:28,280 Speaker 9: much of this is sticking and how much of this 395 00:19:28,480 --> 00:19:31,520 Speaker 9: is just you know, because interest rates are higher than 396 00:19:31,520 --> 00:19:33,480 Speaker 9: we'd like them to be, and that's weighing in on 397 00:19:33,600 --> 00:19:34,360 Speaker 9: hiring decisions. 398 00:19:34,400 --> 00:19:36,040 Speaker 1: Earlier on the show, we were talking about the fund 399 00:19:36,080 --> 00:19:38,679 Speaker 1: manager survey at of Bank of America, and right now 400 00:19:38,720 --> 00:19:41,280 Speaker 1: the lowest number of people are expecting some sort of 401 00:19:41,320 --> 00:19:44,960 Speaker 1: recession in at least three years. Based on your observations 402 00:19:45,000 --> 00:19:48,040 Speaker 1: and the cracks. Do you think that that's miscast or 403 00:19:48,040 --> 00:19:50,000 Speaker 1: that it should be a higher percentage? 404 00:19:50,320 --> 00:19:54,439 Speaker 9: You know, it's recession. To me, those expectations is like 405 00:19:54,480 --> 00:19:56,960 Speaker 9: the rain. Unless you tell me the time and the location, 406 00:19:57,119 --> 00:20:02,159 Speaker 9: it's meaningless because recessions happen on a pretty you know, 407 00:20:02,440 --> 00:20:07,200 Speaker 9: regular heartbeat when you look at history. This last economic 408 00:20:07,280 --> 00:20:11,480 Speaker 9: expansion was way longer than historical norms. But I don't 409 00:20:11,520 --> 00:20:14,080 Speaker 9: think there's anything that suggests right now, with a four 410 00:20:14,200 --> 00:20:18,080 Speaker 9: percent four percent unemployment rate, that we're heading to recession. 411 00:20:18,480 --> 00:20:22,280 Speaker 9: But there could be some slowdown in hiring. There's uncertainty 412 00:20:22,320 --> 00:20:24,960 Speaker 9: and policy that would cause employers maybe to take a 413 00:20:24,960 --> 00:20:30,080 Speaker 9: step back, not hire as robustly, not hire as aggressively 414 00:20:30,320 --> 00:20:31,720 Speaker 9: as they had in previous years. 415 00:20:31,760 --> 00:20:33,360 Speaker 2: We'll see if any of this shows up in jompless 416 00:20:33,359 --> 00:20:35,760 Speaker 2: claims on Thursday, particularly the government layoffs, were all focused 417 00:20:35,800 --> 00:20:37,080 Speaker 2: on at the moment. Neither It's good to see you 418 00:20:37,080 --> 00:20:39,920 Speaker 2: and so always thank you Nia Richardson that of ADP, 419 00:20:49,880 --> 00:20:51,760 Speaker 2: we begin to sat with US stocks in jin Kai 420 00:20:51,920 --> 00:20:54,359 Speaker 2: Kevin Gordon to child swap with this to say, one 421 00:20:54,400 --> 00:20:56,440 Speaker 2: of the whole marks of the US stock markets run 422 00:20:56,520 --> 00:20:59,040 Speaker 2: last year was minimal scouring at the index level. That 423 00:20:59,160 --> 00:21:02,239 Speaker 2: is unlikely to continue this year. Kevin joins us now 424 00:21:02,280 --> 00:21:04,240 Speaker 2: for more. Kevin, that's a conversation we've had a few 425 00:21:04,240 --> 00:21:06,679 Speaker 2: times with you. Beneath the surface, though, we're starting to 426 00:21:06,680 --> 00:21:09,480 Speaker 2: see some real dispersion take place. You wrote in just 427 00:21:09,600 --> 00:21:12,280 Speaker 2: last week about some of that dispersion within tech. We 428 00:21:12,400 --> 00:21:15,000 Speaker 2: noted the moves we've seen in Meta. You pointed out 429 00:21:15,040 --> 00:21:18,040 Speaker 2: the moves we've seen in Tesla. What makes sense from 430 00:21:18,080 --> 00:21:19,800 Speaker 2: your perspective as to why that's happening. 431 00:21:20,119 --> 00:21:22,600 Speaker 10: Well, I think that you know, within some of the 432 00:21:22,600 --> 00:21:24,719 Speaker 10: themes for a group like the mag seven, if you're 433 00:21:24,720 --> 00:21:26,320 Speaker 10: going to look at it on a sector basis, you 434 00:21:26,359 --> 00:21:29,080 Speaker 10: know there's three sectors that are represented there. It's consumer discretionary, 435 00:21:29,080 --> 00:21:30,920 Speaker 10: it's communication services, it's tech. 436 00:21:31,040 --> 00:21:32,160 Speaker 11: And one of the things. 437 00:21:31,920 --> 00:21:34,280 Speaker 10: We've really been pounding the table on in the past 438 00:21:34,320 --> 00:21:36,199 Speaker 10: couple of years is not looking at that group as 439 00:21:36,200 --> 00:21:37,879 Speaker 10: a monolith. And I think a lot of that is 440 00:21:37,880 --> 00:21:40,000 Speaker 10: starting to show. You know, you could kind of date 441 00:21:40,040 --> 00:21:41,760 Speaker 10: it back to last summer when there were a lot 442 00:21:41,800 --> 00:21:44,520 Speaker 10: more capex concerns when we got to earning season in 443 00:21:44,600 --> 00:21:47,080 Speaker 10: the in the late summer period. But now from a 444 00:21:47,119 --> 00:21:49,720 Speaker 10: trade war standpoint and what the exposure is from a 445 00:21:49,760 --> 00:21:53,200 Speaker 10: geopolitical perspective, there is probably a lot more being priced 446 00:21:53,200 --> 00:21:55,240 Speaker 10: in there being reflected in the price there because if 447 00:21:55,240 --> 00:21:58,240 Speaker 10: you look at even the split between consumer discretionary and 448 00:21:58,280 --> 00:22:01,199 Speaker 10: tech versus communication services to point about the likes of 449 00:22:01,240 --> 00:22:03,800 Speaker 10: Meta doing well versus the likes of Tesla or even 450 00:22:04,040 --> 00:22:06,720 Speaker 10: you know, some of the hardware names, whether it's in video, 451 00:22:06,720 --> 00:22:10,200 Speaker 10: whether it's Apple in the tech space not doing as well, 452 00:22:10,480 --> 00:22:12,760 Speaker 10: some of that is maybe reflective of the exposure to 453 00:22:12,840 --> 00:22:14,720 Speaker 10: China or the exposure to the rest of the world 454 00:22:14,880 --> 00:22:17,840 Speaker 10: and what a potential terofar trade war could mean for 455 00:22:17,880 --> 00:22:18,480 Speaker 10: those companies. 456 00:22:18,520 --> 00:22:20,159 Speaker 2: How do you expect this to show up at the 457 00:22:20,160 --> 00:22:22,679 Speaker 2: index level? This is all Benita surface. How do you 458 00:22:22,680 --> 00:22:24,359 Speaker 2: expect to say this at the index level? 459 00:22:24,359 --> 00:22:26,360 Speaker 10: You know, to some extent you're seeing it where even 460 00:22:26,359 --> 00:22:27,919 Speaker 10: if you look over the past couple of months, the 461 00:22:27,960 --> 00:22:30,240 Speaker 10: S and P five hundred hasn't really moved much. It's 462 00:22:30,240 --> 00:22:33,080 Speaker 10: been this really tough kind of grind higher at times, 463 00:22:33,119 --> 00:22:36,000 Speaker 10: a grind higher, mostly a grind sideways. But there have 464 00:22:36,119 --> 00:22:38,440 Speaker 10: been other sectors that have really been leading the charge 465 00:22:38,440 --> 00:22:40,600 Speaker 10: and picking up the slack. Financials has kind of been, 466 00:22:41,200 --> 00:22:43,440 Speaker 10: you know, the standout there. So I think that from 467 00:22:43,480 --> 00:22:47,000 Speaker 10: an index standpoint, you may not see as much excitement 468 00:22:47,119 --> 00:22:49,560 Speaker 10: this year, but at the individual's stock level, or maybe 469 00:22:49,560 --> 00:22:51,679 Speaker 10: at the individual industry level, you could see a. 470 00:22:51,640 --> 00:22:52,360 Speaker 11: Lot more excitement. 471 00:22:52,400 --> 00:22:54,080 Speaker 10: So it's kind of, you know, to the quote you 472 00:22:54,160 --> 00:22:57,120 Speaker 10: pulled at the beginning of the segment, our theme around 473 00:22:57,240 --> 00:22:59,119 Speaker 10: maybe not as much excitement as you saw last year 474 00:22:59,119 --> 00:23:00,960 Speaker 10: because at the index level last year was great max 475 00:23:01,000 --> 00:23:03,240 Speaker 10: draw down eight and a half percent, but the average 476 00:23:03,320 --> 00:23:05,840 Speaker 10: draw out at the member level much worse twenty one percent. 477 00:23:06,200 --> 00:23:08,000 Speaker 11: Maybe that gets flipped this year or not that we 478 00:23:08,040 --> 00:23:08,680 Speaker 11: expect some. 479 00:23:08,720 --> 00:23:12,080 Speaker 10: Imminent twenty one percent correction for the index, but there's 480 00:23:12,119 --> 00:23:14,320 Speaker 10: just more of a churn kind of at the you know, 481 00:23:14,359 --> 00:23:16,880 Speaker 10: at the index level, if there's not as much participation 482 00:23:17,000 --> 00:23:18,840 Speaker 10: from some of the megacaps. 483 00:23:18,320 --> 00:23:22,000 Speaker 1: If this turn is sort of continued, I wonder how 484 00:23:22,040 --> 00:23:24,520 Speaker 1: much that's the reason for this split that we're seeing 485 00:23:24,520 --> 00:23:27,840 Speaker 1: in surveys where you have AIII coming out with the 486 00:23:27,880 --> 00:23:31,879 Speaker 1: greatest degree of pessimism among retail investors going back three years, 487 00:23:31,920 --> 00:23:35,439 Speaker 1: at the same time that institutional investors have the greatest 488 00:23:35,440 --> 00:23:37,920 Speaker 1: degree of optimism in years, and you've got the lowest 489 00:23:38,000 --> 00:23:41,080 Speaker 1: rates of cash going back to twenty ten. How do 490 00:23:41,119 --> 00:23:44,560 Speaker 1: you put these two things together with some sort of conclusion. 491 00:23:44,760 --> 00:23:46,879 Speaker 10: Well, you know, this has become for us kind of 492 00:23:46,880 --> 00:23:49,920 Speaker 10: a post pandemic phenomenon, especially when we talk to our 493 00:23:49,960 --> 00:23:52,600 Speaker 10: investors and our clients, you know, which it's a great 494 00:23:52,640 --> 00:23:54,760 Speaker 10: deal of people. It's more than forty million people, so 495 00:23:54,800 --> 00:23:57,199 Speaker 10: we have a pretty good gauge of what sentiment is like, 496 00:23:57,359 --> 00:23:59,640 Speaker 10: both on the attitudinal but also on the positioning side 497 00:23:59,640 --> 00:24:02,720 Speaker 10: of things. But what we've seen post pandemic is that 498 00:24:02,720 --> 00:24:06,960 Speaker 10: that attitudinal you know, those attitudinal metrics are sometimes much 499 00:24:07,000 --> 00:24:09,200 Speaker 10: more skittish and much more jumpy, and they don't necessarily 500 00:24:09,200 --> 00:24:11,240 Speaker 10: reflect what's going on in positioning. So you talk about 501 00:24:11,240 --> 00:24:14,280 Speaker 10: those two headlines kind of side by side. Yes, a 502 00:24:14,400 --> 00:24:18,160 Speaker 10: huge pickup embearishness for something like AII, but not reflected 503 00:24:18,200 --> 00:24:22,760 Speaker 10: in equity positioning at all. To us, the attitudinal stuff 504 00:24:22,800 --> 00:24:26,240 Speaker 10: probably becomes more of a useful, shorter term gauge as 505 00:24:26,240 --> 00:24:28,120 Speaker 10: to when you get a washout and sentiment and when 506 00:24:28,160 --> 00:24:30,080 Speaker 10: the market can kind of pick up and get back 507 00:24:30,080 --> 00:24:32,480 Speaker 10: on its feet. You know, over the past several weeks, 508 00:24:32,520 --> 00:24:35,480 Speaker 10: which we've seen from a behavioral standpoint, it kind of 509 00:24:35,520 --> 00:24:37,080 Speaker 10: shows you that over the long term, we're still in 510 00:24:37,080 --> 00:24:39,480 Speaker 10: pretty frothy territory. Because you look at the household exposure 511 00:24:39,480 --> 00:24:41,840 Speaker 10: to equities for the FED data that we have going back, 512 00:24:41,880 --> 00:24:45,720 Speaker 10: you know, almost a century, you're still at near record exposure. 513 00:24:45,760 --> 00:24:47,679 Speaker 10: The only other time you were at this level was 514 00:24:47,400 --> 00:24:48,399 Speaker 10: in two thousand. 515 00:24:48,840 --> 00:24:49,840 Speaker 3: How much are some. 516 00:24:49,800 --> 00:24:53,960 Speaker 1: Of the headlines around policy changes affecting retail investors more 517 00:24:54,000 --> 00:24:57,000 Speaker 1: than institutional investors who are looking through it until they 518 00:24:57,000 --> 00:24:58,000 Speaker 1: get something concrete. 519 00:24:58,400 --> 00:24:59,440 Speaker 11: You know, it's fascinating. 520 00:24:59,520 --> 00:25:02,400 Speaker 10: Is for the first time since I can really remember, 521 00:25:03,200 --> 00:25:05,320 Speaker 10: especially leading up to the election, when we were talking 522 00:25:05,320 --> 00:25:07,560 Speaker 10: to clients and going around and doing events, and I 523 00:25:07,600 --> 00:25:10,040 Speaker 10: was just speaking to a bunch of clients last week, 524 00:25:10,320 --> 00:25:13,679 Speaker 10: first event ever where tariffs were not at all a 525 00:25:13,680 --> 00:25:15,560 Speaker 10: part of the question. All of the questions were about 526 00:25:15,560 --> 00:25:18,720 Speaker 10: immigration policy. So I think that there is this interesting 527 00:25:18,760 --> 00:25:21,840 Speaker 10: shift now at play where I think there's more meat 528 00:25:22,119 --> 00:25:23,959 Speaker 10: getting kind of put on the bones as to what 529 00:25:24,000 --> 00:25:27,280 Speaker 10: the potential growth hit is from a labor standpoint, And 530 00:25:27,400 --> 00:25:29,160 Speaker 10: a lot of the focus tends to be or has been, 531 00:25:29,200 --> 00:25:32,320 Speaker 10: on the inflation impact potentially from tariffs, But now it's 532 00:25:32,359 --> 00:25:34,520 Speaker 10: shifting to what does this mean not only for inflation 533 00:25:34,680 --> 00:25:36,679 Speaker 10: from a labor standpoint, but also what does this now 534 00:25:36,800 --> 00:25:38,280 Speaker 10: mean for a potential hit to growth. So it was 535 00:25:38,320 --> 00:25:41,199 Speaker 10: a really interesting shift where clients are now starting to 536 00:25:41,240 --> 00:25:44,760 Speaker 10: ask what are those sort of fundamental issues. Maybe if 537 00:25:44,800 --> 00:25:46,560 Speaker 10: you go to the extreme end as to what's being 538 00:25:46,560 --> 00:25:47,920 Speaker 10: proposed for immigration, what are. 539 00:25:47,800 --> 00:25:50,040 Speaker 6: Clients asking when it comes to tax cuts, do they 540 00:25:50,040 --> 00:25:53,040 Speaker 6: want to see those tax cuts alongside potentially the hit 541 00:25:53,080 --> 00:25:54,600 Speaker 6: from immigration and tariffs. 542 00:25:54,720 --> 00:25:55,720 Speaker 11: You know, it's a mixed bag. 543 00:25:55,760 --> 00:25:58,359 Speaker 10: I think tax cuts just kind of at the outset 544 00:25:58,400 --> 00:26:01,399 Speaker 10: are at a headline level, garner a lot of attention 545 00:26:01,480 --> 00:26:03,800 Speaker 10: and a lot of support generally. I think the tough 546 00:26:03,800 --> 00:26:07,240 Speaker 10: part about this is that it's the struggle right now 547 00:26:07,280 --> 00:26:10,160 Speaker 10: in Washington is just to get the extension of the TCJA. 548 00:26:10,400 --> 00:26:12,439 Speaker 10: So it's really just maintaining the status quote. It's not 549 00:26:12,440 --> 00:26:14,920 Speaker 10: initiating this new wave of tax cuts. And the other 550 00:26:14,960 --> 00:26:17,120 Speaker 10: hard part about this, and this is kind of where 551 00:26:17,160 --> 00:26:18,879 Speaker 10: I struggle and scratch my head a lot from a 552 00:26:18,880 --> 00:26:22,639 Speaker 10: policy standpoint, and what's contradictory coming out of Washington is 553 00:26:23,160 --> 00:26:25,800 Speaker 10: tariffs and tariff revenue is kind of being poised as 554 00:26:25,840 --> 00:26:29,679 Speaker 10: this driver of revenue to offset the extension of tax cuts. 555 00:26:29,720 --> 00:26:31,560 Speaker 11: But then every time the. 556 00:26:31,320 --> 00:26:34,800 Speaker 10: Tariffs get either delayed or peeled off, then the market 557 00:26:34,840 --> 00:26:36,920 Speaker 10: sort of cheers it. But then I'm asking myself, well, 558 00:26:36,920 --> 00:26:39,440 Speaker 10: where is that supposed revenue coming for the tax cuts. 559 00:26:39,520 --> 00:26:41,760 Speaker 10: So it's a little bit of this vicious circle that's 560 00:26:41,800 --> 00:26:44,480 Speaker 10: at play, where yes, you could have excitement for something 561 00:26:44,520 --> 00:26:48,640 Speaker 10: like fiscal policy continuing to be relatively expansionary and accommodative, 562 00:26:48,680 --> 00:26:51,359 Speaker 10: but at the same time you also have potential restrictions 563 00:26:51,400 --> 00:26:52,919 Speaker 10: coming from aggressive tariff policy. 564 00:26:53,000 --> 00:26:54,439 Speaker 6: Right, and there's been a lot of bark, not a 565 00:26:54,440 --> 00:26:56,840 Speaker 6: ton of bite except for one the ten percent of 566 00:26:56,920 --> 00:26:59,040 Speaker 6: Chinese imports. You put it in your note projecting any 567 00:26:59,119 --> 00:27:01,240 Speaker 6: kind of terror related hit to stock, So the degree 568 00:27:01,240 --> 00:27:03,040 Speaker 6: of precision is impossible. 569 00:27:03,240 --> 00:27:05,080 Speaker 3: So then what do you project. 570 00:27:05,040 --> 00:27:05,760 Speaker 11: Well for tariffs? 571 00:27:05,800 --> 00:27:07,480 Speaker 10: You can't, I mean to that point, you can't project 572 00:27:07,560 --> 00:27:09,560 Speaker 10: anything almost from anything policy related. 573 00:27:09,600 --> 00:27:12,120 Speaker 11: You can't make a projection because it changes every single day. 574 00:27:12,200 --> 00:27:13,920 Speaker 11: So really, what you much of. 575 00:27:13,840 --> 00:27:15,800 Speaker 6: A hit to the market is just that constant turn 576 00:27:15,840 --> 00:27:16,520 Speaker 6: of uncertainty. 577 00:27:16,680 --> 00:27:16,800 Speaker 8: Oh. 578 00:27:16,840 --> 00:27:19,160 Speaker 10: I think that's where a lot of the hit resides. 579 00:27:19,160 --> 00:27:20,640 Speaker 10: And you know, I think that this is a lot 580 00:27:20,640 --> 00:27:22,879 Speaker 10: of the focus, maybe rightly so, gets put on the 581 00:27:22,920 --> 00:27:26,199 Speaker 10: actual policy. What's the dollar amount for the tariffs? You know, 582 00:27:26,240 --> 00:27:28,600 Speaker 10: who gets hit, When does it happen, how is it 583 00:27:28,640 --> 00:27:31,320 Speaker 10: phased in over time? I think that's important, but I 584 00:27:31,320 --> 00:27:33,520 Speaker 10: think it also misses the point of the nature of 585 00:27:33,560 --> 00:27:36,400 Speaker 10: this policy making is what creates this And I think 586 00:27:36,440 --> 00:27:37,320 Speaker 10: I mentioned it last time. 587 00:27:37,320 --> 00:27:38,680 Speaker 11: I hear this, this real. 588 00:27:38,520 --> 00:27:42,080 Speaker 10: Thick fog of uncertainty where it's it's just harder for 589 00:27:42,119 --> 00:27:43,680 Speaker 10: businesses to operate in that environment. 590 00:27:44,080 --> 00:27:46,639 Speaker 1: One thing that's been less and certain is that one 591 00:27:46,640 --> 00:27:48,840 Speaker 1: of the cost savings is going to be driven by 592 00:27:49,160 --> 00:27:50,000 Speaker 1: just cutting jobs. 593 00:27:50,040 --> 00:27:51,320 Speaker 3: I mean, we've seen that pretty much. 594 00:27:51,200 --> 00:27:54,040 Speaker 1: Across the board with the efforts of DOGE and reports 595 00:27:54,080 --> 00:27:57,760 Speaker 1: about thousands of government workers being laid off. Do you 596 00:27:57,880 --> 00:28:02,280 Speaker 1: see that being factored into any market valuations of companies 597 00:28:02,280 --> 00:28:06,000 Speaker 1: that have contracts with governments, with the government, or any 598 00:28:06,080 --> 00:28:09,680 Speaker 1: other kind of employer base that might be looking at 599 00:28:09,680 --> 00:28:11,000 Speaker 1: this and taking its cues. 600 00:28:11,359 --> 00:28:13,520 Speaker 10: You know, it's early days, I think to see that 601 00:28:13,560 --> 00:28:15,760 Speaker 10: the federal hit. Especially if you're going to just look 602 00:28:15,760 --> 00:28:18,480 Speaker 10: at the overall labor market, the share of the workforce 603 00:28:18,520 --> 00:28:21,400 Speaker 10: for federal workers is quite smaller in low single digits 604 00:28:21,440 --> 00:28:23,880 Speaker 10: to me, and I think what is becoming a more 605 00:28:24,400 --> 00:28:27,280 Speaker 10: material risk in it's not happening right now, but I 606 00:28:27,280 --> 00:28:29,320 Speaker 10: think what's worth watching in terms of it being a 607 00:28:29,320 --> 00:28:31,960 Speaker 10: material risk is the eventual hits the state and local 608 00:28:32,880 --> 00:28:35,000 Speaker 10: you know, employment and if that because that's a much 609 00:28:35,080 --> 00:28:37,000 Speaker 10: larger share. I mean, you're getting into double digits in 610 00:28:37,040 --> 00:28:39,280 Speaker 10: terms of the percentage of the workforce. So you talk 611 00:28:39,320 --> 00:28:41,440 Speaker 10: about number one a big driver of job growth over 612 00:28:41,440 --> 00:28:43,400 Speaker 10: the past several years, but number two just a big 613 00:28:43,440 --> 00:28:46,200 Speaker 10: part of the total labor force in the country. If 614 00:28:46,240 --> 00:28:48,920 Speaker 10: there is that connection and that eventual follow through from 615 00:28:48,960 --> 00:28:51,280 Speaker 10: what's going on at the federal level, then I think 616 00:28:51,320 --> 00:28:52,200 Speaker 10: you get to a little. 617 00:28:52,040 --> 00:28:53,560 Speaker 11: Bit more of a worrisome situation. 618 00:28:53,720 --> 00:28:55,840 Speaker 10: Fortunately, you know, it's not something that's happening, you know, 619 00:28:55,920 --> 00:28:57,840 Speaker 10: right now and eminently, but a lot. 620 00:28:57,680 --> 00:28:59,720 Speaker 11: Of this is moving really quickly, so you do have. 621 00:28:59,680 --> 00:29:02,600 Speaker 10: The potent of seeing that show up maybe relatively soon 622 00:29:02,720 --> 00:29:03,480 Speaker 10: in a job report. 623 00:29:03,520 --> 00:29:05,920 Speaker 2: Speaking of moving quickly, can we finish on Europe six 624 00:29:05,960 --> 00:29:08,200 Speaker 2: weeks of gains on the euros Doc fifty. You talked 625 00:29:08,200 --> 00:29:10,120 Speaker 2: about your clients, your client's getting interested. 626 00:29:10,200 --> 00:29:12,840 Speaker 10: Yeah, you know, I will say it's taken a long time, 627 00:29:13,000 --> 00:29:15,560 Speaker 10: meaning years, for clients to get kind of fully on 628 00:29:15,920 --> 00:29:18,840 Speaker 10: board with it. But you know, from especially if you're 629 00:29:18,920 --> 00:29:20,920 Speaker 10: kind of talking about in factoring in some of these 630 00:29:21,000 --> 00:29:24,920 Speaker 10: risks from a policy standpoint. Are my colleague on the 631 00:29:25,080 --> 00:29:28,560 Speaker 10: XUS side, Jeff Clientop, talks a lot about THESI, MCIIFA 632 00:29:28,680 --> 00:29:31,320 Speaker 10: being more exposed to Japan and the UK to the 633 00:29:31,360 --> 00:29:33,040 Speaker 10: extent you want to look at those areas of the 634 00:29:33,080 --> 00:29:35,640 Speaker 10: world that are maybe less exposed to a trade or 635 00:29:35,680 --> 00:29:38,680 Speaker 10: a tariff risk from the US side of things, you know, 636 00:29:38,720 --> 00:29:40,479 Speaker 10: maybe there is a little bit more of a benefit there. 637 00:29:40,520 --> 00:29:43,920 Speaker 10: So we've been very vocal about kind of balancing things there, 638 00:29:44,000 --> 00:29:46,280 Speaker 10: not just you know, back up the truck, dump everything 639 00:29:46,360 --> 00:29:48,560 Speaker 10: US and then load up on you know, x US. 640 00:29:48,720 --> 00:29:51,800 Speaker 10: But it has taken to your point, it's taken a 641 00:29:51,840 --> 00:29:54,680 Speaker 10: long time for clients to kind of, you know, I 642 00:29:54,680 --> 00:29:55,800 Speaker 10: would say, latch onto that or. 643 00:29:55,880 --> 00:29:57,760 Speaker 2: It's still early days, let's say, if it works out, 644 00:29:57,800 --> 00:30:00,000 Speaker 2: But so far in twenty twenty five up double Ditch 645 00:30:00,360 --> 00:30:03,280 Speaker 2: on the Eurostocks fifty Kevin Gordon there, child Swap Kevin. 646 00:30:03,280 --> 00:30:04,959 Speaker 2: Always good to see you. I thanks, appreciate it, thank you. 647 00:30:04,960 --> 00:30:07,720 Speaker 2: More headlines coming from that meeting taking place in Riad, 648 00:30:07,760 --> 00:30:12,120 Speaker 2: Saudi Arabia. This is the Bloomberg Surveillance Podcast, bringing you 649 00:30:12,400 --> 00:30:15,800 Speaker 2: the best in markets, economics, angio politics. You can watch 650 00:30:15,840 --> 00:30:18,600 Speaker 2: the show live on Bloomberg TV weekday mornings from six 651 00:30:18,640 --> 00:30:23,000 Speaker 2: am to nine am Eastern. Subscribe to the podcast on Apple, Spotify, 652 00:30:23,160 --> 00:30:25,400 Speaker 2: or anywhere else you listen, and as always, on the 653 00:30:25,400 --> 00:30:27,840 Speaker 2: Bloomberg Terminal and the Bloomberg Business app.