1 00:00:02,520 --> 00:00:13,760 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 2 00:00:13,840 --> 00:00:17,920 Speaker 1: Surveillance Podcast. Catch us live weekdays at seven am Eastern 3 00:00:18,200 --> 00:00:21,240 Speaker 1: on Apple car Play or Android Auto with the Bloomberg 4 00:00:21,320 --> 00:00:24,840 Speaker 1: Business App. Listen on demand wherever you get your podcasts, 5 00:00:25,280 --> 00:00:27,160 Speaker 1: or watch us live on YouTube. 6 00:00:27,320 --> 00:00:29,720 Speaker 2: Our next guest, a bit of a contrarian, I'm going 7 00:00:29,760 --> 00:00:32,000 Speaker 2: to call hers, is not quite as bullish as some 8 00:00:32,040 --> 00:00:34,839 Speaker 2: of our other guests have been about the outlook for 9 00:00:34,920 --> 00:00:38,680 Speaker 2: equities in twenty twenty six. She's even talking maybe possibly 10 00:00:38,720 --> 00:00:39,560 Speaker 2: a recession. 11 00:00:39,720 --> 00:00:40,040 Speaker 3: I don't know. 12 00:00:40,120 --> 00:00:43,040 Speaker 2: Let's talk it over with Christina Hooper, chief market strategist 13 00:00:43,360 --> 00:00:46,000 Speaker 2: at Man Group. Christina, great to have you here in 14 00:00:46,080 --> 00:00:48,360 Speaker 2: an early Happy New Year to you and your family. 15 00:00:48,840 --> 00:00:51,080 Speaker 2: All right, let's talk about it. Are we going to 16 00:00:51,159 --> 00:00:54,959 Speaker 2: be able to make this four consecutive up years by 17 00:00:55,000 --> 00:00:57,840 Speaker 2: double digits in a row for US equities? 18 00:00:59,600 --> 00:01:02,640 Speaker 4: Well, that's a great question, Alexis, and I think we 19 00:01:02,760 --> 00:01:05,800 Speaker 4: certainly could see that, but I think we have to 20 00:01:05,840 --> 00:01:10,720 Speaker 4: anticipate more volatility, and in fact, I would expect some 21 00:01:10,840 --> 00:01:15,440 Speaker 4: kind of significant sell off earlier in the year, foreshadowing 22 00:01:15,680 --> 00:01:20,760 Speaker 4: an economic downturn, arguably a modest recession. And then are recovery. 23 00:01:21,000 --> 00:01:24,240 Speaker 4: So I certainly think stocks US stocks could eke out 24 00:01:24,280 --> 00:01:27,559 Speaker 4: gains next year, maybe even as much as a ten 25 00:01:27,600 --> 00:01:30,759 Speaker 4: percent gain next year, but it will not be an 26 00:01:30,800 --> 00:01:34,160 Speaker 4: easy path to the end of the year. And I 27 00:01:34,200 --> 00:01:37,560 Speaker 4: think that makes sense just given the kind of gains 28 00:01:37,560 --> 00:01:40,520 Speaker 4: we've seen thus far and also the kind of vulnerabilities 29 00:01:40,560 --> 00:01:42,160 Speaker 4: we're seeing with the US economy. 30 00:01:42,880 --> 00:01:46,560 Speaker 3: Talk to us about your economic call here, Christina A. 31 00:01:46,360 --> 00:01:49,240 Speaker 3: What are you calling for in twenty twenty six and 32 00:01:49,280 --> 00:01:51,200 Speaker 3: kind of what are the drivers there that maybe some 33 00:01:51,440 --> 00:01:52,880 Speaker 3: folks in the market might be missing. 34 00:01:54,240 --> 00:01:56,200 Speaker 4: So if we think about twenty twenty five, and there 35 00:01:56,200 --> 00:02:01,080 Speaker 4: were two key drivers of economic growth, consumers spending and 36 00:02:01,240 --> 00:02:05,720 Speaker 4: AI CAPEC spending, and both of them could see significant 37 00:02:06,360 --> 00:02:11,200 Speaker 4: declines in twenty twenty six. Let's take consumer spending largely 38 00:02:11,320 --> 00:02:15,800 Speaker 4: driven by higher income consumers. Certainly they benefited from the 39 00:02:15,840 --> 00:02:19,400 Speaker 4: wealth effect in twenty five. We saw how well capital 40 00:02:19,480 --> 00:02:23,800 Speaker 4: markets did. Certainly if that could change in that could 41 00:02:23,840 --> 00:02:26,400 Speaker 4: easily change in twenty six, especially if we do see 42 00:02:26,400 --> 00:02:28,560 Speaker 4: a sell off earlier in the year. But I actually 43 00:02:28,560 --> 00:02:31,840 Speaker 4: think the bigger threat is an increase in unemployment. What 44 00:02:31,880 --> 00:02:34,079 Speaker 4: we've heard from a number of companies is that they 45 00:02:34,200 --> 00:02:39,960 Speaker 4: plan on layoffs related largely to AI, not entirely, that 46 00:02:40,000 --> 00:02:46,320 Speaker 4: could easily accelerate and again tamp down consumer spending. Fear 47 00:02:47,000 --> 00:02:50,600 Speaker 4: also can breed some reduction in consumer spending and for 48 00:02:50,760 --> 00:02:53,120 Speaker 4: lower and middle income Americans. Of course, the issue has 49 00:02:53,160 --> 00:02:57,560 Speaker 4: been affordability that doesn't go away. In my opinion, I 50 00:02:57,560 --> 00:03:00,400 Speaker 4: think it gets worse in twenty twenty six. It doesn't 51 00:03:00,440 --> 00:03:04,360 Speaker 4: mean that inflation moves higher necessarily, but it means that 52 00:03:04,400 --> 00:03:08,800 Speaker 4: they're still under the strain of higher than normal, above 53 00:03:08,960 --> 00:03:14,119 Speaker 4: target inflation. So that can be very very problematic. Since 54 00:03:14,120 --> 00:03:17,000 Speaker 4: we've relied so much on consumer spending, and add in 55 00:03:17,040 --> 00:03:21,000 Speaker 4: the potential for reduction in or a slowdown in AI 56 00:03:21,120 --> 00:03:25,600 Speaker 4: capex spending growth, this is an environment in which there 57 00:03:25,680 --> 00:03:31,799 Speaker 4: are more vulnerabilities. Access to rare earth resources is questionable. Also, 58 00:03:31,960 --> 00:03:34,360 Speaker 4: just the ability to continue the build out of data 59 00:03:34,400 --> 00:03:39,200 Speaker 4: centers from a financing perspective, as well as perhaps legislative 60 00:03:39,240 --> 00:03:42,960 Speaker 4: opposition we're talking about Bernie. We've heard from Bernie Sanders 61 00:03:43,080 --> 00:03:48,320 Speaker 4: arguing for as cessation on data center build out. We 62 00:03:48,360 --> 00:03:52,880 Speaker 4: could see more opposition growing, especially with electricity issues. That 63 00:03:52,960 --> 00:03:56,040 Speaker 4: was one of the big concerns coming out of exit 64 00:03:56,080 --> 00:03:58,840 Speaker 4: polls in the New Jersey race this fall, So a 65 00:03:58,880 --> 00:04:04,640 Speaker 4: lot could certainly the strength of both consumer spending and 66 00:04:04,760 --> 00:04:07,080 Speaker 4: ai CAAPX spending in twenty twenty six. 67 00:04:07,320 --> 00:04:09,480 Speaker 2: Yeah, that's a good point, especially with the midterm elections, 68 00:04:09,520 --> 00:04:12,160 Speaker 2: right Christina. I mean, that's another big wild card that 69 00:04:12,200 --> 00:04:15,280 Speaker 2: could affect things like regulation. I want to talk about 70 00:04:15,280 --> 00:04:17,680 Speaker 2: precious metals though, because we've been talking about it a 71 00:04:17,680 --> 00:04:20,920 Speaker 2: whole lot. Given the year that they've had, spot gold 72 00:04:21,000 --> 00:04:23,839 Speaker 2: up sixty five percent year to date, silver up one 73 00:04:23,880 --> 00:04:26,880 Speaker 2: hundred and fifty percent year to date, copper up better 74 00:04:26,920 --> 00:04:29,279 Speaker 2: than forty three percent year to date. Do you think 75 00:04:29,320 --> 00:04:32,479 Speaker 2: there's still room in the portfolio to have these precious 76 00:04:32,520 --> 00:04:35,719 Speaker 2: medals for investors and to what extent in the new year. 77 00:04:37,000 --> 00:04:42,719 Speaker 4: So absolutely, I think those are important, although relatively small 78 00:04:42,839 --> 00:04:47,719 Speaker 4: components of investors' portfolios perhaps should be larger. I do 79 00:04:47,800 --> 00:04:50,120 Speaker 4: think there is a lot. There are a lot of 80 00:04:50,160 --> 00:04:53,200 Speaker 4: good reasons why, especially when it comes to gold. I 81 00:04:53,200 --> 00:04:55,880 Speaker 4: think what we're going to see is more concerns around 82 00:04:55,920 --> 00:04:58,960 Speaker 4: growing deficits. Not just a US problem, This is a 83 00:04:58,960 --> 00:05:03,800 Speaker 4: problem in a number of countries. Questions about Fiat currencies 84 00:05:04,279 --> 00:05:12,080 Speaker 4: and growing growing interest and perceptions of gold. As we 85 00:05:12,240 --> 00:05:14,960 Speaker 4: go to safe haven asset class. And what we know 86 00:05:15,040 --> 00:05:19,000 Speaker 4: from history is that in almost every bear market, six 87 00:05:19,080 --> 00:05:22,400 Speaker 4: out of seven bear markets, gold held up better than 88 00:05:22,400 --> 00:05:24,719 Speaker 4: the S and P five hundred in most of those 89 00:05:24,800 --> 00:05:28,760 Speaker 4: environments produced a positive return when stock sold off six 90 00:05:28,800 --> 00:05:33,279 Speaker 4: out of six corrections. So gold has been historically a 91 00:05:33,320 --> 00:05:35,440 Speaker 4: safe haven asset class, and I think it will be 92 00:05:35,560 --> 00:05:38,839 Speaker 4: even more so going forward. But it also has other 93 00:05:38,960 --> 00:05:42,919 Speaker 4: drivers that that mean it could perform well in a 94 00:05:43,000 --> 00:05:46,320 Speaker 4: variety of different environments. I think there's a place for silver, 95 00:05:46,560 --> 00:05:49,159 Speaker 4: but we have to recognize that the volatility we've seen 96 00:05:49,240 --> 00:05:53,960 Speaker 4: this year could easily continue or even exacerbate in the future. 97 00:05:54,680 --> 00:05:57,240 Speaker 3: Christina, we've had some really really strong earnings in twenty 98 00:05:57,240 --> 00:06:00,400 Speaker 3: twenty five. What's the earnings outlook for twenty six years opinion? 99 00:06:00,440 --> 00:06:03,039 Speaker 3: And is that enough to support risk assets? 100 00:06:04,320 --> 00:06:07,360 Speaker 4: So I certainly think the outlook is, in my opinion, 101 00:06:07,640 --> 00:06:11,159 Speaker 4: a bit weaker. I think again there are vulnerabilities there, 102 00:06:11,680 --> 00:06:15,640 Speaker 4: especially when it comes to consumer related companies, but not 103 00:06:16,520 --> 00:06:20,119 Speaker 4: exclusively there, and of course if one thing goes wrong, 104 00:06:20,360 --> 00:06:24,320 Speaker 4: multiple things can go wrong. So I would anticipate tepid 105 00:06:24,480 --> 00:06:28,600 Speaker 4: earnings growth. But again I think that we're going to 106 00:06:28,640 --> 00:06:33,359 Speaker 4: hear from companies that will relay to us in first 107 00:06:33,440 --> 00:06:36,840 Speaker 4: quarter earnings calls excuse me fourth quarter earnings calls in 108 00:06:37,080 --> 00:06:41,360 Speaker 4: the first quarter, that the situation is getting more difficult, 109 00:06:41,560 --> 00:06:45,680 Speaker 4: especially when it comes to consumer spending, and that there 110 00:06:45,720 --> 00:06:49,120 Speaker 4: will be more layoffs. And I anticipate again there will 111 00:06:49,160 --> 00:06:52,839 Speaker 4: be a lot of negative sentiment or increase in negative 112 00:06:52,839 --> 00:06:57,039 Speaker 4: sentiment as we move through the early part of twenty 113 00:06:57,120 --> 00:07:00,440 Speaker 4: twenty six. So I think again we'll see earn growth, 114 00:07:00,440 --> 00:07:03,480 Speaker 4: but I think it's going to be significantly lower than 115 00:07:03,520 --> 00:07:06,440 Speaker 4: most anticipate as they sit here at the end of 116 00:07:06,440 --> 00:07:07,279 Speaker 4: twenty twenty five. 117 00:07:07,880 --> 00:07:10,040 Speaker 2: Christina, want to touch on the bond market before we 118 00:07:10,120 --> 00:07:11,920 Speaker 2: let you go. You said, I was looking at your note. 119 00:07:11,960 --> 00:07:15,160 Speaker 2: You said you expect bond vigilantes to come out in 120 00:07:15,240 --> 00:07:18,920 Speaker 2: greater force in next year. Why do you think that's 121 00:07:18,960 --> 00:07:21,000 Speaker 2: true and what kind of an impact might that have 122 00:07:21,120 --> 00:07:23,000 Speaker 2: on I guess like the ten year treasury yield. 123 00:07:24,640 --> 00:07:27,920 Speaker 4: So we've certainly seen some hints of it in twenty 124 00:07:27,960 --> 00:07:31,600 Speaker 4: twenty five, for the US, for Japan, for the UK, 125 00:07:32,480 --> 00:07:35,800 Speaker 4: for France. There are a number of countries that do 126 00:07:35,920 --> 00:07:39,880 Speaker 4: not appear to be on a fiscally sustainable path, and 127 00:07:40,840 --> 00:07:46,480 Speaker 4: I believe bond bond holders are growing more concerned about 128 00:07:46,480 --> 00:07:50,400 Speaker 4: countries like the US. We saw some real hints of it, 129 00:07:50,560 --> 00:07:54,040 Speaker 4: especially as the One Big Beautiful Bill worked its way 130 00:07:54,040 --> 00:07:58,360 Speaker 4: through Congress, because of the potential for increased piscal depthsits. 131 00:07:58,640 --> 00:08:00,320 Speaker 4: So I think this is a year in which we're 132 00:08:00,320 --> 00:08:03,440 Speaker 4: going to see some greater punishment. I think the yield 133 00:08:03,520 --> 00:08:07,640 Speaker 4: goes up significantly, which can very well weigh down on 134 00:08:08,080 --> 00:08:10,960 Speaker 4: stock prices. But I wouldn't be surprised to see the tenure. 135 00:08:11,000 --> 00:08:14,560 Speaker 4: You'd get close to or get to five percent in 136 00:08:14,600 --> 00:08:15,520 Speaker 4: twenty twenty six. 137 00:08:15,800 --> 00:08:18,240 Speaker 2: All right, bringing us some fresh ideas for this market 138 00:08:18,320 --> 00:08:21,840 Speaker 2: at twenty twenty six, Christina Hooper, chief market strategist at 139 00:08:21,880 --> 00:08:22,400 Speaker 2: Man Group. 140 00:08:24,120 --> 00:08:27,280 Speaker 3: Stay with us more from Bloomberg Surveillance coming up after this. 141 00:08:33,480 --> 00:08:37,080 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live 142 00:08:37,160 --> 00:08:40,160 Speaker 1: weekday afternoons from seven to ten am. He's durn Listen 143 00:08:40,240 --> 00:08:43,800 Speaker 1: on Applecarplay and Android Otto with the Bloomberg Business app, 144 00:08:43,960 --> 00:08:45,840 Speaker 1: or watch us live on YouTube. 145 00:08:46,000 --> 00:08:47,959 Speaker 3: This economy, what's the economy going to look like in 146 00:08:48,040 --> 00:08:51,839 Speaker 3: a twenty twenty six inflation, job growth, economic growth. Let's 147 00:08:51,920 --> 00:08:54,160 Speaker 3: check in with our next guest, Ian Wyatt he's a 148 00:08:54,240 --> 00:08:59,400 Speaker 3: chief economist at Huntington Bank. He joins us via zoom Ian. 149 00:08:59,400 --> 00:09:00,920 Speaker 3: Thanks so much for joining us here. I love to 150 00:09:00,920 --> 00:09:04,800 Speaker 3: get your backdrop how you're kind of framing out your 151 00:09:04,840 --> 00:09:07,080 Speaker 3: economic outlook for twenty twenty six. 152 00:09:08,640 --> 00:09:10,720 Speaker 5: Yeah, we've really looked at it. We always like to 153 00:09:10,720 --> 00:09:13,280 Speaker 5: look at it through a few key themes. I think 154 00:09:13,320 --> 00:09:16,040 Speaker 5: one of the key themes we see is there's still 155 00:09:16,200 --> 00:09:18,480 Speaker 5: largely a healthy consumer, but you kind of have that 156 00:09:18,600 --> 00:09:21,800 Speaker 5: case shaped split, So we do see households when we 157 00:09:21,840 --> 00:09:24,040 Speaker 5: talk to companies. We're seeing it in the data. Now. 158 00:09:24,040 --> 00:09:27,199 Speaker 5: We were anticipating three and a half four percent raises 159 00:09:27,240 --> 00:09:30,280 Speaker 5: coming to most consumers. You have Social Security coming in 160 00:09:30,240 --> 00:09:32,679 Speaker 5: at almost three percent. In terms of the COLA adjustment. 161 00:09:33,040 --> 00:09:35,200 Speaker 5: You have a lot of people with as you know, 162 00:09:35,280 --> 00:09:39,199 Speaker 5: our previous guests mentioned decent equity gains and potentially decent 163 00:09:39,240 --> 00:09:41,400 Speaker 5: equity gains going forward. So you have that wealth effect 164 00:09:41,440 --> 00:09:44,480 Speaker 5: for upper income households. How or for lower income households, 165 00:09:44,520 --> 00:09:47,640 Speaker 5: we still see the stress. We see that delayed effect 166 00:09:47,679 --> 00:09:50,760 Speaker 5: of inflation. If you think about inflation, really it tends 167 00:09:50,840 --> 00:09:53,080 Speaker 5: to hit with a lag for a lot of people, 168 00:09:53,120 --> 00:09:55,880 Speaker 5: even if it's being measured in more of a linear basis, 169 00:09:55,960 --> 00:09:57,640 Speaker 5: Like you know, we only buy a car every three 170 00:09:57,760 --> 00:10:01,400 Speaker 5: four years, so that you know, that rise and used 171 00:10:01,480 --> 00:10:05,400 Speaker 5: car prices took a while to spread across households, as 172 00:10:05,440 --> 00:10:07,280 Speaker 5: well as the rise in interest rate center and we 173 00:10:07,280 --> 00:10:09,040 Speaker 5: haven't seen that much of a decline in that area. 174 00:10:09,080 --> 00:10:09,880 Speaker 1: So we see it. 175 00:10:09,920 --> 00:10:12,400 Speaker 5: We see a healthy consumer. We think that drives spending. 176 00:10:12,440 --> 00:10:15,439 Speaker 5: Next year, we think that drives growth. We're targeting one 177 00:10:15,480 --> 00:10:17,960 Speaker 5: and a half to two percent growth. And we think 178 00:10:18,120 --> 00:10:20,640 Speaker 5: also though a little bit of a tight labor market 179 00:10:20,960 --> 00:10:24,200 Speaker 5: keeps inflation somewhat elevated two seven, two eight next year. 180 00:10:25,360 --> 00:10:27,560 Speaker 5: Part of that really is the immigration story. We think 181 00:10:27,600 --> 00:10:31,960 Speaker 5: that's one a huge story and the implications are incredibly widespread. 182 00:10:31,960 --> 00:10:34,720 Speaker 5: So that's another theme we've really been talking about this year. 183 00:10:35,360 --> 00:10:37,679 Speaker 2: You are we going to see the immigration story, as 184 00:10:37,679 --> 00:10:40,880 Speaker 2: you put it, play out in the jobs report coming 185 00:10:40,920 --> 00:10:43,440 Speaker 2: up on January ninth and in subsequent jobs reports. 186 00:10:43,440 --> 00:10:45,760 Speaker 3: Do you think, oh, no question. 187 00:10:46,240 --> 00:10:49,520 Speaker 5: When we talk to companies, you know, it's kind of fascinating. 188 00:10:49,800 --> 00:10:52,199 Speaker 5: First of all, it's the supply story. Although as we're 189 00:10:52,240 --> 00:10:56,520 Speaker 5: seeing the unemployment rate ticking up, the supply of labor 190 00:10:56,800 --> 00:11:00,720 Speaker 5: hasn't was growing at a tremendous CLIPID a bit slower. 191 00:11:00,720 --> 00:11:02,800 Speaker 5: We think that that slows consumption spending next year a 192 00:11:02,800 --> 00:11:06,120 Speaker 5: little bit. So you have that, but you still get 193 00:11:06,120 --> 00:11:07,920 Speaker 5: a little bit of a tighter labor market than at 194 00:11:07,920 --> 00:11:10,480 Speaker 5: that lower end. So over the next few months, yes, 195 00:11:10,559 --> 00:11:13,360 Speaker 5: we expect that it just limits the potential growth rate 196 00:11:13,400 --> 00:11:17,280 Speaker 5: of the economy in terms of job growth. So that's 197 00:11:17,280 --> 00:11:19,240 Speaker 5: one area. Another I think we're going to see a 198 00:11:19,240 --> 00:11:21,320 Speaker 5: lot more automation. You know, I was talking to a 199 00:11:21,320 --> 00:11:25,720 Speaker 5: company that makes high end lawnmowers basically for golf carts, 200 00:11:26,480 --> 00:11:28,520 Speaker 5: golf courses, that kind of thing, and they said, and 201 00:11:28,559 --> 00:11:30,720 Speaker 5: this is not the only company where I've had this conversation, 202 00:11:30,800 --> 00:11:34,360 Speaker 5: but only Onaldmowing company, And they said, look are golf 203 00:11:34,400 --> 00:11:38,240 Speaker 5: course clients. They're interested in the automated mowers, the ones 204 00:11:38,280 --> 00:11:43,720 Speaker 5: that basically operate without without human inter interaction. And they're 205 00:11:43,800 --> 00:11:46,840 Speaker 5: much less concerned about cost than they were a few 206 00:11:46,840 --> 00:11:49,319 Speaker 5: months ago, because they're really worried that they just can't 207 00:11:49,360 --> 00:11:52,120 Speaker 5: find the labor. And so at that lower end and 208 00:11:52,200 --> 00:11:55,400 Speaker 5: a lot of those manual jobs. We were an economy 209 00:11:55,440 --> 00:11:59,840 Speaker 5: pretty reliant on immigrant labor, and so that's that's sort 210 00:11:59,840 --> 00:12:02,760 Speaker 5: of playing out in a lot of different areas and. 211 00:12:02,920 --> 00:12:05,319 Speaker 3: We're going to get the one the benefits of the 212 00:12:05,360 --> 00:12:09,080 Speaker 3: one big, beautiful build, presumably in twenty twenty six. How 213 00:12:09,080 --> 00:12:10,640 Speaker 3: did you guys kind of model that out? 214 00:12:12,400 --> 00:12:14,280 Speaker 5: We saw a couple of ways. We're seeing that hit 215 00:12:14,320 --> 00:12:16,679 Speaker 5: and we've heard it from clients too, So it's a 216 00:12:16,720 --> 00:12:19,400 Speaker 5: mix of you know, what we're modeling what's reasonable. We 217 00:12:19,480 --> 00:12:22,400 Speaker 5: see that as maybe close to zero point four point 218 00:12:22,440 --> 00:12:26,800 Speaker 5: five percent growth to GDP you get a positive benefit 219 00:12:26,880 --> 00:12:30,719 Speaker 5: obviously similar tax rates. On the investment side. It's really 220 00:12:30,760 --> 00:12:33,800 Speaker 5: a shift I think we have from structures to equipment. 221 00:12:34,240 --> 00:12:37,520 Speaker 5: So in the previous administration, you had a lot of 222 00:12:37,840 --> 00:12:40,719 Speaker 5: factors that were you know, the Chips Act, you had 223 00:12:40,880 --> 00:12:45,120 Speaker 5: EV mandates, you had a lot of things driving construction 224 00:12:45,200 --> 00:12:48,640 Speaker 5: activity and manufacturing. We had record manufacturing construction activities. So 225 00:12:48,720 --> 00:12:51,640 Speaker 5: really a structure story, a building story. We see that 226 00:12:51,760 --> 00:12:53,520 Speaker 5: pulling back, you know, I think we've seen that in 227 00:12:53,559 --> 00:12:55,920 Speaker 5: a lot of categories, and the construction activities got in 228 00:12:56,160 --> 00:13:01,200 Speaker 5: pretty narrow. It's pretty much data centers, energy empower related 229 00:13:01,240 --> 00:13:04,080 Speaker 5: to data centers and infrastructure because still some of the 230 00:13:04,120 --> 00:13:06,160 Speaker 5: infrastructure money is out there and there's a lot of 231 00:13:06,160 --> 00:13:08,840 Speaker 5: infrastructure spending, but otherwise, we see a lot of weakness 232 00:13:08,880 --> 00:13:12,240 Speaker 5: in the construction category, but on the investment side, the 233 00:13:12,280 --> 00:13:15,319 Speaker 5: one big beautiful bill in terms of equipment, the equipment 234 00:13:15,320 --> 00:13:18,319 Speaker 5: side's pretty strong. We're hearing that broadly that a lot 235 00:13:18,360 --> 00:13:22,360 Speaker 5: of companies are looking at that immediate depreciation expense advantage 236 00:13:22,760 --> 00:13:27,640 Speaker 5: and we're seeing orders. We add I did a finance 237 00:13:27,720 --> 00:13:30,160 Speaker 5: or I was in Pittsburgh a couple of weeks ago 238 00:13:30,440 --> 00:13:32,240 Speaker 5: and we had a client come into one of our 239 00:13:32,280 --> 00:13:34,480 Speaker 5: rms there saying, Hey, I need four million dollars before 240 00:13:34,480 --> 00:13:35,880 Speaker 5: the end of the year because I want to lower 241 00:13:35,880 --> 00:13:37,400 Speaker 5: my tax bill and I'm going to buy a bunch 242 00:13:37,440 --> 00:13:40,080 Speaker 5: of equipment. And that's playing out. You know, we see 243 00:13:40,080 --> 00:13:42,760 Speaker 5: that as zero point one point two percent, really driving 244 00:13:42,800 --> 00:13:45,160 Speaker 5: a shift though in the investment mix, the investment mix 245 00:13:45,240 --> 00:13:47,320 Speaker 5: shifting from structures to equipment. 246 00:13:48,559 --> 00:13:51,439 Speaker 2: Ian as a chief as chief economist over at Huntington Bank, 247 00:13:51,640 --> 00:13:55,320 Speaker 2: what's your outlook for rate cuts from the Fed next year? 248 00:13:55,320 --> 00:13:58,200 Speaker 2: How many do we get, if any at all? 249 00:13:58,360 --> 00:14:01,720 Speaker 5: Oh, we expect obviously the paw we'd anticipate and we said, 250 00:14:01,840 --> 00:14:03,839 Speaker 5: you know, going into December, we said, you know, one 251 00:14:03,880 --> 00:14:05,600 Speaker 5: more cut and then pause. We thought that was pretty 252 00:14:05,640 --> 00:14:07,920 Speaker 5: well signaled you know, I don't think we're any sort 253 00:14:07,920 --> 00:14:10,080 Speaker 5: of miracle workers here. We're just listening to the FED 254 00:14:10,120 --> 00:14:12,200 Speaker 5: in terms of that kind of signaling. And when we 255 00:14:12,240 --> 00:14:16,119 Speaker 5: saw the FED minutes come out yesterday, that was confirming 256 00:14:16,120 --> 00:14:18,280 Speaker 5: that idea that we're we're in the pause stage now. 257 00:14:18,480 --> 00:14:21,320 Speaker 5: If we look back to twenty four and twenty five, 258 00:14:21,400 --> 00:14:23,960 Speaker 5: we had pauses at the beginning of the year. Those 259 00:14:24,000 --> 00:14:27,160 Speaker 5: didn't end till September in both kid cases. We don't 260 00:14:27,200 --> 00:14:29,840 Speaker 5: think it lasts that long this pause. We expect one 261 00:14:29,880 --> 00:14:32,800 Speaker 5: more cut come March. Then of course Pal's term ends 262 00:14:32,880 --> 00:14:35,920 Speaker 5: in May. I think there'll be a couple more cuts likely, 263 00:14:36,040 --> 00:14:38,640 Speaker 5: So it probably puts us right around three percent over 264 00:14:38,680 --> 00:14:40,480 Speaker 5: the course of the year. But if we look at 265 00:14:40,480 --> 00:14:43,240 Speaker 5: the forecast, if we listen to the FED governors, we're 266 00:14:43,240 --> 00:14:45,280 Speaker 5: getting pretty close to that neutral rate. And what that 267 00:14:45,360 --> 00:14:47,320 Speaker 5: neutral rate means, of course, is that the FED really 268 00:14:47,400 --> 00:14:49,080 Speaker 5: views it as they're not stepping on the gas for 269 00:14:49,120 --> 00:14:51,040 Speaker 5: the economy. They're not hitting the brakes for the economy. 270 00:14:51,040 --> 00:14:52,520 Speaker 5: They're just sort of letting a glide. We're in a 271 00:14:52,520 --> 00:14:54,800 Speaker 5: glide path right now. They still think they're hitting the 272 00:14:54,840 --> 00:14:57,760 Speaker 5: brakes for the economy. And as we get closer to 273 00:14:57,800 --> 00:15:01,040 Speaker 5: that neutral rate. We think the FED governors, some of 274 00:15:01,120 --> 00:15:03,320 Speaker 5: those governors who are really open to cuts now are 275 00:15:03,360 --> 00:15:05,280 Speaker 5: going to become more resistant. This is going to be 276 00:15:05,280 --> 00:15:08,520 Speaker 5: a more hesitant Fed. We still expect, partly because of 277 00:15:08,560 --> 00:15:11,760 Speaker 5: a somewhat tight lower end labor market, especially in areas 278 00:15:11,840 --> 00:15:17,360 Speaker 5: like healthcare services when you're talking about lodging restaurants, We 279 00:15:17,400 --> 00:15:21,000 Speaker 5: think that those wage increases are going to keep pushing 280 00:15:21,080 --> 00:15:24,360 Speaker 5: up some price increases across the board, and that's roughly 281 00:15:24,400 --> 00:15:27,560 Speaker 5: a third of the CPI is the services we were 282 00:15:27,560 --> 00:15:31,840 Speaker 5: talking about there. So we expect that that plays into 283 00:15:31,880 --> 00:15:34,040 Speaker 5: a couple more cuts this year. Still, you have a 284 00:15:34,080 --> 00:15:36,920 Speaker 5: pretty soft labor market that gets the FED moving. The 285 00:15:36,920 --> 00:15:39,400 Speaker 5: federally cares way more about the labor market than the 286 00:15:39,560 --> 00:15:42,440 Speaker 5: stock market, and that gets them to do a couple 287 00:15:42,560 --> 00:15:44,320 Speaker 5: more cuts. But we think, you know, you get close 288 00:15:44,360 --> 00:15:47,360 Speaker 5: to three, you're really at that neutral rate where some 289 00:15:47,440 --> 00:15:49,760 Speaker 5: of those dubbish voices maybe get a little more hawkish. 290 00:15:49,960 --> 00:15:52,080 Speaker 3: Yep, yep, all right, Ian, thank you so much, appreciate 291 00:15:52,080 --> 00:15:54,040 Speaker 3: getting a few minutes of your time. Ian, whytt he's 292 00:15:54,080 --> 00:15:58,840 Speaker 3: a chief economist over there at Huntington Bank. Stay with us. 293 00:15:58,920 --> 00:16:01,400 Speaker 3: More from Bloomberg Survail. It's coming up after this. 294 00:16:07,640 --> 00:16:11,200 Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live 295 00:16:11,280 --> 00:16:14,440 Speaker 1: weekday afternoons from seven to ten am Eastern. Listen on 296 00:16:14,520 --> 00:16:18,200 Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or 297 00:16:18,320 --> 00:16:19,960 Speaker 1: watch us live on YouTube. 298 00:16:20,520 --> 00:16:24,760 Speaker 3: Eric Sterner, the chief investment officer Apollin Wealth Management, joins 299 00:16:24,840 --> 00:16:26,760 Speaker 3: us here in studio. You can be down there in 300 00:16:26,800 --> 00:16:29,400 Speaker 3: Times Square here later on tonight it did ball drop, 301 00:16:29,480 --> 00:16:31,880 Speaker 3: so a lot of fun down there. Eric, Thanks so 302 00:16:31,960 --> 00:16:34,680 Speaker 3: much for joining us here. How are you what's the 303 00:16:34,680 --> 00:16:37,800 Speaker 3: conversation you're having with your clients these days about setting 304 00:16:37,840 --> 00:16:40,360 Speaker 3: expectations for twenty twenty six. We had three years of 305 00:16:40,840 --> 00:16:43,680 Speaker 3: double digit returns for the equity markets. The bond market's 306 00:16:43,680 --> 00:16:46,520 Speaker 3: been really good for investors. They've if they had some 307 00:16:46,600 --> 00:16:50,200 Speaker 3: gold or silver even better. How do you set expectations 308 00:16:50,200 --> 00:16:50,880 Speaker 3: for twenty six? 309 00:16:51,160 --> 00:16:55,200 Speaker 6: Yeah, we've certainly been very spoiled the last three years 310 00:16:55,240 --> 00:17:00,359 Speaker 6: with very strong returns kind of SMP five hundred. We're 311 00:17:01,000 --> 00:17:04,240 Speaker 6: talking to our clients and just reminding them that while 312 00:17:04,320 --> 00:17:06,800 Speaker 6: we know the market breath has been very narrow for 313 00:17:06,840 --> 00:17:11,159 Speaker 6: the past you know, two and three years, we expect 314 00:17:11,160 --> 00:17:15,919 Speaker 6: that to broaden out and between value stocks, large guy value, 315 00:17:16,000 --> 00:17:19,919 Speaker 6: small cap international. So now's not the time. Now's a 316 00:17:19,920 --> 00:17:23,000 Speaker 6: good time, I should say, to rebalance the portfolio and 317 00:17:23,920 --> 00:17:27,400 Speaker 6: to take a little off on the technology side, because 318 00:17:27,440 --> 00:17:29,800 Speaker 6: I think there's plenty of sectors that have really strong 319 00:17:29,840 --> 00:17:33,160 Speaker 6: returns going into twenty twenty six, both domestically as well 320 00:17:33,160 --> 00:17:34,000 Speaker 6: as international. 321 00:17:34,240 --> 00:17:36,640 Speaker 2: Yeah, I'm glad you mentioned international as well, and Eric, 322 00:17:36,640 --> 00:17:40,240 Speaker 2: give us if you can some specifics. I love specifics 323 00:17:40,240 --> 00:17:43,240 Speaker 2: when guests can come on and join us names or 324 00:17:43,440 --> 00:17:45,160 Speaker 2: ideas sectors outside of tech. 325 00:17:45,480 --> 00:17:49,200 Speaker 6: Sure, yeah, I mean so within Maybe I'll start off 326 00:17:49,200 --> 00:17:53,160 Speaker 6: with domestically if some sectors I like, if that's financials 327 00:17:53,400 --> 00:17:56,240 Speaker 6: had a tremendous year, and I expect you know, there's 328 00:17:56,280 --> 00:17:58,520 Speaker 6: a little bump in the road when Jamie Diamond made 329 00:17:58,520 --> 00:17:59,640 Speaker 6: that conroach. 330 00:18:00,480 --> 00:18:03,160 Speaker 2: And not the credit at Tricolor and First Brand. 331 00:18:03,200 --> 00:18:06,240 Speaker 6: Yeah, exactly, But I don't think there's any evidence of 332 00:18:06,359 --> 00:18:09,800 Speaker 6: widespread concerns there. Even within the high yield market. We 333 00:18:09,840 --> 00:18:16,600 Speaker 6: see investment grade levels within high yield, but I think financials, 334 00:18:16,720 --> 00:18:19,600 Speaker 6: just with the interest rates coming down, I think we're 335 00:18:19,600 --> 00:18:21,600 Speaker 6: going to see some more m and a activity pick 336 00:18:21,680 --> 00:18:25,160 Speaker 6: up in twenty twenty six. In fact, during the government shutdown, 337 00:18:25,280 --> 00:18:29,080 Speaker 6: more than nine hundred registration statements, including IPOs were filed 338 00:18:29,119 --> 00:18:32,360 Speaker 6: with SEC. So I was already expecting a big year 339 00:18:32,400 --> 00:18:35,320 Speaker 6: in MA activity within financials, but now even more so 340 00:18:35,440 --> 00:18:38,639 Speaker 6: as they worked through that backlog. And then another sector 341 00:18:38,720 --> 00:18:41,440 Speaker 6: that really got its legs in the fourth quarter is healthcare. 342 00:18:41,600 --> 00:18:43,879 Speaker 6: And healthcare has just been stuck in the rut for 343 00:18:43,920 --> 00:18:46,760 Speaker 6: a long time, and it typically does with new White 344 00:18:46,800 --> 00:18:50,720 Speaker 6: House administration, just because there's so much policy uncertainty. But 345 00:18:50,720 --> 00:18:52,840 Speaker 6: I think we're starting to get past that. And I 346 00:18:52,840 --> 00:18:56,680 Speaker 6: think it's great with healthcare is that you have it's 347 00:18:56,920 --> 00:18:59,440 Speaker 6: traditionally a defensive play, but I think there's so much 348 00:18:59,480 --> 00:19:02,760 Speaker 6: innovation in there. Besides the AI. I think the weight 349 00:19:02,800 --> 00:19:05,359 Speaker 6: loss drugs are the second biggest innovation in the markets 350 00:19:05,440 --> 00:19:09,440 Speaker 6: right now, and there was a bottleneck and drug supplies 351 00:19:09,480 --> 00:19:12,400 Speaker 6: there earlier year that's been cleared. A lot of these 352 00:19:12,440 --> 00:19:14,920 Speaker 6: biotech companies made a deal with the Weight House. We're 353 00:19:14,960 --> 00:19:17,400 Speaker 6: in exchange for lowering prices, they're going to get more 354 00:19:17,440 --> 00:19:21,960 Speaker 6: weight loss coverage with Medicare and potentially Medicaid, and that 355 00:19:22,119 --> 00:19:24,680 Speaker 6: opens up those weight loss drugs the forty million more 356 00:19:24,760 --> 00:19:27,080 Speaker 6: people and that industry is expected to be one hundred 357 00:19:27,080 --> 00:19:30,200 Speaker 6: and fifty billion by twenty thirty, so I think that's 358 00:19:30,240 --> 00:19:34,440 Speaker 6: another sector that I really like going into twenty twenty six. 359 00:19:35,280 --> 00:19:39,919 Speaker 6: And then on the international front, the valuations are still 360 00:19:40,160 --> 00:19:45,320 Speaker 6: very attractive compared to US stocks specifically, I think Japan 361 00:19:45,920 --> 00:19:48,720 Speaker 6: is just such an incredible story and still plenty of 362 00:19:48,760 --> 00:19:52,000 Speaker 6: legs to go, and many people are surprised if you 363 00:19:52,080 --> 00:19:56,439 Speaker 6: look at the past decade earnings per share. Cumulative earnings 364 00:19:56,480 --> 00:19:58,720 Speaker 6: per share for Japanese companies are up over two hundred 365 00:19:58,720 --> 00:20:03,040 Speaker 6: fifty percent, which exceeds the US, Europe, even the UK. 366 00:20:03,720 --> 00:20:06,640 Speaker 6: And now with Prime Minister Takashi bringing in some more 367 00:20:06,680 --> 00:20:10,200 Speaker 6: pro growth policies, I expect stronger returns or more strong 368 00:20:10,280 --> 00:20:11,320 Speaker 6: returns coming out of Japan. 369 00:20:11,640 --> 00:20:13,679 Speaker 3: Yeah, I mean international has been the place here is 370 00:20:13,720 --> 00:20:15,320 Speaker 3: as good as the returns have been in the US 371 00:20:15,400 --> 00:20:19,080 Speaker 3: if you look at EMEA. Much better returns here, I mean, 372 00:20:19,160 --> 00:20:23,000 Speaker 3: led by Spain, particularly when you adjust for currencies. Spain 373 00:20:23,080 --> 00:20:26,199 Speaker 3: adjusted for the currency's up seventy percent this year, just extraordinary. 374 00:20:26,240 --> 00:20:29,200 Speaker 3: We've seen double digit games across Europe and a couple 375 00:20:29,240 --> 00:20:32,480 Speaker 3: of the Asian markets, including Hong Kong. Kind of emerging 376 00:20:32,480 --> 00:20:35,359 Speaker 3: markets here. I think the chatter around emerging markets is 377 00:20:35,400 --> 00:20:37,680 Speaker 3: just kind of a little bit louder and louder and 378 00:20:37,720 --> 00:20:40,520 Speaker 3: louder over the course of twenty twenty five, and people 379 00:20:40,640 --> 00:20:41,879 Speaker 3: were talking about that a little more. How do you 380 00:20:41,880 --> 00:20:42,600 Speaker 3: guys think about that? 381 00:20:42,960 --> 00:20:46,919 Speaker 6: Yeah, I expect those returns again to still have some 382 00:20:46,960 --> 00:20:49,760 Speaker 6: more lakes to them. I mean, typically you see emerging 383 00:20:49,880 --> 00:20:52,600 Speaker 6: market because a lot of their debt is US denominate it. 384 00:20:52,880 --> 00:20:55,280 Speaker 6: When the FED starts easing, you could see your merging 385 00:20:55,320 --> 00:20:58,720 Speaker 6: market equities rally more. Certainly certainly seeing that especially with 386 00:20:58,760 --> 00:21:03,320 Speaker 6: the US dollar to depreciate. And we know this AI 387 00:21:03,359 --> 00:21:07,679 Speaker 6: revolution is worldwide phenomenal, So some of those tech really 388 00:21:07,720 --> 00:21:12,239 Speaker 6: centric nations, especially outside of China or benefiting of some 389 00:21:12,280 --> 00:21:16,440 Speaker 6: of these companies redesigning supply chains away from China are benefiting. 390 00:21:16,480 --> 00:21:19,760 Speaker 6: And even countries like Mexico as we're looking for more 391 00:21:19,920 --> 00:21:23,720 Speaker 6: near shoring opportunities with the US, have benefited. So I 392 00:21:23,720 --> 00:21:26,080 Speaker 6: think we could still see some strong returns have a 393 00:21:26,160 --> 00:21:29,160 Speaker 6: marching markets going forward into twenty twenty six. 394 00:21:29,680 --> 00:21:33,520 Speaker 2: You talked about lower interest rates being a tailwind for financials, 395 00:21:33,560 --> 00:21:36,640 Speaker 2: they could also be for those small caps. Russell two 396 00:21:36,640 --> 00:21:39,479 Speaker 2: thousand taking a look here on the Bloomberg terminal up 397 00:21:39,520 --> 00:21:41,719 Speaker 2: twelve percent year to date. Not too shabby, I mean, 398 00:21:41,800 --> 00:21:45,879 Speaker 2: underperforming the other major indexes, but still solid respectable gains there. 399 00:21:46,040 --> 00:21:49,240 Speaker 2: Even more so, what's your outlook for the small caps? 400 00:21:49,400 --> 00:21:52,320 Speaker 6: Yeah, I think twenty twenty five was the big year 401 00:21:52,359 --> 00:21:55,080 Speaker 6: what international made to come back. I think twenty twenty 402 00:21:55,080 --> 00:21:57,080 Speaker 6: six could be the big year where small cap makes 403 00:21:57,160 --> 00:21:59,720 Speaker 6: come back. And it didn't have a bad year like 404 00:21:59,760 --> 00:22:01,600 Speaker 6: you said, I mean the wrestle it was up. I 405 00:22:01,640 --> 00:22:05,240 Speaker 6: think we could see stronger returns. Is just uh, that's 406 00:22:05,280 --> 00:22:07,879 Speaker 6: a very interest rate sensitive sector. We know that the 407 00:22:08,000 --> 00:22:10,520 Speaker 6: lagged effects of all the rate cuts and potentially maybe 408 00:22:10,840 --> 00:22:13,760 Speaker 6: one to two more rate cuts, all the benefits to 409 00:22:13,920 --> 00:22:18,920 Speaker 6: domestic companies with the OBBA and deregulation. You know, these 410 00:22:18,960 --> 00:22:23,159 Speaker 6: smaller companies have higher costs from a regulatory perspective. But 411 00:22:23,440 --> 00:22:26,160 Speaker 6: the one thing that will continue this rally is really 412 00:22:26,200 --> 00:22:29,119 Speaker 6: it needs the earnings. And right now, the earnings estimates 413 00:22:29,119 --> 00:22:32,320 Speaker 6: are expected for small cap companies to be up sixty 414 00:22:32,320 --> 00:22:35,160 Speaker 6: percent this year. Now, in the beginning of the year 415 00:22:35,280 --> 00:22:39,200 Speaker 6: is typical for small caps that you know, they temper 416 00:22:39,320 --> 00:22:42,240 Speaker 6: down those those expectations and you look at the last 417 00:22:42,280 --> 00:22:47,680 Speaker 6: twenty years. The projected earnings growth versus the actual earnings 418 00:22:47,680 --> 00:22:52,280 Speaker 6: growth is about negative twenty percent from for small cap stocks. 419 00:22:52,680 --> 00:22:55,639 Speaker 6: So if we're projecting sixty percent earnings growth for small 420 00:22:55,640 --> 00:22:58,280 Speaker 6: caps and let's say we deduct that twenty percent, as 421 00:22:58,280 --> 00:23:01,520 Speaker 6: we you know, throughout the y, we may see those 422 00:23:01,600 --> 00:23:05,080 Speaker 6: expectations lower a bit. That's still forty percent earnings growth 423 00:23:05,119 --> 00:23:08,320 Speaker 6: rate amongst small cap companies if that holds to the average, 424 00:23:08,560 --> 00:23:12,240 Speaker 6: which would really continue to drive this rally. The one 425 00:23:12,640 --> 00:23:15,879 Speaker 6: item that I would just make noteworthy is that I 426 00:23:15,920 --> 00:23:20,840 Speaker 6: am surprised that the Russell two thousand has outperformed the 427 00:23:20,960 --> 00:23:23,399 Speaker 6: S and P six hundred, which is another small cap index. 428 00:23:23,480 --> 00:23:26,760 Speaker 6: Russell two thousand and forty percent or so companies unprofitable, 429 00:23:27,080 --> 00:23:29,879 Speaker 6: whilst S and P six hundred it focuses more on 430 00:23:29,960 --> 00:23:33,440 Speaker 6: profitable companies. I expect that to reverse this year, because 431 00:23:33,480 --> 00:23:34,960 Speaker 6: I think there's going to be some months in the 432 00:23:35,040 --> 00:23:36,639 Speaker 6: road and I think we're going to see some heightened 433 00:23:36,680 --> 00:23:40,480 Speaker 6: volatility in twenty twenty six. But overall, I remain bullish, 434 00:23:40,520 --> 00:23:43,560 Speaker 6: and I would just advise advisors to lean more into 435 00:23:43,600 --> 00:23:47,479 Speaker 6: that quality factor. Companies with solid earning, solid balance sheets, 436 00:23:47,640 --> 00:23:49,080 Speaker 6: and solid cash flows. 437 00:23:49,280 --> 00:23:52,080 Speaker 3: What do you at your firm. Is it pronounced apollan 438 00:23:52,320 --> 00:23:55,080 Speaker 3: upolland yes, is it? Do you guys have a view 439 00:23:55,119 --> 00:23:57,919 Speaker 3: on alternative investments and maybe what percentage that should be 440 00:23:57,960 --> 00:23:59,879 Speaker 3: of a typical client's portfolio. 441 00:24:00,760 --> 00:24:04,639 Speaker 6: It varies, you know, certainly for our Apollum models, we 442 00:24:05,080 --> 00:24:09,760 Speaker 6: design models more just on the public market asset classes, 443 00:24:10,119 --> 00:24:13,320 Speaker 6: and then for very specific client situations, that's when we 444 00:24:13,480 --> 00:24:17,119 Speaker 6: look to potentially incorporate private investments into our portfolios if 445 00:24:17,160 --> 00:24:20,920 Speaker 6: they can afford the ill liquidity a great I'd say 446 00:24:20,920 --> 00:24:24,280 Speaker 6: a good portion of our clients do have some private 447 00:24:24,320 --> 00:24:28,360 Speaker 6: investments in their portfolios. We think we like to take 448 00:24:28,440 --> 00:24:33,320 Speaker 6: our typical asset allocation portfolio and then we basically substitute 449 00:24:33,320 --> 00:24:36,800 Speaker 6: some of those asset classes in so we may complement 450 00:24:37,240 --> 00:24:40,080 Speaker 6: the fixed income allocation with private credit. I mean, over 451 00:24:40,080 --> 00:24:43,480 Speaker 6: the last ten years, the yield for the bloom Barclay's 452 00:24:43,520 --> 00:24:46,720 Speaker 6: AD is about three percent, but private credit is all 453 00:24:46,800 --> 00:24:50,520 Speaker 6: over ten percent. So for clients that are entering and retirement, 454 00:24:50,560 --> 00:24:53,360 Speaker 6: that's why we think private credit could really boost the income. 455 00:24:53,920 --> 00:24:57,000 Speaker 6: And then we know there's less you know, publicly traded 456 00:24:57,119 --> 00:24:58,879 Speaker 6: stocks in the markets right now, so that's why we 457 00:24:58,880 --> 00:25:02,200 Speaker 6: think there's great opportunities. Private equity companies are staying private 458 00:25:02,240 --> 00:25:05,160 Speaker 6: for longer, so we like to complement small cap exposure 459 00:25:05,160 --> 00:25:09,639 Speaker 6: with private equity. So for our higher network clients, a 460 00:25:09,720 --> 00:25:12,359 Speaker 6: high majority of them do have those private investments. We 461 00:25:12,440 --> 00:25:15,480 Speaker 6: really consider that a client by client basis, as opposed 462 00:25:15,520 --> 00:25:20,200 Speaker 6: to creating portfolios with alternatives al rating involved or out 463 00:25:20,280 --> 00:25:21,200 Speaker 6: allocated to them. 464 00:25:21,520 --> 00:25:23,159 Speaker 3: Eric, thanks so much for joining us. We appreciate it. 465 00:25:23,240 --> 00:25:26,960 Speaker 3: Eric Sturner, he is chief investment officer Apollent Wealth Management. 466 00:25:28,760 --> 00:25:31,920 Speaker 3: Stay with us. More from Bloomberg Surveillance coming up after this. 467 00:25:38,119 --> 00:25:41,680 Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us live 468 00:25:41,760 --> 00:25:44,919 Speaker 1: weekday afternoons from seven to ten am Eastern Listen on 469 00:25:45,000 --> 00:25:48,679 Speaker 1: Applecarplay and Android Auto with the Bloomberg Business app, or 470 00:25:48,800 --> 00:25:50,439 Speaker 1: watch us live on YouTube. 471 00:25:50,720 --> 00:25:55,040 Speaker 3: Our next guest says residential real estate twenty twenty six 472 00:25:55,080 --> 00:25:58,080 Speaker 3: will be a transition year and not a turnaround. 473 00:25:58,080 --> 00:25:58,199 Speaker 5: Here. 474 00:25:58,280 --> 00:25:59,560 Speaker 3: Let's see what she means there, at least a start 475 00:25:59,560 --> 00:26:03,160 Speaker 3: of it, joins us. She's a chief economist for Bright MLS. 476 00:26:03,520 --> 00:26:07,800 Speaker 3: Boy Lisa, Housing affordability has been the challenge for would 477 00:26:07,800 --> 00:26:10,679 Speaker 3: be homeowners out there. Talk to us about kind of 478 00:26:10,680 --> 00:26:12,520 Speaker 3: where we are as we enter twenty twenty six. 479 00:26:13,920 --> 00:26:16,800 Speaker 7: Yeah, you know, housing affordability has really been the major 480 00:26:16,840 --> 00:26:19,720 Speaker 7: constraint on the housing market, and we're starting to see 481 00:26:19,800 --> 00:26:23,280 Speaker 7: affordability improve a little bit, right. We've seen mortgage rates 482 00:26:23,320 --> 00:26:26,560 Speaker 7: come down a little bit at their lowest levels, about 483 00:26:27,040 --> 00:26:30,159 Speaker 7: as they've been all year. We've seen price growth slow 484 00:26:30,280 --> 00:26:32,800 Speaker 7: a little bit, which has also helped, and so that's 485 00:26:32,800 --> 00:26:35,600 Speaker 7: made it affordability a little bit easier. But boy, it 486 00:26:35,720 --> 00:26:38,120 Speaker 7: still is a big challenge for those who are still 487 00:26:38,119 --> 00:26:40,760 Speaker 7: trying to get into the market. First time buyers, moderate 488 00:26:40,760 --> 00:26:43,800 Speaker 7: income buyers are still facing a really big challenge in 489 00:26:44,480 --> 00:26:45,199 Speaker 7: the year ahead. 490 00:26:46,160 --> 00:26:48,159 Speaker 2: So what do we have to look forward to if 491 00:26:48,200 --> 00:26:50,679 Speaker 2: you're wanting to get in a first time home buyer, 492 00:26:51,200 --> 00:26:53,439 Speaker 2: which we know, I think the average age now of 493 00:26:53,440 --> 00:26:55,600 Speaker 2: a first time home buyer is close to forty in 494 00:26:55,640 --> 00:26:58,320 Speaker 2: this country, which is hard to believe. And lots of 495 00:26:58,320 --> 00:27:01,879 Speaker 2: folks have given up owning home dream or delaying you know, 496 00:27:02,200 --> 00:27:05,719 Speaker 2: lots of life milestones just because I cannot afford that home. 497 00:27:06,440 --> 00:27:09,520 Speaker 2: Is that going to change in a meaningful way and 498 00:27:09,600 --> 00:27:11,359 Speaker 2: in the new year, and if so, what parts of 499 00:27:11,359 --> 00:27:13,080 Speaker 2: the country should those folks be looking at? 500 00:27:13,760 --> 00:27:16,919 Speaker 7: Yeah, you're absolutely right, this idea of becoming a homeowner. 501 00:27:16,960 --> 00:27:19,080 Speaker 7: For first time home buyers, it's all tied up with 502 00:27:19,160 --> 00:27:21,760 Speaker 7: all sorts of other life milestones right that people are 503 00:27:21,800 --> 00:27:25,720 Speaker 7: either delaying or sort of taking another look at. And 504 00:27:25,760 --> 00:27:27,520 Speaker 7: I think it is going to get easier for first 505 00:27:27,520 --> 00:27:31,200 Speaker 7: time home buyers, but not in every market across the country. 506 00:27:31,400 --> 00:27:33,680 Speaker 7: You know, there are places where inventory is still very 507 00:27:33,800 --> 00:27:36,800 Speaker 7: very tight. Places in the Midwest, places in the Northeast 508 00:27:37,080 --> 00:27:40,679 Speaker 7: where it's very competitive, where homes are still selling above asking, 509 00:27:40,680 --> 00:27:44,880 Speaker 7: where there's still multiple offers on homes. Other markets, though, 510 00:27:45,000 --> 00:27:47,280 Speaker 7: parts of the South, parts of the Southwest, we're seeing 511 00:27:47,280 --> 00:27:50,240 Speaker 7: a lot more inventory and frankly, a lot more leverage 512 00:27:50,240 --> 00:27:52,280 Speaker 7: for buyers. And that's where first time buyers are thinker 513 00:27:52,320 --> 00:27:54,040 Speaker 7: are going to have a little bit better options in 514 00:27:54,040 --> 00:27:55,679 Speaker 7: the year ahead. That's what I did. 515 00:27:55,720 --> 00:27:57,480 Speaker 3: I left the metro New York area and went to Richmond, 516 00:27:57,520 --> 00:28:03,800 Speaker 3: Virginia to get my first home to Affordability, as you mentioned, Lisa, 517 00:28:03,880 --> 00:28:06,280 Speaker 3: is a key key issue here, but it's also if 518 00:28:06,280 --> 00:28:07,760 Speaker 3: someone's going to buy a house, they have to feel 519 00:28:07,800 --> 00:28:09,960 Speaker 3: pretty good about the economy, they have to feel pretty 520 00:28:09,960 --> 00:28:13,240 Speaker 3: good about their jobs. Is that a tailwind or a 521 00:28:13,280 --> 00:28:14,679 Speaker 3: headwind here in this marketplace. 522 00:28:15,119 --> 00:28:16,560 Speaker 7: Yeah, you know, I'm really thinking about it as a 523 00:28:16,560 --> 00:28:18,920 Speaker 7: little bit of a tug of war. In twenty twenty six. 524 00:28:18,960 --> 00:28:22,399 Speaker 7: We have lower mortgage rates, lower price growth, really bringing 525 00:28:22,440 --> 00:28:24,840 Speaker 7: people into the market, making people want to get into 526 00:28:24,840 --> 00:28:28,080 Speaker 7: the market, improving affordability. But at the same time, there 527 00:28:28,119 --> 00:28:30,760 Speaker 7: is a lot of economic uncertainty. We're going to get 528 00:28:30,800 --> 00:28:33,640 Speaker 7: some new jobs numbers here next week, but people are 529 00:28:33,680 --> 00:28:36,920 Speaker 7: feeling more uncertain about their own economic situations. And when 530 00:28:36,960 --> 00:28:40,520 Speaker 7: people are feeling uncertain, they're less likely to do big 531 00:28:40,560 --> 00:28:43,080 Speaker 7: things like buy a home or sell a home. And 532 00:28:43,120 --> 00:28:44,760 Speaker 7: so there's going to be a push and pull between 533 00:28:44,760 --> 00:28:49,280 Speaker 7: these economic anxieties and these more favorable affordability conditions. And 534 00:28:49,360 --> 00:28:51,480 Speaker 7: right now, frankly, I don't think it's clear which one's 535 00:28:51,480 --> 00:28:52,120 Speaker 7: going to win out. 536 00:28:53,160 --> 00:28:55,520 Speaker 2: All right, let's talk mortgage rates, because they are a 537 00:28:55,520 --> 00:28:58,960 Speaker 2: part of the affordability issue. Paul, you said a moment 538 00:28:59,000 --> 00:29:01,239 Speaker 2: ago six point three percent on the fixed thirty year. 539 00:29:01,320 --> 00:29:03,959 Speaker 2: Right now, we were at seven percent at the beginning 540 00:29:03,960 --> 00:29:06,120 Speaker 2: of this year. What's the range you think for the 541 00:29:06,120 --> 00:29:08,760 Speaker 2: thirty year and the fifteen year that's popular for folks 542 00:29:08,800 --> 00:29:10,800 Speaker 2: looking to refinance in the new year. 543 00:29:11,680 --> 00:29:11,880 Speaker 4: Yeah. 544 00:29:11,920 --> 00:29:14,400 Speaker 7: Our forecaster for the average rate on a thirty year 545 00:29:14,400 --> 00:29:16,920 Speaker 7: fix to stay above six percent in twenty twenty six. 546 00:29:17,040 --> 00:29:18,960 Speaker 7: You know, I think there are some forecasters who are 547 00:29:19,040 --> 00:29:21,880 Speaker 7: saying that rate will dip below six percent, But I 548 00:29:21,920 --> 00:29:25,560 Speaker 7: think there's a lot of unknown still, and so we're 549 00:29:25,600 --> 00:29:27,120 Speaker 7: going to be watching. I think the key thing is 550 00:29:27,200 --> 00:29:30,440 Speaker 7: for home buyers to not try to time rates. Think 551 00:29:30,480 --> 00:29:32,960 Speaker 7: they can time them, or they can look at ways 552 00:29:33,000 --> 00:29:35,600 Speaker 7: to sort of maneuver it. I think you have to 553 00:29:35,640 --> 00:29:38,240 Speaker 7: decide when is the best time for you to buy. 554 00:29:38,280 --> 00:29:41,200 Speaker 7: But let me let me on the thing about affordability. Though, 555 00:29:41,200 --> 00:29:43,640 Speaker 7: even if rates were at six percent, let's say at 556 00:29:43,640 --> 00:29:45,920 Speaker 7: a four hundred and ten thousand dollars home, you still 557 00:29:45,920 --> 00:29:47,920 Speaker 7: need the income of about one hundred and fifteen thousand 558 00:29:47,960 --> 00:29:51,600 Speaker 7: dollars to qualify. That's much higher than the median household 559 00:29:51,600 --> 00:29:53,840 Speaker 7: income in the US and really highlights how out of 560 00:29:54,240 --> 00:29:57,000 Speaker 7: balance between income and home prices we've gotten over the 561 00:29:57,080 --> 00:29:57,920 Speaker 7: last few years. 562 00:29:58,200 --> 00:29:59,920 Speaker 3: Why don't we just build more houses? 563 00:30:01,280 --> 00:30:04,400 Speaker 7: That would help, right, And so I think increasing the 564 00:30:04,440 --> 00:30:07,040 Speaker 7: supply would help. But it's not just about supply. You know. 565 00:30:07,040 --> 00:30:09,520 Speaker 7: We hear those high level numbers of what the housing 566 00:30:09,560 --> 00:30:11,720 Speaker 7: supply gap is, but we need to build homes in 567 00:30:11,760 --> 00:30:15,080 Speaker 7: the places that people want to live, right where there's 568 00:30:15,160 --> 00:30:18,719 Speaker 7: job growth, where there's an economic opportunity, and those are 569 00:30:18,760 --> 00:30:21,480 Speaker 7: the places where we need to see more homes be built. 570 00:30:21,480 --> 00:30:23,680 Speaker 7: We also need to see whether there are ways to 571 00:30:24,400 --> 00:30:27,000 Speaker 7: free up homes by encouraging people who want to sell 572 00:30:27,360 --> 00:30:29,920 Speaker 7: to actually do so, to get out from a mortgage 573 00:30:29,960 --> 00:30:31,960 Speaker 7: rate that they don't want to give up. So I 574 00:30:31,960 --> 00:30:34,400 Speaker 7: think there are ways to increase supply and that would 575 00:30:34,400 --> 00:30:35,880 Speaker 7: help the affordability challenge. 576 00:30:36,440 --> 00:30:39,360 Speaker 2: What do you do to incentivize somebody to want to 577 00:30:39,400 --> 00:30:41,640 Speaker 2: sell their home, especially if I'm not going to call 578 00:30:41,640 --> 00:30:43,560 Speaker 2: it a buyer's market in twenty twenty six, but if 579 00:30:43,560 --> 00:30:47,320 Speaker 2: it starts to move in that direction, what gets somebody 580 00:30:47,320 --> 00:30:48,120 Speaker 2: out of their house? 581 00:30:49,080 --> 00:30:50,760 Speaker 7: Yeah? So I think there's a couple of ways to 582 00:30:50,760 --> 00:30:52,760 Speaker 7: think about it. I mean, one is some people aren't 583 00:30:52,800 --> 00:30:55,120 Speaker 7: moving because there's nowhere for them to go, right, Folks 584 00:30:55,120 --> 00:30:57,000 Speaker 7: who might want to downsize don't see. 585 00:30:56,840 --> 00:30:57,320 Speaker 3: Nowhere to go. 586 00:30:57,400 --> 00:30:59,520 Speaker 7: So that gets back to that let's build more housing 587 00:30:59,720 --> 00:31:02,440 Speaker 7: for peace people to downsize into, folks who are retiring 588 00:31:02,480 --> 00:31:04,400 Speaker 7: and so on. But there may be other ways to 589 00:31:04,440 --> 00:31:08,920 Speaker 7: provide incentives, tax incentives or other incentives that could encourage 590 00:31:08,920 --> 00:31:11,440 Speaker 7: people to sell the home, maybe so they're not hit 591 00:31:11,520 --> 00:31:15,720 Speaker 7: with a big tax bill. If they've got huge gains 592 00:31:15,760 --> 00:31:18,320 Speaker 7: and the equity of their home, there may be ways 593 00:31:18,320 --> 00:31:20,360 Speaker 7: to encourage people to sell there, but it's really going 594 00:31:20,400 --> 00:31:21,120 Speaker 7: to be at the margins. 595 00:31:21,160 --> 00:31:23,200 Speaker 3: Yeah, Lisa, thank you so much for joining us. Always 596 00:31:23,240 --> 00:31:25,680 Speaker 3: appreciate getting some of your thoughts least sort of at 597 00:31:25,720 --> 00:31:28,000 Speaker 3: Chief Economists at Bright MLS. 598 00:31:28,000 --> 00:31:32,840 Speaker 1: This is the Bloomberg Surveillance podcast, available on apples, Spotify, 599 00:31:32,960 --> 00:31:37,240 Speaker 1: and anywhere else you get your podcasts. 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