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Speaker 2: Our next guest, a bit of a contrarian, I'm going
Speaker 2: to call hers, is not quite as bullish as some
Speaker 2: of our other guests have been about the outlook for
Speaker 2: equities in twenty twenty six. She's even talking maybe possibly
Speaker 2: a recession.
Speaker 3: I don't know.
Speaker 2: Let's talk it over with Christina Hooper, chief market strategist
Speaker 2: at Man Group. Christina, great to have you here in
Speaker 2: an early Happy New Year to you and your family.
Speaker 2: All right, let's talk about it. Are we going to
Speaker 2: be able to make this four consecutive up years by
Speaker 2: double digits in a row for US equities?
Speaker 4: Well, that's a great question, Alexis, and I think we
Speaker 4: certainly could see that, but I think we have to
Speaker 4: anticipate more volatility, and in fact, I would expect some
Speaker 4: kind of significant sell off earlier in the year, foreshadowing
Speaker 4: an economic downturn, arguably a modest recession. And then are recovery.
Speaker 4: So I certainly think stocks US stocks could eke out
Speaker 4: gains next year, maybe even as much as a ten
Speaker 4: percent gain next year, but it will not be an
Speaker 4: easy path to the end of the year. And I
Speaker 4: think that makes sense just given the kind of gains
Speaker 4: we've seen thus far and also the kind of vulnerabilities
Speaker 4: we're seeing with the US economy.
Speaker 3: Talk to us about your economic call here, Christina A.
Speaker 3: What are you calling for in twenty twenty six and
Speaker 3: kind of what are the drivers there that maybe some
Speaker 3: folks in the market might be missing.
Speaker 4: So if we think about twenty twenty five, and there
Speaker 4: were two key drivers of economic growth, consumers spending and
Speaker 4: AI CAPEC spending, and both of them could see significant
Speaker 4: declines in twenty twenty six. Let's take consumer spending largely
Speaker 4: driven by higher income consumers. Certainly they benefited from the
Speaker 4: wealth effect in twenty five. We saw how well capital
Speaker 4: markets did. Certainly if that could change in that could
Speaker 4: easily change in twenty six, especially if we do see
Speaker 4: a sell off earlier in the year. But I actually
Speaker 4: think the bigger threat is an increase in unemployment. What
Speaker 4: we've heard from a number of companies is that they
Speaker 4: plan on layoffs related largely to AI, not entirely, that
Speaker 4: could easily accelerate and again tamp down consumer spending. Fear
Speaker 4: also can breed some reduction in consumer spending and for
Speaker 4: lower and middle income Americans. Of course, the issue has
Speaker 4: been affordability that doesn't go away. In my opinion, I
Speaker 4: think it gets worse in twenty twenty six. It doesn't
Speaker 4: mean that inflation moves higher necessarily, but it means that
Speaker 4: they're still under the strain of higher than normal, above
Speaker 4: target inflation. So that can be very very problematic. Since
Speaker 4: we've relied so much on consumer spending, and add in
Speaker 4: the potential for reduction in or a slowdown in AI
Speaker 4: capex spending growth, this is an environment in which there
Speaker 4: are more vulnerabilities. Access to rare earth resources is questionable. Also,
Speaker 4: just the ability to continue the build out of data
Speaker 4: centers from a financing perspective, as well as perhaps legislative
Speaker 4: opposition we're talking about Bernie. We've heard from Bernie Sanders
Speaker 4: arguing for as cessation on data center build out. We
Speaker 4: could see more opposition growing, especially with electricity issues. That
Speaker 4: was one of the big concerns coming out of exit
Speaker 4: polls in the New Jersey race this fall, So a
Speaker 4: lot could certainly the strength of both consumer spending and
Speaker 4: ai CAAPX spending in twenty twenty six.
Speaker 2: Yeah, that's a good point, especially with the midterm elections,
Speaker 2: right Christina. I mean, that's another big wild card that
Speaker 2: could affect things like regulation. I want to talk about
Speaker 2: precious metals though, because we've been talking about it a
Speaker 2: whole lot. Given the year that they've had, spot gold
Speaker 2: up sixty five percent year to date, silver up one
Speaker 2: hundred and fifty percent year to date, copper up better
Speaker 2: than forty three percent year to date. Do you think
Speaker 2: there's still room in the portfolio to have these precious
Speaker 2: medals for investors and to what extent in the new year.
Speaker 4: So absolutely, I think those are important, although relatively small
Speaker 4: components of investors' portfolios perhaps should be larger. I do
Speaker 4: think there is a lot. There are a lot of
Speaker 4: good reasons why, especially when it comes to gold. I
Speaker 4: think what we're going to see is more concerns around
Speaker 4: growing deficits. Not just a US problem, This is a
Speaker 4: problem in a number of countries. Questions about Fiat currencies
Speaker 4: and growing growing interest and perceptions of gold. As we
Speaker 4: go to safe haven asset class. And what we know
Speaker 4: from history is that in almost every bear market, six
Speaker 4: out of seven bear markets, gold held up better than
Speaker 4: the S and P five hundred in most of those
Speaker 4: environments produced a positive return when stock sold off six
Speaker 4: out of six corrections. So gold has been historically a
Speaker 4: safe haven asset class, and I think it will be
Speaker 4: even more so going forward. But it also has other
Speaker 4: drivers that that mean it could perform well in a
Speaker 4: variety of different environments. I think there's a place for silver,
Speaker 4: but we have to recognize that the volatility we've seen
Speaker 4: this year could easily continue or even exacerbate in the future.
Speaker 3: Christina, we've had some really really strong earnings in twenty
Speaker 3: twenty five. What's the earnings outlook for twenty six years opinion?
Speaker 3: And is that enough to support risk assets?
Speaker 4: So I certainly think the outlook is, in my opinion,
Speaker 4: a bit weaker. I think again there are vulnerabilities there,
Speaker 4: especially when it comes to consumer related companies, but not
Speaker 4: exclusively there, and of course if one thing goes wrong,
Speaker 4: multiple things can go wrong. So I would anticipate tepid
Speaker 4: earnings growth. But again I think that we're going to
Speaker 4: hear from companies that will relay to us in first
Speaker 4: quarter earnings calls excuse me fourth quarter earnings calls in
Speaker 4: the first quarter, that the situation is getting more difficult,
Speaker 4: especially when it comes to consumer spending, and that there
Speaker 4: will be more layoffs. And I anticipate again there will
Speaker 4: be a lot of negative sentiment or increase in negative
Speaker 4: sentiment as we move through the early part of twenty
Speaker 4: twenty six. So I think again we'll see earn growth,
Speaker 4: but I think it's going to be significantly lower than
Speaker 4: most anticipate as they sit here at the end of
Speaker 4: twenty twenty five.
Speaker 2: Christina, want to touch on the bond market before we
Speaker 2: let you go. You said, I was looking at your note.
Speaker 2: You said you expect bond vigilantes to come out in
Speaker 2: greater force in next year. Why do you think that's
Speaker 2: true and what kind of an impact might that have
Speaker 2: on I guess like the ten year treasury yield.
Speaker 4: So we've certainly seen some hints of it in twenty
Speaker 4: twenty five, for the US, for Japan, for the UK,
Speaker 4: for France. There are a number of countries that do
Speaker 4: not appear to be on a fiscally sustainable path, and
Speaker 4: I believe bond bond holders are growing more concerned about
Speaker 4: countries like the US. We saw some real hints of it,
Speaker 4: especially as the One Big Beautiful Bill worked its way
Speaker 4: through Congress, because of the potential for increased piscal depthsits.
Speaker 4: So I think this is a year in which we're
Speaker 4: going to see some greater punishment. I think the yield
Speaker 4: goes up significantly, which can very well weigh down on
Speaker 4: stock prices. But I wouldn't be surprised to see the tenure.
Speaker 4: You'd get close to or get to five percent in
Speaker 4: twenty twenty six.
Speaker 2: All right, bringing us some fresh ideas for this market
Speaker 2: at twenty twenty six, Christina Hooper, chief market strategist at
Speaker 2: Man Group.
Speaker 3: Stay with us more from Bloomberg Surveillance coming up after this.
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Speaker 3: This economy, what's the economy going to look like in
Speaker 3: a twenty twenty six inflation, job growth, economic growth. Let's
Speaker 3: check in with our next guest, Ian Wyatt he's a
Speaker 3: chief economist at Huntington Bank. He joins us via zoom Ian.
Speaker 3: Thanks so much for joining us here. I love to
Speaker 3: get your backdrop how you're kind of framing out your
Speaker 3: economic outlook for twenty twenty six.
Speaker 5: Yeah, we've really looked at it. We always like to
Speaker 5: look at it through a few key themes. I think
Speaker 5: one of the key themes we see is there's still
Speaker 5: largely a healthy consumer, but you kind of have that
Speaker 5: case shaped split, So we do see households when we
Speaker 5: talk to companies. We're seeing it in the data. Now.
Speaker 5: We were anticipating three and a half four percent raises
Speaker 5: coming to most consumers. You have Social Security coming in
Speaker 5: at almost three percent. In terms of the COLA adjustment.
Speaker 5: You have a lot of people with as you know,
Speaker 5: our previous guests mentioned decent equity gains and potentially decent
Speaker 5: equity gains going forward. So you have that wealth effect
Speaker 5: for upper income households. How or for lower income households,
Speaker 5: we still see the stress. We see that delayed effect
Speaker 5: of inflation. If you think about inflation, really it tends
Speaker 5: to hit with a lag for a lot of people,
Speaker 5: even if it's being measured in more of a linear basis,
Speaker 5: Like you know, we only buy a car every three
Speaker 5: four years, so that you know, that rise and used
Speaker 5: car prices took a while to spread across households, as
Speaker 5: well as the rise in interest rate center and we
Speaker 5: haven't seen that much of a decline in that area.
Speaker 1: So we see it.
Speaker 5: We see a healthy consumer. We think that drives spending.
Speaker 5: Next year, we think that drives growth. We're targeting one
Speaker 5: and a half to two percent growth. And we think
Speaker 5: also though a little bit of a tight labor market
Speaker 5: keeps inflation somewhat elevated two seven, two eight next year.
Speaker 5: Part of that really is the immigration story. We think
Speaker 5: that's one a huge story and the implications are incredibly widespread.
Speaker 5: So that's another theme we've really been talking about this year.
Speaker 2: You are we going to see the immigration story, as
Speaker 2: you put it, play out in the jobs report coming
Speaker 2: up on January ninth and in subsequent jobs reports.
Speaker 3: Do you think, oh, no question.
Speaker 5: When we talk to companies, you know, it's kind of fascinating.
Speaker 5: First of all, it's the supply story. Although as we're
Speaker 5: seeing the unemployment rate ticking up, the supply of labor
Speaker 5: hasn't was growing at a tremendous CLIPID a bit slower.
Speaker 5: We think that that slows consumption spending next year a
Speaker 5: little bit. So you have that, but you still get
Speaker 5: a little bit of a tighter labor market than at
Speaker 5: that lower end. So over the next few months, yes,
Speaker 5: we expect that it just limits the potential growth rate
Speaker 5: of the economy in terms of job growth. So that's
Speaker 5: one area. Another I think we're going to see a
Speaker 5: lot more automation. You know, I was talking to a
Speaker 5: company that makes high end lawnmowers basically for golf carts,
Speaker 5: golf courses, that kind of thing, and they said, and
Speaker 5: this is not the only company where I've had this conversation,
Speaker 5: but only Onaldmowing company, And they said, look are golf
Speaker 5: course clients. They're interested in the automated mowers, the ones
Speaker 5: that basically operate without without human inter interaction. And they're
Speaker 5: much less concerned about cost than they were a few
Speaker 5: months ago, because they're really worried that they just can't
Speaker 5: find the labor. And so at that lower end and
Speaker 5: a lot of those manual jobs. We were an economy
Speaker 5: pretty reliant on immigrant labor, and so that's that's sort
Speaker 5: of playing out in a lot of different areas and.
Speaker 3: We're going to get the one the benefits of the
Speaker 3: one big, beautiful build, presumably in twenty twenty six. How
Speaker 3: did you guys kind of model that out?
Speaker 5: We saw a couple of ways. We're seeing that hit
Speaker 5: and we've heard it from clients too, So it's a
Speaker 5: mix of you know, what we're modeling what's reasonable. We
Speaker 5: see that as maybe close to zero point four point
Speaker 5: five percent growth to GDP you get a positive benefit
Speaker 5: obviously similar tax rates. On the investment side. It's really
Speaker 5: a shift I think we have from structures to equipment.
Speaker 5: So in the previous administration, you had a lot of
Speaker 5: factors that were you know, the Chips Act, you had
Speaker 5: EV mandates, you had a lot of things driving construction
Speaker 5: activity and manufacturing. We had record manufacturing construction activities. So
Speaker 5: really a structure story, a building story. We see that
Speaker 5: pulling back, you know, I think we've seen that in
Speaker 5: a lot of categories, and the construction activities got in
Speaker 5: pretty narrow. It's pretty much data centers, energy empower related
Speaker 5: to data centers and infrastructure because still some of the
Speaker 5: infrastructure money is out there and there's a lot of
Speaker 5: infrastructure spending, but otherwise, we see a lot of weakness
Speaker 5: in the construction category, but on the investment side, the
Speaker 5: one big beautiful bill in terms of equipment, the equipment
Speaker 5: side's pretty strong. We're hearing that broadly that a lot
Speaker 5: of companies are looking at that immediate depreciation expense advantage
Speaker 5: and we're seeing orders. We add I did a finance
Speaker 5: or I was in Pittsburgh a couple of weeks ago
Speaker 5: and we had a client come into one of our
Speaker 5: rms there saying, Hey, I need four million dollars before
Speaker 5: the end of the year because I want to lower
Speaker 5: my tax bill and I'm going to buy a bunch
Speaker 5: of equipment. And that's playing out. You know, we see
Speaker 5: that as zero point one point two percent, really driving
Speaker 5: a shift though in the investment mix, the investment mix
Speaker 5: shifting from structures to equipment.
Speaker 2: Ian as a chief as chief economist over at Huntington Bank,
Speaker 2: what's your outlook for rate cuts from the Fed next year?
Speaker 2: How many do we get, if any at all?
Speaker 5: Oh, we expect obviously the paw we'd anticipate and we said,
Speaker 5: you know, going into December, we said, you know, one
Speaker 5: more cut and then pause. We thought that was pretty
Speaker 5: well signaled you know, I don't think we're any sort
Speaker 5: of miracle workers here. We're just listening to the FED
Speaker 5: in terms of that kind of signaling. And when we
Speaker 5: saw the FED minutes come out yesterday, that was confirming
Speaker 5: that idea that we're we're in the pause stage now.
Speaker 5: If we look back to twenty four and twenty five,
Speaker 5: we had pauses at the beginning of the year. Those
Speaker 5: didn't end till September in both kid cases. We don't
Speaker 5: think it lasts that long this pause. We expect one
Speaker 5: more cut come March. Then of course Pal's term ends
Speaker 5: in May. I think there'll be a couple more cuts likely,
Speaker 5: So it probably puts us right around three percent over
Speaker 5: the course of the year. But if we look at
Speaker 5: the forecast, if we listen to the FED governors, we're
Speaker 5: getting pretty close to that neutral rate. And what that
Speaker 5: neutral rate means, of course, is that the FED really
Speaker 5: views it as they're not stepping on the gas for
Speaker 5: the economy. They're not hitting the brakes for the economy.
Speaker 5: They're just sort of letting a glide. We're in a
Speaker 5: glide path right now. They still think they're hitting the
Speaker 5: brakes for the economy. And as we get closer to
Speaker 5: that neutral rate. We think the FED governors, some of
Speaker 5: those governors who are really open to cuts now are
Speaker 5: going to become more resistant. This is going to be
Speaker 5: a more hesitant Fed. We still expect, partly because of
Speaker 5: a somewhat tight lower end labor market, especially in areas
Speaker 5: like healthcare services when you're talking about lodging restaurants, We
Speaker 5: think that those wage increases are going to keep pushing
Speaker 5: up some price increases across the board, and that's roughly
Speaker 5: a third of the CPI is the services we were
Speaker 5: talking about there. So we expect that that plays into
Speaker 5: a couple more cuts this year. Still, you have a
Speaker 5: pretty soft labor market that gets the FED moving. The
Speaker 5: federally cares way more about the labor market than the
Speaker 5: stock market, and that gets them to do a couple
Speaker 5: more cuts. But we think, you know, you get close
Speaker 5: to three, you're really at that neutral rate where some
Speaker 5: of those dubbish voices maybe get a little more hawkish.
Speaker 3: Yep, yep, all right, Ian, thank you so much, appreciate
Speaker 3: getting a few minutes of your time. Ian, whytt he's
Speaker 3: a chief economist over there at Huntington Bank. Stay with us.
Speaker 3: More from Bloomberg Survail. It's coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance Podcast. Catch us live
Speaker 1: weekday afternoons from seven to ten am Eastern. Listen on
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Speaker 3: Eric Sterner, the chief investment officer Apollin Wealth Management, joins
Speaker 3: us here in studio. You can be down there in
Speaker 3: Times Square here later on tonight it did ball drop,
Speaker 3: so a lot of fun down there. Eric, Thanks so
Speaker 3: much for joining us here. How are you what's the
Speaker 3: conversation you're having with your clients these days about setting
Speaker 3: expectations for twenty twenty six. We had three years of
Speaker 3: double digit returns for the equity markets. The bond market's
Speaker 3: been really good for investors. They've if they had some
Speaker 3: gold or silver even better. How do you set expectations
Speaker 3: for twenty six?
Speaker 6: Yeah, we've certainly been very spoiled the last three years
Speaker 6: with very strong returns kind of SMP five hundred. We're
Speaker 6: talking to our clients and just reminding them that while
Speaker 6: we know the market breath has been very narrow for
Speaker 6: the past you know, two and three years, we expect
Speaker 6: that to broaden out and between value stocks, large guy value,
Speaker 6: small cap international. So now's not the time. Now's a
Speaker 6: good time, I should say, to rebalance the portfolio and
Speaker 6: to take a little off on the technology side, because
Speaker 6: I think there's plenty of sectors that have really strong
Speaker 6: returns going into twenty twenty six, both domestically as well
Speaker 6: as international.
Speaker 2: Yeah, I'm glad you mentioned international as well, and Eric,
Speaker 2: give us if you can some specifics. I love specifics
Speaker 2: when guests can come on and join us names or
Speaker 2: ideas sectors outside of tech.
Speaker 6: Sure, yeah, I mean so within Maybe I'll start off
Speaker 6: with domestically if some sectors I like, if that's financials
Speaker 6: had a tremendous year, and I expect you know, there's
Speaker 6: a little bump in the road when Jamie Diamond made
Speaker 6: that conroach.
Speaker 2: And not the credit at Tricolor and First Brand.
Speaker 6: Yeah, exactly, But I don't think there's any evidence of
Speaker 6: widespread concerns there. Even within the high yield market. We
Speaker 6: see investment grade levels within high yield, but I think financials,
Speaker 6: just with the interest rates coming down, I think we're
Speaker 6: going to see some more m and a activity pick
Speaker 6: up in twenty twenty six. In fact, during the government shutdown,
Speaker 6: more than nine hundred registration statements, including IPOs were filed
Speaker 6: with SEC. So I was already expecting a big year
Speaker 6: in MA activity within financials, but now even more so
Speaker 6: as they worked through that backlog. And then another sector
Speaker 6: that really got its legs in the fourth quarter is healthcare.
Speaker 6: And healthcare has just been stuck in the rut for
Speaker 6: a long time, and it typically does with new White
Speaker 6: House administration, just because there's so much policy uncertainty. But
Speaker 6: I think we're starting to get past that. And I
Speaker 6: think it's great with healthcare is that you have it's
Speaker 6: traditionally a defensive play, but I think there's so much
Speaker 6: innovation in there. Besides the AI. I think the weight
Speaker 6: loss drugs are the second biggest innovation in the markets
Speaker 6: right now, and there was a bottleneck and drug supplies
Speaker 6: there earlier year that's been cleared. A lot of these
Speaker 6: biotech companies made a deal with the Weight House. We're
Speaker 6: in exchange for lowering prices, they're going to get more
Speaker 6: weight loss coverage with Medicare and potentially Medicaid, and that
Speaker 6: opens up those weight loss drugs the forty million more
Speaker 6: people and that industry is expected to be one hundred
Speaker 6: and fifty billion by twenty thirty, so I think that's
Speaker 6: another sector that I really like going into twenty twenty six.
Speaker 6: And then on the international front, the valuations are still
Speaker 6: very attractive compared to US stocks specifically, I think Japan
Speaker 6: is just such an incredible story and still plenty of
Speaker 6: legs to go, and many people are surprised if you
Speaker 6: look at the past decade earnings per share. Cumulative earnings
Speaker 6: per share for Japanese companies are up over two hundred
Speaker 6: fifty percent, which exceeds the US, Europe, even the UK.
Speaker 6: And now with Prime Minister Takashi bringing in some more
Speaker 6: pro growth policies, I expect stronger returns or more strong
Speaker 6: returns coming out of Japan.
Speaker 3: Yeah, I mean international has been the place here is
Speaker 3: as good as the returns have been in the US
Speaker 3: if you look at EMEA. Much better returns here, I mean,
Speaker 3: led by Spain, particularly when you adjust for currencies. Spain
Speaker 3: adjusted for the currency's up seventy percent this year, just extraordinary.
Speaker 3: We've seen double digit games across Europe and a couple
Speaker 3: of the Asian markets, including Hong Kong. Kind of emerging
Speaker 3: markets here. I think the chatter around emerging markets is
Speaker 3: just kind of a little bit louder and louder and
Speaker 3: louder over the course of twenty twenty five, and people
Speaker 3: were talking about that a little more. How do you
Speaker 3: guys think about that?
Speaker 6: Yeah, I expect those returns again to still have some
Speaker 6: more lakes to them. I mean, typically you see emerging
Speaker 6: market because a lot of their debt is US denominate it.
Speaker 6: When the FED starts easing, you could see your merging
Speaker 6: market equities rally more. Certainly certainly seeing that especially with
Speaker 6: the US dollar to depreciate. And we know this AI
Speaker 6: revolution is worldwide phenomenal, So some of those tech really
Speaker 6: centric nations, especially outside of China or benefiting of some
Speaker 6: of these companies redesigning supply chains away from China are benefiting.
Speaker 6: And even countries like Mexico as we're looking for more
Speaker 6: near shoring opportunities with the US, have benefited. So I
Speaker 6: think we could still see some strong returns have a
Speaker 6: marching markets going forward into twenty twenty six.
Speaker 2: You talked about lower interest rates being a tailwind for financials,
Speaker 2: they could also be for those small caps. Russell two
Speaker 2: thousand taking a look here on the Bloomberg terminal up
Speaker 2: twelve percent year to date. Not too shabby, I mean,
Speaker 2: underperforming the other major indexes, but still solid respectable gains there.
Speaker 2: Even more so, what's your outlook for the small caps?
Speaker 6: Yeah, I think twenty twenty five was the big year
Speaker 6: what international made to come back. I think twenty twenty
Speaker 6: six could be the big year where small cap makes
Speaker 6: come back. And it didn't have a bad year like
Speaker 6: you said, I mean the wrestle it was up. I
Speaker 6: think we could see stronger returns. Is just uh, that's
Speaker 6: a very interest rate sensitive sector. We know that the
Speaker 6: lagged effects of all the rate cuts and potentially maybe
Speaker 6: one to two more rate cuts, all the benefits to
Speaker 6: domestic companies with the OBBA and deregulation. You know, these
Speaker 6: smaller companies have higher costs from a regulatory perspective. But
Speaker 6: the one thing that will continue this rally is really
Speaker 6: it needs the earnings. And right now, the earnings estimates
Speaker 6: are expected for small cap companies to be up sixty
Speaker 6: percent this year. Now, in the beginning of the year
Speaker 6: is typical for small caps that you know, they temper
Speaker 6: down those those expectations and you look at the last
Speaker 6: twenty years. The projected earnings growth versus the actual earnings
Speaker 6: growth is about negative twenty percent from for small cap stocks.
Speaker 6: So if we're projecting sixty percent earnings growth for small
Speaker 6: caps and let's say we deduct that twenty percent, as
Speaker 6: we you know, throughout the y, we may see those
Speaker 6: expectations lower a bit. That's still forty percent earnings growth
Speaker 6: rate amongst small cap companies if that holds to the average,
Speaker 6: which would really continue to drive this rally. The one
Speaker 6: item that I would just make noteworthy is that I
Speaker 6: am surprised that the Russell two thousand has outperformed the
Speaker 6: S and P six hundred, which is another small cap index.
Speaker 6: Russell two thousand and forty percent or so companies unprofitable,
Speaker 6: whilst S and P six hundred it focuses more on
Speaker 6: profitable companies. I expect that to reverse this year, because
Speaker 6: I think there's going to be some months in the
Speaker 6: road and I think we're going to see some heightened
Speaker 6: volatility in twenty twenty six. But overall, I remain bullish,
Speaker 6: and I would just advise advisors to lean more into
Speaker 6: that quality factor. Companies with solid earning, solid balance sheets,
Speaker 6: and solid cash flows.
Speaker 3: What do you at your firm. Is it pronounced apollan
Speaker 3: upolland yes, is it? Do you guys have a view
Speaker 3: on alternative investments and maybe what percentage that should be
Speaker 3: of a typical client's portfolio.
Speaker 6: It varies, you know, certainly for our Apollum models, we
Speaker 6: design models more just on the public market asset classes,
Speaker 6: and then for very specific client situations, that's when we
Speaker 6: look to potentially incorporate private investments into our portfolios if
Speaker 6: they can afford the ill liquidity a great I'd say
Speaker 6: a good portion of our clients do have some private
Speaker 6: investments in their portfolios. We think we like to take
Speaker 6: our typical asset allocation portfolio and then we basically substitute
Speaker 6: some of those asset classes in so we may complement
Speaker 6: the fixed income allocation with private credit. I mean, over
Speaker 6: the last ten years, the yield for the bloom Barclay's
Speaker 6: AD is about three percent, but private credit is all
Speaker 6: over ten percent. So for clients that are entering and retirement,
Speaker 6: that's why we think private credit could really boost the income.
Speaker 6: And then we know there's less you know, publicly traded
Speaker 6: stocks in the markets right now, so that's why we
Speaker 6: think there's great opportunities. Private equity companies are staying private
Speaker 6: for longer, so we like to complement small cap exposure
Speaker 6: with private equity. So for our higher network clients, a
Speaker 6: high majority of them do have those private investments. We
Speaker 6: really consider that a client by client basis, as opposed
Speaker 6: to creating portfolios with alternatives al rating involved or out
Speaker 6: allocated to them.
Speaker 3: Eric, thanks so much for joining us. We appreciate it.
Speaker 3: Eric Sturner, he is chief investment officer Apollent Wealth Management.
Speaker 3: Stay with us. More from Bloomberg Surveillance coming up after this.
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Speaker 3: Our next guest says residential real estate twenty twenty six
Speaker 3: will be a transition year and not a turnaround.
Speaker 5: Here.
Speaker 3: Let's see what she means there, at least a start
Speaker 3: of it, joins us. She's a chief economist for Bright MLS.
Speaker 3: Boy Lisa, Housing affordability has been the challenge for would
Speaker 3: be homeowners out there. Talk to us about kind of
Speaker 3: where we are as we enter twenty twenty six.
Speaker 7: Yeah, you know, housing affordability has really been the major
Speaker 7: constraint on the housing market, and we're starting to see
Speaker 7: affordability improve a little bit, right. We've seen mortgage rates
Speaker 7: come down a little bit at their lowest levels, about
Speaker 7: as they've been all year. We've seen price growth slow
Speaker 7: a little bit, which has also helped, and so that's
Speaker 7: made it affordability a little bit easier. But boy, it
Speaker 7: still is a big challenge for those who are still
Speaker 7: trying to get into the market. First time buyers, moderate
Speaker 7: income buyers are still facing a really big challenge in
Speaker 7: the year ahead.
Speaker 2: So what do we have to look forward to if
Speaker 2: you're wanting to get in a first time home buyer,
Speaker 2: which we know, I think the average age now of
Speaker 2: a first time home buyer is close to forty in
Speaker 2: this country, which is hard to believe. And lots of
Speaker 2: folks have given up owning home dream or delaying you know,
Speaker 2: lots of life milestones just because I cannot afford that home.
Speaker 2: Is that going to change in a meaningful way and
Speaker 2: in the new year, and if so, what parts of
Speaker 2: the country should those folks be looking at?
Speaker 7: Yeah, you're absolutely right, this idea of becoming a homeowner.
Speaker 7: For first time home buyers, it's all tied up with
Speaker 7: all sorts of other life milestones right that people are
Speaker 7: either delaying or sort of taking another look at. And
Speaker 7: I think it is going to get easier for first
Speaker 7: time home buyers, but not in every market across the country.
Speaker 7: You know, there are places where inventory is still very
Speaker 7: very tight. Places in the Midwest, places in the Northeast
Speaker 7: where it's very competitive, where homes are still selling above asking,
Speaker 7: where there's still multiple offers on homes. Other markets, though,
Speaker 7: parts of the South, parts of the Southwest, we're seeing
Speaker 7: a lot more inventory and frankly, a lot more leverage
Speaker 7: for buyers. And that's where first time buyers are thinker
Speaker 7: are going to have a little bit better options in
Speaker 7: the year ahead. That's what I did.
Speaker 3: I left the metro New York area and went to Richmond,
Speaker 3: Virginia to get my first home to Affordability, as you mentioned, Lisa,
Speaker 3: is a key key issue here, but it's also if
Speaker 3: someone's going to buy a house, they have to feel
Speaker 3: pretty good about the economy, they have to feel pretty
Speaker 3: good about their jobs. Is that a tailwind or a
Speaker 3: headwind here in this marketplace.
Speaker 7: Yeah, you know, I'm really thinking about it as a
Speaker 7: little bit of a tug of war. In twenty twenty six.
Speaker 7: We have lower mortgage rates, lower price growth, really bringing
Speaker 7: people into the market, making people want to get into
Speaker 7: the market, improving affordability. But at the same time, there
Speaker 7: is a lot of economic uncertainty. We're going to get
Speaker 7: some new jobs numbers here next week, but people are
Speaker 7: feeling more uncertain about their own economic situations. And when
Speaker 7: people are feeling uncertain, they're less likely to do big
Speaker 7: things like buy a home or sell a home. And
Speaker 7: so there's going to be a push and pull between
Speaker 7: these economic anxieties and these more favorable affordability conditions. And
Speaker 7: right now, frankly, I don't think it's clear which one's
Speaker 7: going to win out.
Speaker 2: All right, let's talk mortgage rates, because they are a
Speaker 2: part of the affordability issue. Paul, you said a moment
Speaker 2: ago six point three percent on the fixed thirty year.
Speaker 2: Right now, we were at seven percent at the beginning
Speaker 2: of this year. What's the range you think for the
Speaker 2: thirty year and the fifteen year that's popular for folks
Speaker 2: looking to refinance in the new year.
Speaker 4: Yeah.
Speaker 7: Our forecaster for the average rate on a thirty year
Speaker 7: fix to stay above six percent in twenty twenty six.
Speaker 7: You know, I think there are some forecasters who are
Speaker 7: saying that rate will dip below six percent, But I
Speaker 7: think there's a lot of unknown still, and so we're
Speaker 7: going to be watching. I think the key thing is
Speaker 7: for home buyers to not try to time rates. Think
Speaker 7: they can time them, or they can look at ways
Speaker 7: to sort of maneuver it. I think you have to
Speaker 7: decide when is the best time for you to buy.
Speaker 7: But let me let me on the thing about affordability. Though,
Speaker 7: even if rates were at six percent, let's say at
Speaker 7: a four hundred and ten thousand dollars home, you still
Speaker 7: need the income of about one hundred and fifteen thousand
Speaker 7: dollars to qualify. That's much higher than the median household
Speaker 7: income in the US and really highlights how out of
Speaker 7: balance between income and home prices we've gotten over the
Speaker 7: last few years.
Speaker 3: Why don't we just build more houses?
Speaker 7: That would help, right, And so I think increasing the
Speaker 7: supply would help. But it's not just about supply. You know.
Speaker 7: We hear those high level numbers of what the housing
Speaker 7: supply gap is, but we need to build homes in
Speaker 7: the places that people want to live, right where there's
Speaker 7: job growth, where there's an economic opportunity, and those are
Speaker 7: the places where we need to see more homes be built.
Speaker 7: We also need to see whether there are ways to
Speaker 7: free up homes by encouraging people who want to sell
Speaker 7: to actually do so, to get out from a mortgage
Speaker 7: rate that they don't want to give up. So I
Speaker 7: think there are ways to increase supply and that would
Speaker 7: help the affordability challenge.
Speaker 2: What do you do to incentivize somebody to want to
Speaker 2: sell their home, especially if I'm not going to call
Speaker 2: it a buyer's market in twenty twenty six, but if
Speaker 2: it starts to move in that direction, what gets somebody
Speaker 2: out of their house?
Speaker 7: Yeah? So I think there's a couple of ways to
Speaker 7: think about it. I mean, one is some people aren't
Speaker 7: moving because there's nowhere for them to go, right, Folks
Speaker 7: who might want to downsize don't see.
Speaker 3: Nowhere to go.
Speaker 7: So that gets back to that let's build more housing
Speaker 7: for peace people to downsize into, folks who are retiring
Speaker 7: and so on. But there may be other ways to
Speaker 7: provide incentives, tax incentives or other incentives that could encourage
Speaker 7: people to sell the home, maybe so they're not hit
Speaker 7: with a big tax bill. If they've got huge gains
Speaker 7: and the equity of their home, there may be ways
Speaker 7: to encourage people to sell there, but it's really going
Speaker 7: to be at the margins.
Speaker 3: Yeah, Lisa, thank you so much for joining us. Always
Speaker 3: appreciate getting some of your thoughts least sort of at
Speaker 3: Chief Economists at Bright MLS.
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