WEBVTT - Bull Run’s Third Year Nears Close 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.240 on Apple car Play or Android Auto with the Bloomberg 0:00:21.320 --> 0:00:24.840 Business App. Listen on demand wherever you get your podcasts, 0:00:25.280 --> 0:00:27.160 or watch us live on YouTube. 0:00:27.320 --> 0:00:29.720 Our next guest, a bit of a contrarian, I'm going 0:00:29.760 --> 0:00:32.000 to call hers, is not quite as bullish as some 0:00:32.040 --> 0:00:34.839 of our other guests have been about the outlook for 0:00:34.920 --> 0:00:38.680 equities in twenty twenty six. She's even talking maybe possibly 0:00:38.720 --> 0:00:39.560 a recession. 0:00:39.720 --> 0:00:40.040 I don't know. 0:00:40.120 --> 0:00:43.040 Let's talk it over with Christina Hooper, chief market strategist 0:00:43.360 --> 0:00:46.000 at Man Group. Christina, great to have you here in 0:00:46.080 --> 0:00:48.360 an early Happy New Year to you and your family. 0:00:48.840 --> 0:00:51.080 All right, let's talk about it. Are we going to 0:00:51.159 --> 0:00:54.959 be able to make this four consecutive up years by 0:00:55.000 --> 0:00:57.840 double digits in a row for US equities? 0:00:59.600 --> 0:01:02.640 Well, that's a great question, Alexis, and I think we 0:01:02.760 --> 0:01:05.800 certainly could see that, but I think we have to 0:01:05.840 --> 0:01:10.720 anticipate more volatility, and in fact, I would expect some 0:01:10.840 --> 0:01:15.440 kind of significant sell off earlier in the year, foreshadowing 0:01:15.680 --> 0:01:20.760 an economic downturn, arguably a modest recession. And then are recovery. 0:01:21.000 --> 0:01:24.240 So I certainly think stocks US stocks could eke out 0:01:24.280 --> 0:01:27.559 gains next year, maybe even as much as a ten 0:01:27.600 --> 0:01:30.759 percent gain next year, but it will not be an 0:01:30.800 --> 0:01:34.160 easy path to the end of the year. And I 0:01:34.200 --> 0:01:37.560 think that makes sense just given the kind of gains 0:01:37.560 --> 0:01:40.520 we've seen thus far and also the kind of vulnerabilities 0:01:40.560 --> 0:01:42.160 we're seeing with the US economy. 0:01:42.880 --> 0:01:46.560 Talk to us about your economic call here, Christina A. 0:01:46.360 --> 0:01:49.240 What are you calling for in twenty twenty six and 0:01:49.280 --> 0:01:51.200 kind of what are the drivers there that maybe some 0:01:51.440 --> 0:01:52.880 folks in the market might be missing. 0:01:54.240 --> 0:01:56.200 So if we think about twenty twenty five, and there 0:01:56.200 --> 0:02:01.080 were two key drivers of economic growth, consumers spending and 0:02:01.240 --> 0:02:05.720 AI CAPEC spending, and both of them could see significant 0:02:06.360 --> 0:02:11.200 declines in twenty twenty six. Let's take consumer spending largely 0:02:11.320 --> 0:02:15.800 driven by higher income consumers. Certainly they benefited from the 0:02:15.840 --> 0:02:19.400 wealth effect in twenty five. We saw how well capital 0:02:19.480 --> 0:02:23.800 markets did. Certainly if that could change in that could 0:02:23.840 --> 0:02:26.400 easily change in twenty six, especially if we do see 0:02:26.400 --> 0:02:28.560 a sell off earlier in the year. But I actually 0:02:28.560 --> 0:02:31.840 think the bigger threat is an increase in unemployment. What 0:02:31.880 --> 0:02:34.079 we've heard from a number of companies is that they 0:02:34.200 --> 0:02:39.960 plan on layoffs related largely to AI, not entirely, that 0:02:40.000 --> 0:02:46.320 could easily accelerate and again tamp down consumer spending. Fear 0:02:47.000 --> 0:02:50.600 also can breed some reduction in consumer spending and for 0:02:50.760 --> 0:02:53.120 lower and middle income Americans. Of course, the issue has 0:02:53.160 --> 0:02:57.560 been affordability that doesn't go away. In my opinion, I 0:02:57.560 --> 0:03:00.400 think it gets worse in twenty twenty six. It doesn't 0:03:00.440 --> 0:03:04.360 mean that inflation moves higher necessarily, but it means that 0:03:04.400 --> 0:03:08.800 they're still under the strain of higher than normal, above 0:03:08.960 --> 0:03:14.119 target inflation. So that can be very very problematic. Since 0:03:14.120 --> 0:03:17.000 we've relied so much on consumer spending, and add in 0:03:17.040 --> 0:03:21.000 the potential for reduction in or a slowdown in AI 0:03:21.120 --> 0:03:25.600 capex spending growth, this is an environment in which there 0:03:25.680 --> 0:03:31.799 are more vulnerabilities. Access to rare earth resources is questionable. Also, 0:03:31.960 --> 0:03:34.360 just the ability to continue the build out of data 0:03:34.400 --> 0:03:39.200 centers from a financing perspective, as well as perhaps legislative 0:03:39.240 --> 0:03:42.960 opposition we're talking about Bernie. We've heard from Bernie Sanders 0:03:43.080 --> 0:03:48.320 arguing for as cessation on data center build out. We 0:03:48.360 --> 0:03:52.880 could see more opposition growing, especially with electricity issues. That 0:03:52.960 --> 0:03:56.040 was one of the big concerns coming out of exit 0:03:56.080 --> 0:03:58.840 polls in the New Jersey race this fall, So a 0:03:58.880 --> 0:04:04.640 lot could certainly the strength of both consumer spending and 0:04:04.760 --> 0:04:07.080 ai CAAPX spending in twenty twenty six. 0:04:07.320 --> 0:04:09.480 Yeah, that's a good point, especially with the midterm elections, 0:04:09.520 --> 0:04:12.160 right Christina. I mean, that's another big wild card that 0:04:12.200 --> 0:04:15.280 could affect things like regulation. I want to talk about 0:04:15.280 --> 0:04:17.680 precious metals though, because we've been talking about it a 0:04:17.680 --> 0:04:20.920 whole lot. Given the year that they've had, spot gold 0:04:21.000 --> 0:04:23.839 up sixty five percent year to date, silver up one 0:04:23.880 --> 0:04:26.880 hundred and fifty percent year to date, copper up better 0:04:26.920 --> 0:04:29.279 than forty three percent year to date. Do you think 0:04:29.320 --> 0:04:32.479 there's still room in the portfolio to have these precious 0:04:32.520 --> 0:04:35.719 medals for investors and to what extent in the new year. 0:04:37.000 --> 0:04:42.719 So absolutely, I think those are important, although relatively small 0:04:42.839 --> 0:04:47.719 components of investors' portfolios perhaps should be larger. I do 0:04:47.800 --> 0:04:50.120 think there is a lot. There are a lot of 0:04:50.160 --> 0:04:53.200 good reasons why, especially when it comes to gold. I 0:04:53.200 --> 0:04:55.880 think what we're going to see is more concerns around 0:04:55.920 --> 0:04:58.960 growing deficits. Not just a US problem, This is a 0:04:58.960 --> 0:05:03.800 problem in a number of countries. Questions about Fiat currencies 0:05:04.279 --> 0:05:12.080 and growing growing interest and perceptions of gold. As we 0:05:12.240 --> 0:05:14.960 go to safe haven asset class. And what we know 0:05:15.040 --> 0:05:19.000 from history is that in almost every bear market, six 0:05:19.080 --> 0:05:22.400 out of seven bear markets, gold held up better than 0:05:22.400 --> 0:05:24.719 the S and P five hundred in most of those 0:05:24.800 --> 0:05:28.760 environments produced a positive return when stock sold off six 0:05:28.800 --> 0:05:33.279 out of six corrections. So gold has been historically a 0:05:33.320 --> 0:05:35.440 safe haven asset class, and I think it will be 0:05:35.560 --> 0:05:38.839 even more so going forward. But it also has other 0:05:38.960 --> 0:05:42.919 drivers that that mean it could perform well in a 0:05:43.000 --> 0:05:46.320 variety of different environments. I think there's a place for silver, 0:05:46.560 --> 0:05:49.159 but we have to recognize that the volatility we've seen 0:05:49.240 --> 0:05:53.960 this year could easily continue or even exacerbate in the future. 0:05:54.680 --> 0:05:57.240 Christina, we've had some really really strong earnings in twenty 0:05:57.240 --> 0:06:00.400 twenty five. What's the earnings outlook for twenty six years opinion? 0:06:00.440 --> 0:06:03.039 And is that enough to support risk assets? 0:06:04.320 --> 0:06:07.360 So I certainly think the outlook is, in my opinion, 0:06:07.640 --> 0:06:11.159 a bit weaker. I think again there are vulnerabilities there, 0:06:11.680 --> 0:06:15.640 especially when it comes to consumer related companies, but not 0:06:16.520 --> 0:06:20.119 exclusively there, and of course if one thing goes wrong, 0:06:20.360 --> 0:06:24.320 multiple things can go wrong. So I would anticipate tepid 0:06:24.480 --> 0:06:28.600 earnings growth. But again I think that we're going to 0:06:28.640 --> 0:06:33.359 hear from companies that will relay to us in first 0:06:33.440 --> 0:06:36.840 quarter earnings calls excuse me fourth quarter earnings calls in 0:06:37.080 --> 0:06:41.360 the first quarter, that the situation is getting more difficult, 0:06:41.560 --> 0:06:45.680 especially when it comes to consumer spending, and that there 0:06:45.720 --> 0:06:49.120 will be more layoffs. And I anticipate again there will 0:06:49.160 --> 0:06:52.839 be a lot of negative sentiment or increase in negative 0:06:52.839 --> 0:06:57.039 sentiment as we move through the early part of twenty 0:06:57.120 --> 0:07:00.440 twenty six. So I think again we'll see earn growth, 0:07:00.440 --> 0:07:03.480 but I think it's going to be significantly lower than 0:07:03.520 --> 0:07:06.440 most anticipate as they sit here at the end of 0:07:06.440 --> 0:07:07.279 twenty twenty five. 0:07:07.880 --> 0:07:10.040 Christina, want to touch on the bond market before we 0:07:10.120 --> 0:07:11.920 let you go. You said, I was looking at your note. 0:07:11.960 --> 0:07:15.160 You said you expect bond vigilantes to come out in 0:07:15.240 --> 0:07:18.920 greater force in next year. Why do you think that's 0:07:18.960 --> 0:07:21.000 true and what kind of an impact might that have 0:07:21.120 --> 0:07:23.000 on I guess like the ten year treasury yield. 0:07:24.640 --> 0:07:27.920 So we've certainly seen some hints of it in twenty 0:07:27.960 --> 0:07:31.600 twenty five, for the US, for Japan, for the UK, 0:07:32.480 --> 0:07:35.800 for France. There are a number of countries that do 0:07:35.920 --> 0:07:39.880 not appear to be on a fiscally sustainable path, and 0:07:40.840 --> 0:07:46.480 I believe bond bond holders are growing more concerned about 0:07:46.480 --> 0:07:50.400 countries like the US. We saw some real hints of it, 0:07:50.560 --> 0:07:54.040 especially as the One Big Beautiful Bill worked its way 0:07:54.040 --> 0:07:58.360 through Congress, because of the potential for increased piscal depthsits. 0:07:58.640 --> 0:08:00.320 So I think this is a year in which we're 0:08:00.320 --> 0:08:03.440 going to see some greater punishment. I think the yield 0:08:03.520 --> 0:08:07.640 goes up significantly, which can very well weigh down on 0:08:08.080 --> 0:08:10.960 stock prices. But I wouldn't be surprised to see the tenure. 0:08:11.000 --> 0:08:14.560 You'd get close to or get to five percent in 0:08:14.600 --> 0:08:15.520 twenty twenty six. 0:08:15.800 --> 0:08:18.240 All right, bringing us some fresh ideas for this market 0:08:18.320 --> 0:08:21.840 at twenty twenty six, Christina Hooper, chief market strategist at 0:08:21.880 --> 0:08:22.400 Man Group. 0:08:24.120 --> 0:08:27.280 Stay with us more from Bloomberg Surveillance coming up after this. 0:08:33.480 --> 0:08:37.080 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:08:37.160 --> 0:08:40.160 weekday afternoons from seven to ten am. He's durn Listen 0:08:40.240 --> 0:08:43.800 on Applecarplay and Android Otto with the Bloomberg Business app, 0:08:43.960 --> 0:08:45.840 or watch us live on YouTube. 0:08:46.000 --> 0:08:47.959 This economy, what's the economy going to look like in 0:08:48.040 --> 0:08:51.839 a twenty twenty six inflation, job growth, economic growth. Let's 0:08:51.920 --> 0:08:54.160 check in with our next guest, Ian Wyatt he's a 0:08:54.240 --> 0:08:59.400 chief economist at Huntington Bank. He joins us via zoom Ian. 0:08:59.400 --> 0:09:00.920 Thanks so much for joining us here. I love to 0:09:00.920 --> 0:09:04.800 get your backdrop how you're kind of framing out your 0:09:04.840 --> 0:09:07.080 economic outlook for twenty twenty six. 0:09:08.640 --> 0:09:10.720 Yeah, we've really looked at it. We always like to 0:09:10.720 --> 0:09:13.280 look at it through a few key themes. I think 0:09:13.320 --> 0:09:16.040 one of the key themes we see is there's still 0:09:16.200 --> 0:09:18.480 largely a healthy consumer, but you kind of have that 0:09:18.600 --> 0:09:21.800 case shaped split, So we do see households when we 0:09:21.840 --> 0:09:24.040 talk to companies. We're seeing it in the data. Now. 0:09:24.040 --> 0:09:27.199 We were anticipating three and a half four percent raises 0:09:27.240 --> 0:09:30.280 coming to most consumers. You have Social Security coming in 0:09:30.240 --> 0:09:32.679 at almost three percent. In terms of the COLA adjustment. 0:09:33.040 --> 0:09:35.200 You have a lot of people with as you know, 0:09:35.280 --> 0:09:39.199 our previous guests mentioned decent equity gains and potentially decent 0:09:39.240 --> 0:09:41.400 equity gains going forward. So you have that wealth effect 0:09:41.440 --> 0:09:44.480 for upper income households. How or for lower income households, 0:09:44.520 --> 0:09:47.640 we still see the stress. We see that delayed effect 0:09:47.679 --> 0:09:50.760 of inflation. If you think about inflation, really it tends 0:09:50.840 --> 0:09:53.080 to hit with a lag for a lot of people, 0:09:53.120 --> 0:09:55.880 even if it's being measured in more of a linear basis, 0:09:55.960 --> 0:09:57.640 Like you know, we only buy a car every three 0:09:57.760 --> 0:10:01.400 four years, so that you know, that rise and used 0:10:01.480 --> 0:10:05.400 car prices took a while to spread across households, as 0:10:05.440 --> 0:10:07.280 well as the rise in interest rate center and we 0:10:07.280 --> 0:10:09.040 haven't seen that much of a decline in that area. 0:10:09.080 --> 0:10:09.880 So we see it. 0:10:09.920 --> 0:10:12.400 We see a healthy consumer. We think that drives spending. 0:10:12.440 --> 0:10:15.439 Next year, we think that drives growth. We're targeting one 0:10:15.480 --> 0:10:17.960 and a half to two percent growth. And we think 0:10:18.120 --> 0:10:20.640 also though a little bit of a tight labor market 0:10:20.960 --> 0:10:24.200 keeps inflation somewhat elevated two seven, two eight next year. 0:10:25.360 --> 0:10:27.560 Part of that really is the immigration story. We think 0:10:27.600 --> 0:10:31.960 that's one a huge story and the implications are incredibly widespread. 0:10:31.960 --> 0:10:34.720 So that's another theme we've really been talking about this year. 0:10:35.360 --> 0:10:37.679 You are we going to see the immigration story, as 0:10:37.679 --> 0:10:40.880 you put it, play out in the jobs report coming 0:10:40.920 --> 0:10:43.440 up on January ninth and in subsequent jobs reports. 0:10:43.440 --> 0:10:45.760 Do you think, oh, no question. 0:10:46.240 --> 0:10:49.520 When we talk to companies, you know, it's kind of fascinating. 0:10:49.800 --> 0:10:52.199 First of all, it's the supply story. Although as we're 0:10:52.240 --> 0:10:56.520 seeing the unemployment rate ticking up, the supply of labor 0:10:56.800 --> 0:11:00.720 hasn't was growing at a tremendous CLIPID a bit slower. 0:11:00.720 --> 0:11:02.800 We think that that slows consumption spending next year a 0:11:02.800 --> 0:11:06.120 little bit. So you have that, but you still get 0:11:06.120 --> 0:11:07.920 a little bit of a tighter labor market than at 0:11:07.920 --> 0:11:10.480 that lower end. So over the next few months, yes, 0:11:10.559 --> 0:11:13.360 we expect that it just limits the potential growth rate 0:11:13.400 --> 0:11:17.280 of the economy in terms of job growth. So that's 0:11:17.280 --> 0:11:19.240 one area. Another I think we're going to see a 0:11:19.240 --> 0:11:21.320 lot more automation. You know, I was talking to a 0:11:21.320 --> 0:11:25.720 company that makes high end lawnmowers basically for golf carts, 0:11:26.480 --> 0:11:28.520 golf courses, that kind of thing, and they said, and 0:11:28.559 --> 0:11:30.720 this is not the only company where I've had this conversation, 0:11:30.800 --> 0:11:34.360 but only Onaldmowing company, And they said, look are golf 0:11:34.400 --> 0:11:38.240 course clients. They're interested in the automated mowers, the ones 0:11:38.280 --> 0:11:43.720 that basically operate without without human inter interaction. And they're 0:11:43.800 --> 0:11:46.840 much less concerned about cost than they were a few 0:11:46.840 --> 0:11:49.319 months ago, because they're really worried that they just can't 0:11:49.360 --> 0:11:52.120 find the labor. And so at that lower end and 0:11:52.200 --> 0:11:55.400 a lot of those manual jobs. We were an economy 0:11:55.440 --> 0:11:59.840 pretty reliant on immigrant labor, and so that's that's sort 0:11:59.840 --> 0:12:02.760 of playing out in a lot of different areas and. 0:12:02.920 --> 0:12:05.319 We're going to get the one the benefits of the 0:12:05.360 --> 0:12:09.080 one big, beautiful build, presumably in twenty twenty six. How 0:12:09.080 --> 0:12:10.640 did you guys kind of model that out? 0:12:12.400 --> 0:12:14.280 We saw a couple of ways. We're seeing that hit 0:12:14.320 --> 0:12:16.679 and we've heard it from clients too, So it's a 0:12:16.720 --> 0:12:19.400 mix of you know, what we're modeling what's reasonable. We 0:12:19.480 --> 0:12:22.400 see that as maybe close to zero point four point 0:12:22.440 --> 0:12:26.800 five percent growth to GDP you get a positive benefit 0:12:26.880 --> 0:12:30.719 obviously similar tax rates. On the investment side. It's really 0:12:30.760 --> 0:12:33.800 a shift I think we have from structures to equipment. 0:12:34.240 --> 0:12:37.520 So in the previous administration, you had a lot of 0:12:37.840 --> 0:12:40.719 factors that were you know, the Chips Act, you had 0:12:40.880 --> 0:12:45.120 EV mandates, you had a lot of things driving construction 0:12:45.200 --> 0:12:48.640 activity and manufacturing. We had record manufacturing construction activities. So 0:12:48.720 --> 0:12:51.640 really a structure story, a building story. We see that 0:12:51.760 --> 0:12:53.520 pulling back, you know, I think we've seen that in 0:12:53.559 --> 0:12:55.920 a lot of categories, and the construction activities got in 0:12:56.160 --> 0:13:01.200 pretty narrow. It's pretty much data centers, energy empower related 0:13:01.240 --> 0:13:04.080 to data centers and infrastructure because still some of the 0:13:04.120 --> 0:13:06.160 infrastructure money is out there and there's a lot of 0:13:06.160 --> 0:13:08.840 infrastructure spending, but otherwise, we see a lot of weakness 0:13:08.880 --> 0:13:12.240 in the construction category, but on the investment side, the 0:13:12.280 --> 0:13:15.319 one big beautiful bill in terms of equipment, the equipment 0:13:15.320 --> 0:13:18.319 side's pretty strong. We're hearing that broadly that a lot 0:13:18.360 --> 0:13:22.360 of companies are looking at that immediate depreciation expense advantage 0:13:22.760 --> 0:13:27.640 and we're seeing orders. We add I did a finance 0:13:27.720 --> 0:13:30.160 or I was in Pittsburgh a couple of weeks ago 0:13:30.440 --> 0:13:32.240 and we had a client come into one of our 0:13:32.280 --> 0:13:34.480 rms there saying, Hey, I need four million dollars before 0:13:34.480 --> 0:13:35.880 the end of the year because I want to lower 0:13:35.880 --> 0:13:37.400 my tax bill and I'm going to buy a bunch 0:13:37.440 --> 0:13:40.080 of equipment. And that's playing out. You know, we see 0:13:40.080 --> 0:13:42.760 that as zero point one point two percent, really driving 0:13:42.800 --> 0:13:45.160 a shift though in the investment mix, the investment mix 0:13:45.240 --> 0:13:47.320 shifting from structures to equipment. 0:13:48.559 --> 0:13:51.439 Ian as a chief as chief economist over at Huntington Bank, 0:13:51.640 --> 0:13:55.320 what's your outlook for rate cuts from the Fed next year? 0:13:55.320 --> 0:13:58.200 How many do we get, if any at all? 0:13:58.360 --> 0:14:01.720 Oh, we expect obviously the paw we'd anticipate and we said, 0:14:01.840 --> 0:14:03.839 you know, going into December, we said, you know, one 0:14:03.880 --> 0:14:05.600 more cut and then pause. We thought that was pretty 0:14:05.640 --> 0:14:07.920 well signaled you know, I don't think we're any sort 0:14:07.920 --> 0:14:10.080 of miracle workers here. We're just listening to the FED 0:14:10.120 --> 0:14:12.200 in terms of that kind of signaling. And when we 0:14:12.240 --> 0:14:16.119 saw the FED minutes come out yesterday, that was confirming 0:14:16.120 --> 0:14:18.280 that idea that we're we're in the pause stage now. 0:14:18.480 --> 0:14:21.320 If we look back to twenty four and twenty five, 0:14:21.400 --> 0:14:23.960 we had pauses at the beginning of the year. Those 0:14:24.000 --> 0:14:27.160 didn't end till September in both kid cases. We don't 0:14:27.200 --> 0:14:29.840 think it lasts that long this pause. We expect one 0:14:29.880 --> 0:14:32.800 more cut come March. Then of course Pal's term ends 0:14:32.880 --> 0:14:35.920 in May. I think there'll be a couple more cuts likely, 0:14:36.040 --> 0:14:38.640 So it probably puts us right around three percent over 0:14:38.680 --> 0:14:40.480 the course of the year. But if we look at 0:14:40.480 --> 0:14:43.240 the forecast, if we listen to the FED governors, we're 0:14:43.240 --> 0:14:45.280 getting pretty close to that neutral rate. And what that 0:14:45.360 --> 0:14:47.320 neutral rate means, of course, is that the FED really 0:14:47.400 --> 0:14:49.080 views it as they're not stepping on the gas for 0:14:49.120 --> 0:14:51.040 the economy. They're not hitting the brakes for the economy. 0:14:51.040 --> 0:14:52.520 They're just sort of letting a glide. We're in a 0:14:52.520 --> 0:14:54.800 glide path right now. They still think they're hitting the 0:14:54.840 --> 0:14:57.760 brakes for the economy. And as we get closer to 0:14:57.800 --> 0:15:01.040 that neutral rate. We think the FED governors, some of 0:15:01.120 --> 0:15:03.320 those governors who are really open to cuts now are 0:15:03.360 --> 0:15:05.280 going to become more resistant. This is going to be 0:15:05.280 --> 0:15:08.520 a more hesitant Fed. We still expect, partly because of 0:15:08.560 --> 0:15:11.760 a somewhat tight lower end labor market, especially in areas 0:15:11.840 --> 0:15:17.360 like healthcare services when you're talking about lodging restaurants, We 0:15:17.400 --> 0:15:21.000 think that those wage increases are going to keep pushing 0:15:21.080 --> 0:15:24.360 up some price increases across the board, and that's roughly 0:15:24.400 --> 0:15:27.560 a third of the CPI is the services we were 0:15:27.560 --> 0:15:31.840 talking about there. So we expect that that plays into 0:15:31.880 --> 0:15:34.040 a couple more cuts this year. Still, you have a 0:15:34.080 --> 0:15:36.920 pretty soft labor market that gets the FED moving. The 0:15:36.920 --> 0:15:39.400 federally cares way more about the labor market than the 0:15:39.560 --> 0:15:42.440 stock market, and that gets them to do a couple 0:15:42.560 --> 0:15:44.320 more cuts. But we think, you know, you get close 0:15:44.360 --> 0:15:47.360 to three, you're really at that neutral rate where some 0:15:47.440 --> 0:15:49.760 of those dubbish voices maybe get a little more hawkish. 0:15:49.960 --> 0:15:52.080 Yep, yep, all right, Ian, thank you so much, appreciate 0:15:52.080 --> 0:15:54.040 getting a few minutes of your time. Ian, whytt he's 0:15:54.080 --> 0:15:58.840 a chief economist over there at Huntington Bank. Stay with us. 0:15:58.920 --> 0:16:01.400 More from Bloomberg Survail. It's coming up after this. 0:16:07.640 --> 0:16:11.200 You're listening to the Bloomberg Surveillance Podcast. Catch us live 0:16:11.280 --> 0:16:14.440 weekday afternoons from seven to ten am Eastern. Listen on 0:16:14.520 --> 0:16:18.200 Applecarplay and Android Auto with the Bloomberg Business app, or 0:16:18.320 --> 0:16:19.960 watch us live on YouTube. 0:16:20.520 --> 0:16:24.760 Eric Sterner, the chief investment officer Apollin Wealth Management, joins 0:16:24.840 --> 0:16:26.760 us here in studio. You can be down there in 0:16:26.800 --> 0:16:29.400 Times Square here later on tonight it did ball drop, 0:16:29.480 --> 0:16:31.880 so a lot of fun down there. Eric, Thanks so 0:16:31.960 --> 0:16:34.680 much for joining us here. How are you what's the 0:16:34.680 --> 0:16:37.800 conversation you're having with your clients these days about setting 0:16:37.840 --> 0:16:40.360 expectations for twenty twenty six. We had three years of 0:16:40.840 --> 0:16:43.680 double digit returns for the equity markets. The bond market's 0:16:43.680 --> 0:16:46.520 been really good for investors. They've if they had some 0:16:46.600 --> 0:16:50.200 gold or silver even better. How do you set expectations 0:16:50.200 --> 0:16:50.880 for twenty six? 0:16:51.160 --> 0:16:55.200 Yeah, we've certainly been very spoiled the last three years 0:16:55.240 --> 0:17:00.359 with very strong returns kind of SMP five hundred. We're 0:17:01.000 --> 0:17:04.240 talking to our clients and just reminding them that while 0:17:04.320 --> 0:17:06.800 we know the market breath has been very narrow for 0:17:06.840 --> 0:17:11.159 the past you know, two and three years, we expect 0:17:11.160 --> 0:17:15.919 that to broaden out and between value stocks, large guy value, 0:17:16.000 --> 0:17:19.919 small cap international. So now's not the time. Now's a 0:17:19.920 --> 0:17:23.000 good time, I should say, to rebalance the portfolio and 0:17:23.920 --> 0:17:27.400 to take a little off on the technology side, because 0:17:27.440 --> 0:17:29.800 I think there's plenty of sectors that have really strong 0:17:29.840 --> 0:17:33.160 returns going into twenty twenty six, both domestically as well 0:17:33.160 --> 0:17:34.000 as international. 0:17:34.240 --> 0:17:36.640 Yeah, I'm glad you mentioned international as well, and Eric, 0:17:36.640 --> 0:17:40.240 give us if you can some specifics. I love specifics 0:17:40.240 --> 0:17:43.240 when guests can come on and join us names or 0:17:43.440 --> 0:17:45.160 ideas sectors outside of tech. 0:17:45.480 --> 0:17:49.200 Sure, yeah, I mean so within Maybe I'll start off 0:17:49.200 --> 0:17:53.160 with domestically if some sectors I like, if that's financials 0:17:53.400 --> 0:17:56.240 had a tremendous year, and I expect you know, there's 0:17:56.280 --> 0:17:58.520 a little bump in the road when Jamie Diamond made 0:17:58.520 --> 0:17:59.640 that conroach. 0:18:00.480 --> 0:18:03.160 And not the credit at Tricolor and First Brand. 0:18:03.200 --> 0:18:06.240 Yeah, exactly, But I don't think there's any evidence of 0:18:06.359 --> 0:18:09.800 widespread concerns there. Even within the high yield market. We 0:18:09.840 --> 0:18:16.600 see investment grade levels within high yield, but I think financials, 0:18:16.720 --> 0:18:19.600 just with the interest rates coming down, I think we're 0:18:19.600 --> 0:18:21.600 going to see some more m and a activity pick 0:18:21.680 --> 0:18:25.160 up in twenty twenty six. In fact, during the government shutdown, 0:18:25.280 --> 0:18:29.080 more than nine hundred registration statements, including IPOs were filed 0:18:29.119 --> 0:18:32.360 with SEC. So I was already expecting a big year 0:18:32.400 --> 0:18:35.320 in MA activity within financials, but now even more so 0:18:35.440 --> 0:18:38.639 as they worked through that backlog. And then another sector 0:18:38.720 --> 0:18:41.440 that really got its legs in the fourth quarter is healthcare. 0:18:41.600 --> 0:18:43.879 And healthcare has just been stuck in the rut for 0:18:43.920 --> 0:18:46.760 a long time, and it typically does with new White 0:18:46.800 --> 0:18:50.720 House administration, just because there's so much policy uncertainty. But 0:18:50.720 --> 0:18:52.840 I think we're starting to get past that. And I 0:18:52.840 --> 0:18:56.680 think it's great with healthcare is that you have it's 0:18:56.920 --> 0:18:59.440 traditionally a defensive play, but I think there's so much 0:18:59.480 --> 0:19:02.760 innovation in there. Besides the AI. I think the weight 0:19:02.800 --> 0:19:05.359 loss drugs are the second biggest innovation in the markets 0:19:05.440 --> 0:19:09.440 right now, and there was a bottleneck and drug supplies 0:19:09.480 --> 0:19:12.400 there earlier year that's been cleared. A lot of these 0:19:12.440 --> 0:19:14.920 biotech companies made a deal with the Weight House. We're 0:19:14.960 --> 0:19:17.400 in exchange for lowering prices, they're going to get more 0:19:17.440 --> 0:19:21.960 weight loss coverage with Medicare and potentially Medicaid, and that 0:19:22.119 --> 0:19:24.680 opens up those weight loss drugs the forty million more 0:19:24.760 --> 0:19:27.080 people and that industry is expected to be one hundred 0:19:27.080 --> 0:19:30.200 and fifty billion by twenty thirty, so I think that's 0:19:30.240 --> 0:19:34.440 another sector that I really like going into twenty twenty six. 0:19:35.280 --> 0:19:39.919 And then on the international front, the valuations are still 0:19:40.160 --> 0:19:45.320 very attractive compared to US stocks specifically, I think Japan 0:19:45.920 --> 0:19:48.720 is just such an incredible story and still plenty of 0:19:48.760 --> 0:19:52.000 legs to go, and many people are surprised if you 0:19:52.080 --> 0:19:56.439 look at the past decade earnings per share. Cumulative earnings 0:19:56.480 --> 0:19:58.720 per share for Japanese companies are up over two hundred 0:19:58.720 --> 0:20:03.040 fifty percent, which exceeds the US, Europe, even the UK. 0:20:03.720 --> 0:20:06.640 And now with Prime Minister Takashi bringing in some more 0:20:06.680 --> 0:20:10.200 pro growth policies, I expect stronger returns or more strong 0:20:10.280 --> 0:20:11.320 returns coming out of Japan. 0:20:11.640 --> 0:20:13.679 Yeah, I mean international has been the place here is 0:20:13.720 --> 0:20:15.320 as good as the returns have been in the US 0:20:15.400 --> 0:20:19.080 if you look at EMEA. Much better returns here, I mean, 0:20:19.160 --> 0:20:23.000 led by Spain, particularly when you adjust for currencies. Spain 0:20:23.080 --> 0:20:26.199 adjusted for the currency's up seventy percent this year, just extraordinary. 0:20:26.240 --> 0:20:29.200 We've seen double digit games across Europe and a couple 0:20:29.240 --> 0:20:32.480 of the Asian markets, including Hong Kong. Kind of emerging 0:20:32.480 --> 0:20:35.359 markets here. I think the chatter around emerging markets is 0:20:35.400 --> 0:20:37.680 just kind of a little bit louder and louder and 0:20:37.720 --> 0:20:40.520 louder over the course of twenty twenty five, and people 0:20:40.640 --> 0:20:41.879 were talking about that a little more. How do you 0:20:41.880 --> 0:20:42.600 guys think about that? 0:20:42.960 --> 0:20:46.919 Yeah, I expect those returns again to still have some 0:20:46.960 --> 0:20:49.760 more lakes to them. I mean, typically you see emerging 0:20:49.880 --> 0:20:52.600 market because a lot of their debt is US denominate it. 0:20:52.880 --> 0:20:55.280 When the FED starts easing, you could see your merging 0:20:55.320 --> 0:20:58.720 market equities rally more. Certainly certainly seeing that especially with 0:20:58.760 --> 0:21:03.320 the US dollar to depreciate. And we know this AI 0:21:03.359 --> 0:21:07.679 revolution is worldwide phenomenal, So some of those tech really 0:21:07.720 --> 0:21:12.239 centric nations, especially outside of China or benefiting of some 0:21:12.280 --> 0:21:16.440 of these companies redesigning supply chains away from China are benefiting. 0:21:16.480 --> 0:21:19.760 And even countries like Mexico as we're looking for more 0:21:19.920 --> 0:21:23.720 near shoring opportunities with the US, have benefited. So I 0:21:23.720 --> 0:21:26.080 think we could still see some strong returns have a 0:21:26.160 --> 0:21:29.160 marching markets going forward into twenty twenty six. 0:21:29.680 --> 0:21:33.520 You talked about lower interest rates being a tailwind for financials, 0:21:33.560 --> 0:21:36.640 they could also be for those small caps. Russell two 0:21:36.640 --> 0:21:39.479 thousand taking a look here on the Bloomberg terminal up 0:21:39.520 --> 0:21:41.719 twelve percent year to date. Not too shabby, I mean, 0:21:41.800 --> 0:21:45.879 underperforming the other major indexes, but still solid respectable gains there. 0:21:46.040 --> 0:21:49.240 Even more so, what's your outlook for the small caps? 0:21:49.400 --> 0:21:52.320 Yeah, I think twenty twenty five was the big year 0:21:52.359 --> 0:21:55.080