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Speaker 2: In a couple of star wars tech names reporting last night,
Speaker 2: Amazon a good quarter. Stock up six and a half percent.
Speaker 2: It's up very close, within a couple of dollars of
Speaker 2: its all time high, and it is a fifty fifty
Speaker 2: two week high, buten just a couple of bucks away
Speaker 2: from its all time high. Meta also reported numbers stocks
Speaker 2: up twenty percent. This is a trillion dollar market cap stock.
Speaker 2: It's not like a penny stock. This is a trillion
Speaker 2: dollar market cap stock. No, and it's up twenty percent.
Speaker 2: So some real, real paper money's being made out there
Speaker 2: for some people. Let's break this stuff down. We can
Speaker 2: do it with two of our best at Bloomberg Intelligence.
Speaker 2: Put On Goile, she covers the retail business for Bloomberg Intelligence,
Speaker 2: and Men Deep Sing, supposedly a tech analyst. We'll see
Speaker 2: if he's got the goods here today. Let's start with
Speaker 2: you Amazon. It seems like the consumer is in pretty
Speaker 2: good shape. What you hear from Amazon last night.
Speaker 3: Yeah, thanks Paul. The consumer is an excellence shape and
Speaker 3: that's part of the strength that we saw on holiday.
Speaker 3: So the nine percent online sales gain that you saw
Speaker 3: come from them and twenty percent and third party was
Speaker 3: pretty impressive and actually probably the best in a few
Speaker 3: years since after the pandemic. So clearly a sign that
Speaker 3: the consumer has the funds to spend. But I'd say
Speaker 3: it also means that the consumers choosing Amazon to spend
Speaker 3: their funds there. I think that's very key, as you
Speaker 3: will see some losers still coming out of the holiday season,
Speaker 3: but online is gaining traction, and Amazon is what comes
Speaker 3: to mind when you want to shop online.
Speaker 4: So what I found to be really fascinating was like
Speaker 4: a nugget. I forgot what research report I read it in,
Speaker 4: but that the cost to serve a customer's order fell
Speaker 4: by forty five cents a unit last year. Can you
Speaker 4: how big a deal is that and how hard was
Speaker 4: it to get there?
Speaker 3: So Amazon doesn't disclose how many units they sell, so
Speaker 3: it's kind of hard to back into that. I'd say
Speaker 3: it's still a fairly small piece of the cost space.
Speaker 3: But what I would say is what's going to help
Speaker 3: them to continue to drive these costs down is just
Speaker 3: the efficiencies that they've created within their fulfillment network.
Speaker 5: Right.
Speaker 3: You've heard them talk about getting packages to customers faster,
Speaker 3: and that's really a function of how they centralized their
Speaker 3: shipping and distribution networks. And we think that traditionally, when
Speaker 3: you hear about things coming to you faster, it's usually
Speaker 3: more expensive, and in the case of Amazon, it's actually cheaper.
Speaker 3: So it's pretty impressive, and it's all driven by scale.
Speaker 2: The trucks are everywhere. I mean, it's just amazing. They
Speaker 2: gotta be the biggest trucking fleet in the country. I
Speaker 2: don't know. Let's bring in Man deep sing here. Let's
Speaker 2: get to the technology aspect of Amazon, which has really
Speaker 2: been the driver of its profitability and many would argue
Speaker 2: the stock price performance, Mandy, would you hear from Amazon
Speaker 2: last night about its cloud business AWS?
Speaker 6: I mean, look, I think when you compare it to
Speaker 6: Microsoft Azure growth, the growth is still kind of far
Speaker 6: weaker between the two. But Amazon is, you know, much
Speaker 6: higher run rate, ninety seven billion dollar run rate, so
Speaker 6: they clearly seem to be stepping up in terms of
Speaker 6: their generative AI exposure, and they've given investors hope that
Speaker 6: they will be able to catch up. But look, overall,
Speaker 6: I think profitability wise, they seem to be doing very
Speaker 6: well on the AWS front. AD business continues to work
Speaker 6: very well for them, you know, twenty six percent growth,
Speaker 6: So Amazon, I think the diversification play they have and
Speaker 6: the fact that they seem to capitalize on any new trend,
Speaker 6: you know, seemingly fast, even though in this case Microsoft
Speaker 6: Azure clearly still has the strongest momentum when it comes
Speaker 6: to generative AA.
Speaker 4: What I also found really interesting, Mandeep is that with
Speaker 4: Amazon and even Meta, they're spending more, but the market
Speaker 4: feels okay about that. I saw the same thing with
Speaker 4: Exxon too. They're spending a little bit more, but their
Speaker 4: market's okay with that. What do you make of that?
Speaker 6: I mean, look, when you know Meta is growing at
Speaker 6: over twenty percent, nobody cares about the reality lab losses.
Speaker 6: They're losing eighteen billion dollars a year on reality labs.
Speaker 6: It's okay. They get a pass the moment that growth
Speaker 6: papers And we saw that in twenty twenty two when
Speaker 6: they had those negative quarters, everyone you know, start started
Speaker 6: to complain about you know how irresponsible management was im
Speaker 6: betting on Metaverse, and yesterday there was not even a
Speaker 6: mention of Reality Labs, given you know, the beat and
Speaker 6: rays and the fact that they really seem to be
Speaker 6: executing very well with twenty five percent layoffs. So it
Speaker 6: all comes down to your top line. And if they
Speaker 6: keep executing the way they did last quarter, I think
Speaker 6: people don't mind the capex and generative AI. CAPEX actually
Speaker 6: is a trend that we're seeing across the board from hyperscalers.
Speaker 6: So what we I heard last night was Meta does
Speaker 6: have a generative AI play. It may not be on
Speaker 6: the cloud, but they are deploying their AI assistance everywhere
Speaker 6: and that seems to be helping engagement.
Speaker 2: Hey put them give us this an update on the
Speaker 2: advertising business for Amazons. I think that's a business not
Speaker 2: enough people pay attention to or it gets enough credit
Speaker 2: because there's some big numbers there it is.
Speaker 3: It's actually at a run rate of sixty billion now
Speaker 3: and we think it can get to one hundred billion
Speaker 3: by twenty twenty eight. So clearly great growth there. And
Speaker 3: what you have to remember, and when they mentioned this
Speaker 3: a little, you know, the advertising business is very lucrative
Speaker 3: it carries about fifty percent profit margins. So if you
Speaker 3: think about just the run rate they're at, that's thirty
Speaker 3: billion dollars to the bottom line in the coming year.
Speaker 3: That's huge for Amazon, and that's really the backbone of
Speaker 3: what's driving profitable growth in North America or you could
Speaker 3: say their retail business.
Speaker 2: See that that was revenue that propelled my career? Is
Speaker 2: that advertising revenue? But during the peak of microos, radio TV,
Speaker 2: cable TV, maybe in a little bit on newspapers, we.
Speaker 4: Still know the radio people. We love the radio to
Speaker 4: the radio.
Speaker 2: Now it's sixteen billion dollars going on Amazon.
Speaker 4: Amazing. Hey Mandy, before we let you guys go to
Speaker 4: your point before. If we keep getting these kind of numbers,
Speaker 4: can we still call like Meta a growth company even
Speaker 4: though it's now paying this dividend. Typically you don't see
Speaker 4: that in the growth of your company. Is like, can
Speaker 4: all things be true?
Speaker 6: I mean, advertising is a very cyclical business. Right now
Speaker 6: we are coming out of LA trough and ad pricing
Speaker 6: environment is improving, and if you're an e commerce company,
Speaker 6: there is nowhere else to go to acquire customers. Given
Speaker 6: Meta has four billion you know users across its family
Speaker 6: of apps, so clearly they get that mind share, and
Speaker 6: it's still a duopoly when it comes to digital ad spending,
Speaker 6: but I would say we are closer to saturation in
Speaker 6: terms of that digital ad growth then we were, you know,
Speaker 6: a couple of years back. So not a lot of
Speaker 6: runway in from maintaining that twenty percent plus growth, but
Speaker 6: the next few quarters I think they clearly will benefit
Speaker 6: from this at pricing tailvin A right, guys.
Speaker 7: That's good.
Speaker 4: Yeah, amazing guys, Thanks lot, really appreciated, Mandy P. Sink
Speaker 4: and Punam Goyle really great. I mean, like I was
Speaker 4: shocked when I saw those numbers, Like Apple didn't surprise
Speaker 4: me that much, but when I saw those numbers come
Speaker 4: through the terminal yesterday on the clothes, I was just
Speaker 4: totally forged.
Speaker 2: Now the thing with Apple, and we've talked to a
Speaker 2: couple experts today, including gene monsters. If I were investor
Speaker 2: in Apple, I'd still be really concerned about China. I
Speaker 2: don't feel like I don't have a call of Hey,
Speaker 2: is it just the Chinese economy kind of slowing down
Speaker 2: or is it Chinese people saying I'm not buying Western stuff.
Speaker 2: I'm by it. It's more nationalistic. Now that's a concern,
Speaker 2: although i DC the research firm says Apple's got like
Speaker 2: it's best market share ever, so I don't know how
Speaker 2: that's all playing out.
Speaker 4: So, but the competition is real no matter which we
Speaker 4: look at it, It's all about competition.
Speaker 3: Yep.
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Speaker 2: Big Tech Earnings. And there's some themes coming across here
Speaker 2: in terms of AI, in terms of digital advertising that
Speaker 2: are pretty well, it's pretty constructive here and we've been
Speaker 2: talking about most of the morning here. We're going to
Speaker 2: bring in Angela Zino. He's a senior equity analyst and
Speaker 2: vice president c f R Research. He joins us via
Speaker 2: Zoom from New York. Angela, I'd love to start with
Speaker 2: Apple because for me, that's the most fascinating story coming
Speaker 2: out of big tech. I just don't know which way
Speaker 2: to go, and my big big issue is China. Could
Speaker 2: you give us your sense about how you think China
Speaker 2: is as an opportunity and as a risk to the
Speaker 2: Apple story.
Speaker 1: Yeah, and I.
Speaker 7: Think Apple there's a huge Bullbard debate going on with
Speaker 7: that name right now. And when I think about Apple, yes,
Speaker 7: I mean China is absolutely an issue right now. We're talking,
Speaker 7: you know, a thirteen percent of client revenue in that
Speaker 7: region when overall you actually did see you know, a
Speaker 7: broader industry growth in the in you know, the some
Speaker 7: reporter there mid single digit decline on the constant currency
Speaker 7: basis from so from that perspective doesn't seem as bad.
Speaker 7: My guess is some of the guidance that they alluded to,
Speaker 7: even though they kind of blamed some of the tough
Speaker 7: comps from a year ago, probably also indicates that there
Speaker 7: is going to continue to be some weakness going on
Speaker 7: in China, probably through calendar twenty twenty four at the
Speaker 7: very least. So you know, it's China becomes an issue
Speaker 7: for Apple becomes ahead wind. We do expect them to
Speaker 7: continue to lose share, but there is so much good
Speaker 7: stuff going out outside of China where we think kind
Speaker 7: of the story really plays out, but specifically in Asia
Speaker 7: Asia Group seven percent outside of China, and you know,
Speaker 7: you kind of look at areas that are going to
Speaker 7: continue to attribute, you know, to that in sold base growth.
Speaker 7: It's going to be areas like in India and Indonesia
Speaker 7: over the next decade plus.
Speaker 4: So Angelo, what's it going to take for appily at
Speaker 4: for that because it feels like the straight up China
Speaker 4: competition is truly what this company is training on.
Speaker 7: Yeah, I mean, it's going to take time first. I mean,
Speaker 7: but you know, when we think about the actual numbers
Speaker 7: here in terms of you know, not the top line,
Speaker 7: but more on the bottom line side of things than
Speaker 7: on the free cash flow side of things, and that's
Speaker 7: really what drives we think the valuation is in Apple,
Speaker 7: it's that free cash flow number. Despite the lower the
Speaker 7: five billion are so less in expected revenue, the free
Speaker 7: cash flow number hasn't budget in terms of expectations here
Speaker 7: over the next year. And a big reason for that
Speaker 7: is because of all the kind of improvement they're they're
Speaker 7: doing on the margin side of things, the better mix
Speaker 7: on the services, but also the fact that margins are
Speaker 7: improving not only on the services side, but also on
Speaker 7: the product side of things. So that's really kind of
Speaker 7: helping to sustain you know, the actual free cash flow
Speaker 7: potential of this company. So you know, you have to
Speaker 7: be patient if you're an investor in this name and
Speaker 7: kind of believe in the whole compounding effect over time.
Speaker 7: But right now, it's tough to really kind of expect
Speaker 7: significant gains from a stock price perspective here over the
Speaker 7: next three to six months.
Speaker 2: All right, Well, talk about significant games from the stock
Speaker 2: price perspective. Meta platforms up twenty percent today, all time high.
Speaker 2: Over two hundred billion dollars of market cap was created
Speaker 2: just today in trading. So an end. They're paying a dividend.
Speaker 2: They they've been listening to me. Now the folks at
Speaker 2: Apple need to listen to me and up their dividend
Speaker 2: and give me a good three percent dividend yield. Talk
Speaker 2: to us about Meta here. Boy, it seems like everything's
Speaker 2: working there. What's your key takeaway?
Speaker 7: Yeah, I think this is as good a quarter as
Speaker 7: an investor could have asked for. I mean, you're right
Speaker 7: they initiated the dividend, but you know it implies less
Speaker 7: than a one percent divit in yield, right. I think
Speaker 7: it's more kind of you know the fact that they're
Speaker 7: just demonstrating to investors out they're the conviction they have
Speaker 7: in that business and kind of some of the guidance
Speaker 7: that they provided out there. But listen, I think they're
Speaker 7: running on all cylinders. Grew the top one twenty five
Speaker 7: percent actually to one guide points to an acceleration of
Speaker 7: growth where we actually expected growth to start to decelerate
Speaker 7: sharply in the first half of twenty twenty five four.
Speaker 7: You kind of look at how they're doing this. They're
Speaker 7: actually keeping operating expenses in check. And there's nothing you
Speaker 7: know better that Wall Street lights than kind of keeping
Speaker 7: the opex numbers in check in a world where AI
Speaker 7: is extremely expensive, and they continue to grow that top
Speaker 7: line by holding it, you know, by keeping it unchanged.
Speaker 7: So I think, you know, that's really the key as
Speaker 7: far as the metastory is concerned, and you really do
Speaker 7: have to love it if you're an investor.
Speaker 4: I mean, Paul does. He's he's been talking about it
Speaker 4: pretty much all day. But the idea that like the
Speaker 4: year of Efficiency of twenty twenty three will continue despite
Speaker 4: the information we got on Reality Labs in terms of
Speaker 4: how much they're losing and the capex going into it.
Speaker 4: When do I care about that when it comes to Meta.
Speaker 7: As far as you know, losses and reality labs and
Speaker 7: the potential revenue trajectory there, I mean yeah, I mean,
Speaker 7: this is a long term vision for the company, so
Speaker 7: they're looking for they're making these investments for five ten
Speaker 7: years out from now. You're not going to get the
Speaker 7: immediate type of return that you're seeing on the AI
Speaker 7: side of things. I mean, AI has been absolutely phenomenal
Speaker 7: for Meta because it's a parent that advertisers are willing
Speaker 7: to kind of pay up for it because you're you're
Speaker 7: getting a higher ROI out there, so you know, it
Speaker 7: makes a lot of sense. You're you're seeing the you know,
Speaker 7: most of the kind of the the extra CAPEC spends
Speaker 7: that's going into this company really on the AI side
Speaker 7: of things. But as far as those losses are concerned,
Speaker 7: that's going to that's going to remain because you're not
Speaker 7: going to see that revenue trajectory really kind of play
Speaker 7: out for at least kind of another three to five
Speaker 7: years at your you know, in the basic past case scenario, So.
Speaker 2: Angela, if investors are trafficking in the metas of the world,
Speaker 2: the Google's, even Amazon, they have to have a call
Speaker 2: on digital advertising? What's your call on digital advertising?
Speaker 7: So entering the year it was it was a high
Speaker 7: single digit growth rate, so you know, it's pretty much
Speaker 7: going to be a similar growth rate that we saw
Speaker 7: in twenty twenty three, and our outlook for twenty twenty
Speaker 7: five also kind of a high single digit growth pace.
Speaker 7: I think how you're going to get that growth pace
Speaker 7: is going to be interesting. I mean, it looks like
Speaker 7: on the social media side of things, you're seeing some
Speaker 7: additional share gain taking place there relative to what you're
Speaker 7: seeing on the search side. I think although alphabet you know,
Speaker 7: to be fair, did not provide any type of guidance
Speaker 7: on their end, but it just appears like that momentum
Speaker 7: continues to really be taking form on the social media
Speaker 7: side of things. We'll get some additional numbers next week
Speaker 7: when the snaps and pinterests of the world start reporting,
Speaker 7: but there are much smaller player in the industry. But
Speaker 7: I think at the end of the day, the numbers
Speaker 7: look pretty good for us. There's probably upside to those
Speaker 7: assumptions that I've provided to you because of some of
Speaker 7: that AI play and the fact that you're going to
Speaker 7: see an acceleration. You know, away from those traditional sources
Speaker 7: to more of the digital side of things.
Speaker 4: Hey, Angelo, taking a look at just the run that
Speaker 4: we seen with some of these guys on some of
Speaker 4: the numbers, even in Vidia at another record high today,
Speaker 4: What stock is most over their skis right now?
Speaker 7: That's a great question. That No, that's that's that's a
Speaker 7: really good question. You know, as far as you know
Speaker 7: we're concerned. I say the names we like the most,
Speaker 7: the ones where there were absolute table pounders on our
Speaker 7: Microsoft and Nvidia. I think those names on any type
Speaker 7: of pullback, you just continue to load up and buy
Speaker 7: more of it. You have to love kind of the
Speaker 7: meta results here. But if there were a name I
Speaker 7: were to throw out there right now, it would probably
Speaker 7: be meta one because of the type of move that
Speaker 7: you've seen in the in the in the stock today.
Speaker 7: I'd also say that the comps do get a little
Speaker 7: bit more difficult in the second half of this year,
Speaker 7: So there could be a scenario where as those comps
Speaker 7: get a little bit more challenging and they need to
Speaker 7: you know, potentially you know, spend a little bit more,
Speaker 7: that could kind of set up some potential disppointment later
Speaker 7: this year for the thought. So that's probably the name
Speaker 7: where maybe I would raise a little bit of an
Speaker 7: eyebrow among kind of the you know, the mags have
Speaker 7: a names right now.
Speaker 4: Hey, Angela, thanks a lot, super appreciate it. Angelousio, Vice President,
Speaker 4: Senior equity analyst at cfr A Research.
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Speaker 2: That'd be very, very encouraged by the strong labor numbers
Speaker 2: I got out today in terms of giftness, economy growing.
Speaker 4: Yeah, but I still think that the idea of like
Speaker 4: people still feel bad and then the number is still
Speaker 4: good and bridging that gap and how that winds up
Speaker 4: playing out. We're still really early in twenty twenty four,
Speaker 4: but how that plays out I think really interesting.
Speaker 2: Yeah, I guess that's a messaging story for you know,
Speaker 2: the politicians out there. You know, you got a GDP
Speaker 2: print better than expected. Everybody kind of has a job,
Speaker 2: wages are going up, inflations coming down.
Speaker 4: But man, but then you have to wonder, does that
Speaker 4: mean that we were going to wind up seeing the
Speaker 4: FED not cut in May, and then does that keep
Speaker 4: conditions tighter? And then you have real rates actually increasing,
Speaker 4: et cetera, et cetera, and then it actually does wind
Speaker 4: up hurting later sort of the longer you push it off,
Speaker 4: then are we headed for something a lot harder.
Speaker 2: Yeah, that's a great point, and that's kind of the
Speaker 2: discussion now. I guess it's all about May. Jonny Biley
Speaker 2: joins us. She's a chief workforce analyst at inmploy Bridge
Speaker 2: joins us on zoom from Pompino Beach, Florida.
Speaker 8: What is it?
Speaker 2: What are we doing wrong here?
Speaker 4: I don't want to be in Florida.
Speaker 2: Be in Florida right now because it's been we haven't
Speaker 2: seen the sun in like two weeks, that's true.
Speaker 4: I don't know I was in Florence. So if we're
Speaker 4: reassigning bet.
Speaker 2: Well, pretty Jony, thanks so much for joining us here.
Speaker 2: I'd love to get your thoughts here and kind of
Speaker 2: what we saw on this job's uh date data print
Speaker 2: this morning? How do you how do you kind of
Speaker 2: deal with it?
Speaker 9: Well, definitely a big surprise right this morning, and I
Speaker 9: don't think anyone predicted numbers that would be that high.
Speaker 9: I think maybe Goldman Sachs said it was going to
Speaker 9: be about two hundred and fifty thousand, but never expected
Speaker 9: over three hundred and fifty thousand jobs created. And the
Speaker 9: reason I think it really is a surprise is we
Speaker 9: are still you know, seeing.
Speaker 5: Layoffs, you know, not just in the big tech.
Speaker 9: Companies, but we're seeing more and more employers that are
Speaker 9: you know, cutting back.
Speaker 5: Now, there is some optimism about.
Speaker 9: Twenty twenty four. Certainly the companies that we work with
Speaker 9: at employee Bridge, I would say our hiring managers are
Speaker 9: cautiously optimistic and they are saying that they are predicting,
Speaker 9: you know, a better year of growth of job growth
Speaker 9: in twenty twenty four than twenty twenty three, but we're
Speaker 9: not seeing the robust growth that this report actually shows.
Speaker 4: Well, let's talk about the one thing that confused me
Speaker 4: the most in the report, and that average hourly work
Speaker 4: week goes down, which basically means maybe there's a demand problem,
Speaker 4: but wages go up. What does that mean?
Speaker 5: Yeah, I was surprised by that number as well.
Speaker 9: So we are seeing people working a little bit less.
Speaker 9: The hours you know worked per week did decline, and
Speaker 9: to your point seeing wages go up so substantially. That
Speaker 9: was a surprise as well. We're not seeing as much
Speaker 9: wage movement. We track wage data as well. Employ Bridge
Speaker 9: focuses primarily on the supply chain sector, so manufacturing, construction, drivers, transportation,
Speaker 9: and I'll tell you wages have been pretty pretty flat.
Speaker 9: But when we see hours go down, it is the demand.
Speaker 9: You know, the employers are not demanding right that workers
Speaker 9: are working overtime or you know, working really that full
Speaker 9: forty hour work week.
Speaker 5: We're not near that level.
Speaker 9: So it definitely is a supply and demand issue. And
Speaker 9: again I think something that would be concerning in this report.
Speaker 9: But there were some real bright spots in the report,
Speaker 9: you know, seeing professional and business services add I believe
Speaker 9: it was seventy four thousand jobs. That was a big number,
Speaker 9: and we had seen some declines in that sector. I
Speaker 9: did go back and look at the revisions and they
Speaker 9: have revised them upwards. So you know, those are more
Speaker 9: of the white collar professional jobs, and that definitely came
Speaker 9: back stronger.
Speaker 5: Than I think anyone predicted.
Speaker 9: We did see that also increase in the Jolts Report,
Speaker 9: the job opening report that came out earlier in the week.
Speaker 9: There was a big increase in the professional service sector
Speaker 9: job posting.
Speaker 5: So that is a good sign.
Speaker 9: That can mean some good things for twenty twenty four
Speaker 9: that employers are you know, hiring more of those skills positions.
Speaker 2: Where are these people working, Jonny, Are they coming back
Speaker 2: to the office or is it three days a week,
Speaker 2: four days a week. I mean, we're we're like the
Speaker 2: last people to ask because we're in five days a week,
Speaker 2: so you know, but we're we're the normal people. What
Speaker 2: are they doing?
Speaker 5: Yeah, So it is interesting.
Speaker 9: I think, you know, one of the big concerns out
Speaker 9: there certainly is commercial real estate because you can see
Speaker 9: in large cities that people are not coming back to work.
Speaker 9: They're not in the office buildings employers, you know, in
Speaker 9: this again mostly in the white collar you know, professional
Speaker 9: service jobs and also in healthcare, we do see that,
Speaker 9: like there's opportunities to even work you know remote or
Speaker 9: go to a hybrid schedule, and employees don't necessarily want
Speaker 9: to go back to the office.
Speaker 5: They like the flexibility, and I do have some concerns
Speaker 5: about that.
Speaker 9: I think there there are a lot of benefits, right
Speaker 9: of collaboration and working together and these social aspects. I
Speaker 9: have some big concerns about our younger generations that are
Speaker 9: just getting into the workplace. I have two children in college,
Speaker 9: you know, I don't want them to have their first
Speaker 9: job and like be working from home.
Speaker 5: They're going to miss out.
Speaker 9: On so many great experiences and building those professional, you know,
Speaker 9: communication skills.
Speaker 5: So I do have some concerns about it.
Speaker 9: But right now, for the most part, we're seeing hybrid
Speaker 9: models remote work. Of course, that's very different in the
Speaker 9: trades and in supply chain where people really have to
Speaker 9: be on site.
Speaker 4: Yeah, Hey, Joni, thanks a lot. We really appreciate it.
Speaker 4: It's really fun to dissect all of this with you.
Speaker 4: Thank you so much for joining us to a bilely
Speaker 4: chief workforce Analyst at employee Bridge on January. Job support
Speaker 4: just coming in a lot better than estimated.
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Speaker 4: Big tech still strong, high yields. Maybe that hurts equities.
Speaker 4: Maybe you wind up having a FED that's going to
Speaker 4: push out its rate cuts. That's going to be negative
Speaker 4: for equities, But the economy is strong, that should be
Speaker 4: good for equities. Do you guys get all that? You
Speaker 4: got that? We're good to go? Now, Well, let's ask
Speaker 4: someone who knows more than us, James Demmert. He is
Speaker 4: chief investment officer at main Street Research. Hey, James, there's
Speaker 4: a lot of conflicting resource narratives here. What's the right
Speaker 4: one for you?
Speaker 10: Good morning, Alex and Paul. I think the narrative is
Speaker 10: again investors get really caught up with FED talk, and
Speaker 10: you know, just look at the basic fundamentals here. We
Speaker 10: had to blowout jobs report. What does that tell us?
Speaker 10: Investors should know the economy is really resilient, right, I mean,
Speaker 10: that's really great data there this morning. And then I
Speaker 10: think at the same time, you know, there's a concern
Speaker 10: that people are sort of caught up with the FEED
Speaker 10: has to keep cutting rates or has to start right away.
Speaker 10: And they're doing the right thing. I mean, they're they're
Speaker 10: luckier or smart, They've got the economy right where they
Speaker 10: want it. Who would have guessed? And so I think
Speaker 10: investors here should realize inflation's gone. The PCEE their favorite
Speaker 10: number right, less than three, very close to where they
Speaker 10: want it to be. They don't need to cut. And
Speaker 10: you've got a resilient economy. What that means, new business cycle,
Speaker 10: new ball market. Keep it simple, Investors, don't overthink this.
Speaker 10: Earnings are what drive stocks in phase one. That's where
Speaker 10: we are. Focus on earnings. Look at Meta right, look
Speaker 10: at Amazon, look at Microsoft. Focus on earnings. Yes, higher
Speaker 10: rates can have an effect negati effect on certain parts
Speaker 10: of the market. If rates are higher for longer, we
Speaker 10: can talk more about that.
Speaker 8: Yeah.
Speaker 2: I mean, I'm former equity analyst, so I like to
Speaker 2: think earnings matter. I spent so much time trying to
Speaker 2: figure out wh the earnings are going for some of
Speaker 2: these companies build these monster models. What are you seeing
Speaker 2: so far, James? Again, today is all about to fed.
Speaker 2: But again, we've had a ton of earnings, including some
Speaker 2: big tech last night. What do you see in some
Speaker 2: of the earnings that we've had so far?
Speaker 10: Well, I think you know, one of the things investors
Speaker 10: should really focus on here is you know what's driving
Speaker 10: these earnings. And one of the things I think that
Speaker 10: all of us should be excited about you're already seeing
Speaker 10: it in tech earnings. Is this effect of AI right A,
Speaker 10: that's going to be a tailwind for better productivity growth
Speaker 10: within companies that should lead to higher stock places over time.
Speaker 10: We're also, and I think this is really important, the
Speaker 10: META numbers show us that as an equity MLS, you
Speaker 10: can appreciate this. We've gone through an era of efficiency
Speaker 10: what we call it otherwise, I know it's cost cutting,
Speaker 10: and that cost cutting that a lot of companies have
Speaker 10: done over the last eighteen months as they had inflation
Speaker 10: fears and market fears is now coming to be very rewarded.
Speaker 10: So I think, you know, the cost cutting is obviously
Speaker 10: increasing margins. Meta a really good example, but that's going
Speaker 10: on across all sectors. And then you've got this sort
Speaker 10: of forward looking productivity growth that we're really excited about.
Speaker 10: And that's why we think not just a new business cycle,
Speaker 10: but maybe a supercycle.
Speaker 4: Supercycle, a business supercycle. But hey, if we wind up
Speaker 4: having higher for longer now the economy actually is heating
Speaker 4: up and it's just kind of firing on all cylinders,
Speaker 4: doesn't that at some point isn't that bad for equities?
Speaker 10: Well, it could be, and it could be bad for
Speaker 10: the economy, and it could, you know, bring the inflation
Speaker 10: boogeyman back. And that's why again investors should just get
Speaker 10: over their anticipation the Fed has to cut. I think
Speaker 10: the Fed's doing the right thing. They see this economy
Speaker 10: is strong. The last thing they want to do is cut.
Speaker 10: I think that's exactly where we'd end up in that
Speaker 10: risk of oh gosh, now it's you know, they've really
Speaker 10: juiced it by lowering rates when it was already pretty
Speaker 10: smoke and hot. I think the Fed sort of just
Speaker 10: sit back and does nothing. And let's face it, it
Speaker 10: might be that, you know, everybody anticipates all these rate cuts,
Speaker 10: even the FED does this year, it could be the
Speaker 10: economy strong enough that they don't need to do any
Speaker 10: and earnings then will drive stocks. So I think as
Speaker 10: long as the FED keeps their hand on the tiller
Speaker 10: very carefully here, the economy can grow all by itself.
Speaker 10: The market is obviously pushing interest rates up today. Let
Speaker 10: the market do that. Keep the Fed out of the
Speaker 10: out of the way, and I think the economy can
Speaker 10: be perfectly fine and not overheat.
Speaker 2: James, I like big numbers as much as the next person.
Speaker 2: Big round numbers, and you've got them in your research.
Speaker 2: You say, over the next ten years, the Dow, Jones
Speaker 2: industrials could cross one hundred thousand, s and P fifteen thousand,
Speaker 2: NASDAK fifty thousand, all within the next ten years or so.
Speaker 2: What's kind of the thesis that get you those kind
Speaker 2: of numbers?
Speaker 10: Yeah, Dow one hundred k, right, yep, you know some
Speaker 10: historic reference. I just finished my recent book which is
Speaker 10: really about the market and what it does over time,
Speaker 10: and so you know, really what we're using is some
Speaker 10: data points. One is if it is a new business cycle,
Speaker 10: which we believe it is, and if it's an AI
Speaker 10: driven productivity growth type of cycle. What we're doing is
Speaker 10: we're attaching what would growth rates be for companies, and
Speaker 10: we can see earnings tripling over that seven to ten
Speaker 10: year period. That's usually as long as a business cycle lasts.
Speaker 10: Ten is a long time. I'd say seven to eight
Speaker 10: nine years, we'll probably see earnings triple again with this
Speaker 10: AI tailwind and that sort of just through the math. Right,
Speaker 10: the Dow goes to one hundred grand, the SMP goes
Speaker 10: to fifteen, and the Nasdaq and the SMP probably you know,
Speaker 10: we'd say Nasdaq is fifty thousand, because that's the core
Speaker 10: of where that AI really is going to provide better
Speaker 10: earnings growth.
Speaker 4: WHOA, that feels like a lot. What's your downside to
Speaker 4: that thesis? Like, what what would be your risk to that?
Speaker 10: Well, that's a good point. I mean, you can't just say, Wow,
Speaker 10: that's going to happen and let's put it all an
Speaker 10: index monet and go go home or come back in
Speaker 10: ten years. I think there's a lot of risks in this,
Speaker 10: and one of them is, well a lot of them
Speaker 10: are the obvious ones, right, you know, if we fall
Speaker 10: it into a significant recession, maybe because the Fed doesn't
Speaker 10: manage the interest rate cycle correctly, I think I think
Speaker 10: I'd give them the faith that that's not going to happen.
Speaker 10: But we also have you know, we have national debt.
Speaker 10: That's a problem. Usually that's taking taken care of. As
Speaker 10: it was in the nineties we had such a big economy.
Speaker 10: We actually filled the debt back that hole that the
Speaker 10: debt was creating. We filled it up by capital gain
Speaker 10: saxes on corporations. So but you've got some stuff going on,
Speaker 10: and of course we have this geopolitical risk. You know,
Speaker 10: they can always turn the world upside down, which is
Speaker 10: why you know, in our case we use risk management tools.
Speaker 10: I think it's very important investors, you know, things like
Speaker 10: stop loss orders are really important. Know how much equity
Speaker 10: exposure you need. Even if I say down one hundred K,
Speaker 10: I'm not saying investors you should be fully one hundred
Speaker 10: percent in stocks. Understand your planning, how much risk you
Speaker 10: need to take, and only have enough equity exposure to
Speaker 10: get the return that you need because there are those
Speaker 10: risks out there, and there's some ways to protect yourself.
Speaker 2: What are some of the sectors that you think are
Speaker 2: interesting right here, James, A lot of folks, you know,
Speaker 2: we got a lot of tech numbers over the last
Speaker 2: couple of days showing some pretty good strength there. What
Speaker 2: are some sectors you guys.
Speaker 10: Like, Yeah, I know, right, it's the elephant. We are
Speaker 10: big fans of tech, and that's where we're overweighted. But
Speaker 10: I gots you know, if you look at just about
Speaker 10: every other sector of the market, and this is important.
Speaker 10: If you look at Ford pe earnings pees, right, you
Speaker 10: usually pes or are not correct when you're starting a
Speaker 10: new business cycle because the e is going to be
Speaker 10: bigger than people expect because of the earnings of the
Speaker 10: profit margins. So we look at valuation and we look
Speaker 10: at what sectors look good. Oh, it's not just tech,
Speaker 10: it's the financials, the historically cheap, it is the industrial
Speaker 10: companies historically cheap. A lot of this stuff is less
Speaker 10: than fifteen times earnings. I think even you know, if
Speaker 10: you wanted to reach out into the remarket which has
Speaker 10: gotten crushed, or the small cap stocks which are not
Speaker 10: acting well today but they certainly would thrive over the
Speaker 10: next few years, I think investors should look there. So
Speaker 10: I think pretty much broadly across all sectors, you're going
Speaker 10: to see some better earnings from these low valuations. And
Speaker 10: again you're gonna have the AI tailwind. I mean, AI
Speaker 10: is going to have a tremendous effect on healthcare, and
Speaker 10: we were really excited about that as well. Low valuations.
Speaker 4: That's all right, James, thanks a lot. That was a
Speaker 4: bullish view to a Friday. We appreciate it. James Emmert.
Speaker 4: He's a chief investment officer at main Street Research.
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Speaker 4: So we brought up a University of Michigan sentiment. So
Speaker 4: this is a wonderful indicator. The inflation expectations also can
Speaker 4: tend to use market tend to move markets. We got
Speaker 4: the final read for January. Here's where they stacked up.
Speaker 4: Michigan sentiment up to seventy nine current conditions, lower than
Speaker 4: the last read, but at eighty one point nine. Expectations
Speaker 4: much stronger actually at seventy seven point one, and the
Speaker 4: one year inflation expectations at two point nine. We've kind
Speaker 4: of been around that level for a while. We want
Speaker 4: to do is bring you direct analysis from the person
Speaker 4: who knows these numbers, who did these numbers, and for
Speaker 4: that we're doing with Joanne Shue, University of Michigan Surveys
Speaker 4: of Consumer Director. She joins us, Now, Joan, always good
Speaker 4: to see you on a you miss day. What's your
Speaker 4: take from the numbers.
Speaker 11: This is telling us that consumers are really starting to
Speaker 11: feel more sure that the inflation slowdown is going to continue.
Speaker 11: They had been reserving, judge for much of the fall
Speaker 11: of twenty twenty three, you know, not really sure if
Speaker 11: the slowdown was going to persist or if inflation was
Speaker 11: going to come back. And at this point they're feeling
Speaker 11: much more confident about it, and that is the main
Speaker 11: thing that's supporting this very large increase in sentiment that's
Speaker 11: been continuing on for two months now.
Speaker 2: So, Joanne, the good sentiment numbers that you're talking about,
Speaker 2: you know, I guess coincide or let me let me
Speaker 2: ask you to what extent do they coincide with the
Speaker 2: fact that, again we get the non farm payroll number
Speaker 2: came in today really strong kind of everybody who wants
Speaker 2: a job has a job. That figures into your data
Speaker 2: as well, right.
Speaker 11: Oh, absolutely. You know, consumers are by and large they're workers,
Speaker 11: and so they recognize that labor markets are strong. And
Speaker 11: that's also bearing out when we ask people about where
Speaker 11: they think their incomes are going in the year ahead.
Speaker 11: Their income expectations have strengthened over the last few months,
Speaker 11: and that's very much supporting strong consumer spending as well
Speaker 11: as their strong levels of.
Speaker 4: Sen Joanne, is there any divide between if the respondents
Speaker 4: identify as Democrat or Republican.
Speaker 11: So there is typically a partisan gap in sentiment and
Speaker 11: this month is no different. As it turns out, this
Speaker 11: two month increase, Republicans saw most of that gain in
Speaker 11: December and we're not particularly changed in January. Independence as
Speaker 11: well as Democrats, they also saw a gain in December
Speaker 11: and continued to gain in January as well.
Speaker 4: For all three political groups, we're.
Speaker 11: At the highest level of sentiment in a couple of
Speaker 11: years now, So interesting, what.
Speaker 2: Is your sense? I mean, we need your survey work.
Speaker 2: I mean, is a recession still kind of on the table,
Speaker 2: or if you take your data, you take the GDP print,
Speaker 2: you take the labor print. I'm not sure I can
Speaker 2: make a recession call here.
Speaker 11: Consumers actually are quite split on what they think is
Speaker 11: going to happen with the economy going forward. There's still
Speaker 11: forty eight percent of people who are expecting challenging, you know,
Speaker 11: bad times with business conditions ahead, compared with forty one
Speaker 11: percent to expect good times ahead. Now, this isn't to
Speaker 11: say that we will be in a recession. You know,
Speaker 11: consumer sentiment numbers are about seven percent below average, so
Speaker 11: they are not nowhere close to the lows we were
Speaker 11: seeing last year, but the fact that we're on an
Speaker 11: upward trajectory, we're pretty much back to the same upper
Speaker 11: trajectory that we've been seeing since the all time historic
Speaker 11: low from June twenty twenty two, and that definitely bodes
Speaker 11: well for in terms of supporting GDP growth in the
Speaker 11: months ahead.
Speaker 4: Here's what I find confusing, Joanne, because if you wind
Speaker 4: up having respondents feeling better about the economy, which would
Speaker 4: imply like, Okay, maybe the FED is going to cut rates,
Speaker 4: so I can feel a little bit of pressure ease.
Speaker 4: But then because of that we see an acceleration which
Speaker 4: then increases GDP, which then means the FED has to
Speaker 4: keep rates higher for longer and not cut. Is any
Speaker 4: of that track and the data and the conversations that
Speaker 4: you have, I mean, I think this is you ask
Speaker 4: an interesting question. And the reason this is interesting is
Speaker 4: because you know, the survey is not happening in a vacuum.
Speaker 11: Policy makers, including FED policy makers, are are reacting to
Speaker 11: lots of data, including ours, and when we are asking
Speaker 11: consumers what they think is happening now, they you know,
Speaker 11: they are folding in their own expectations for where FED
Speaker 11: policy is going to go. We have the largest share
Speaker 11: expecting rate cuts since two thousand and eight, So consumers
Speaker 11: are absolutely expecting rate cuts in the year ahead. Now,
Speaker 11: of course, you know, if all the strong indicators in
Speaker 11: the economy lead the FED to, you know, take to
Speaker 11: exercise more caution in their rate cuts, I think we'll
Speaker 11: see that play out in consumer expectations, especially as it
Speaker 11: passes through to consumer interest rates and credit conditions. But
Speaker 11: in this very moment, you know, consumers are expecting much
Speaker 11: more strengthen the economy than they were expecting six months ago,
Speaker 11: a year ago.
Speaker 4: All right, Joanne, it's good to catch up with you.
Speaker 4: We'll get you for that preminary February read too, Joanneshu,
Speaker 4: University of Michigan, Surveys of Consumers, Director Paul. Do you
Speaker 4: feel better than I do?
Speaker 2: I do? I think the I feel like I can
Speaker 2: really see the end in sight for the FED, and
Speaker 2: that's all I need. That's really all I need. And
Speaker 2: I think if earnings are going to kind of stay
Speaker 2: in there relative to where the market's disc and I
Speaker 2: think the market's set up for a pretty good move here.
Speaker 2: And then we've seen a lot of it. We've seen it.
Speaker 2: We are Yeah, The question is how much do we
Speaker 2: see in November and December.
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