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Speaker 3: Stocks aiming to extend the year end rally, Victoria Fernandez
Speaker 3: of Crossmark Global Investments, writing, we begin the year with
Speaker 3: equity valuations at somewhat rich levels and lots of optimism
Speaker 3: already baked into those valuations, setting a high bar for
Speaker 3: positive surprises and paving the way for moderate returns. Victoria
Speaker 3: joins us. Now, Victoria, thank you so much for joining us.
Speaker 3: If the bar is so high for next year, do
Speaker 3: you think we are going to see some sort of
Speaker 3: correction in the markets?
Speaker 4: I think we will and ray, and it's typical that
Speaker 4: you'll see that in a midterm election anyway. So you
Speaker 4: add in the element of coming into the year at
Speaker 4: high valuations and you're setting yourself up for that. I mean,
Speaker 4: you typically look at a midterm election year and coming
Speaker 4: into that year, you've already priced in those pro growth components,
Speaker 4: the optimism around things being positive after our new administration
Speaker 4: comes into term, and as those positive elements actually come
Speaker 4: to fruition in a midterm election year, you start to
Speaker 4: see some pullback, some entry year corrections, sometimes up to
Speaker 4: as much as fifteen, sixteen, seventeen percent, you can see.
Speaker 5: So there's a lot of volatility.
Speaker 4: You usually get higher yields, so we wouldn't be surprised
Speaker 4: to see yields move a little bit higher as well.
Speaker 4: Setting this up for a year where you're going to
Speaker 4: see a lot of churning but have moderate returns, not
Speaker 4: like we're going to you know, like we've seen the
Speaker 4: last couple of years with these huge returns.
Speaker 3: So do you think we're going to see investors want
Speaker 3: to have more defensive trades? Could we see also rotation
Speaker 3: in the market.
Speaker 4: Yeah, we're already seeing some of that rotation, not necessarily
Speaker 4: into staples per se. Right, Staples are still struggling, so
Speaker 4: you're not getting that full on defensive shift. But what
Speaker 4: you are seeing is people come out of some of
Speaker 4: those high flyers, those hyperscalers, the high leverage tech or
Speaker 4: not leverage, but the high valuation tech names that are
Speaker 4: out there. You're seeing them trim those names back and
Speaker 4: going into some areas where you're starting to see uptrends
Speaker 4: in the sector. So whether it's healthcare, whether it's metals,
Speaker 4: like you guys were talking about, we've seen it in financials,
Speaker 4: We're seeing it in industrials. There's opportunities there to go
Speaker 4: in Staples are still dragging, so we haven't seen, like
Speaker 4: I said, that full rotation to defensive, but I think
Speaker 4: you're going to want to have a little bit of
Speaker 4: that in your portfolio.
Speaker 5: If we get a typical midterm year like we normally do.
Speaker 6: Let's sayce Victoria, it's going to be pretty quiet until
Speaker 6: mid January when corporate earnings come out for the fourth
Speaker 6: quarter numbers. And given that we had this government shut
Speaker 6: down the longest on record, disrupt the flow of economic data,
Speaker 6: it feels like there's going to be more importance placed
Speaker 6: on what companies say, especially how the forecast things for
Speaker 6: the coming year than what we've been getting from official data.
Speaker 6: What are you thinking in terms of the big themes
Speaker 6: you're anticipating from some of those sectors that you mentioned.
Speaker 4: Yeah, I think everyone's going to be looking at the capex,
Speaker 4: not just for those AI names, but across the board.
Speaker 5: That's really a driver.
Speaker 4: I think of some of the optimism that we have
Speaker 4: is this increasing capex. Some of that do to the
Speaker 4: OB three bill that was passed and the tax advantages
Speaker 4: associated with that, but we know capex helps growth, it
Speaker 4: gives you increased productivity, increase profitability, so people will be
Speaker 4: watching for that CAPEX component. I think we're also going
Speaker 4: to be looking at those retail names to see how
Speaker 4: does that consumer continue to spend. We know there's this
Speaker 4: divergence and it's going to be focused on the high
Speaker 4: income consumer. Will they continue to support the economy with
Speaker 4: their spending. So we'll be paying a lot of attention
Speaker 4: to that and really what the expectations are for profit margins,
Speaker 4: whether you're looking at EPs growth, revenue growth.
Speaker 5: Or profit margins.
Speaker 4: Those numbers are getting really high for twenty twenty six
Speaker 4: and going into twenty twenty seven, I think people are
Speaker 4: going to want to see can they actually see those
Speaker 4: numbers come to fruition or are those going to be
Speaker 4: pulled back some So those will all be elements to
Speaker 4: watch in earnings.
Speaker 6: And I'm so glad you highlighted Capex because when the
Speaker 6: AI build out first began, CAPEX was something that was
Speaker 6: seen as almost a positive because it showed a company's
Speaker 6: commitment to the future. However, increasingly it's become something of
Speaker 6: a burden, something that stretches their balance sheet. What's the
Speaker 6: sentiment towards capex Because if you don't have any ROI
Speaker 6: to show for immediately, is it going to be seen
Speaker 6: as a negative.
Speaker 5: That's exactly right.
Speaker 4: You've got to be able to see that there's some
Speaker 4: kind of return that you're getting on the money that
Speaker 4: you're investing, especially if it's disrupting your balance sheet, and
Speaker 4: I think that's the issue people are going to watch.
Speaker 4: It's very much company specific because you can look at
Speaker 4: something like Oracle, where they're having to go to the
Speaker 4: debt market, their free cash flow is going to be
Speaker 4: drawn down significantly. That's a very different story than looking
Speaker 4: at someone like an Alphabet, where they're still going to
Speaker 4: have very strong free cash flow. Yes, they can go
Speaker 4: to the debt market, but that free cash flow number
Speaker 4: continues to be strong, so there's not as much concern
Speaker 4: when it comes to a company like that. It'll really
Speaker 4: be driving down into the balance sheet to see how
Speaker 4: is the CAPEX going to affect cash flow going forward?
Speaker 4: What does that mean in terms of earnings, What does
Speaker 4: that mean in terms of dividends if it's a dividend
Speaker 4: paying stock. Those are all elements that will play into
Speaker 4: what CAPEX looks like for each specific company, But as
Speaker 4: a whole, we know it's typically supportive of GDP and productivity,
Speaker 4: so people will be they'll be biased towards positivity as
Speaker 4: long as the balance sheets can handle it.
Speaker 3: Picture you mentioned the midterm election years tend to be
Speaker 3: high growth. What are you expecting from the administration to
Speaker 3: make sure they keep that growth continuing.
Speaker 4: Yeah, I think we're going to see not just some
Speaker 4: stimulus coming for the consumer, but we'll see it for
Speaker 4: corporations as well.
Speaker 5: So we talked about CAPEX, what that looks like.
Speaker 1: R and D.
Speaker 4: There's going to be benefits associated with R and D
Speaker 4: and building infrastructure here in the US, so that onshoing benefit,
Speaker 4: but consumers as well. There's a lot of tax advantages
Speaker 4: for consumers not just no tax on tips, but you're
Speaker 4: looking at interest on car payments, You're looking at changes
Speaker 4: in regards to salt taxes, in regards to the child deductions.
Speaker 5: That you get.
Speaker 4: There's a lot of elements there that I think will
Speaker 4: be beneficial to the consumer as well that will lift
Speaker 4: them up for at least probably the first half of
Speaker 4: the year. Those are some of the things that I
Speaker 4: think you'll see coming specifically from the administration. And there's
Speaker 4: always talk about something new, right We're hearing talks about
Speaker 4: checks being given because of the tariffs that have come
Speaker 4: in and the elements that that are positive there, So
Speaker 4: all sorts of things that I think could boost consumers
Speaker 4: in the first quarter coming from the administration. And then
Speaker 4: add on to some of the things you have like
Speaker 4: the World's Cup coming, two hundred and fiftieth birthday party
Speaker 4: for the nation, all of these things that will generate
Speaker 4: more activities here in the US and generate more GDP.
Speaker 1: So they're looking forward to the World Cup.
Speaker 3: But when it comes to things like tax refunds, do
Speaker 3: you think consumers because they know what's coming, do you
Speaker 3: think consumers are already out there spending that money right now?
Speaker 3: On the holiday season, They.
Speaker 4: Might be in anticipation of that, so it could be
Speaker 4: less of effect. It kind of goes to that point
Speaker 4: that we're saying, where you come into the year with
Speaker 4: a lot of those growth elements already built in for
Speaker 4: your optimism for what you think is going to happen
Speaker 4: in the market, and when it comes to fruition, there's
Speaker 4: not much of an effect.
Speaker 5: That could be part of it.
Speaker 4: They could be spending that now, but it seems like
Speaker 4: lower income consumers really are holding on right now. You're
Speaker 4: not seeing savings rates go down tremendously, which is telling
Speaker 4: us that it's the high income consumer that's really spent.
Speaker 5: Low income consumers are.
Speaker 4: Not dipping in to those savings just yet, and year
Speaker 4: over year holiday spending for that cohort is actually negative,
Speaker 4: So I think they're holding back a little bit, waiting
Speaker 4: to see what happens, and a little bit of extra
Speaker 4: cash coming in next quarter could be a benefit for them.
Speaker 6: Well, high income consumers are spending in part because of
Speaker 6: the wealth effect, and Marie has told us several times
Speaker 6: about how the S and P five hundred closed at
Speaker 6: a record high for a thirty.
Speaker 1: Ninth time on Wednesday.
Speaker 6: If there's a sudden market pullback, if we see those
Speaker 6: gains unravel, how quickly could we see the wealth effect
Speaker 6: work in reverse.
Speaker 4: Yeah, I think that's actually something we really need to watch, Scarlett.
Speaker 4: So you're right, lower income consumers spend based on what
Speaker 4: they're making, right, what their salaries are, and what the
Speaker 4: job market looks like. High income consumers do spend based
Speaker 4: on wealth effects. So as long as the market.
Speaker 5: Is doing well, they're going to spend.
Speaker 4: If we see that pullback, if we see the volatility
Speaker 4: that we think we'll see in twenty twenty six, you
Speaker 4: should see the high come consumer pull back a little bit.
Speaker 4: They won't stop spending completely because they still have the
Speaker 4: job component there, but as they see housing prices maybe
Speaker 4: start to come back a little bit, as they see
Speaker 4: the market pull back a little bit, their spending will
Speaker 4: start to shift slightly.
Speaker 5: I think that means you have to be a little
Speaker 5: bit more.
Speaker 4: Cautious on those more expensive retail companies that are out there.
Speaker 4: Those high income retail companies will probably suffer a little
Speaker 4: bit if that happens, so there'll be a much lower
Speaker 4: level of spending that will occur.
Speaker 3: Soterory, let's just send on the big debate going into
Speaker 3: next year in financial markets, in terms of the fed's
Speaker 3: next mute move, what are you pricing in for twenty
Speaker 3: twenty six.
Speaker 4: Yeah, we're really only pricing in one cut for twenty
Speaker 4: twenty six. We think they'll hold in January just because
Speaker 4: there's still a lot of unknowns going on. We did
Speaker 4: have a strong GDP number, but they do have a
Speaker 4: whole month of January to wait. They'll get more inflation numbers,
Speaker 4: they'll get more job numbers.
Speaker 5: We'll see what happens.
Speaker 4: But the debate here, I really think is where is
Speaker 4: neutral and how accommodative are.
Speaker 5: We right now? I think that's the underlying battle that's
Speaker 5: going on.
Speaker 4: It's a FED and how accommodative do they want to
Speaker 4: be in order to not stoke kind of the flames
Speaker 4: of inflation. That'll be the battle we continue to see.
Speaker 4: We think we're probably closer to neutral than what many
Speaker 4: people think, which means they'll be fewer rate cuts going forward.
Speaker 2: Stay with US Multilemberg. Savannah's coming up off to this.
Speaker 3: Here's the latest US consumer confidence dropping for a fifth
Speaker 3: consecutive month in December, according to fresh data from the
Speaker 3: Conference Board. Aaron McLaughlin of the Conference board writing expect
Speaker 3: real GDP growth to weaken amid a fragile balance of
Speaker 3: resilient labor markets and softening consumer demand due to tariff
Speaker 3: induced inflation. Aaron joins us now erin thank you so
Speaker 3: much for joining us, and hopefully you had a lovely holiday.
Speaker 3: When it comes to the consumer and the latest readout,
Speaker 3: I was struck by how more consumers are actually starting
Speaker 3: to actually be also worried about keeping their job.
Speaker 7: Yes, so we find that consumers really tighten up when
Speaker 7: they don't have jobs, And so the concept of deteriorating
Speaker 7: business conditions, the weight of tariffs, and inflation all definitely
Speaker 7: influence consumer spending and consumer sentiment. But concepts around rising unemployment,
Speaker 7: we've seen it tick up now to four point six
Speaker 7: in the concepts there are less jobs out there, jobs
Speaker 7: are not as plentiful, will really weigh on the consumer.
Speaker 1: In twenty twenty six.
Speaker 6: We know that government shutdown did not help matters. It
Speaker 6: made people feel more nervous, and it certainly created a
Speaker 6: lot of uncertainty. And I know it's over, but I
Speaker 6: bring this up because we could face another government shutdown
Speaker 6: in January as well.
Speaker 1: So how do we fold in.
Speaker 6: The government shutdown and what that does to consumer sentiment
Speaker 6: even as it's become a more freaking occurrence.
Speaker 7: Well, that was the longest shutdown we've had in modern
Speaker 7: history that we just had. It certainly impacted economists, it
Speaker 7: impacted consumers, especially this year. Consumers are just facing it's
Speaker 7: sort of constant news about politics, geopolitics, tariffs, inflation, and
Speaker 7: that constant news impacts them, and so another government shutdown
Speaker 7: will certainly also impact them, even if they don't feel
Speaker 7: the immediate effects of a shutdown. And sort of the
Speaker 7: news today and the concept that there could be rising
Speaker 7: oil prices in oil and gasoline excluding fuel oil for
Speaker 7: homes has been pretty low as on the inflation spectrum,
Speaker 7: but even news like we're hearing today, if prices go up,
Speaker 7: how does that impact consumers?
Speaker 6: The administration has been out there trying to paint a
Speaker 6: picture of a robust economy. Howard Lutnik, the Commerce Secretary,
Speaker 6: went on to talk about the third quarter of growing
Speaker 6: more than four percent and how that was a sign
Speaker 6: that things were better. He also mistakenly equated that with
Speaker 6: an increase in people's pay as well. How is that contradiction,
Speaker 6: that seeming contradiction of data that shows the economies holding well,
Speaker 6: holding up well, balancing with this sense from consumers that
Speaker 6: things are not getting better necessarily, especially on the job front.
Speaker 7: Well, consumers are not paying attention to GDP the way
Speaker 7: that we are in the way that economists and business
Speaker 7: and financial markets are necessarily paying attention to these readings.
Speaker 7: What they really feel is the effects of prices for
Speaker 7: things that they buy every week, every day, every month.
Speaker 7: And so those things include coffee, which has gone up
Speaker 7: in price twenty to forty percent, Beef and other proteins
Speaker 7: at the grocery store have gone up, and some big
Speaker 7: structural costs have really not come down, the cost of
Speaker 7: housing and in particular insurance, and the price of a more,
Speaker 7: while it has come down a little bit, is nowhere
Speaker 7: near as low as it was pre pandemic. And so
Speaker 7: when you see some of these really big price structural
Speaker 7: changes happen, that also weighs on consumer sentiment.
Speaker 3: What about when you look at trade induced inflation?
Speaker 1: What are you looking at for next year? Given the
Speaker 1: fact that.
Speaker 3: This administration will be renegotiating USMCA.
Speaker 7: We really think that federal policy, particularly around trade and tariffs,
Speaker 7: is going to have a huge impact on consumers next year.
Speaker 7: Our three largest trading partners are Mexico, followed by China,
Speaker 7: followed by Canada. Those three trading partners, our agreements with
Speaker 7: them are not settled. You know. We sort of kick
Speaker 7: the can down the road twelve months from China from
Speaker 7: November of this past year to November of next year.
Speaker 7: And then the USMCA, which is essentially NATA version two,
Speaker 7: will enter a version three phase as it can be negotiated,
Speaker 7: and that deadline is in July. And there is so
Speaker 7: much that we just trade between our three largest trading
Speaker 7: partners that there is really the potential for a lot
Speaker 7: higher inflation and price pressures on consumers for some items
Speaker 7: that we get that again, are include non discretionary as
Speaker 7: well as discretionary items like food.
Speaker 2: Stay with US mult Bloomberg surveillance.
Speaker 3: Coming up after this, Ukrainian President Vladimir Lensky saying he
Speaker 3: plans to.
Speaker 1: Meet with Trump in the coming days.
Speaker 3: Zlensky signaling a lot could be decided before the new year.
Speaker 1: After a Christmas Day sit down with.
Speaker 3: US envoys Steve Wikoff and Jared Kushner, Ed Mills of
Speaker 3: Raymond James joins US. Now, so, ed, you do have
Speaker 3: Zelenski looking like he's going to be going over to Florida,
Speaker 3: mar A Laga, where the President will be for the
Speaker 3: remainder of the Smith New Year holiday. Do you think
Speaker 3: potentially we could get a deal before twenty twenty six, a.
Speaker 8: Marie, It's possible.
Speaker 9: I think that there is probably more to work out
Speaker 9: on the Russian side. I think Zelenski is trying to
Speaker 9: find what he can get with the American contingent here
Speaker 9: because I think he wants to put pressure on Putin
Speaker 9: right now. The twenty point plan that Zelensky and the
Speaker 9: Americans have agreed to is probably unacceptable to Putin. This
Speaker 9: here is trying to reverse some of the pressure that
Speaker 9: has come onto him in the recent months, especially that
Speaker 9: kind of pre Thanksgiving deadline that the Trump administration had
Speaker 9: put on him. So I'd say there's going to be progress,
Speaker 9: But I don't think people are really expecting that what
Speaker 9: Zelensky and Trump workout will be acceptable to Putin, at
Speaker 9: least in the near term. We probably need at least
Speaker 9: one more round of this before things get settled.
Speaker 3: Well, as you we're speaking, Dimitri Peskov is speaking right now,
Speaker 3: and he's saying Russia has analyzed the information on the
Speaker 3: peace plans, according to the TAST news agency, or you
Speaker 3: shake off. They're saying that contacted US representatives. He's been
Speaker 3: one of the main negotiations. Senior Russian diplomat at the
Speaker 3: table and the Kremlin saying it is contact the US
Speaker 3: on Ukraine peace plan. Do you think Putin is just
Speaker 3: playing for time or do you think they are serious
Speaker 3: about getting to an agreement.
Speaker 9: I think that they are open to an agreement. I
Speaker 9: think that they are really going to be looking at
Speaker 9: these territorial concessions.
Speaker 8: And I think this is really what it comes down to.
Speaker 9: Emory, because what is the future of the Dumbos region.
Speaker 9: How much does Ukraine have to fully kind of acknowledge
Speaker 9: that Russia has kind of certain parts of this territory.
Speaker 9: How much of it is a de militarized zone. How
Speaker 9: much does Ukraine get to control this, How much does
Speaker 9: Russia get to control this?
Speaker 8: I think that's the critical issue.
Speaker 9: The second issue is even if you kind of create
Speaker 9: a de militari zone, what are the security guarantees. I
Speaker 9: think that Zelensky and Ukraine are willing to give up
Speaker 9: more of that territory, at least as a demilitary size
Speaker 9: zone if they get.
Speaker 8: Those kind of security guarantees.
Speaker 9: But if there's not the security guarantees, they're not willing
Speaker 9: to do that. And I do think that Putin is
Speaker 9: not going to be okay with the security guarantees that
Speaker 9: Zelensky wants, and are probably not going to be okay
Speaker 9: with a demilitary zone. They want more territorial concessions, I
Speaker 9: think than what the US and Ukraine are willing to
Speaker 9: give at this point.
Speaker 6: So these are all pretty familiar sticking points thinks that
Speaker 6: have really locked both sides into their respective positions for
Speaker 6: months now. And what about Europe Henry was mentioning earlier,
Speaker 6: Europe is kind of missing in all of this. And
Speaker 6: if Zelensky goes to mar Lago on Sunday, does your
Speaker 6: play any role in this?
Speaker 8: They could?
Speaker 9: I think what we've seen, Scarlett is that Europe has
Speaker 9: played a bit of a backstop.
Speaker 8: To these negotiations.
Speaker 9: If they seem as if they are going too far
Speaker 9: towards Russia, if they are seen going kind of to
Speaker 9: aggressive towards Ukraine, there are kind of key constituencies within
Speaker 9: Europe that step up. I do think what we're going
Speaker 9: to see if we do have a demilitarized zone.
Speaker 8: How much do NATO or European forces.
Speaker 9: I lean more towards European forces, so it's not seen
Speaker 9: as a specific NATO operation could be part of that
Speaker 9: security guarantee in that area. But they just want to
Speaker 9: make sure that Ukraine is not on the wrong end
Speaker 9: of any of these negotiations, so they stay out for now,
Speaker 9: but if it goes in the wrong direction, they step
Speaker 9: up that diplomatic pressure on the US envoy.
Speaker 6: Okay, And of course we are anticipating a visit between
Speaker 6: Zelenski and Trump in the coming days. According to Vladimir Zelenski,
Speaker 6: I also want to get your take on what happened
Speaker 6: over the holiday, which is the US launching Christmas Day
Speaker 6: military strikes in Nigeria against the ISIS targets. And of
Speaker 6: course we had known that in November the President threatened
Speaker 6: possible military action if the government did not halt the
Speaker 6: killing of Christians.
Speaker 1: Talk a little bit.
Speaker 6: About why now and whether this is a one time
Speaker 6: action or this is the start of something more sustained.
Speaker 9: Yeah, so President Trump has said this is at the
Speaker 9: request of the government. He does view kind of the
Speaker 9: defeat of ISIS during his first term as his signature
Speaker 9: geopolitical kind of military achievement of that first term. To
Speaker 9: the extent that he is going to have requests and
Speaker 9: it is against ISIS, I don't think that there's anything
Speaker 9: that he would hold back trying to go after that group.
Speaker 9: So I do think at this point, I think you
Speaker 9: would consider this as contained. But if there are other needs,
Speaker 9: he's absolutely willing to do this. It is unusual to
Speaker 9: have strikes under the Trump administration. He so far has
Speaker 9: been fairly limited in how aggressive he wants to be
Speaker 9: with some of that proactive military use. So that was
Speaker 9: keep me more in that contained camp versus this is
Speaker 9: the start of something news well.
Speaker 3: At the same time, ed he did promise on the
Speaker 3: campaign trail to not entangle the United States any more
Speaker 3: foreign conflicts. Is this going to be a problem with
Speaker 3: his base when it comes to the midterm elections.
Speaker 9: I think as long as it's specific, it's targeted, I
Speaker 9: think it is kind of couched in. We cannot let
Speaker 9: isis kind of reconstitute or kind of get stronger in
Speaker 9: any sort of fashion. Memory and also the fact that
Speaker 9: he would probably kind of couch this in the targeting
Speaker 9: of Christians, something that from a political perspective.
Speaker 8: Is in a pretty decent standing.
Speaker 9: That's why I did say that I think this is
Speaker 9: probably more contained than a start of something new. Something
Speaker 9: that he has done quite well with his base is
Speaker 9: trying to maintain that contained military conflict, and he's kind
Speaker 9: of ticked off more of the items that he has
Speaker 9: negotiated peace between kind of Israel in kind of the
Speaker 9: conflict in Gaza, other kind of areas where he's working
Speaker 9: on with kind of Thailand, Cambodia. He has this whole
Speaker 9: list of things that he has stopped globally. So containment
Speaker 9: is the base case here. He also always wants to
Speaker 9: project US strength and so he's not going to be
Speaker 9: shy if he's requested and it is needed.
Speaker 3: What's going on with you as strength in Venezuela. It's
Speaker 3: been six days that the US continuously is trying to
Speaker 3: pursue this sanctioned oil tanker that's linked to Venezuela.
Speaker 1: Do you see the.
Speaker 3: Administration just trying to control the sanctioned oil or do
Speaker 3: you think this is part of a bigger regime change?
Speaker 8: Yeah, am Marie.
Speaker 9: What I've told clients at Raymond James is this is
Speaker 9: part of a re establishment by the Trump administration of
Speaker 9: the Monroe Doctrine. I do think that we are looking
Speaker 9: at kind of North and South America as America's sphere
Speaker 9: of influence. I also think this is a bit of
Speaker 9: a shot across the bow and a warning sign to
Speaker 9: Mexico and to the extent that the drug cartels are
Speaker 9: the kind of underlying issue here. I think that this
Speaker 9: is a warning to Mexico, where he has already labeled
Speaker 9: the drug cartels in Mexico as terrorist organizations. If President
Speaker 9: Scheinbam does not get that under control, he's willing to
Speaker 9: take additional action. I think the big debate that I've
Speaker 9: had with clients at Raymond James is that to the
Speaker 9: extent that we are re establishing our sphere of influence,
Speaker 9: is that going to make it harder for us to
Speaker 9: push back as Putin wants that more territorial concern and
Speaker 9: what his former sphere of influence is, Is it going
Speaker 9: to be harder to push back against she if he
Speaker 9: gets more aggressive against Taiwan. So a near term that's
Speaker 9: a projection of strength by this administration, but it could
Speaker 9: have significant unintended consequences on the geopolitical stage.
Speaker 2: Stay with US Multblemberg. Savannah's coming up off.
Speaker 9: To this.
Speaker 3: Stocks pulling back just ever so slightly after natching fresh
Speaker 3: records highs as the Santa Claus rally really sets in.
Speaker 3: George Kunkalvas of MUFG, looking ahead to twenty twenty six,
Speaker 3: runing quote a growth set of risks that will require
Speaker 3: careful navigation, particularly around concentrated risk market valuations and we
Speaker 3: labor markets.
Speaker 1: George joins us.
Speaker 3: Now, George, thank you so much for joining us. So
Speaker 3: you don't sound so merry this morning when you.
Speaker 1: Look ahead to twenty twenty six.
Speaker 3: What are potentially how you're looking at in terms of
Speaker 3: risk and rewards.
Speaker 10: Yeah, the twenty twenty five obviously was a year full
Speaker 10: of disruptions, ended with markets near the highs as you're
Speaker 10: describing it, volatility declining, all that seems like you know
Speaker 10: it could continue. But those sort of setups were the
Speaker 10: ones that are the most precarious given the sort of
Speaker 10: backdrop you're talking about. The geopolitical at the beginning, we
Speaker 10: are really focused and have been focused on the labor market,
Speaker 10: and we need to have this economy of broaden out
Speaker 10: and not just be really concentrated both in income distributions,
Speaker 10: but also in the tech sector, we need a broadening
Speaker 10: out of the economy to really change our view.
Speaker 1: Do you think we will see your broadening out? And
Speaker 1: if so, how do you time this?
Speaker 10: Yeah, it's likely. Some of the key kind of indicators
Speaker 10: to watch out for, is you real small businesses really
Speaker 10: start to pick up the hiring pace. Is that something
Speaker 10: that we can kind of keep a real time assessment
Speaker 10: as we go through the course of the beginning of
Speaker 10: the year. You know, we are concerned about the potential
Speaker 10: head faith at the beginning of the year. Probably we'll
Speaker 10: see benefits from the fiscal policy that was put in
Speaker 10: place with a big, beautiful bill, But then will that
Speaker 10: be sustainable into the second half of the year.
Speaker 8: That's really the big question.
Speaker 6: Yeah, I've seen several notes, including yours George, mentioning the
Speaker 6: World Cup as a catalyst for first half growth GDP
Speaker 6: in particular. Would that would certainly help specific hosting cities,
Speaker 6: but how meaningful would that impact be an aggregate?
Speaker 10: Look at me. Look, it's hard to kind of quantify specifically,
Speaker 10: but look, next year, you have the hallmarks of potentially
Speaker 10: pretty exciting year. You have the World Cup, you have
Speaker 10: the US is two hundred and fifty, the anniversary. I'm
Speaker 10: sure that between up until these fourth of July, I
Speaker 10: think that the is going to be kind of a
Speaker 10: buoyant sort of spending pattern amongst US consumers. The question
Speaker 10: is like, is it concentrated, will kind of even out
Speaker 10: over the year, And I think those are the big
Speaker 10: questions to kind of think of that.
Speaker 6: You also have the midterm elections, and we know that
Speaker 6: midtrum election years tend to be high growth years. As
Speaker 6: with everything else, investors do tend to price in the
Speaker 6: benefits before they actually filter through the economy.
Speaker 1: Where is this going to be most apparent?
Speaker 6: Is it going to be in equities, in treasuries and
Speaker 6: the dollar in commodities.
Speaker 10: Look, I mean this is interesting because a lot of
Speaker 10: these sort of views I think are largely probably sent
Speaker 10: to your point. I mean, the dollar was week this year,
Speaker 10: but most of the weakness came at the beginning of
Speaker 10: the year, and we've been basically going sideways. You know,
Speaker 10: the movement in precious metals has been off the charts.
Speaker 10: Stocks continue to grind higher. Now, if a lot of
Speaker 10: that was capturing the news of both that pivoting towards
Speaker 10: more easier policy a lot of that's kind of baked
Speaker 10: in the cake, and so the question is what's the
Speaker 10: follow through. I think that it's going to be hard
Speaker 10: to meet some of these expectations.
Speaker 1: Last time you were on, it was an early in November.
Speaker 3: You were on with John and Lisa, and you were
Speaker 3: talking about the market internally starting to look exhausted and
Speaker 3: ripe at least for correction. But here we are December
Speaker 3: twenty sixth, and we had on Wednesday before Christmas a
Speaker 3: thirty ninth record high. When it comes to equities, do
Speaker 3: you think we could see a meaningful can recalibration inequities
Speaker 3: in twenty twenty.
Speaker 8: Six looks so in between.
Speaker 10: Nothing's linear, and we did have a minor correction or
Speaker 10: a minor pullback I should say, in November before Thanksgiving,
Speaker 10: and then since then it's been off to the races,
Speaker 10: very typical the end of the year type rally. Also
Speaker 10: very typical of a low VALL environment. We have had
Speaker 10: the VIX very low rate volatiley declining. All of this
Speaker 10: is kind of engendered further is taking. We do think
Speaker 10: that you know, there's going to be a meaningful correction
Speaker 10: at some point over the course of twenty twenty six.
Speaker 3: When it comes to how you're thinking about the Federal Reserve,
Speaker 3: you say, a lot of this is baked in. When
Speaker 3: you say baked in, do you mean one more ray
Speaker 3: cut or two more ray cuts?
Speaker 10: Look, so the market has about one and a half
Speaker 10: two cuts basically in the back of their mind priced
Speaker 10: into the forward curve.
Speaker 8: It's actually visible, you know. We think it's all about
Speaker 8: the sequencing.
Speaker 10: It depends on what takes place, who's pulling, you know,
Speaker 10: the actual rate cuts forward, you know, is going to
Speaker 10: be under our pals, you know, kind of last few meetings,
Speaker 10: we think, you know, maybe one more cut under the
Speaker 10: current sort of FED, and then in the future we
Speaker 10: don't know. There's been a lot of questions about FED independence,
Speaker 10: and we'll FED cut for the right reasons or for
Speaker 10: other motives. Either way. We think that the Fed's probably
Speaker 10: cut further than what's priced into the market. But if
Speaker 10: they cut from more than more than two times, I
Speaker 10: think something has change in the macro sense. So if
Speaker 10: the Fed's cutting more than twice next year, something's kind
Speaker 10: of weakened in the economy. That justifies it.
Speaker 6: Yeah, your view is that the FED will cut rates
Speaker 6: three to four times in twenty twenty six, and of
Speaker 6: course it is expectations of lower rates that's helping to
Speaker 6: support those commodity prices, gold and silver prices in particular.
Speaker 6: What is different George about gold run this time versus
Speaker 6: say in October when it peaked at about forty three
Speaker 6: eighty one and a lot of people saw that run
Speaker 6: up as overheated.
Speaker 10: Well, I think the whole year of precious level move
Speaker 10: is something that is very telling of a both you know,
Speaker 10: there's a view around the commodity needs for sort of
Speaker 10: the new technology in the new economy that's evolving, but
Speaker 10: I think it's also a referendum on sort of thet policy.
Speaker 10: The Fed did go from basically not wanting to cut,
Speaker 10: pivoting towards cutting stopping QT, and then introducing a version
Speaker 10: of not QI the reserve management, which is going to
Speaker 10: add a lot of liquidity into the banking system. So
Speaker 10: I think that the precious metals is definitely picked up
Speaker 10: on that way earlier than other markets.
Speaker 6: Yeah, you can also argue the precious metals are part
Speaker 6: of that debasement trade too, where people are straying away
Speaker 6: from the dollar and treasuries and moving to precious metals.
Speaker 6: And indeed bitcoin as well, although we haven't seen crypto
Speaker 6: really participate in this leg of the rise in gold
Speaker 6: and silver. How do you fit bitcoin and what's happening
Speaker 6: in that speculative part of the market int your overall thinking, So.
Speaker 10: Yeah, obviously I look at crypto or these sort of
Speaker 10: alternative assets more from the lens of the macro. What
Speaker 10: it's telling us about liquidity more in general, and the
Speaker 10: preferences amongst liquidity, the fact that it's going into kind
Speaker 10: of harder you know, more of the older sort of
Speaker 10: precious metals versus the new age version of digital goal.
Speaker 10: I think it's telling you something that there's a preference
Speaker 10: to more safety versus what is still prove unproving sort
Speaker 10: of technology, and how long it's going to last, and
Speaker 10: what's the true valuation of bitcoin. It's not something that's
Speaker 10: in my wheelhouse, but in general, it's telling you from
Speaker 10: a macro sense that there's a preference for kind of
Speaker 10: the more traditional forms of alternative assets.
Speaker 3: We've seen in the entire commodity space, though left higher.
Speaker 3: Copper has been on an absolute tear as well. When
Speaker 3: it comes to the concerns in the commodity space, the
Speaker 3: physical commodities that are used across supply chains, like silver
Speaker 3: and copper. There's some concern that potentially will get more
Speaker 3: tariffs in twenty twenty six. How do you think about
Speaker 3: trade policy given there's some key dates coming up when
Speaker 3: it comes to this administration and some of the trade
Speaker 3: policies they've enacted in twenty twenty five.
Speaker 10: Obviously we're still waiting on them sort of key information,
Speaker 10: but we do know that tarris obviously are a key
Speaker 10: sort of platform agenda item that's not going to go away.
Speaker 10: So there's a baseline of expectations around tariffs, and then
Speaker 10: the question is do we get more secutorial tariffs as
Speaker 10: you're alluding to, you know, we do think that you know,
Speaker 10: this this full impact of tariffs is not just an
Speaker 10: inflationary sort of phenomenon, and maybe it's you know, toward
Speaker 10: its course there We don't know, but I think it's
Speaker 10: more about the sort of impacts and indecision that it
Speaker 10: does on planning, especially around the sort of you know,
Speaker 10: items like commodities. So I do think that, you know,
Speaker 10: the trade policy will have an impact on that side
Speaker 10: of things as well.
Speaker 3: Does it complicate potentially corporations and whether or not they
Speaker 3: are going to and when they may pass on more
Speaker 3: of these costs to consumers.
Speaker 10: Well, look, I think that you know, what we've noticed
Speaker 10: thus far is just a sort of hesitancy to kind
Speaker 10: of pass through fully the tariff effect and improfit margins
Speaker 10: have been kind of absorbing some of that. I think
Speaker 10: there will come a time and I think we're getting
Speaker 10: close to that point where companies will not be ass
Speaker 10: and absorbing these sort of profit costs and they're going
Speaker 10: to try to pass on to the consumers. Now, if
Speaker 10: it's towards the industrial sort of mid production, business to
Speaker 10: business sort of inputs that they're assessing and seeing if
Speaker 10: they can negotiate with their partners, maybe they can pass
Speaker 10: on some of it. But instead of us consumer outright,
Speaker 10: I think that they're going to have a challenge to
Speaker 10: do so, and it's going to eventually have to hit
Speaker 10: their margins.
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