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Speaker 2: now from Charles Schwab Liz Anne Saunders. I am really
Speaker 2: upset this morning about the financial media. OMG, Apple, We're
Speaker 2: all gonna die. I don't know what Apple's going to do.
Speaker 2: I know it's inappropriate for you to talk about an
Speaker 2: individual security, but where did we lose? Looking at support
Speaker 2: of trend out one year? Dare I say out three years?
Speaker 2: Or for retirement plan investors a five year window. Just
Speaker 2: the Apple chat of the last twenty four hours has
Speaker 2: been appalling.
Speaker 3: Because time horizons have shrunk two you know, nanoseconds. It's
Speaker 3: fine to talk about three years and five years. I
Speaker 3: think that matters, but a lot of the money in
Speaker 3: the market trades in a fraction of that time horizon.
Speaker 3: And you know, in the case of not just Apple,
Speaker 3: but Tesla and even Alphabet, it's the China tie. But
Speaker 3: it's not unhealthy that we're seeing some dispersion, not just
Speaker 3: among them Magnificent seven, but churn under the surface that
Speaker 3: in a stealthy way, there is actually some action and
Speaker 3: participation down the cap spectrum in other areas. You know,
Speaker 3: industrials have broken out and to some degree financials and
Speaker 3: that's not a bad thing.
Speaker 4: So we've had Luziana such a great move in the
Speaker 4: stock market in November December last year, really driving the
Speaker 4: market high. We've actually started the year off very well.
Speaker 3: If you look at the SFP at the index level.
Speaker 4: At the index level, that's where I want to go.
Speaker 4: So we go beneath. What are you telling your clients
Speaker 4: like if they're saying, I don't feel it, you know,
Speaker 4: I don't feel it.
Speaker 5: I know that.
Speaker 4: Everybody's tell me. The s andp's up six seven percent
Speaker 4: this year. It rallied hard last year, but I don't
Speaker 4: feel it.
Speaker 3: What do you tell me, well, I it's understandable because
Speaker 3: let's use the Nasdaq as an example, because the extremes
Speaker 3: here are are more significant. But that NASDAK, notwithstanding yesterday
Speaker 3: trading around highs and at the index level, that NASDAK
Speaker 3: has not had more than a three percent maximum draw
Speaker 3: down from a year to date high. Right, But the
Speaker 3: average member Nasdaq member maximum draw down from your to
Speaker 3: date highs is negative twenty two percent.
Speaker 2: Really, wow, I didn't So what do you call that
Speaker 2: a bear market?
Speaker 3: Well, it's it's churned under the surface, and it's draw
Speaker 3: downs at different times. But yes, you've had you've had
Speaker 3: bear market level draw downs among the average stock within
Speaker 3: the Nasdaq.
Speaker 2: Jud John Tucker, that describes your entire tool one k. Right,
Speaker 2: would you say it's a duck market.
Speaker 3: It's calm, that Michael Caine line of calm on the
Speaker 3: surface and paddling like the chickens.
Speaker 4: Yeah, So listen, what do you tell folks? I mean,
Speaker 4: and maybe I mean Tom's been long magnificent seven, he's
Speaker 4: been clipping coupons. He's fine. How about the rest of us?
Speaker 4: Where do we go from here? If we haven't been
Speaker 4: long those magnificent seven? I mean, where do we go
Speaker 4: from here?
Speaker 3: So I think I think there is money that is
Speaker 3: itching to find opportunities outside of that small group, also
Speaker 3: helping displain some of the dispersion that we're seeing there.
Speaker 3: I don't don't think though, that this is the time
Speaker 3: you want to sacrifice quality. We've got this recent resurgence
Speaker 3: again in you know, today's versions of the meme stocks,
Speaker 3: and that's a little bit troubling, But I would I
Speaker 3: would fade that type of move under the surface and
Speaker 3: lean into quality, especially if you're going down the cap spectrum,
Speaker 3: because in the case of the Wrestle of two thousand,
Speaker 3: you still have somewhere between thirty and forty percent of
Speaker 3: that index of stocks that are some combination of zombie
Speaker 3: companies and or nonprofitable companies. I don't think we're at
Speaker 3: the part of the cycle where you want to lean
Speaker 3: into low quality. There are times where for a trade
Speaker 3: that makes sense, it's where the leverage is to an
Speaker 3: upturn in the economy. I don't think we're there yet.
Speaker 2: And now, folks for Global Wall Street, all of you
Speaker 2: out on applecarplay and YouTube, the question that matters where
Speaker 2: is Lizion Sanders on rebalancing? How do we rebalance without
Speaker 2: over rebalancing or selling our winners. What's the sunders process.
Speaker 3: Well, rebalancing is more about adding and trimming, not buying
Speaker 3: and selling. So that's that's the beautiful component of that
Speaker 3: discipline is it forces it's ad low trim high, distinct
Speaker 3: from by low sell high. And one of the things
Speaker 3: that individuals can consider doing, which is in contrast to
Speaker 3: what most institutions, particularly cohorts like mutual funds, that have
Speaker 3: that calendar based rebalancing final week of every quarter, I
Speaker 3: think for individuals, and you have to take into consideration
Speaker 3: the effect of turnover and transaction costs and even things
Speaker 3: like tax brackets. So this is not a blanket recommendation,
Speaker 3: but for investors to at least consider what I call
Speaker 3: portfolio based rebalancing. Let your portfolio tell you when it's
Speaker 3: time to do something, whether it's at the asset class
Speaker 3: level or even within asset classes, as opposed to making
Speaker 3: that decision on some sort of predetermined calendar schedule.
Speaker 4: I don't know. I can buy a two year treasure
Speaker 4: and get four point five to five percent, Why don't
Speaker 4: I just do that and get ready for my beach?
Speaker 3: For some investors, that does make a lot of sense.
Speaker 3: But one of the reasons why, and you guys know,
Speaker 3: are fixed income my fixed income counterparts, particularly Kathy Jones,
Speaker 3: that when we talk about during extending duration, you get
Speaker 3: that natural question, well, why would I go to a
Speaker 3: ten year you know, four point two percent when I
Speaker 3: can get something much shorter duration at a higher yield.
Speaker 3: But there's the reinvestment risk, of course it comes into play.
Speaker 3: But for many investors, the safety of treasuries, regardless of
Speaker 3: where on the maturity spectrum, is a wonderful thing right now.
Speaker 3: And you know, in the ZERP environment, so many investors
Speaker 3: were forced out the risk spectrum, either into higher risk
Speaker 3: segments of fixed income or into the equity market. And
Speaker 3: that's not the case, which is one of the reason
Speaker 3: why I think the six trillion dollars in money markets
Speaker 3: could be a little bit stickier. And I don't know
Speaker 3: that we should consider it so imminent pool of money
Speaker 3: that's going to jump into the equity market.
Speaker 2: You've been right on that. But what do you what
Speaker 2: is the action of the trillions at schwab What do
Speaker 2: you see people doing on a micro basis month to.
Speaker 3: Month, Well, a lot more money in the safety of areas,
Speaker 3: like whether it's money markets or treasuries, and I think
Speaker 3: that's a good thing for that component of portfolios that
Speaker 3: they want to have that sort of high liquidity, fairly
Speaker 3: low risk. You know, we've been very factor focused on
Speaker 3: the equity side of things. You know, we have sector biases,
Speaker 3: but we think even applying it within individual sectors is
Speaker 3: focused on factors, which is just investing based on characteristics.
Speaker 2: I got to exqueeze this in you provided a service
Speaker 2: to the nation with fiscal reviews for one of our
Speaker 2: presidents coming in years ago. Things have changed now it's
Speaker 2: trillions a month in debt and deficit. Should our listeners
Speaker 2: and viewers be concerned about the burgeoning deficits?
Speaker 3: Absolutely, and I think the investor class is gravely concerned
Speaker 3: about this. I cannot remember the last time I did
Speaker 3: a client event or a webcast where the first question
Speaker 3: wasn't about the deficit and debt. The problem is that's
Speaker 3: the investor class. I think broader constituents don't seem to
Speaker 3: care much about it, which is why neither side of
Speaker 3: the aisle tends to care about it. I think, frankly,
Speaker 3: we need more adults in the room down in DC
Speaker 3: having this conversation.
Speaker 2: We're gonna go out with this because Lizzie sent me
Speaker 2: a mean note I did nickelback one day. Ye oh yeah,
Speaker 2: she was just like crushed. Lizzienne Saunders, thank you so much.
Speaker 2: This is the conversation of the day on the arch
Speaker 2: theory that is out there, which is things are good
Speaker 2: because the wage growth after adjusting for inflation, is finally constructive.
Speaker 2: Jeff you with a chart of the week, chart of
Speaker 2: the month, chart of the first quarter. He's with bn Y.
Speaker 2: Mellon joins us out. Jeff you, thank you. You've got
Speaker 2: the United States and we're popping four percent plus wages
Speaker 2: and after inflation, there's a real wage. What is it
Speaker 2: about Italy where they've got wage growth pushing eight percent
Speaker 2: and they got disinflation deflation. How good are things in Italy?
Speaker 1: Well, just based on headline numbers, they certainly are looking
Speaker 1: are very good. And you know there were one offs
Speaker 1: in place heading towards December, so that generated a nominal
Speaker 1: wage of them seven point ninety percent. But there's genuine
Speaker 1: disinflation in Italy as well due to lower growth as
Speaker 1: you would expect, lower demand. So that buffer is in
Speaker 1: place right now and if you fink it's what several
Speaker 1: Eurozone policy makers are worried about. They're looking at real
Speaker 1: wage growth and saying people can still spend. Are we
Speaker 1: talking about cutting rates?
Speaker 2: Go to the other end of the spectrum in your
Speaker 2: magnificent chart, I'm still this church, and that is I've
Speaker 2: got inflation substantial in Japan, and I don't have wage growth.
Speaker 2: I got an ugliness. Is Japan borderline as you studied
Speaker 2: at LC nineteen thirties England.
Speaker 1: Oh, I think those are going to be very different
Speaker 1: demographics to us start off, where than what is them
Speaker 1: driving things that you know net that's what you're hearing
Speaker 1: from Japanese policymakers. Japanese lawmakers. They want to see real
Speaker 1: wage growth, not just a one off bounce, which is
Speaker 1: maybe what happened in Italy, but so that to become entrenched,
Speaker 1: only then can they consider to raise rates. And they
Speaker 1: want to generate some inflation expectations to encourage corporates to
Speaker 1: start paying higher nominal wages and generate real wage growth
Speaker 1: as well. So basically, you know, that's the ebb and
Speaker 1: flow of policy right now. And to be frank and
Speaker 1: for those of us who think the yen should strengthen
Speaker 1: in Japan. It is proving frustrating.
Speaker 4: So Jeffrey, we're going to hear from Fed Truman, Jpal today.
Speaker 4: What are the central banks in Europe? What are they
Speaker 4: saying these days?
Speaker 2: Are they following the US FED?
Speaker 4: Do they have some independent thinking visa v their economies
Speaker 4: and their rate structure?
Speaker 1: Oh, totally be independent. But what is DCB thinking? What
Speaker 1: is the government council thinking? It depends on which Government
Speaker 1: Council member you are going to ask, right, there were
Speaker 1: some members which said March should be so tomorrow should
Speaker 1: have been a live meeting, and there others who question,
Speaker 1: why are we even talking about rate cuts this year?
Speaker 1: I think you know that's been brought onto the table
Speaker 1: for the FED as well. So very different views. I'm
Speaker 1: out there at this point, but we think Q two
Speaker 1: they will need to move on rates. Eurozone economy, look
Speaker 1: at manufacturing contracting that is not in a good place
Speaker 1: compared to the US.
Speaker 4: And I know just kind of the expectations here in
Speaker 4: the US, Jeffrey, been tempered from early this year when
Speaker 4: maybe five to six rate cuts were priced and now
Speaker 4: maybe you know, kind of three or four as something
Speaker 4: similar happened in the ECB and the BOE from the
Speaker 4: market's expectations perspective.
Speaker 1: Yes, totally so. Triple digits in total cuts were expected
Speaker 1: in Europe towards the end of last year due to
Speaker 1: the soft numbers. That certainly has them turned around as well.
Speaker 1: Right now, you're seeing energy prices, for example, contributing positively
Speaker 1: to headline inflation. And you know, funny that's going on now.
Speaker 1: You know, given core inflation was too high last year,
Speaker 1: now headline inflation is them too high, So what are
Speaker 1: you really targeting? So that's where going back to my
Speaker 1: euro dollar, going back to parity core for this year,
Speaker 1: where we think the ECB will acknowledge that manufacturing really
Speaker 1: is slowing too much such that they have to move early.
Speaker 2: It's a great coverage yesterday, Jeff You and the NPC
Speaker 2: and basically three thousand people in a room with the
Speaker 2: President of China trying to move forward as a communist party.
Speaker 2: Jeff You, when you see a Bloomberg headline that says
Speaker 2: President g wants quote new productive forces to fit local conditions,
Speaker 2: What a god's name does that mean? Jeff you?
Speaker 1: If you actually go back to an NDRC document, I
Speaker 1: believe it was from a month ago. They actually specifically
Speaker 1: cite the academic who came up with these theories are
Speaker 1: within the fifth and Dove sufctral Revolution and the like.
Speaker 1: So it really is basically about resilience. It really is
Speaker 1: about identifying aspects of the economy technology at its core
Speaker 1: being able to generate high quality growth, generate productivity growth,
Speaker 1: to compensate for things like soft demographics and also potential
Speaker 1: supply chain challenges as well. That is the plan. Can
Speaker 1: it deliver growth and we shall see, But overall we
Speaker 1: do think there's upside surprise that flows into China.
Speaker 2: Technologies in the news. Ed Ludlow, Sure, I don't know
Speaker 2: what to get the man, but Jeff, you technologies in
Speaker 2: the news, whether it's ASML in the Netherlands or you
Speaker 2: know you as Microme and litigation the other day, is
Speaker 2: the Taiwan magic of TSMC? Is it at risk?
Speaker 1: So right now, China has said in the past that
Speaker 1: if let's just say supply chains are going to be
Speaker 1: at risk, then China is counting on its own innovative capacity,
Speaker 1: its own universities, its own education system to start to
Speaker 1: generate that innovation. And then if we look at what's
Speaker 1: happened over the last few decades. Of course, globalizations has
Speaker 1: helped being able to access and global knowledge, but should
Speaker 1: we also count China out in terms of its ability
Speaker 1: not being able to innovate them alike. I think that
Speaker 1: is a big assumption as well, because you know, when
Speaker 1: some times you are forced into a position where you
Speaker 1: have to innovate yourself back into growth out of the
Speaker 1: supply chain challenges, that's when sparks in a tend to happen.
Speaker 1: So I think globally, you know this trend towards deglobalization,
Speaker 1: not just China but everywhere people sharing less with each other,
Speaker 1: trading less with each other. That doesn't mean you are
Speaker 1: going to achieve your strategic objectives. So I do think
Speaker 1: with the electoral season upon us and these are things
Speaker 1: that policymakers will make us really need to think about.
Speaker 2: Thanks for the brief on Europe with the ECB tomorrow.
Speaker 4: We had Super Tuesday, but I don't know as far
Speaker 4: as Super Tuesdays goes didn't feel that super to me.
Speaker 4: But let's check in with somebody who thinks about this
Speaker 4: stuff full time, Jen Flinton. She's head of US Government
Speaker 4: affairs for Investco.
Speaker 6: Jen.
Speaker 4: We had fifteen States, and I guess Samoa as well,
Speaker 4: voting yesterday. Key takeaways for you.
Speaker 5: Yeah, I think we saw what we expected to see,
Speaker 5: which was Donald Trump pretty much taking control of the
Speaker 5: fifteen states, all but one Vermont, which he seems to
Speaker 5: have lost to Nicky Haley. But the expectation was that
Speaker 5: after Super Tuesday, NICKI Haley would leave the race, and
Speaker 5: it looks like we're going to get that around ten
Speaker 5: o'clock today.
Speaker 4: All right, So where do we go from here? For
Speaker 4: this is going to be a very long campaign because,
Speaker 4: as I remember, the election is not till November. So
Speaker 4: what do each of these politicians, these candidates, what did
Speaker 4: they do for the next you know, I don't know,
Speaker 4: nine eight months.
Speaker 5: Yeah, this is going to be a really early start
Speaker 5: to the general election season. And we're already starting to
Speaker 5: see some of that momentum building up for the policy discussion. Right,
Speaker 5: and we have this State of the Union on Thursday,
Speaker 5: where I think the President's going to telegraph some of
Speaker 5: his messaging going forward into this very long general election season.
Speaker 5: And as we approach the summer, which.
Speaker 7: Is the conventions.
Speaker 5: In July, you'll have the Republican Convention there in Wisconsin,
Speaker 5: followed in August by the Democratic Convention in Chicago, and
Speaker 5: then we'll immediately go into general election season. I think
Speaker 5: the big question right now is are we going to
Speaker 5: see debates in the fall?
Speaker 2: Okay, well, you know, I'll go with all that. But
Speaker 2: I think there's a lot going on beneath. And I
Speaker 2: know California got the Steve Garvey remember him on first base?
Speaker 4: Yes, first first base?
Speaker 2: He is janormous. Yeah, and he did a genormous day yesterday,
Speaker 2: I guess. But Jen, what did you learn about like
Speaker 2: the future of the House off of Super Tuesday? Can
Speaker 2: you say tildmore Republican likely tilmore Democratic? Lady? Which way
Speaker 2: does that go?
Speaker 6: Well?
Speaker 5: I was watching some specific races a little lessoteric, but
Speaker 5: in Arkansas you had some fights for some of your
Speaker 5: more traditional Republicans against some type primaries to their right,
Speaker 5: most notably Steve Womack, and he survived with a nice
Speaker 5: little cushion there. Looking into Texas, some of those races
Speaker 5: you're going to have to have some additional primary runoffs,
Speaker 5: so that's going to require some spend and money. But
Speaker 5: I think going into going into this next election day
Speaker 5: on March twelfth, you know, the Senate is looking really
Speaker 5: strong for Republicans.
Speaker 2: And I believe after Duke takes the acc and we
Speaker 2: have selections Sunday, isn't there a Florida primary out there?
Speaker 2: Like within two cups of coffee?
Speaker 5: That's right, Florida and last night was Texas.
Speaker 7: These are the two states.
Speaker 5: That are the most difficult states for Republicans right This map,
Speaker 5: this Senate map is really advantaged for Republicans right now.
Speaker 7: So you know, if you think Texas and.
Speaker 5: Florida are they're tough estates, you know that that's not
Speaker 5: really that tough. While you have the Democrats defending a
Speaker 5: number of states.
Speaker 2: So what if Haley drops out, where's we come out?
Speaker 2: We got to justify a road trip down there. Jennifer
Speaker 2: help us. How do we what's going to be the
Speaker 2: tension of the Florida primary?
Speaker 5: Well, I mean, look, Florida is a pretty ruby red
Speaker 5: state now. I mean it wasn't long ago that it
Speaker 5: was a purple place, but it's a pretty red state now.
Speaker 7: I will say this.
Speaker 5: You had the Biden campaign sort of telegraphing expanding the
Speaker 5: map into Florida, which kind of raised a question mark
Speaker 5: over my head.
Speaker 7: I'm not quite sure how that's going to happen.
Speaker 5: I'm really quite frankly focused in on these battleground states.
Speaker 5: I'm after, you know, Haley drops out and we start
Speaker 5: this general election and Trump probably takes the delegates he
Speaker 5: needs by next week. I'm looking at Arizona, Nevada, Wisconsin, Michigan, Pennsylvania,
Speaker 5: and ja.
Speaker 7: I am honed in on those states.
Speaker 2: I'm enough of a fossil where Florida was actually a.
Speaker 4: Battleground bund exactly, all right, Jen, the Republican Party, it
Speaker 4: is the party of Donald Trump. My father, who would
Speaker 4: vote for Nixon today if he were on the ballot,
Speaker 4: would not recognize this party. What is the Republican National Committee,
Speaker 4: the apparatus, the machine? What does it do over the
Speaker 4: next eight months?
Speaker 7: Yeah, that's a great question.
Speaker 5: So what we're seeing is as Trump really consolidating his
Speaker 5: support there and turning over the leadership at the rn C.
Speaker 7: This will now be his RNC.
Speaker 5: He's putting his daughter in law at sort of the
Speaker 5: front face of the RNC and then moving Chris Losa Vida.
Speaker 5: He's one of Trump's co campaign shairs and runs the
Speaker 5: campaign there next to Susie Wiles. He's going in and
Speaker 5: he's going to be doing a lot of the operational
Speaker 5: work at the rn C, and what they will be
Speaker 5: focused on are those battleground states and getting really strong
Speaker 5: captains to those days.
Speaker 2: Carry out suppose really important question, and I take your point.
Speaker 2: The leader takes over the party. That's the way it
Speaker 2: used to be. What's a Trump methodology in Pennsylvania versus
Speaker 2: Republican and name only Mitt Romney's methodology in Pennsylvania.
Speaker 7: Right, It's going to be focused on those.
Speaker 5: Suburbs right in the Pittsburgh area, in the Philadelphia area
Speaker 5: and trying to raise those numbers he has clearly has
Speaker 5: He clearly has a lot of growth that he needs
Speaker 5: to make there with suburban women.
Speaker 2: Okay, this has been a great brief Selvita Supermanian who
Speaker 2: joins us now from Bank of America and Sevida, what's
Speaker 2: important about this conversation. If you've made the trek across
Speaker 2: a year and a half from a more measured, cautious
Speaker 2: XPX call out to well over five thousand, describe that trek.
Speaker 2: What was the path in the process to get to
Speaker 2: your new optimism.
Speaker 6: Yeah, so it was it was a path that was
Speaker 6: paved with potholes.
Speaker 8: You know, we I think at the beginning of.
Speaker 6: Last year, all of our sentiment models were flashing green
Speaker 6: because everyone was so bearish on everything, and that was
Speaker 6: a point at which you know, we we basically saw
Speaker 6: that the real risk was being underinvested in equities. Then
Speaker 6: you had, you know, another bank blow up, you had
Speaker 6: some volatility.
Speaker 8: Closer to the end of the year.
Speaker 6: But I think it was really a year where most
Speaker 6: of our models were flashing green except valuation. And I think,
Speaker 6: you know, today we are still constructive on equities, but
Speaker 6: I would say we're less convicted in that outright. And
Speaker 6: the reason is, you know, we're at a more of
Speaker 6: a neutral point in terms of sentiment, and I think
Speaker 6: the market, you know, kind of optimism has built around
Speaker 6: themes and.
Speaker 2: Stuff for Global Wall Street. Sevita, what methodology you are using?
Speaker 2: Are you bottom up, top down? Are you factor based?
Speaker 2: Is it some magical mathematics out of Berkeley? What's the
Speaker 2: Sevita Supermanian method to look out a tea months?
Speaker 6: Yeah, so, I mean it's a lot of different reads.
Speaker 6: So what we tried to do is come up with
Speaker 6: different signals that are uncorrelated, so they give you a
Speaker 6: kind of a very diverse take on the market, and
Speaker 6: we ended up I remember when I got this job
Speaker 6: back in twenty eleven, back testing all of the market
Speaker 6: timing models that we've all heard about, like the FED
Speaker 6: model or dividend yields versus bond yields.
Speaker 8: Et cetera.
Speaker 6: Most of them don't work, surprise, surprise, which is why
Speaker 6: we're all here. But you know, what we did find
Speaker 6: was that if you use kind of different models for
Speaker 6: different timeframes, you see, it seems to.
Speaker 8: Work out better.
Speaker 6: So we have a sentiment model, we have a fair
Speaker 6: value model. Long term valuation is probably all that matters.
Speaker 6: Shorter term it's technicals, and then over the next three
Speaker 6: months we look for the probability of an earning surprise and.
Speaker 8: A positive or negative direction. So that's the suite.
Speaker 6: But then, of course, Tom, you know, it's more of
Speaker 6: an art than a science, and each of these models
Speaker 6: is basically as good as the inputs that you feed
Speaker 6: into it. So I think where we are today is
Speaker 6: an environment where our valuation framework for the long term
Speaker 6: says returns are going to be lower for longer.
Speaker 8: I think we all.
Speaker 6: Kind of knew that, but our near term sentiment and
Speaker 6: earning surprise models are telling us that things are actually
Speaker 6: the direction of the market is more likely to be
Speaker 6: up rather than down. So I think that's our net
Speaker 6: message to investors is stay invested. We're not at that
Speaker 6: point of absolute euphoria on equities. We've seen euphoria build
Speaker 6: around a few themes in the market, but we think
Speaker 6: that it could broaden out from here significantly.
Speaker 4: So, Savite, I'm looking at your research note here, realistic
Speaker 4: bull bear case fair value forty one hundred to sixty
Speaker 4: five hundred on the S and P five hundred. Huge
Speaker 4: disparity there. What's kind of what are the key two
Speaker 4: or three drivers to push you between you know, your
Speaker 4: bold and bear case.
Speaker 6: Yeah, so the bull case is really predicated. It's not
Speaker 6: even that lofty of a set of assumptions, but it's
Speaker 6: really the idea that you know, real rates stay lower
Speaker 6: for longer because of demographics, disruption, all the stuff we
Speaker 6: were talking about, you know, five years ago before COVID,
Speaker 6: and then on top of that, the equity risk premium
Speaker 6: actually settles a little bit lower than where it is
Speaker 6: today because companies are actually focused on high quality growth
Speaker 6: rather than just levered buybacks, and you know, kind of
Speaker 6: this lower quality growth that we've seen over the last
Speaker 6: you know, the prior decade.
Speaker 8: So that's when that's one.
Speaker 6: And then the other factor is just the idea that
Speaker 6: normalized earnings can actually be. You know, we're not necessarily
Speaker 6: at a point where normalized darnings, where earnings are peaked
Speaker 6: and likely to calm down significantly.
Speaker 8: So I think our bookcase is actually pretty realistic.
Speaker 6: And then similarly, the realistic bare case scenario is the
Speaker 6: idea that real rates subtle higher.
Speaker 8: You know, inflation isn't controlled.
Speaker 6: We have a and we also have ten year yields
Speaker 6: backing up on various drivers.
Speaker 8: And then on top of that you.
Speaker 6: Have normalized darnings coming back down to kind of the
Speaker 6: long term average.
Speaker 8: Which I think is too punitive.
Speaker 6: So one of the reasons I just just for you know, clarification,
Speaker 6: One of the reasons that we maintained our constructive outlook
Speaker 6: is that I think that valuation is particularly problematic because
Speaker 6: if you're looking at a long term valuation framework and
Speaker 6: you say the market is expensive today versus nineteen eighty
Speaker 6: or nineteen ninety or even two thousand, the makeup of
Speaker 6: the S and P five one hundred is so different
Speaker 6: today that it's almost like apples to oranges.
Speaker 4: How concerned are you, Savita that you know a lot
Speaker 4: of folks tell you there's not a lot of breath
Speaker 4: in this market. Yeah, you know, the Magnificent Seven have
Speaker 4: everyonet to phrase it. There's not a lot of breath
Speaker 4: in this market, and a lot of market folks would
Speaker 4: say you that's not healthy.
Speaker 6: What do you think, Well, again, we back tested this
Speaker 6: breath indicator and it's not necessarily bullish or bearish.
Speaker 8: So narrow markets.
Speaker 6: Can precede strong goal markets with broad leadership. Narrow markets
Speaker 6: can precede a downturn. There's no real rhyme or reason
Speaker 6: to just the fact that the market is narrow. I
Speaker 6: think you have to look at a whole bunch of
Speaker 6: other other factors. What makes me more bullish on the
Speaker 6: rest of the SMP versus the Magnificent seven is the
Speaker 6: idea that when you look at expectations, expectations for the
Speaker 6: Magnificent Seven are pretty aggressive, and we're now at point where,
Speaker 6: you know, growth expectations are quite lofty. You know, our
Speaker 6: analysts think that some of these companies meet or beat
Speaker 6: those expectations. But if you look at the rest of
Speaker 6: the market, what's actually interesting to me is that the
Speaker 6: average consensus long term growth forecast for a company outside
Speaker 6: of the Magnificent seven is the lowest we've seen in
Speaker 6: twenty five years. This is a market where nobody's expecting
Speaker 6: anything good to happen outside of AI or GLP.
Speaker 2: One and the exuberance meter. We've seen that this week, Sevida,
Speaker 2: I've been dying to ask you this, and this goes
Speaker 2: back Paul to me and Sevida and Davos years ago
Speaker 2: talking up ESG and folks to give you a framework here.
Speaker 2: Miss Subermanian was the first to excel spreadsheet ESG just
Speaker 2: as simple as that in October. I believe it was
Speaker 2: in November and the ft one of our heroes. In
Speaker 2: Yours to Sevida, Astra Demodrad wrote an essay ESG is
Speaker 2: beyond redemption? May it rest in peace? Is ESG investing dead?
Speaker 7: Look?
Speaker 6: I think ESG is like anything else. There are good
Speaker 6: ways to do it, bad ways.
Speaker 7: To do it.
Speaker 6: I actually don't even think it is a thing or
Speaker 6: a concept. It's really just a new set of information
Speaker 6: that's become formally available to us. I mean, analysts always
Speaker 6: thought about governance. They always thought about companies with litigation
Speaker 6: risk around bad environmental practices.
Speaker 8: But I think now what's happened is it's become a.
Speaker 6: Little more transparent through companies telling us more about themselves,
Speaker 6: which is great.
Speaker 8: I love data. Who doesn't love data?
Speaker 6: So, you know, I think that's that's the crux of it,
Speaker 6: is that you now have a little bit more insight
Speaker 6: into the innards of a company beyond just the financials.
Speaker 2: Savita, thank you so much. Savina Supermania and she is
Speaker 2: with Bank of America. This is a Bloomberg Saveillance podcast,
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