WEBVTT - Bloomberg Surveillance TV: December 23rd, 2025 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.680 --> 0:00:15.480 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.520 --> 0:00:18.720 with Lisa Bromwitz and Amrie Hortenn. Join us each day 0:00:18.760 --> 0:00:22.320 for insight from the best in markets, economics, and geopolitics 0:00:22.440 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.960 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.319 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:35.880 Terminal and the Bloomberg Business app. 0:00:36.280 --> 0:00:39.680 Vincent Reinhart of b n Y Intment Investments Vincent. 0:00:39.720 --> 0:00:40.440 What do you make of this? 0:00:41.479 --> 0:00:45.440 The GDP number rising four point three percent for the 0:00:45.479 --> 0:00:46.040 third quarter. 0:00:47.280 --> 0:00:49.560 There's a lot of action in the rear view mirror, 0:00:49.640 --> 0:00:53.360 isn't there. I think part of what it does is 0:00:53.560 --> 0:00:56.440 make you wonder why the Federal Reserve felt the need 0:00:56.560 --> 0:01:00.760 to buy three quarters percentage worth of insurance by cutting 0:01:00.840 --> 0:01:05.280 rates in September. But that was more about employment. What 0:01:05.319 --> 0:01:10.600 it does is worse than the disconnect we're having between 0:01:11.600 --> 0:01:15.840 our view of aggregate demand growing at such a rapid 0:01:15.920 --> 0:01:20.039 rate and employment, which is pretty sluggish. 0:01:20.920 --> 0:01:24.240 Do you think that given this information is so stale 0:01:24.319 --> 0:01:25.960 it's not going to make a difference. Or do you 0:01:26.000 --> 0:01:28.440 think FED officials will look at this and take this 0:01:28.560 --> 0:01:33.000 information on with them as they consider and recalibrate what they. 0:01:32.880 --> 0:01:35.000 Should do in terms of interest rates in January? 0:01:35.760 --> 0:01:40.280 Well, the important point you made was FED officials. Remember 0:01:40.360 --> 0:01:45.039 they're pretty divided that it was a close call in 0:01:45.160 --> 0:01:51.000 terms of the overall nineteen FMC participants about the last 0:01:51.080 --> 0:01:55.120 rate cut. That means that almost half of them can 0:01:55.680 --> 0:01:59.240 look at this data point and say, why exactly were 0:01:59.280 --> 0:02:02.400 we doing what we were doing. So I think it 0:02:02.480 --> 0:02:09.280 does matter, and what it does is just heightened this 0:02:10.080 --> 0:02:11.200 really split. 0:02:11.840 --> 0:02:16.519 Within Federal Reserve official boom evins. I'm talking to my buddy, 0:02:16.560 --> 0:02:17.440 Joe Bruce Swailes. 0:02:17.480 --> 0:02:20.480 He's an economist down in Austin at RSM, and he 0:02:20.840 --> 0:02:26.040 sees a decoupling between the strong growth numbers that we're 0:02:26.080 --> 0:02:31.760 seeing strong real final private demand and weak hiring as AI, 0:02:32.320 --> 0:02:35.880 you know, eats in eats up jobs and maybe we 0:02:35.919 --> 0:02:38.120 get robotics replacing people as well. 0:02:38.560 --> 0:02:39.639 You know, longer. 0:02:39.360 --> 0:02:44.440 Term, what can cutting rates do for that kind of 0:02:44.600 --> 0:02:47.400 slow down and hiring? I mean, if AI is taking jobs, 0:02:47.480 --> 0:02:50.360 even if you bring rates down fifty seventy five basis points. 0:02:51.040 --> 0:02:53.880 Is it going to matter, Well, you do a little 0:02:53.880 --> 0:02:55.639 phone meeting in the runway. 0:02:56.120 --> 0:03:00.000 The FED bought insurance. You're exactly right, and the question 0:03:00.639 --> 0:03:04.360 is how expensive is that insurance, And the cost of 0:03:04.400 --> 0:03:09.440 it is that it'll be a little longer to get 0:03:09.520 --> 0:03:15.960 for them to the goal of two percent inflation next year. Now, 0:03:17.080 --> 0:03:24.960 if you're facing this enormous supply headwind on output on 0:03:25.320 --> 0:03:31.440 rather labor andwind right a headwind on labor and tailwind 0:03:31.680 --> 0:03:36.280 for demand, there's not a lot that the overnight federal 0:03:36.320 --> 0:03:38.800 funds rate can do. And I think you are right. 0:03:39.800 --> 0:03:45.000 Is two percent truly the Fed's target, because it doesn't 0:03:45.040 --> 0:03:48.880 look like they take that very seriously since we're fifty 0:03:48.960 --> 0:03:53.000 percent above it. I mean, CPI, I guess you could 0:03:53.040 --> 0:03:56.160 say came in lighter than that in the last reading, 0:03:56.200 --> 0:03:58.800 but there was so much noise it might as well 0:03:58.840 --> 0:04:00.600 be at three. 0:04:01.400 --> 0:04:04.560 Well, they never admit that. You don't give up on 0:04:04.640 --> 0:04:08.640 your goal when you're far far away from it. So 0:04:08.680 --> 0:04:14.720 that's why chair pal vigorously defends two percent and denies 0:04:15.120 --> 0:04:20.040 any idea that they've changed their goal. I think two 0:04:20.080 --> 0:04:25.240 percent is a long run aspiration, and what we've seen 0:04:25.480 --> 0:04:29.440 over the last three months in particular, is that they're 0:04:29.520 --> 0:04:33.760 willing to put off that achievement to buy a little 0:04:33.800 --> 0:04:34.440 more insurance. 0:04:35.080 --> 0:04:35.799 When it comes. 0:04:35.680 --> 0:04:38.360 To this GDP data, we just got it' I'm already 0:04:38.360 --> 0:04:40.960 getting a lot of messages from viewers, Vincent who are 0:04:40.960 --> 0:04:43.680 talking about the fact that if it's possible that CPI 0:04:43.960 --> 0:04:46.719 was inaccurate, do you think that it's possible that GDP 0:04:46.960 --> 0:04:50.360 data also has some inaccuracies in as well. 0:04:50.800 --> 0:04:54.160 The answer to the question are there problems with government 0:04:54.560 --> 0:04:58.640 statistics is always yes. And in this particular case, if 0:04:58.640 --> 0:05:01.960 we're not confident about prices that they may be softer 0:05:02.240 --> 0:05:06.640 in measurement than they actually are, then real activity is 0:05:06.760 --> 0:05:11.880 going to be stronger because you're dividing nominal activity, which 0:05:11.880 --> 0:05:16.919 you're pretty confident about by a mismeasured price level. So 0:05:17.200 --> 0:05:20.599 I think there was always an upside tail risk to 0:05:21.560 --> 0:05:25.560 this GDP print. It turned out to be even further upside. 0:05:25.839 --> 0:05:30.000 I wonder what you make a policy that seems stimulative 0:05:30.480 --> 0:05:33.160 in the new year. Right, we've got the tax refunds 0:05:33.160 --> 0:05:34.400 coming from the one. 0:05:34.279 --> 0:05:35.760 Big beautiful bill. 0:05:36.880 --> 0:05:39.360 You know, we're dumping tens of billions of dollars out 0:05:39.400 --> 0:05:42.800 of helicopters on farmers in the Midwest because the Chinese 0:05:42.839 --> 0:05:46.680 aren't buying soybeans, and now President Trump wants to send 0:05:46.880 --> 0:05:51.880 I guess some kind of warrior dividend to soldiers did too, 0:05:52.000 --> 0:05:54.920 as well as a tariff dividend to most of most 0:05:54.960 --> 0:06:00.360 American people. While tariffs are pushing prices higher, that set 0:06:00.440 --> 0:06:03.320 us up for a bad inflation picture, and the FED 0:06:03.320 --> 0:06:05.359 cutting rates obviously a bad inflation picture. 0:06:05.400 --> 0:06:08.159 In twenty twenty six, I do. 0:06:08.040 --> 0:06:13.240 Believe that tariffs ultimately passed through to consumer prices. And 0:06:13.600 --> 0:06:16.599 two things have happened. One is we haven't seen all 0:06:16.640 --> 0:06:21.320 the pass through of the increase in tariffs we've already gotten, 0:06:21.960 --> 0:06:24.680 and that over the course of the year, the effective 0:06:24.760 --> 0:06:28.919 tariff rate kept rising. So you're exactly right, there's more 0:06:29.080 --> 0:06:33.080 tariff feed through the consumer prices. That's why in our 0:06:33.120 --> 0:06:37.479 own forecast we think that the insurance the feeder reserve 0:06:37.600 --> 0:06:41.039 bought by cutting rates will be expensive next year. It's 0:06:41.080 --> 0:06:45.559 going to even further delay get into a two percent goal. 0:06:46.520 --> 0:06:50.880 But you know better, recognize, Matt, that Congress set up 0:06:51.000 --> 0:06:55.279 the FED for exactly this tension by giving it a 0:06:55.360 --> 0:06:59.760 dual mandate. It's supposed to foster maximum employment and stable 0:07:01.120 --> 0:07:06.240 in an environment in which, yeah, you're not happy with inflation. 0:07:06.839 --> 0:07:09.760 It's not at its goal of two percent, but it's 0:07:09.800 --> 0:07:13.120 a lot closer to two percent than it was previously. 0:07:13.800 --> 0:07:19.800 It weighs deviations on the employment mandate a little more heavily, 0:07:20.440 --> 0:07:23.680 and in this case it's potential deviations. It's just worried 0:07:23.720 --> 0:07:27.960 about the slowness of the employment growth, the low hire, 0:07:28.120 --> 0:07:30.720 low fire labor market. 0:07:31.000 --> 0:07:31.840 When it comes to inflation. 0:07:31.840 --> 0:07:33.920 Though, we hear from the Treasury Secretary yesterday he said, 0:07:33.960 --> 0:07:37.200 once it's re anchored, there should be a discussion about 0:07:37.280 --> 0:07:38.480 targeting a range. 0:07:38.680 --> 0:07:40.080 Do you think that's appropriate, Vincent? 0:07:41.840 --> 0:07:46.640 So, in effect, the feeder reserves hasn't been at two 0:07:46.680 --> 0:07:50.960 percent in a long time, and only in passing. For 0:07:51.000 --> 0:07:56.800 a long stretch before two thousand and twenty, inflation was 0:07:57.160 --> 0:08:01.720 below the federal reserves goal. A range makes sense, it 0:08:01.760 --> 0:08:06.920 works for other economies. And you know, the reality is 0:08:07.640 --> 0:08:13.320 the federers are asserted two percent was its numerical definition 0:08:13.440 --> 0:08:18.000 of inflation, after getting frustrated that it couldn't have a 0:08:18.040 --> 0:08:22.200 good conversation with its leaders, i e. The Congress about 0:08:22.280 --> 0:08:26.320 how to make specific the goal. So yes, I think 0:08:26.440 --> 0:08:31.600 if the Treasury is signaling it's time to think hard 0:08:31.680 --> 0:08:34.600 about what the federal reserve goal should be. That that 0:08:34.640 --> 0:08:36.160 should be welcome, Vince. 0:08:36.200 --> 0:08:39.240 I wonder what your take is on where the tenure 0:08:39.480 --> 0:08:40.280 yield is going. 0:08:40.320 --> 0:08:41.200 I keep having this. 0:08:41.200 --> 0:08:44.880 Fight with chat GPT, which tells me that the bond 0:08:44.960 --> 0:08:48.240 vigilantes are back. But I'm looking at four seventeen on 0:08:48.320 --> 0:08:51.160 the tenure and like seventy points on the twos tens. 0:08:51.240 --> 0:08:53.920 It doesn't look that bad to me. Do you think 0:08:53.960 --> 0:08:55.120 yield are going to go higher? 0:08:56.880 --> 0:09:00.760 So you know that's that's always a deep frustration, right. 0:09:00.840 --> 0:09:04.520 I come from a family in which we all worry 0:09:04.559 --> 0:09:11.400 about the federal debt and the untep tethered path for 0:09:12.160 --> 0:09:18.280 the deficits. We all worry about central bank independence, what's 0:09:18.320 --> 0:09:21.840 going to happen as the federals are changes next year. 0:09:22.200 --> 0:09:24.640 But the fact is you don't really see it much 0:09:24.679 --> 0:09:29.439 in inflation and inflation inflation expectations. Markets aren't really pricing 0:09:29.520 --> 0:09:33.440 in a lot a lot of worries. I think we're 0:09:33.440 --> 0:09:38.280 in an environment in which employment is close to maximum, 0:09:38.440 --> 0:09:43.319 inflation is not that far away from the long run goal, 0:09:44.040 --> 0:09:48.720 and so we're pretty much priced for an economy that's 0:09:48.840 --> 0:09:54.160 performing well, we haven't been stressed, and what you worry about. 0:09:54.160 --> 0:09:57.839 What I worry about is exactly what will happen when 0:09:57.880 --> 0:10:01.079 we're stressed, and bond markets are are particularly good at 0:10:01.080 --> 0:10:04.040 pricing in an unknown future stress. 0:10:05.720 --> 0:10:08.560 Stay with us multiple inpex Savanna's coming up. 0:10:08.720 --> 0:10:09.240 Off to this. 0:10:18.360 --> 0:10:21.280 Dan Scale of Morgan Stanley Wealth Management says the outlook 0:10:21.280 --> 0:10:24.439 into twenty twenty six remains constructive, supported by increased m 0:10:24.440 --> 0:10:28.280 and a broadening out of earnings growth, AI diffusion, deregulation 0:10:28.640 --> 0:10:30.000 and fiscal stimulus. 0:10:30.080 --> 0:10:31.960 Dan, thank you so much for joining us to see Amy. 0:10:32.000 --> 0:10:33.360 I want to first get your reaction. What's going on 0:10:33.400 --> 0:10:34.560 with this GDP number. 0:10:34.960 --> 0:10:37.160 No one was expecting this big of a print, this 0:10:37.240 --> 0:10:40.040 high of a print increase at four point three percent 0:10:40.160 --> 0:10:43.440 that followed three point eight percent growth. What's going on here? 0:10:43.480 --> 0:10:47.240 We actually seeing a robust economy. There's some data distortion, yes. 0:10:47.080 --> 0:10:50.000 So I think what we're seeing is this paradigm shift continue. 0:10:50.000 --> 0:10:52.520 And we've seen this over the last several years where 0:10:52.520 --> 0:10:55.240 when you look at the majority of spending in the economy, 0:10:55.240 --> 0:10:59.319 what's driving the economy, it's AI spending, its services powered 0:10:59.320 --> 0:11:03.000 by high income consumers and all of those cohorts continue 0:11:03.040 --> 0:11:06.040 to hum along really strongly. So there's really been no 0:11:06.240 --> 0:11:08.199 change in that aspect of the economy. 0:11:08.400 --> 0:11:12.200 We see the entire yield curve shift higher swing just 0:11:12.280 --> 0:11:13.200 off this report. 0:11:13.320 --> 0:11:15.880 What does that mean for the depth asty So it's 0:11:15.920 --> 0:11:18.560 not particularly positive, and we may hear an update in 0:11:18.600 --> 0:11:21.280 the coming weeks related to the Supreme Court ruling related 0:11:21.280 --> 0:11:24.800 to the Emergency Power authority or not. And so look, 0:11:24.840 --> 0:11:27.439 I think be careful what you wish for Emory, because 0:11:27.800 --> 0:11:30.760 higher yields is not necessarily supportive of higher multiples. 0:11:31.120 --> 0:11:35.600 But we I mean, I'm assuming the reaction is because 0:11:35.640 --> 0:11:38.040 this number is so high, there's much less of a 0:11:38.160 --> 0:11:40.760 chance that the Fed cuts rates in January. So you 0:11:40.800 --> 0:11:42.680 might as well buy the paper that's there now rather 0:11:42.720 --> 0:11:43.840 than the paper post cut. 0:11:44.000 --> 0:11:45.720 Yeah, I think that makes sense, Matt, And it's good 0:11:45.720 --> 0:11:47.840 to see you as well. And look, we've been saying 0:11:48.280 --> 0:11:51.000 persistently that the five to seven year part of the 0:11:51.040 --> 0:11:54.040 curve is where we see value. We had been hesitant 0:11:54.080 --> 0:11:56.920 to extend that much out on the duration side of things. 0:11:57.240 --> 0:11:59.280 And look, I think on the equity front, just coming 0:11:59.320 --> 0:12:01.280 back to stock, I think it's going to be a 0:12:01.320 --> 0:12:04.680 continuation of this cyclical rotation that we've seen really in 0:12:04.720 --> 0:12:06.679 the past one to two months. 0:12:06.480 --> 0:12:11.640 We do have increasingly bullish expectations for earnings in twenty 0:12:11.679 --> 0:12:13.760 twenty six. I mean, it's not like the FED is 0:12:13.760 --> 0:12:16.800 the only thing that drives markets, right. Obviously, the real 0:12:16.840 --> 0:12:19.760 economy is important, and I'm hearing from economists been talking 0:12:19.760 --> 0:12:22.520 to Joe Bruce wlis here in my IB chat that 0:12:22.800 --> 0:12:25.680 he still sees strong growth, strong final demand. 0:12:26.240 --> 0:12:29.120 Listen, if we're running out of seven percent nominal GDP, 0:12:29.559 --> 0:12:31.679 we would hope that the average company is going to 0:12:31.720 --> 0:12:35.040 see revenues increase, right, because there's some correlation there. But 0:12:35.120 --> 0:12:37.439 I think the big catalyst for next year, Matt, is 0:12:37.480 --> 0:12:40.840 all about AI monetization. We've been waiting for good doo 0:12:41.120 --> 0:12:43.680 in terms of when does AI spread out from the 0:12:43.760 --> 0:12:46.000 mag seven to the rest of the fortune one hundred 0:12:46.320 --> 0:12:48.640 and Frankly, I think that's where we could see upside surprise. 0:12:48.720 --> 0:12:51.640 Lys Can I just say that this goes along with 0:12:51.800 --> 0:12:57.839 Joe's decoupling theory. So if that's what's driving higher corporate profits, right, 0:12:57.920 --> 0:12:59.240 it's not going to help labor. 0:12:59.320 --> 0:13:00.960 We're not going to see a lot of hiring on 0:13:01.000 --> 0:13:02.440 the back of that, No doubt. 0:13:02.440 --> 0:13:03.320 It's an excellent point. 0:13:03.320 --> 0:13:05.720 And look, we've observed over the last six months a 0:13:05.800 --> 0:13:09.480 huge divergence between jolts and jobs opening and the SMP. 0:13:09.920 --> 0:13:11.679 And so we do feel like in terms of that 0:13:11.720 --> 0:13:14.679 phrase again paradigm shifts that's going on in the equity 0:13:14.679 --> 0:13:15.320 market as well. 0:13:15.400 --> 0:13:17.680 Ultimately, we think stocks follow earning. 0:13:17.760 --> 0:13:20.439 So while we could see some marginal degradation on the 0:13:20.520 --> 0:13:22.360 labor front, we don't think it's going to matter as 0:13:22.440 --> 0:13:23.440 much this time around. 0:13:23.559 --> 0:13:25.640 And you only have one FED cut baked in for 0:13:25.720 --> 0:13:29.400 next year. If we're seeing get unemployment rate that goes higher, 0:13:30.040 --> 0:13:35.480 how does the FED calibrate for that AI induced job losses? 0:13:35.840 --> 0:13:37.040 Such a tough question. 0:13:37.120 --> 0:13:39.920 And look, the FED is an uncharted territory, no doubt, 0:13:40.400 --> 0:13:42.520 the old playbook doesn't apply as much. When we talk 0:13:42.520 --> 0:13:45.600 about an economy that's powered by high income consumers, they're 0:13:45.640 --> 0:13:48.560 not as rayed sensitive. So by cutting too much, you 0:13:48.679 --> 0:13:52.280 run the risk of creating too much inflation, thereby hurting 0:13:52.360 --> 0:13:55.520 the ninety percent of the population that is inflation sensitive. 0:13:55.880 --> 0:13:57.679 And so look, Emery, if I think we're going to 0:13:57.720 --> 0:13:59.480 be surprised it's going to be that the FED doesn't 0:13:59.480 --> 0:14:00.840 cut as much next year. 0:14:01.000 --> 0:14:02.280 How difficult is that going to be? 0:14:02.320 --> 0:14:05.760 Politically, given the fact that the one question the President 0:14:05.800 --> 0:14:07.960 at least I have reporting on he asked last time 0:14:08.000 --> 0:14:10.680 around for individuals who wanted to become FED chair, was 0:14:11.000 --> 0:14:12.160 are you going to cut interest rates? 0:14:12.760 --> 0:14:15.320 And look, I think it's very thorny issue. Obviously it's 0:14:15.360 --> 0:14:18.920 above my pay grade. But my speculation is whoever is 0:14:18.960 --> 0:14:21.680 in the chair is going to be Dubvish leaning. So 0:14:21.720 --> 0:14:24.960 the short end, no doubt, is likely to perhaps stay 0:14:25.000 --> 0:14:28.560 politically influenced, but it doesn't also entail the long end following, 0:14:28.840 --> 0:14:30.200 and so we may be kind of stuck in the 0:14:30.280 --> 0:14:32.080 mud in terms of this higher for longer long end. 0:14:32.120 --> 0:14:34.480 Yeah, this is I think the concern of many that 0:14:34.560 --> 0:14:37.240 the long end will continue to rise towardston slock from 0:14:37.280 --> 0:14:39.040 Apollo putting out a chart this morning. 0:14:39.080 --> 0:14:41.640 Everybody reads his charts showing. 0:14:41.320 --> 0:14:45.400 That global yields could pull the US treasury yield higher. 0:14:45.640 --> 0:14:48.920 This is really a conundrum for the FED, for the administration, 0:14:49.000 --> 0:14:49.400 isn't it? 0:14:49.720 --> 0:14:50.320 Absolutely? 0:14:50.360 --> 0:14:52.240 And to your point on global yields, look at what's 0:14:52.280 --> 0:14:54.640 going on in Japan, right, So we're in a phase 0:14:54.680 --> 0:14:58.160 here where Japan is seeing two percent long bonds and 0:14:58.520 --> 0:15:00.720 that could have some upward drift higher and thus kind 0:15:00.720 --> 0:15:02.160 of take global yields along with it. 0:15:02.240 --> 0:15:04.960 How does this stock market deal with I don't know 0:15:05.160 --> 0:15:08.800 what the correct phrase is, but an increasingly ca shaped economy, 0:15:08.880 --> 0:15:11.160 right because that sort of sounds like it's happening. 0:15:11.000 --> 0:15:12.200 So it's an excellent question. 0:15:12.280 --> 0:15:15.760 The stock market's response over the last several years has 0:15:15.800 --> 0:15:18.600 been increased narrowing up until this year. This is the 0:15:18.600 --> 0:15:20.880 first year where we've seen the mag seven go from 0:15:20.920 --> 0:15:24.240 a monolith everything up in tandem to a peloton where 0:15:24.240 --> 0:15:28.120 there's actual differentiation between the mag seven. Money center banks 0:15:28.120 --> 0:15:30.840 are leading, and finally you've seen healthcare leading as of 0:15:30.840 --> 0:15:32.880 the last three months. So I think what the market 0:15:32.920 --> 0:15:35.800 is saying is that earnings matter more than ever right now, 0:15:36.040 --> 0:15:39.160 and even though we're in this extremely unique economic and 0:15:39.560 --> 0:15:42.920 kind of socioeconomic paradigm shift, I think earnings are going 0:15:42.960 --> 0:15:44.320 to be what drives stock prices. 0:15:44.440 --> 0:15:46.960 What do you make of the potential policies we're going 0:15:47.000 --> 0:15:48.720 to get next year. I know we're going to get 0:15:48.760 --> 0:15:51.320 the tax refunds with the Treasury Secretary loves to talk about. 0:15:51.360 --> 0:15:52.720 You think that's going to be huge, But a lot 0:15:52.720 --> 0:15:55.720 of people say, actually, consumers know that that's coming, so 0:15:55.760 --> 0:15:58.640 they're spending now the President, though, is also talking about 0:15:58.640 --> 0:16:00.720 two thousand dollars. 0:16:00.120 --> 0:16:01.240 If dividend checks. 0:16:01.600 --> 0:16:03.800 Is this all going to create a more complicated picture 0:16:03.800 --> 0:16:06.320 when it comes to inflation, It could very well. 0:16:06.360 --> 0:16:08.880 And frankly, going back to our earlier thread related to 0:16:09.360 --> 0:16:13.880 monetary poly monetary policy helping kind of middle income consumers, 0:16:14.080 --> 0:16:16.040 we actually do think it's going to be more on 0:16:16.040 --> 0:16:18.680 the fiscal side, And frankly, some of this may not 0:16:18.880 --> 0:16:21.840 coincidentally be timed in front of the midterms next year, 0:16:21.840 --> 0:16:24.880 where affordability and some of these other strains are starting 0:16:24.920 --> 0:16:28.440 to percolate in surveys and actual voting results, and so 0:16:28.560 --> 0:16:31.320 we think again, fiscal policy is going to run it 0:16:31.360 --> 0:16:32.000 hot next year. 0:16:33.520 --> 0:16:37.200 Stay with US multile Impex Savanna's coming up off to this. 0:16:46.160 --> 0:16:49.720 Stocks on pause after closing near record highs. Mona Mahajan 0:16:49.880 --> 0:16:52.800 of Edward Jones with a constructive outlook for next year, 0:16:52.920 --> 0:16:57.200 writing elevated tech valuations, improving liquidity and better earnings momentum 0:16:57.240 --> 0:17:02.280 across cyclicals, midcaps and international equity support a potential rotation, 0:17:02.480 --> 0:17:05.440 Mona joins US Now, Mona, what gives you the confidence 0:17:05.480 --> 0:17:08.280 that we're actually going to see a real rotation when 0:17:08.280 --> 0:17:10.800 it comes to equities because we have been here before, 0:17:10.880 --> 0:17:13.000 we have seen a lot of fall starts. 0:17:13.600 --> 0:17:15.000 Yeah, it's a great call out. 0:17:15.040 --> 0:17:18.800 Look, it's year three now of growth outperforming value of 0:17:18.920 --> 0:17:22.680 technology and AI leading the charge higher. But one thing 0:17:22.720 --> 0:17:25.399 that we watched carefully is, of course earnings growth and 0:17:25.480 --> 0:17:29.320 earnings growth for twenty twenty six. First we think continues 0:17:29.359 --> 0:17:32.080 to look like it will head towards double digits. But 0:17:32.119 --> 0:17:34.639 the good news is underneath the surface there is both 0:17:34.720 --> 0:17:37.680 tech and non tech parts of market that is driving 0:17:37.680 --> 0:17:39.960 that charge higher. And that is a difference from what 0:17:40.000 --> 0:17:42.199 we've seen in twenty twenty five and really in the 0:17:42.240 --> 0:17:44.919 last couple of years, where it is the tech earnings 0:17:44.920 --> 0:17:47.560 that have driven most of the S and P corporate profits. 0:17:47.920 --> 0:17:51.399 So next year, more balance between growth, cyclical and value 0:17:51.480 --> 0:17:54.000 driving earnings growth higher. And by the way, as we 0:17:54.040 --> 0:17:56.560 think about a FED that is cutting rates, that is 0:17:56.560 --> 0:18:00.880 an environment where valuations tend to expand see that much 0:18:00.880 --> 0:18:03.800 scope for valuation expansion in the tech and growth parts 0:18:03.840 --> 0:18:06.520 of the market. They've already seen some of that occur, 0:18:06.680 --> 0:18:09.720 but we do see potentially that scope for valuation expansion 0:18:09.720 --> 0:18:12.040 in that four ninety three. So a couple of factors 0:18:12.040 --> 0:18:14.439 that could drive that part of the market higher and 0:18:14.520 --> 0:18:15.360 drive that rotation. 0:18:15.840 --> 0:18:17.320 Does the Fed need to be cutting rates? 0:18:17.359 --> 0:18:19.480 I mean, if we're at three plus percent in terms 0:18:19.520 --> 0:18:23.359 of GDP growth, A lot of Republicans are saying maybe four. 0:18:23.440 --> 0:18:26.320 I saw Art Laugher on Fox yesterday say five percent 0:18:28.040 --> 0:18:31.840 and inflation is at three unless you believe the last 0:18:31.880 --> 0:18:34.280 set of CPI numbers that we got, Does the Fed 0:18:34.320 --> 0:18:35.480 really need to be cutting rates? 0:18:36.280 --> 0:18:36.480 Yeah? 0:18:36.520 --> 0:18:39.359 You know, look, we don't think that's a prerequisite for 0:18:39.400 --> 0:18:42.800 the markets to continue to perform. Well here we know that, 0:18:43.200 --> 0:18:45.520 in fact, the economy has grown. When the FED was 0:18:45.560 --> 0:18:48.960 at four and a quarter five percent, we have not seen, 0:18:49.119 --> 0:18:51.160 you know, some of those recessionary conditions over the last 0:18:51.160 --> 0:18:54.040 couple of years that many economists had been calling for. 0:18:54.160 --> 0:18:56.960 So as we look towards twenty twenty six, where the 0:18:56.960 --> 0:18:59.639 Fed has brought rates down to under four percent, now 0:19:00.240 --> 0:19:03.159 we think the base case and what markets are pricing, 0:19:03.160 --> 0:19:05.959 which is one or two more potential rate cuts, is 0:19:06.119 --> 0:19:08.960 a reasonable kind of base case scenario for twenty twenty 0:19:09.000 --> 0:19:12.439 six if you think inflation kind of ends in this 0:19:12.560 --> 0:19:16.800 two and a half percent range or lands there. Typically 0:19:16.840 --> 0:19:19.760 the FED likes to bring Fed funds rate about seventy 0:19:19.760 --> 0:19:21.840 five to one hundred basis points above that level, So 0:19:22.040 --> 0:19:23.760 kind of three and a half percent seems like a 0:19:23.760 --> 0:19:25.200 fair value for the Fed funds rate. 0:19:25.320 --> 0:19:27.520 By the way, Mona, we've seen I think one hundred 0:19:27.520 --> 0:19:30.800 and seventy five basis points of rate cuts since September 0:19:30.840 --> 0:19:34.520 of twenty four, and in that time, the ten year yield. 0:19:34.440 --> 0:19:36.600 Is up like fifty or sixty basis points. 0:19:36.760 --> 0:19:38.720 And Tourist and Slock from Apollo out with a note 0:19:38.720 --> 0:19:45.080 today showing that we have German yields rising, Japanese Japanese 0:19:45.160 --> 0:19:49.440 yields rising, really highlighting the concern that a lot of 0:19:49.440 --> 0:19:52.680 people share global yields are going to continue to pull 0:19:53.000 --> 0:19:55.760 us longer term yields up. Does that worry you as well? 0:19:56.600 --> 0:19:59.280 Yeah, you know, look, our outlook for twenty twenty six 0:19:59.320 --> 0:20:01.439 calls for a ten that stays in this four to 0:20:01.480 --> 0:20:03.040 four and a half percent range. 0:20:03.560 --> 0:20:05.040 We think, you know, the long. 0:20:04.920 --> 0:20:07.440 End of the yield curve will be driven by one 0:20:07.520 --> 0:20:11.680 better economic fundamentals in the US, but two global markets, 0:20:11.680 --> 0:20:15.280 as you noted, are also expected to see a real 0:20:15.359 --> 0:20:18.439 meaningful pickup in earnings growth next year as well. So 0:20:18.480 --> 0:20:22.240 there are global factors that are driving the US yield higher. Now, 0:20:22.320 --> 0:20:25.280 keep in mind four four and a half percent if 0:20:25.320 --> 0:20:28.000 you look over a fifteen year horizon, this is still 0:20:28.000 --> 0:20:31.000 towards the high end of a ten year yield versus 0:20:31.040 --> 0:20:31.679 that history. 0:20:31.760 --> 0:20:33.760 And for investors that are. 0:20:33.640 --> 0:20:36.920 In retirement near retirement, we're just looking for income. We're 0:20:37.000 --> 0:20:41.600 still looking at a pretty attractive value from an investment 0:20:41.640 --> 0:20:45.480 grade type bond market. Where you are getting four percent 0:20:45.600 --> 0:20:47.840 yield is close to you know, that six seven percent 0:20:48.040 --> 0:20:50.320 all in income that you'd like to see, and by 0:20:50.320 --> 0:20:51.560 the way, above the rate of. 0:20:51.480 --> 0:20:52.240 Inflation as well. 0:20:52.280 --> 0:20:54.400 So we think balanced portfolios make a lot of sense 0:20:54.440 --> 0:20:55.720 heading into twenty twenty six. 0:20:55.960 --> 0:20:58.479 When it comes to inflation, the debate isn't over, As 0:20:58.880 --> 0:21:01.119 you mentioned in your nodes. What do you make of 0:21:01.160 --> 0:21:04.199 what we've heard recently from Beth Hammeck saying that she 0:21:04.320 --> 0:21:06.919 wants to maintain policy right now and she's going to 0:21:06.920 --> 0:21:09.920 be a voting member next year, maintain policy right now 0:21:09.920 --> 0:21:11.640 because she is concerned about inflation. 0:21:12.880 --> 0:21:15.639 Yeah, you know, I think generally what we're seeing is 0:21:16.160 --> 0:21:18.560 two parts of inflation, as we know, the goods inflation 0:21:18.680 --> 0:21:21.760 and the services inflation. And the goods basket of CPI 0:21:21.920 --> 0:21:23.560 is about a third of the basket, and we think 0:21:23.600 --> 0:21:26.760 there is potential for upward pressure, especially in that first 0:21:26.800 --> 0:21:29.880 half the year, as some of those terror rates continue 0:21:30.240 --> 0:21:32.360 to flow through to the end markets and the end 0:21:32.359 --> 0:21:35.159 consumer and consumer prices. But on the other hand, we 0:21:35.240 --> 0:21:38.480