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Speaker 2: Well, US consumer sentiment fell to a more than two
Speaker 2: year low, and long term inflation expectations jump by the
Speaker 2: most going back to nineteen ninety three. It does illustrate
Speaker 2: the growing apprehension about the economic impact from tariffs, the
Speaker 2: preliminary March Sentiment index dropping to fifty seven point nine.
Speaker 2: It's the lowest level going back to November of twenty
Speaker 2: twenty two, from sixty four a month earlier. That's according
Speaker 2: to the University of Michigan data issued on Friday that
Speaker 2: was sixty four point seven. That figure weaker than all
Speaker 2: estimates in a Bloomberg survey of economists. From where we
Speaker 2: bringing up Michael McKee's Bloomberg News International Economics and Policy correspondent.
Speaker 2: He joins us here in the Bloomberg BusinessWeek Studio. So,
Speaker 2: Michael McKee, consumers, it seems, are paying attention to what's
Speaker 2: coming out of Washington. I've often wondered if they follow
Speaker 2: all the stuff that we follow here in terms of
Speaker 2: tariff's trade war escalation. It seems like they're paying attention.
Speaker 3: It is one of the interesting aspects of this whole thing,
Speaker 3: because usually they don't pay attention to the details of anything,
Speaker 3: and really don't pay a lot of attention to much
Speaker 3: besides the things that touch their lives on a regular basis,
Speaker 3: like gasoline prices or food prices. And while they're generally
Speaker 3: aware that something's happening in Washington, they don't focus on it.
Speaker 3: And in the past we've seen government shutdowns don't move
Speaker 3: consumer confidence a whole lot speaking of something that is
Speaker 3: going to be news for you later this afternoon. But
Speaker 3: in this case, the whole tariff thing has broken through,
Speaker 3: and it's broken through in a very big way, because
Speaker 3: we've seen not just the sentiment numbers go down, but
Speaker 3: the inflation next spectation numbers go way, way up in
Speaker 3: a way we haven't well five to ten year inflation
Speaker 3: expectations at the thirty two year high. And why all
Speaker 3: this is I'm not really sure, because this is one
Speaker 3: of those situations where you go to the gas station
Speaker 3: and you've got to pay more money. It comes out
Speaker 3: of your wallet right now. But this is all theoretical
Speaker 3: down the road, but it has scared people, and now
Speaker 3: the question is are they going to act on it
Speaker 3: or is there something going to happen that will reassure them.
Speaker 3: We're all kind of up in the air about that.
Speaker 4: So how are we thinking about this with the FED
Speaker 4: meeting next week? Is this some expected? Was this that
Speaker 4: to expect when we think about consumer sentiment here?
Speaker 3: I don't think the magnitudes were expected. They had seen
Speaker 3: a rise in inflation expectations, and we've seen that in
Speaker 3: break evens in the market expectations as well, but nothing
Speaker 3: like we got today where one year inflation's seen at
Speaker 3: four point nine percent, and you know CPI headline CPI
Speaker 3: is two point eight percent now and then five to
Speaker 3: ten year inflation three point nine percent. That gets their attention.
Speaker 3: But because this is all theoretical and we haven't seen
Speaker 3: it yet translate into hard data, the FED is going
Speaker 3: to sit back and watch what's going on. They're not
Speaker 3: going to rush into cutting interest rates or anything like
Speaker 3: that until they have proof that this is affecting the economy.
Speaker 2: Well, okay, there was this interesting tidbit in the right
Speaker 2: through of this on Bloomberg News that said respondent said
Speaker 2: there was a forty eight point seven percent chance that
Speaker 2: the stock market will increase in the coming year. It's
Speaker 2: the lowest probability going back to May of twenty twenty three.
Speaker 2: How do expectations for direction of stocks play into what
Speaker 2: actually happens in the market.
Speaker 3: Well, it's interesting because stock market does play a role
Speaker 3: in the Michigan numbers because they ask specifically about it,
Speaker 3: whereas the say, conference board conference numbers are much more
Speaker 3: based on the job market. But in the Michigan numbers
Speaker 3: people are worried about the job market as well. The
Speaker 3: stock market probably had an effect, according to Joe Nshu,
Speaker 3: who is the director of Surveys for the University of Michigan,
Speaker 3: because people see it, it's one of those things that
Speaker 3: is in their face and it is actually happening. It
Speaker 3: may not be that they're financially affected so much they
Speaker 3: think they might be.
Speaker 5: I suppose, but.
Speaker 3: People don't pay as much unless you're in the markets.
Speaker 3: You don't pay as much of attention on a day
Speaker 3: to day basis.
Speaker 2: Can't that turn into some sort of self fulfilling prophecy
Speaker 2: when people are planning out future expenditure. So if they
Speaker 2: think to themselves, well, I don't feel as wealthy, so
Speaker 2: I'm not going to plan this summer trip. Maybe we'll
Speaker 2: drive somewhere closer instead.
Speaker 3: Exactly. But this has also been for the last ten days,
Speaker 3: maybe that the markets have gone down like this, So
Speaker 3: it's a question of timing and have you already started
Speaker 3: your planning. Are you going to give up on the
Speaker 3: idea or do you think, well, you know, the market's
Speaker 3: been up and down a lot, and we always hear
Speaker 3: this about by the dip, etcetera. And maybe things will
Speaker 3: get better. This is just what we don't know at
Speaker 3: this point. We're still in that kind of air pocket
Speaker 3: where there are signs and portents that things could go wrong,
Speaker 3: but there's no guarantee that they will. So what do
Speaker 3: you do about it?
Speaker 5: For right now?
Speaker 3: It probably does mean people cut back on spending a
Speaker 3: little bit. We get retail sales figures on Monday that
Speaker 3: will be interesting to look at. But does it mean
Speaker 3: they cut back to the point where we could see
Speaker 3: the economy start to really slow.
Speaker 4: Well, we did have a story go out on the
Speaker 4: Bloomberg terminal today, and it said that the FED is
Speaker 4: expected to cut twice this year. They're hoping that. They're
Speaker 4: saying that the FED will keep interest rates steady through
Speaker 4: the first half of the year before delivering two cuts
Speaker 4: beginning in September. That's according to multiple economists that have
Speaker 4: been surveyed here. What are your main takeaways for that
Speaker 4: when we think about projections and what you're keeping an
Speaker 4: eye on as we head into the FED meeting next Wednesday.
Speaker 3: Well, if that survey we're a milk carton, it would
Speaker 3: probably have an expiration date on it, because nobody knows
Speaker 3: what the Fed is going to do. And I've talked
Speaker 3: to a number of seen fed'lsea makers from the Open
Speaker 3: Market Committee in recent days who all say, we don't know,
Speaker 3: because we don't know what's going to happen. They're in
Speaker 3: the same position we all are with the tariffs and
Speaker 3: everything else. The Fed in December suggested that this year
Speaker 3: there would be two raid cuts, and of course the
Speaker 3: markets have priced in three right now, but at one
Speaker 3: point we're pricing in one or none, and it just
Speaker 3: goes back and forth as people have to guess and
Speaker 3: we go out and we survey these economists and say, well,
Speaker 3: what do you think and their answer is, well, right now,
Speaker 3: I'll go with two because that's kind of where we were.
Speaker 3: But you can't really make an empirical argument for two
Speaker 3: as compared to anything else at this point.
Speaker 2: Hey, Mike, before we let you go, you mentioned this
Speaker 2: conversation out with Joe Anshi a little earlier at the
Speaker 2: University of Michigan. She directs this survey. You spoke to
Speaker 2: her this morning. TERMOL subscribers can get that conversation. What
Speaker 2: were the main takeaways?
Speaker 3: Basically, the disappointment or the decline in sentiment was widespread
Speaker 3: across all income categories. It was across all political parties.
Speaker 3: There has been some thought that this survey is biased
Speaker 3: in the sense that the party that's out of power
Speaker 3: is much more depressed about the way things are going
Speaker 3: than the party that is in power. But even Republicans
Speaker 3: views expectations for what's going to happen to the economy
Speaker 3: declined precipitously, and so it tells her that there is
Speaker 3: something going on out there that we have to keep
Speaker 3: an eye on.
Speaker 2: Michael McKee, Bloomberg News International Economics and Policy correspondent, have
Speaker 2: a great weekend. Mike, good to see you. Hey, I
Speaker 2: do want to check in on what's going on with Apple,
Speaker 2: because we got a redhead crossing the Bloomberg terminal. Apple's
Speaker 2: top executive overseeing its serie virtual assistant told staff that
Speaker 2: delays to key features have been ugly and embarrassing, and
Speaker 2: a decision to publicly promote the technology before it was
Speaker 2: ready made matters worse. We're talking about Robbie Walker, who
Speaker 2: serves as senior director at Apple, delivering a start comment
Speaker 2: during an all hands meeting for the Siri division, saying
Speaker 2: that the team was facing a bad period. Walker also
Speaker 2: said it's unclear when the enhancements will actually launch. That's
Speaker 2: according to people with knowledge of the matter who asked
Speaker 2: not to be identified because the gathering was private. This
Speaker 2: story on the Bloomberg Terminal by our own Mark German,
Speaker 2: who oversees technology coverage around the world, Chicken out. Shares
Speaker 2: of Apple higher still by just about eight tens of
Speaker 2: one percent, but they did give up some of those
Speaker 2: gains after that news came.
Speaker 1: You're listening to the Bloomberg Business Week podcast. Catch us
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Speaker 2: We were just talking about with Michael McKay. US consumer
Speaker 2: sentiment fell to a more than two year low, and
Speaker 2: long term inflation expectations jumped by the most since nineteen
Speaker 2: ninety three. It illustrates growing apprehension about the economic impact
Speaker 2: from tariffs. Then there's the raid path ahead of next
Speaker 2: week's FED meeting. Rates and consumer health is very important
Speaker 2: to Isa Washerman. He's the CFO of Huntington Bank Shares.
Speaker 2: It's the holding company of the Consumer and Business Regional
Speaker 2: Bank Huntington National Bank. It's got locations in a handful
Speaker 2: of states, including Ohio, Minnesota, Wisconsin, North and South Carolina
Speaker 2: and more. Zach joins us from Columbus, Ohio. Also with
Speaker 2: us is Nina Trentman, senior editor at Bloomberg News. She's
Speaker 2: the author of the CFO Briefing newsletter. You got to
Speaker 2: sign up for it at Bloomberg dot com slash CFO
Speaker 2: Dash Briefing. Zach, Nina, Welcome to Bloomberg BusinessWeek. Zach, You've
Speaker 2: got this great read on the consumer. Given what Huntington
Speaker 2: does for businesses and what Huntington does for consumers big picture,
Speaker 2: how would you characterize how consumers are doing right now
Speaker 2: and how would you characterize the economy right now?
Speaker 6: You know, consumers continue to perform pretty well in terms
Speaker 6: of spending, lending activity, credit performance generally looks pretty solid.
Speaker 6: You know, throughout the course of the last year, there's
Speaker 6: a bit of a tale of two cities with respect
Speaker 6: to the consumer. If you look at consumers to above
Speaker 6: the median income, there's been a lot of strength, strong employment,
Speaker 6: good spending trends, great underlying activity. Consumers below the median
Speaker 6: income have been showing some signs of stresses. For Huntington,
Speaker 6: that's not really our business, but just characterizing kind of
Speaker 6: broadly what we're seeing in the industry.
Speaker 5: That is certainly the case.
Speaker 6: I think fundamentally, employment remains relatively strong, and I think,
Speaker 6: you know, notwithstanding elements that are going on now that
Speaker 6: could drive uncertainty, we're seeing fairly healthy trends in the consumer.
Speaker 6: Of course, that could change, and we're watching it very carefully,
Speaker 6: but as of right now, looks really relatively good in
Speaker 6: terms of the economy overall. You know, I've been remarking
Speaker 6: to a number of people in the last couple of
Speaker 6: weeks that. You know, if you were just to look
Speaker 6: at the results of our business and not read the headlines,
Speaker 6: you would say, gosh, the economy is performing exceptionally well.
Speaker 6: Our business continues to drive forward very powerfully into the
Speaker 6: first core. We're seeing terrific trends in underlying activity. Of course,
Speaker 6: there is a lot of headlines coming through and that's
Speaker 6: causing uncertainty, and so we would potentially see some things
Speaker 6: coming through later in the year if this continues, but
Speaker 6: as of right now, remarkable resilience.
Speaker 5: Actually.
Speaker 7: Yeah, to follow up on that, Zach, thanks for joining us.
Speaker 7: So you're basically saying sort of the headlines, as you
Speaker 7: characterized it, that has not really fit into your business,
Speaker 7: Like we are seeing surveys of businesses declining, we're seeing
Speaker 7: consumer inflation expectations really changing. So you're saying, basically that
Speaker 7: is still not showing in your business.
Speaker 6: Yeah, I think, I mean, certainly there is the effect
Speaker 6: on the psyche of the consumer, of the commercial customer.
Speaker 6: You can't ignore the headlines. The actual activity on the ground, though,
Speaker 6: is be lying that and we are seeing continued growth,
Speaker 6: for example, the lending activity, continued deposit gathering strong, a
Speaker 6: customer acquisition and underlying behavioral trends look relatively normal for
Speaker 6: this time of the year. I think, you know, you've
Speaker 6: got to look hard for signs that what's happening right
Speaker 6: now could well start to affect the real economy. And
Speaker 6: there are some harbingers of that, you know, in our
Speaker 6: commercial segment, where we interact with customers who might be
Speaker 6: involved with buying goods on a forward basis where they
Speaker 6: could be exposed to uncertain pricing given tariffs in the future.
Speaker 5: We're seeing a little bit of halting.
Speaker 6: Activity there other places where there's commitments around capital expenditures
Speaker 6: in the second half of this year. Most of the
Speaker 6: first half is fairly well committed, but in the second
Speaker 6: half of the year seeing some signs of decision making
Speaker 6: slow down and other things that would what you'd expect
Speaker 6: to see if.
Speaker 5: There was uncertainty in the environment.
Speaker 6: So you can see it if you look, but you've
Speaker 6: got to look hard, and I would say, broadly speaking,
Speaker 6: in the first order, certainly and certainly the view we've
Speaker 6: gotten too this quarter looks like not much impact on
Speaker 6: the real economy.
Speaker 7: Yet there's of course a range of indicators that track
Speaker 7: the economy, and then that we could be looking at
Speaker 7: in order to gauge where where sentiment is. Probably not stocks,
Speaker 7: given that they are currently a bit of a turbulent time.
Speaker 7: But what's the metric that you're looking at in order
Speaker 7: to really get a sense of where your businesses? You
Speaker 7: mentioned deposit growth earlier. Is that the metric that you're
Speaker 7: looking at? Or are there others where you'd say that
Speaker 7: gives me a sense of where things are headed?
Speaker 5: Yeah, of course, not just one. There's there's a lot
Speaker 5: of them, but I think you know one.
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Speaker 6: Last year, do you sustain fairly strong, good visibility and
Speaker 6: long growth into the second quarter?
Speaker 5: At this point?
Speaker 6: We also look at customer acquisition trends and just underlying
Speaker 6: activity that would indicate just normal consideration behavior from customers,
Speaker 6: and that looks pretty good.
Speaker 7: You know.
Speaker 6: Another thing that we watch very carefully, of course, is credit,
Speaker 6: and we're not seeing any indications of any move in
Speaker 6: delinquency rates or more early indicators of credit stress.
Speaker 5: Is quite the opposite.
Speaker 6: Actually, we're seeing a lot of stability and strength, So
Speaker 6: those are some of the things we look at a lot,
Speaker 6: and again, as I said earlier, you're really not seeing
Speaker 6: anything on the real economy yet.
Speaker 5: I want to stress we're.
Speaker 6: Not Pollyanna here, and there are a lot of concerning
Speaker 6: uncertainties being put into the market, and those could cumulate
Speaker 6: into real effects later.
Speaker 5: We're just not seeing that well, Zach.
Speaker 4: I know we have the FED meeting coming up next Wednesday,
Speaker 4: and we have a market that's pricing in two rate
Speaker 4: cuts this year. I understand that Huntington has already reduced
Speaker 4: the interest it pays clients in response to lower interest rates.
Speaker 4: Do you agree with this projection of two rate cuts
Speaker 4: this year and how far do you see stagflation risk.
Speaker 6: It's a great question, and I will tell you I'm
Speaker 6: not an economist, and we purposely don't make a specific
Speaker 6: prognostication about the indust rate environment. We rather plan for
Speaker 6: a range of potential interest rate environments, and we're trying
Speaker 6: to make sure we can execute our plan and support
Speaker 6: our customers under any of them. I will tell you,
Speaker 6: throughout the course of the last couple of years, we
Speaker 6: have continually bit of the view that it felt like
Speaker 6: inflation was pretty sticky and that would likely cause the
Speaker 6: FED to go slower in actions. But then maybe the
Speaker 6: forward yield curve had implied at various points in the
Speaker 6: past and that interest rates would likely stay higher for longer.
Speaker 6: And so we still see that that is a probable
Speaker 6: outcome here. Inflation continues to be higher than the FED target,
Speaker 6: there's a lot of reasons why they would be on
Speaker 6: pause for a while.
Speaker 5: With that being said, something like two cuts does not.
Speaker 6: Seem unlikely to us, and so that's sort of a
Speaker 6: reasonable default scenario to plan around, and for us, we
Speaker 6: can execute our plan if that happens or if there's
Speaker 6: no cuts.
Speaker 8: Yeah.
Speaker 7: To follow up on one thing that we've talked about
Speaker 7: in the past, SEC we've talked about potential deal making,
Speaker 7: the outlook for investments. Wondering, given that you're in the
Speaker 7: banking sector and the financial sector is one where we're
Speaker 7: expecting some regulatory changes from the Trump administration, do you
Speaker 7: think those will be positive for your business?
Speaker 6: Well, look, I think we focus on what we can control,
Speaker 6: and what's happening in terms of that is certainly out
Speaker 6: of our control. I do think that that more clarity
Speaker 6: around the rules for m and A review will cause
Speaker 6: more activity within the industry broadly, We've been pretty clear
Speaker 6: for Huntington that we're focused on organic growth and so
Speaker 6: it's not something that would really have a significant bearing
Speaker 6: on our business, but certainly the expectation that there could
Speaker 6: be more consolidation at an industry level, which could be
Speaker 6: a return. Frankly, just what we've seen for the last
Speaker 6: twenty years is is certainly likely.
Speaker 2: We're trying to get an understanding from executives we speak
Speaker 2: to about how they're using AI in their businesses. I mean,
Speaker 2: so much of the discussion about AI is focused on
Speaker 2: companies that actually create the products and services or actually
Speaker 2: make the chips that power these things. How are you
Speaker 2: using AI right now? Specifically when it comes to increasing
Speaker 2: deposits for example, personalization, take us through that.
Speaker 6: It's tremendous actually that there's a lot of energy around
Speaker 6: it that you know, AI will touch virtually every area
Speaker 6: of the business over time, and it's already making significant impact.
Speaker 6: We use AI a lot in understanding customer behaviors and
Speaker 6: how we can better serve them with additional products and
Speaker 6: with with with you know, when to reach out to
Speaker 6: them for products that could be a beneficial to them.
Speaker 6: So there's a lot of focus or leveraging AI for that.
Speaker 6: You know, the other side of the coin is really
Speaker 6: looking at fraud and potential risks within the system, and
Speaker 6: so AI is certainly helping us to to look and
Speaker 6: find those kind of indicators can make our own efforts
Speaker 6: more efficient to protect our customers.
Speaker 2: Well, speaking of the protection, does it make it more
Speaker 2: complicated that you're in such a heavily regulated industry and
Speaker 2: you have to be careful about discrimination and internal biases
Speaker 2: that are created within these algorithms.
Speaker 6: You know, it's a very important areas. It's probably the
Speaker 6: most important place we look before we ever institute any
Speaker 6: kind of machine learning or AI model is really what
Speaker 6: is the impact on the customer in terms of fairness, clarity,
Speaker 6: and adhere it's to compliance and regulatory rules and so
Speaker 6: it's a huge focus.
Speaker 5: So if I say, though, we think we can.
Speaker 6: Solve those challenges and really create great tools that can
Speaker 6: live within the baluands of that, So it's got a
Speaker 6: ton of promise.
Speaker 5: You know.
Speaker 6: The other big area that we're putting a major focus
Speaker 6: is our own internal efficiency and processes. You know, how
Speaker 6: can we leverage this technology to make us more efficient
Speaker 6: as an organization? Which ultimately gets fed back into customer
Speaker 6: value and savings to customers over time.
Speaker 5: So it's very promising.
Speaker 4: Hey, Zach, in about thirty seconds or less, so your
Speaker 4: shares are down nearly ten percent this year. How much
Speaker 4: are you all keeping an eye on share price and
Speaker 4: how are you thinking about the forward outlook?
Speaker 6: You know, we try not to get too wrapped up
Speaker 6: on what's happening in the equity markets in any given time.
Speaker 5: The goal is a long term value creation.
Speaker 6: I will say it appears that there's you know, all
Speaker 6: the uncertainty in the world generally is coming through int
Speaker 6: equity markets and you're seeing that. But frankly, the profit
Speaker 6: growth outlook for the industry and for Huntington in particular,
Speaker 6: it's very strong. So you know, for us, I think
Speaker 6: if we just keep our heads down and keep driving
Speaker 6: profitability higher, we're going to see the stock prices respond
Speaker 6: and see those go up higher over time as well.
Speaker 5: So trying to get two wrapped up in it.
Speaker 2: Hey, Zach, thanks so much for joining us on at
Speaker 2: Bloomberg Business Week this afternoon. Zach Wasserman, CFO at Huntington
Speaker 2: at Banks Shares also a big thank you. Anina Trentman
Speaker 2: she's senior editor at Bloomberg News. She's the author of
Speaker 2: the CFO Briefing newsletter. You can sign up for the
Speaker 2: CFO Briefing newsletter at Bloomberg dot com slash CFO dash Briefing.
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Speaker 2: Let's talk tariffs because senior members of the European Union's
Speaker 2: Executive arm in the US and US officials rather spoke
Speaker 2: on Friday to explore ways to move forward after President
Speaker 2: Trump's metals tariffs prompted a trade war. This call came
Speaker 2: after Trump imposed twenty five percent tariffs on steel and
Speaker 2: aluminum imports, in a massive escalation of the trade war
Speaker 2: between the long standing allies. That decision was shortly followed
Speaker 2: by the announcement of the European Commission for additional tariffs,
Speaker 2: targeting as much as twenty six billion euros worth of
Speaker 2: US products. For more, we bring in Jason Brittany's founder
Speaker 2: in CIO at Reflection Asset Management. He joins US from Charleston,
Speaker 2: South Carolina, Jason, in your view, and we know what
Speaker 2: the uncertainty arou on tariffs has done to the markets
Speaker 2: this week. But in your view, so are tariffs and
Speaker 2: effective way to accomplish the president's goals.
Speaker 5: So I don't believe they are.
Speaker 8: I think that the what they're going to do is
Speaker 8: they're going to directly relate raise consumer prices and they're
Speaker 8: going to continue to give the markets heartburn and not
Speaker 8: have anybody have any idea which way to be able
Speaker 8: to place bets. It just is creating uncertainty that I
Speaker 8: don't think that the global economy needs right now.
Speaker 4: Jason. I'm looking at a market that seems that it
Speaker 4: wants to move higher, but the newsfold keeps overwhelming the market.
Speaker 4: We had the Nasdaq one hundred hitting correction, territory SMP
Speaker 4: five hundred doing the same. How are you advising clients
Speaker 4: during this uncertain time period?
Speaker 8: So I think it really is a reflection of the
Speaker 8: client's individual risk tolerance. I mean, for some folks who
Speaker 8: are towards the latter half of their career and they're
Speaker 8: actually potentially moving towards fixed income and they're not in
Speaker 8: the accumulation phase of wealth. It can be really unsettling,
Speaker 8: especially when you're seeing the whipsall moments in the market.
Speaker 8: We did see today, however, some technical support for the
Speaker 8: S and P at around the fifty five hundred marks,
Speaker 8: and we've seen it push higher, almost up to full
Speaker 8: two percent today. The reality is is that given the
Speaker 8: fact that the White House is willing to saber rattle
Speaker 8: around tariffs, and I mean I had a personal moment
Speaker 8: last night when I thought Don Perignon was all of
Speaker 8: a sudden going to be four or five hundred dollars
Speaker 8: a bottle with the two hundred percent tariff, that we
Speaker 8: were going to lead into a really unpleasant summer season here.
Speaker 8: The reality is is that I think that we have
Speaker 8: got to get this under control and have to come
Speaker 8: to the table and really look at this from a
Speaker 8: fairness perspective. Tariffs and retaliatory tariffs and the saber rattling
Speaker 8: isn't doing anybody any good. And I think you're right.
Speaker 8: I think the market is poised to move higher. I
Speaker 8: think fundamentals are strong. We had a great CPI print.
Speaker 8: I think that there's this market is ready to run
Speaker 8: and it's just looking for a reason to do so.
Speaker 8: And we just need a little support from Washington.
Speaker 4: Well, Jason, I've been talking to different sources that you've
Speaker 4: spoken about the fact that while corrections are unnerving in
Speaker 4: the current moment, it's not unusual. So how are you
Speaker 4: thinking about this the corrections that we been seeing. Is
Speaker 4: it something that maybe valuations were too high and we're
Speaker 4: just do for a pullback a little bit.
Speaker 8: So I think there's a fair amount of profit taking.
Speaker 8: I also think there's a fair amount of some of
Speaker 8: the shorts and the hedges that got squeezed and who
Speaker 8: are now covering what we're bad bets before, especially on Tesla.
Speaker 8: I mean, the reality is the market is a living
Speaker 8: thing and it will ebb and flow, and people are
Speaker 8: buying and selling for various reasons. I think generally speaking,
Speaker 8: the vector of the market is up. I think that
Speaker 8: there's been strong corporate earnings. I think that we're going
Speaker 8: to see great things out of American companies. I think
Speaker 8: that this right now gamesmanship, for lack of a better term,
Speaker 8: between our neighbors to the north and the south, with
Speaker 8: some of the most globally intertwined and complex supply chains
Speaker 8: that exist anywhere in the world, we're just doing ourselves
Speaker 8: a disservice, and I think we're pounding the drum for
Speaker 8: the wrong reason.
Speaker 4: How are you thinking about small caps right now?
Speaker 8: So small caps of the canary in the coal mine
Speaker 8: right as soon as they bounce back, it usually is
Speaker 8: a buying indicator that shows you that the large cap
Speaker 8: part of the market is going to go that we
Speaker 8: keep an eye on.
Speaker 5: Right now.
Speaker 8: There are small pockets of promise, but generally speaking, this
Speaker 8: particular week, and even in some of the trading days
Speaker 8: last week, it was baby out with the bathwater. So
Speaker 8: it's really going to be a stock pickers market here
Speaker 8: on a go forward basis. Find good companies with strong
Speaker 8: balance sheets, with products that you can believe in. Think
Speaker 8: about companies that are sort of domestically focused, right Utilities,
Speaker 8: healthcare companies that have really strong positions and really strong
Speaker 8: domestic supply chains are going to be able to weather
Speaker 8: a lot of this nonsense, and in fact, some of them,
Speaker 8: I think are going to be able to take advantage
Speaker 8: of some opportunities to price increase under the shadow of
Speaker 8: while everyone else is doing it well.
Speaker 4: Just to echo what we said a little bit ago,
Speaker 4: we are currently waiting to hear from President Trump here shortly,
Speaker 4: How do you think Trump is thinking about the market?
Speaker 4: Do you think that he's even keeping an eye on
Speaker 4: it at all?
Speaker 8: So, at the risk of exposing myself and painting a
Speaker 8: target on my back, I would go so far as
Speaker 8: to say that I believe that the President has a
Speaker 8: lot of folks who are keeping a deep eye on
Speaker 8: the markets. I don't know if they're doing it for
Speaker 8: the same reasons the rest of us are. I think
Speaker 8: that they think that they're playing three dimensional chess. I'm
Speaker 8: not entirely sure that they're not the only ones that
Speaker 8: think that The reality is is that the CPI print
Speaker 8: was fine, Inflation is cooling, the Fed now has reason
Speaker 8: to continue it's easing. Where the market is pricing in
Speaker 8: something between seventy and seventy five basis points by the
Speaker 8: end of twenty twenty five, that's going to be good
Speaker 8: for consumers. It'll be interesting to see if Speaker Johnson
Speaker 8: and then whatever happens with Senator Schumer and whether they
Speaker 8: can come to an agreement on the continuing Resolution funding
Speaker 8: the government and extending the Trump tax cuts. I think
Speaker 8: that will be good for American business. But I think
Speaker 8: most of this nonsense out there is just noise.
Speaker 4: Jason, how are you thinking about sectors that are exposed
Speaker 4: to government spending. I'm always keeping an eye on defense stocks,
Speaker 4: and of course we know that we have US defense
Speaker 4: stocks that are pulling back a little bit in comparison
Speaker 4: to their European counterparts. How are you thinking about the
Speaker 4: Department of Government efficiency and what that means for investing
Speaker 4: in US defense equities?
Speaker 8: So great question, Nourah. I think that if you're thinking
Speaker 8: about defensive stocks, particularly those that are what i'll call
Speaker 8: multi conglomerate defensive, so they're not just making guns and bombs,
Speaker 8: but rid our parts and various other things that also
Speaker 8: keep the civilian economy moving, they're going to lag their
Speaker 8: European counterparts because of the pressure that European counterparts are
Speaker 8: feeling right now as it relates to NATO and that
Speaker 8: really big push from the President for them to kind
Speaker 8: of quote unquote pay their own way as it relates
Speaker 8: to their GDP. Spending on defense is a percentage of
Speaker 8: their overall budget. That's part of the NATO charter. We're
Speaker 8: kind of asking them to pay their own way, and
Speaker 8: I do see them looking towards being part of a
Speaker 8: solution and maybe stepping up on the global stage. I
Speaker 8: still don't count out American Defense, particularly Lockheed raytheon general dynamics.
Speaker 8: Those kinds of companies tend to do extremely well in
Speaker 8: periods of elatility, especially in periods where there's the potential armament.
Speaker 8: Back to your question though, around DOGE and the hatchet
Speaker 8: versus scalpel cutting of programs or every positive thing that
Speaker 8: I can say about the defense sector, I have to say,
Speaker 8: shed a tear and say something sad about the cutting
Speaker 8: of veterans benefits, the cutting of healthcare to seniors, and
Speaker 8: some of the other challenges that we're really just seeing
Speaker 8: out there with the firing and rehiring and firing and
Speaker 8: rehiring of the same set of government employees within the
Speaker 8: same forty eight hour period. Well, Jason, that it really
Speaker 8: looks I'm sorry, go ahead.
Speaker 2: Well, I want to just get some questions in, because
Speaker 2: we are expecting Trump in the coming minutes. How do
Speaker 2: you expect the DOGE cuts to hit the economy? And
Speaker 2: you know we haven't seen it yet reflected in the
Speaker 2: non farm payrolls, but how do you expect it to
Speaker 2: be reflected there?
Speaker 8: Well, so we know that there's a minimum of seventy
Speaker 8: five thousand federal employees. They're going to show up in
Speaker 8: that next print on the non farm payrolls. I think
Speaker 8: that it is going to continue to be an overhang
Speaker 8: as it relates to negative news, and right now the
Speaker 8: market is overreacting to news, both positively and negatively. I
Speaker 8: think depending on the timing of that next ADP report
Speaker 8: or the report that comes out of the the Department
Speaker 8: of Labor, how and what that looks like in comparison
Speaker 8: to what the FED does it then next meeting. If
Speaker 8: those two things come together and they're both negative, I
Speaker 8: think you could see a perfect storm, and you could
Speaker 8: probably see another five to seven percent of the downside.
Speaker 8: If those numbers are what we'll call offsetting, I think
Speaker 8: you'll see a moment's pause here where people will kind
Speaker 8: of take a breath at the fifty six hundred to
Speaker 8: fifty seven hundred point spread range on the S and
Speaker 8: P five hundred. If both of those go the right
Speaker 8: direction and they're positive, I think you could see six
Speaker 8: thousand or sixty one hundred certainly by the end of
Speaker 8: the summer.
Speaker 2: Which one do you think is more likely to happen.
Speaker 8: I think the reality is is that it is going
Speaker 8: to be a goldilocks environment. I think that you're going
Speaker 8: to see the FED reaching for a reason to drop
Speaker 8: by twenty five basis points. But I do think that
Speaker 8: that there's bloodshed from the just carnage that was the
Speaker 8: layoff of the federal workforce. That's probably going to be
Speaker 8: closer to one hundred or one hundred and twenty five
Speaker 8: thousand dollars twenty five thousand person print, and that that's
Speaker 8: going to concern me. The order of magnitude on that
Speaker 8: is going to, I think send some shock waves.
Speaker 5: To the market.
Speaker 2: Okay, so then what does the FED do if that
Speaker 2: indeed happens.
Speaker 8: So best case scenario is it's a measured pause with
Speaker 8: a change in the language. Worst case scenario is that
Speaker 8: they probably cut twenty five basis points and then make
Speaker 8: it clear that there are no more cuts coming the
Speaker 8: rest of the year, and I think that that will
Speaker 8: really upset the market.
Speaker 5: What about next week? Are you?
Speaker 2: How are you looking at next week's meeting?
Speaker 8: I don't know if there's an I mean, based on
Speaker 8: the CPI print and some of the other things that
Speaker 8: are out there, I would expect them to be able
Speaker 8: to have the political cover to do a small reduction.
Speaker 8: I think the market right now traders are pricing in
Speaker 8: like something less than a fifty percent chance of a
Speaker 8: twenty five basis point drop. It would be in line
Speaker 8: with the dot plot. Who knows. I mean right now,
Speaker 8: the President's going to go speak of the Department of Justice.
Speaker 8: That could be business as usual, or it could be
Speaker 8: something going into the weekend on a Friday afternoon, which
Speaker 8: is a fun part of the news cycle that none
Speaker 8: of us is going to see coming.
Speaker 4: Well. US consumer sentiment fell to more than a two
Speaker 4: year low, and then we have long term inflation expectations
Speaker 4: that jumped the most since nineteen ninety three. What do
Speaker 4: you think that consumers and just broader civilians really need
Speaker 4: to see in terms of changing sentiment.
Speaker 8: So I think the consumers right now really are focused
Speaker 8: on being hyper sensitive and hyper reactive to the news.
Speaker 8: They don't know what to believe, they don't know where
Speaker 8: things are. We're one minute in the Oval Office having
Speaker 8: a shouting match with the President of Ukraine, where the
Speaker 8: next minute brokering a peace deal and taking over fifty
Speaker 8: percent mineral rights. It really is a challenging environment for
Speaker 8: someone who's literally just trying to get up in the
Speaker 8: morning and get themselves and their kids off to school
Speaker 8: and to work and back again. It's a very challenging
Speaker 8: environment to sort of get any comfort with the general
Speaker 8: direction that things are heading. My belief is that by virtue,
Speaker 8: American consumers are optimists. Right, We're seventy percent of the
Speaker 8: spending that is the GDP is the American consumer. I
Speaker 8: still think that there is hope and reason, but I
Speaker 8: think they're a little weary.
Speaker 5: They're a little if.
Speaker 8: You can believe it, just less than three months in
Speaker 8: battle hardened from what's been going on in Washington.
Speaker 4: Well, when we think about just the rally of the
Speaker 4: last year, last couple of years, we've really been seeing
Speaker 4: a lot of those MAG seven stocks driving the majority
Speaker 4: of the broader markets gains. Do you still see them
Speaker 4: having more room to run? I mean, I know cap
Speaker 4: X has really been a concern and a sticking point
Speaker 4: as people think about how much further tech stocks can
Speaker 4: really drive the rally forward.
Speaker 8: So cap X, You're absolutely right, has been a huge issue.
Speaker 8: And we just saw in the last round of Earning's
Speaker 8: releases many of them MAGS seven have doubled down on
Speaker 8: their expenditures around data centers and their chip boarders and
Speaker 8: so on and so forth. So we're not really seeing
Speaker 8: a slowing down there. I think their exposure is to
Speaker 8: the downside as it relates to a news element where
Speaker 8: just like we had Deep seek them out right in
Speaker 8: the earlier part of the year and you saw, however,
Speaker 8: many eight seven eight hundred billion dollars worth of market
Speaker 8: valuation wiped away from Navidia wiped away from Apple. Apples
Speaker 8: had a particularly challenging time recently around Siri and the
Speaker 8: AI disappointments and some of the functionality. It's still a
Speaker 8: strong company. It's still is a great balance sheet. The
Speaker 8: price gets any cheaper, they're going to accelerate their buybacks.
Speaker 8: So Bradleie, I'm bullish on tech. I still think the
Speaker 8: AI story has legs. I still think there's room to run.
Speaker 8: I still think we don't know that the ultimate amount
Speaker 8: of efficiencies we're going to see from that, and I
Speaker 8: generally speaking think it is a very positive time for
Speaker 8: that particular subsect of the industry.
Speaker 2: Jason Brittany's founder and CIO at Reflection Asset Management.
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