Speaker 1: Bloomberg Audio Studios, podcasts, radio.
Speaker 2: News, leaving behind a February full of tech fueld stock
Speaker 2: market records. Steve wideger City expected the broader market to
Speaker 2: close the gap on big tech, saying this the extreme
Speaker 2: divergence of large cap tech profits from other industries should
Speaker 2: diminish this year and next. We would not be surprised
Speaker 2: if MAC seven EPs gains in twenty twenty four were
Speaker 2: cut in half on strong investment spending and greater competition.
Speaker 2: Steve joins us now and Steve, that's a lot to
Speaker 2: get through. Can we build on that just a little
Speaker 2: bit more where you're expecting some of that gap.
Speaker 3: All if cutting half means twenty to twenty five percent
Speaker 3: EPs gains, that's still still substantial growth. You know, industries
Speaker 3: that are literally booming, and there's probably a very limited
Speaker 3: number that are doing that booms you worry about on
Speaker 3: the other side of those those sorts of things. But
Speaker 3: they're not going from large gains to declines. They're going
Speaker 3: to a bit of a slowdown. And you know, again
Speaker 3: look at mag seven, probably four companies that are buying
Speaker 3: up every microchip that they possibly can to offer AI services.
Speaker 3: Now as an open question, as to whether these services
Speaker 3: again are going to find demand in the economy from
Speaker 3: just about everywhere that they're not going to compete with
Speaker 3: each other and they're really going to all be able
Speaker 3: to boom together, or will they compete and they will
Speaker 3: narrow down profits. I think again, we're not willing to
Speaker 3: give up diversification in portfolios right to just bet on
Speaker 3: that single trend. And so again, a lot of other
Speaker 3: good things are happening in the economy. We're raising our
Speaker 3: economic forecasts, raising s and p EPs forecasts, and seeing
Speaker 3: industries that have been weak for the last year and
Speaker 3: a half bottom out and begin a recovery. They won't
Speaker 3: do as well as mag seven in terms of EPs gains,
Speaker 3: but hey, they're at a very different valuation.
Speaker 2: You clearly ombearrass your SOI equities small midcaps. Tell to
Speaker 2: us about the industries you like right now?
Speaker 3: Well, again, you can get mid cap growth companies in
Speaker 3: the United States for about the valuation as European shares only.
Speaker 3: The US midcaps have grown at about eleven percent and
Speaker 3: Europe has grown at about two I think we increasingly
Speaker 3: want to swerve towards healthcare, something that's been out of
Speaker 3: favor with the exception of GOP drugs, equipment makers have
Speaker 3: had an historic growth rate of nine percent, dibiting growth
Speaker 3: for three decades. They're trading fifteen percent off of their highs,
Speaker 3: and again, a lot of people thinking that we'll never
Speaker 3: do anything in healthcare except lose weight, which I wish
Speaker 3: I could.
Speaker 1: I will say that a lot of people are working
Speaker 1: on that. I'm curious about the idea that everyone seems
Speaker 1: to be shifting to. This idea that earnings are coming
Speaker 1: better than expected, the US economy is more stronger than expected,
Speaker 1: fiscal keeps on supporting everybody for the foreseeable future. So
Speaker 1: why is it that CAST funds are on pace for
Speaker 1: another year of record inflows. People are talking about cast
Speaker 1: is trust. I don't think so. People love their CAST
Speaker 1: funds and they're plowing more and money into them.
Speaker 3: So look, the reason why we're not more overweight equities
Speaker 3: is a great competition from yield, and so we want
Speaker 3: to participate that our bond portfolios have a little bit
Speaker 3: below average duration. We expect again to earn that longer
Speaker 3: than the FED. We'll stay at five and a half percent.
Speaker 3: But this is good competition. And look, we've been bullish
Speaker 3: for a while. We have seen increasing bullishness. We see
Speaker 3: new shorts being said in the equity market. Everybody is
Speaker 3: bearish in the bond market and extremely short the bond market.
Speaker 3: I think that there are some areas which have been
Speaker 3: so strong that we want to just start the ease
Speaker 3: back from them. When you've had eighty percent returns in software,
Speaker 3: for example, you know it's just is time again to
Speaker 3: just start to shift to some of the other areas.
Speaker 3: But there's room for both stocks and bonds and portfolios
Speaker 3: right now.
Speaker 1: This doesn't sound like a market that's been drained of liquidity.
Speaker 1: It sounds like an economy that is flush with liquidity.
Speaker 1: Why has the Fed been so ineffective at draining this
Speaker 1: market of liquidity?
Speaker 3: Well, again, do you have do must we have a
Speaker 3: new recession again to stop this rapid inflation. I think
Speaker 3: we have another troubling inflation report that's going to come
Speaker 3: for in March. For the month of February, it's going
Speaker 3: to be another reason for everyone to again say, well,
Speaker 3: wait a second, maybe we're not on this disinflation trend.
Speaker 3: Maybe we're going to be stuck here with the FED
Speaker 3: doing qt in five and a half percent, funds that's
Speaker 3: possible over the short term. But the reality is the
Speaker 3: good news has been we've been able again to supply
Speaker 3: and demand to line up a lot more in a
Speaker 3: more in a stable way without a massive surgeon unemployment. Now,
Speaker 3: if we get too excited about that, there's going to
Speaker 3: be some problems.
Speaker 2: Eve upgraded growth. What do you say, what you like?
Speaker 2: What's leading to that?
Speaker 3: Well, I think again it's weaker pieces of the economy.
Speaker 3: We've had a hidden recession underneath the surface. If you're
Speaker 3: looking at Germany, if you're looking at Japan, if you're
Speaker 3: looking at China, if you're looking at manufacturing in the US,
Speaker 3: which is nobody would really look at. But the reality
Speaker 3: is it's contracted for the year behind US trade contracted
Speaker 3: eight percent in the year through the third quarter of
Speaker 3: last year. And these weaker components again are moving into
Speaker 3: a more stable growing place, probably not going to be
Speaker 3: anything V shaped, but it's those things, along with large
Speaker 3: cap tech with AI which is.
Speaker 1: In the boom.
Speaker 2: There's been a big spread between manufacturing and services for
Speaker 2: quite a while. As you've been indicated, over the last
Speaker 2: year two years, manufacturing started to come up to services.
Speaker 2: Is that how you expect that story to complete.
Speaker 3: But remember it will come off a very different labor
Speaker 3: market outcome. Services labor intensive, manufacturing automated, right, So the
Speaker 3: head count differences are going to be really, really substantial.
Speaker 3: The services industries can't keep adding two hundred thousand jobs
Speaker 3: per month just in those industries, right. So you've seen
Speaker 3: having an employment growth from where we were two years
Speaker 3: ago when services just turn right back on like a
Speaker 3: light switch again. Hospitality, airlines, travel, all of these things
Speaker 3: incredibly labor intensive, and we had massive job losses there
Speaker 3: to recover. But now we're at the point where I
Speaker 3: think it'll slow down, and that didn't in the month
Speaker 3: of January. It was three hundred and fifty three thousand
Speaker 3: jobs in January, but we saw seasonal distortions and employment inflation,
Speaker 3: retail sales, all of these things in different directions. It's
Speaker 3: going to take a while from the market to sort
Speaker 3: it out. I think we'll be a little more worried
Speaker 3: before before we start to really come to grips again.
Speaker 1: John mentioned your upgrade of us GDP.
Speaker 3: Muhammad Alarian recently in Projects Indicate was talking about what
Speaker 3: happens in the United States matters to the rest of
Speaker 3: the role doesn't.
Speaker 2: Stay in the United States.
Speaker 3: Do you foresee then US growth if you see it
Speaker 3: picking up helping the rest of the world. It is,
Speaker 3: but it's challenging at the same time because again, the
Speaker 3: amount of time that we spend with restrictive monetary policy
Speaker 3: is still going to be a bit longer. We haven't
Speaker 3: changed our mid year estimate really, but again confidence that
Speaker 3: we're going to have easing, the communication of easing through markets, right,
Speaker 3: we could set that backs up. So the dollar has
Speaker 3: been stronger now that both helps and that hurts. Yields
Speaker 3: have risen this year right at the long end of
Speaker 3: the curve and across most of the curve. So those
Speaker 3: are modest challenges while some of the things are really helping.
Speaker 3: Consumer demand is not collapsed, and producers have been underwhelming
Speaker 3: and they've been really short in terms of meeting demand.
Speaker 2: Is going to say it always going to catch up,
Speaker 2: Thank you, sir, Steve. Wanting to if SITSI