Speaker 1: Bloomberg Audio Studios, podcasts, radio news, basically One Wall Street.
Speaker 1: At the moment, might Wilson of More Good Stand be
Speaker 1: taken a very constructive view on things, writing the rates
Speaker 1: of changes turned for the better on most fronts. This
Speaker 1: keeps us positive on us sequities on a twelve month basis,
Speaker 1: we expect pullbacks to be shallow and unsatisfying to those
Speaker 1: looking for a fatter pitch. Mike joined us now for
Speaker 1: more Mike, good morning, Good morning John. I love the
Speaker 1: reason no don't find SI. So let's talk about don't
Speaker 1: find one? What elements of the market move shouldn't we fight?
Speaker 2: Well, it's kind of what we're just talking about.
Speaker 3: I mean, the headlines remained very noisy and uncertain, and
Speaker 3: I think you know this has been the case for
Speaker 3: the whole year. Our view, as you know, has been
Speaker 3: a bit different. We came in thinking the first half
Speaker 3: would be tougher and the rate of change and a
Speaker 3: lot of things like earnings, re visions and some of
Speaker 3: the headline would be negative. And in fact that what
Speaker 3: we think happens. That all got priced in the week
Speaker 3: after Liberation Day, right, it was violent, it was a
Speaker 3: de leveraging and so now as we look at the
Speaker 3: data itself, it's all inflected higher and so, you know,
Speaker 3: don't everything, but ignoring the headlines is probably a good
Speaker 3: strategy and just focus on the data has turned up
Speaker 3: for the most part. And I think, you know, I
Speaker 3: don't know where the trade negotiations are going. Nobody does,
Speaker 3: but I think it's very unlikely we're going to go
Speaker 3: back to where we were, you know, a month and
Speaker 3: a half ago, like we bottomed in terms of the
Speaker 3: pain of that initial you know, announcement and how bad
Speaker 3: those tariffs were. So unless it really re escalates in
Speaker 3: a negative fashion, I don't think the trade issues is
Speaker 3: even going to be enough to kind of take the
Speaker 3: momentum out.
Speaker 2: Of this market right now.
Speaker 1: You know what the bad view sounds like. They would
Speaker 1: say that maybe some of the data, some of the
Speaker 1: earnings we've seen have been flattened by pull forward and
Speaker 1: we'll get the bill for that later this summer. Do
Speaker 1: you think we're priced for that kind of slowed down,
Speaker 1: that weakness we could see in a summer months.
Speaker 2: That's probably right.
Speaker 3: And when we had that view too, there was a
Speaker 3: pull forward and Q one Q we're not being better
Speaker 3: than they feared because you know, the numbers came down
Speaker 3: a bunch.
Speaker 2: I think the second.
Speaker 3: Quarter, though, is expected now to be weaker, so that's
Speaker 3: going to be the key. I think the biggest risk
Speaker 3: for the market's going to probably be either rates as
Speaker 3: we've talked about in the past, you know, north of
Speaker 3: four and a half percent.
Speaker 2: Or we do go an earning season.
Speaker 3: It's not as you know, people were hoping for, and
Speaker 3: we have maybe a five to seven percent correction, but
Speaker 3: that's not what people kind of want. People want a
Speaker 3: ten you know, another ten to fifteen percent draw down
Speaker 3: to get better, to get more exposure, and I just
Speaker 3: don't think you're going to get that. I mean, I've
Speaker 3: seen this a million times. You want it, but you're
Speaker 3: just going to have to have a shorter trigger finger.
Speaker 4: Well, you had seen retail largely buying the dip that
Speaker 4: that's who participated when you got those ruptures in April.
Speaker 4: If we're not going to get dips like that anymore,
Speaker 4: what is the willingness of institutions to continue to put
Speaker 4: money to work right now, especially they didn't even buy
Speaker 4: the pass dips we saw.
Speaker 3: Yeah, I think institutions have re risk, but there's still
Speaker 3: more to go. The one the area that I think
Speaker 3: that that you have to watch is the is the
Speaker 3: systematic strategies the CTAs that price willmentum money. We saw
Speaker 3: almost five hundred million dollars of de leveraging in that
Speaker 3: period of early March through mid April, and they've re
Speaker 3: risked maybe thirty forty percent of that. So that's another
Speaker 3: bid that's sort of it's not fundamentally driven, it's just
Speaker 3: price momentum.
Speaker 2: So that's that's going to be kind of underlying bid.
Speaker 3: And then I think, you know, most institutions have re
Speaker 3: risk but one thing I haven't talked about yet is
Speaker 3: it's people are still making the quality bet and we
Speaker 3: agree with that, meaning this isn't the beginning of a
Speaker 3: news cycle. It's once again an extension of the existing cycle.
Speaker 3: And the Fed's probably going to be cutting at some
Speaker 3: point later this year early next year, and that really
Speaker 3: behooves the large cap quality equities.
Speaker 4: Does it behoove companies specifically who can also weigh out
Speaker 4: some of the tariff uncertainty because this has been a
Speaker 4: big part of the narrative. Right no one's making decisions.
Speaker 4: Cap X is largely stalled unless your tech is there
Speaker 4: an element where even though we don't have terarras resolved
Speaker 4: that you get companies who just get on with it
Speaker 4: and start to put capital to work.
Speaker 2: Yeah, they got to run a business.
Speaker 3: And that's another reason why large cap quality businesses can
Speaker 3: do this. They can mitigate some of these risks, whether
Speaker 3: it's terriffs, whether it's you know, maybe a government cutting
Speaker 3: back on certain types of spending. And one of the
Speaker 3: things that is getting through this tax build that I
Speaker 3: think is still underappreciated is the tax incentives for.
Speaker 2: Cap X and R and D spending.
Speaker 3: We think that could add three to five percent to
Speaker 3: earnings growth or cash earnings for these large multinationals. That's
Speaker 3: a big tail in addition to the weaker dollars. So
Speaker 3: there's just a lot of tailwinds I see from an
Speaker 3: earning standpoint.
Speaker 2: And this is almost a perfect.
Speaker 3: Environment to climb the wall of worry because the economic data,
Speaker 3: the political geopolitical data is messy, it's noisy, it's scary sometimes,
Speaker 3: but as long as the revision factors for earnings are
Speaker 3: heading north, it's just hard for stacks to go down.
Speaker 1: When you say capecks, I just think of a handful
Speaker 1: of tech companies. Do you think it goes beyond just
Speaker 1: tank leadership.
Speaker 3: Oh absolutely. I think this is about capital goods. I
Speaker 3: think this is not just about AI capbacks. Also, one
Speaker 3: thing to just keep in mind, the IT cappacks that's
Speaker 3: been good the last several years has really been concentrated
Speaker 3: just in AI. Okay, the traditional kind of upgrades you
Speaker 3: see in the enterprise and in the household have not
Speaker 3: been happening because there was a giant pull forward, remember
Speaker 3: in twenty twenty and twenty twenty one for work from home.
Speaker 3: So if you actually look at the IT capback cycle
Speaker 3: from twenty two to twenty four, it was kind of
Speaker 3: a software session. And that's another part of our thea
Speaker 3: We've been going through these rolling recessions and look, to me,
Speaker 3: the big, the big catalyst to keep in mind for
Speaker 3: broadening out is going to be when the Fed starts
Speaker 3: to signal they're more dubbish. I don't know when that's
Speaker 3: going to be, but my guess is sometime in the
Speaker 3: third Court they're going to start to signal that, and
Speaker 3: that's when they're going to get more broadening out to
Speaker 3: the lower quality parts.
Speaker 1: Is the why matter? Do we need it because inflation
Speaker 1: is coming in? Or is it going to be because the
Speaker 1: labor market is cracking.
Speaker 3: Well, I mean, look at last fall, it was both right,
Speaker 3: the labor market was cracking last summer. As soon as
Speaker 3: they signaled they were ready to step in, the market
Speaker 3: went up anyway. So that's why I mean, I actually
Speaker 3: think of recession if we finally get the you know,
Speaker 3: broad recession labor cycle, I don't think the equity markets
Speaker 3: are going anywhere near the April lows because the FED
Speaker 3: will be able to act quickly, and we're like Pavlovian, right,
Speaker 3: And if retail is buying when the FED wasn't even.
Speaker 2: Cutting, if they are cutting, there's going to.
Speaker 3: Be a big bid there. So look, there's always risks
Speaker 3: in the market. There's always something to be worried about.
Speaker 3: There's always things to bearishan and there seems to be
Speaker 3: bullish on and.
Speaker 2: That's our job.
Speaker 3: And I think, you know, this year we've navigated that
Speaker 3: pretty well, being in the right place. And I think
Speaker 3: we're going to continue to have to shift what we
Speaker 3: want to own, not so much how much you want
Speaker 3: to own.
Speaker 1: You've acknowledged the one thing that could be a handwind
Speaker 1: for equities as interest rates. He wrote about it over
Speaker 1: the weekend. What is it about four fifty that's challenging
Speaker 1: to this equity market because based on the running we've
Speaker 1: seen over the past few weeks, we don't see much
Speaker 1: of a challenge.
Speaker 2: Well, it's stabilized at four fifty.
Speaker 3: So we've identified this level like almost two years ago,
Speaker 3: and it's been like a charm. I mean, as soon
Speaker 3: as you cross four to fifty in the upside, the
Speaker 3: correlation between stocks and rates goes negative and vice versa.
Speaker 2: Now, I do think that we kind of went.
Speaker 3: To four seventy in the April period and then they
Speaker 3: calm down again.
Speaker 2: I think the market is getting comfortable that they have
Speaker 2: enough tools.
Speaker 3: Because you know, the Treasury Secretary has talked about that
Speaker 3: to keep it four to fifty or below if they
Speaker 3: need to, And I think we talked about this last
Speaker 3: time I was here. Four to seventy five is like
Speaker 3: the worst place because that's where markets get really nervous.
Speaker 3: Five percent I actually get bullish because then I know
Speaker 3: that they're going to come and intervene with either liquidity
Speaker 3: injections or they're going to use these other tools that
Speaker 3: the Treasure secretaries talked about. So we're you know, we're
Speaker 3: we're optimistic that that could be managed and in other words,
Speaker 3: that risk could be a risk for five or seven percent,
Speaker 3: but ultimately that risk will get managed to do you.
Speaker 1: Get clients, hosk, can you now about the dead oceans?
Speaker 1: Asking the equities trying to just about the dead oceans
Speaker 1: that take place in the week.
Speaker 3: Well, I really ask the equity folks. But I mean
Speaker 3: people do ask about it, for sure. I mean, and
Speaker 3: once again we have seen many auctions, soft auctions for
Speaker 3: the last two or three years, we've seen this occur
Speaker 3: and then they get control of it.
Speaker 2: Again.
Speaker 3: I don't want to dismiss the risk from the back
Speaker 3: end of the market that is still to me. The risk,
Speaker 3: I mean is the risk not only for markets. It's
Speaker 3: the risk for the US, Like we have too much
Speaker 3: debt and this is a focus. And if we don't
Speaker 3: I mean, ultimately, if we don't you know, cut the
Speaker 3: budget over time, like and maybe the market is now
Speaker 3: giving them a lead like okay, we'll give you twelve months,
Speaker 3: you know, but if we don't get serious about you know,
Speaker 3: budget reconciliation and actually reducing the size of the budget
Speaker 3: over time, this is an issue that's going to stay
Speaker 3: with us.
Speaker 1: Mike Wilson more than Stantley. Three words over the weekend.
Speaker 1: Don't fight it. Don't fight this market, Mike, Thank you, sir.
Speaker 1: I appreciate it.