WEBVTT - Reaction to May CPI 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, Podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business App. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.040 us live on YouTube. 0:00:27.320 --> 0:00:29.200 Let's talk about these markets here. 0:00:30.120 --> 0:00:32.280 You know, it's been around triple in the equity markets, 0:00:32.800 --> 0:00:34.360 bonds are hanging in there, feels like we're in a 0:00:34.400 --> 0:00:34.960 trading range. 0:00:35.040 --> 0:00:37.160 The dollar nobody wants to buy the dollar. 0:00:38.080 --> 0:00:41.560 The gold higher yet again, thirty four hundred bucks close 0:00:41.600 --> 0:00:43.920 to and bitdog. I mean, is Tom kean to like 0:00:43.960 --> 0:00:45.760 to say that's higher as well? So it seems like 0:00:45.760 --> 0:00:48.080 people are rulling to take some risk out there. Let's 0:00:48.080 --> 0:00:49.920 talk to us a professional who does this stuff for 0:00:50.000 --> 0:00:54.000 a living. Mona Mahajan, Senior investment strategist for Edward Jones. Mona, 0:00:54.040 --> 0:00:56.200 what are the conversations like when you go on the 0:00:56.240 --> 0:00:58.800 road talking to your institutional investor clients at Edward Jones. 0:00:59.320 --> 0:01:01.480 What's the conver station these days? Yeah? 0:01:01.520 --> 0:01:04.480 And you know, over nine million households as clients. We 0:01:04.520 --> 0:01:08.520 have twenty thousand financial advisors across North America. Every county 0:01:08.560 --> 0:01:11.920 now in North America represent in the US representaation. 0:01:11.520 --> 0:01:13.480 Edward Jones is based in Saint Louis. 0:01:13.160 --> 0:01:14.160 Based in Saint Louis. 0:01:14.360 --> 0:01:17.839 Wow, they've been r one hundred and two years, so yes, 0:01:17.920 --> 0:01:20.520 to your point, you know, look, we were down twenty 0:01:20.560 --> 0:01:23.119 percent earlier in the year. There was some anxiety building 0:01:23.120 --> 0:01:25.600 around the tariffs, and to your point, as we pulled 0:01:25.640 --> 0:01:29.280 tariffs back, or as the administration pulled tariffs back, and 0:01:29.360 --> 0:01:32.360 as the economic data actually is surprised to the upside 0:01:32.360 --> 0:01:34.680 for the large part, whether it was earnings growth GDP 0:01:34.800 --> 0:01:38.160 now looking quite strong, labor market hanging in there. We 0:01:38.240 --> 0:01:42.160 saw this round trip nearly now over twenty percent rally 0:01:42.160 --> 0:01:43.319 in the S and P five hundred. 0:01:43.640 --> 0:01:44.440 And I think. 0:01:44.400 --> 0:01:47.280 Investors really want to know our investors are long term investors. 0:01:47.280 --> 0:01:50.600 But one, should they still be in the tech magnificent 0:01:50.640 --> 0:01:53.360 seven trade? That's a question that comes up often. And two, 0:01:53.400 --> 0:01:55.480 how should they think about bonds here? And I think 0:01:55.720 --> 0:01:57.880 that's one that will continue to come up. I know 0:01:57.920 --> 0:01:59.880 we have a couple of interesting auctions later today, but 0:02:00.440 --> 0:02:02.840 generally speaking, we say at four and a half percent, 0:02:03.200 --> 0:02:05.160 you know, we always refer to that Tina trade. There 0:02:05.200 --> 0:02:08.799 is no alternative US treasury market, deepest most liquid market 0:02:08.880 --> 0:02:12.520 in the world, very regulated and offering interesting yield for 0:02:12.520 --> 0:02:13.640 those long term investors. 0:02:13.800 --> 0:02:16.080 We get CPI in just like two minutes. Are you 0:02:16.080 --> 0:02:17.440 expecting it in anything? 0:02:17.840 --> 0:02:20.760 You know, We're hopeful that it comes in line with 0:02:21.000 --> 0:02:24.040 what consensus is. We will probably see a slight tick 0:02:24.120 --> 0:02:27.200 up on headline and core CPI this month, but keep 0:02:27.240 --> 0:02:30.080 in mind energy prices versus last year at least have 0:02:30.160 --> 0:02:32.600 come down substantially. And the other thing we like to 0:02:32.600 --> 0:02:35.320 point out, remember that two thirds of the CPI basket 0:02:35.360 --> 0:02:38.360 is actually services inflation. And so while we are talking 0:02:38.360 --> 0:02:42.440 about tariffs and trade that primarily impacts goods inflation about 0:02:42.440 --> 0:02:44.480 a third of the CPI basket. But if we are 0:02:44.520 --> 0:02:47.440 seeing a bit of cooling, you know, consumers maybe not 0:02:47.520 --> 0:02:49.760 taking as many vacations or eating out as much, that 0:02:49.840 --> 0:02:51.560 services number will cool as well. 0:02:51.639 --> 0:02:54.080 What is the Edward Jones kind of economic call, be 0:02:54.080 --> 0:02:56.880 guys thinking recession or we've kind of we've avoided that. 0:02:57.080 --> 0:02:59.400 Yeah, you know, our base case continues to be no 0:02:59.520 --> 0:03:02.919 recession and cooling an economic growth. Certainly, we were above 0:03:02.960 --> 0:03:05.040 trend last couple of years, like two and a half percent, 0:03:05.120 --> 0:03:07.880 really nice last year. Could we get a few quarters 0:03:08.240 --> 0:03:12.120 as tariffs do settle in as consumers, maybe it's offten 0:03:12.160 --> 0:03:14.600 a bit in the next couple of quarters below a 0:03:14.680 --> 0:03:17.920 trend growth, so maybe sub two and a half two percent, absolutely, 0:03:17.960 --> 0:03:21.360 but we don't yet see that negative GDP growth number emerging. 0:03:21.600 --> 0:03:24.480 This actually looks like a pretty positive report. I mean, 0:03:24.720 --> 0:03:28.120 inflation still has you know, that two handle on a 0:03:28.200 --> 0:03:30.799 year on year basis, but it is lower, which means 0:03:30.840 --> 0:03:33.680 that we're not seeing necessarily that feed through from any tariffs. 0:03:33.720 --> 0:03:35.800 And then if you have the removal or an agreement 0:03:36.120 --> 0:03:38.400 of tariffs and trade between China and the US, is 0:03:38.400 --> 0:03:41.880 that remove another headwind all together. And that's sort of 0:03:41.880 --> 0:03:44.240 why now we're seeing futures having a nice pop now 0:03:44.280 --> 0:03:45.000 within the market. 0:03:45.200 --> 0:03:47.120 Yeah. I mean, if Michael mckeeber was sitting here, I 0:03:47.120 --> 0:03:48.760 don't know where he is, by the way, he's on TV. 0:03:48.960 --> 0:03:51.320 Oh he's on TV. There he goes, I'd say. 0:03:51.120 --> 0:03:53.880 Hey, man, where's the inflation. I thought with all this 0:03:54.040 --> 0:03:55.520 tariff stuff, there'd be some inflation. 0:03:55.760 --> 0:03:58.560 I think he's proud of respond. You don't know. Yeah, 0:03:58.600 --> 0:03:59.200 we're going to see it. 0:03:59.320 --> 0:04:01.400 If we're going to see it, you will probably see 0:04:01.400 --> 0:04:03.800 it sometime later in the summer. In July data, maybe 0:04:03.840 --> 0:04:07.680 August data, I don't know. We're joined here by Mona Mahadgen, 0:04:07.800 --> 0:04:09.680 Senior investment strategist Edward Jones. 0:04:09.680 --> 0:04:12.280 She is in our Bloomberg Interactive Broker studio, Mona. When 0:04:12.320 --> 0:04:12.720 you see a. 0:04:12.640 --> 0:04:15.480 Benign inflation print like this, does it give you a 0:04:15.520 --> 0:04:18.880 sense that maybe this economy and maybe some of these 0:04:18.880 --> 0:04:21.159 companies are going to be in a better position. 0:04:20.880 --> 0:04:22.640 Then maybe we've maybe initially feared. 0:04:23.080 --> 0:04:24.880 Yeah, you know, A couple of things keep come to 0:04:24.880 --> 0:04:26.880 mind when I see this type of print. Number one, 0:04:27.120 --> 0:04:29.279 it does look like, as we just talked about, the 0:04:29.279 --> 0:04:32.919 services side of the inflation print came out slightly softer 0:04:33.000 --> 0:04:35.200 than expected. So as we talked about two thirds of 0:04:35.200 --> 0:04:37.800 the basket is services, and if that part of the 0:04:37.800 --> 0:04:40.520 economy is starting to just cool a bit, that will 0:04:40.520 --> 0:04:43.279 be reflected in the broader CPI basket, I think a 0:04:43.360 --> 0:04:46.120 two handle. To your point, we're still closer to that 0:04:46.240 --> 0:04:49.480 two percent target than we were really any time over 0:04:49.480 --> 0:04:53.080 the last year or so, so that is also probably 0:04:53.080 --> 0:04:55.880 a benign factor as we think about inflation. But I'll 0:04:55.920 --> 0:04:58.640 finally also note as we think about companies and how 0:04:58.640 --> 0:05:02.520 they're managing tariffs, certainly during this period of pause, it 0:05:02.560 --> 0:05:05.960 is possible that companies continue to build inventories, and as 0:05:05.960 --> 0:05:09.400 they are building inventories, they don't have to then pass 0:05:09.480 --> 0:05:12.320 through as much of that price increase, and so we 0:05:12.360 --> 0:05:14.159 could see you know a lot of companies even thinking 0:05:14.200 --> 0:05:17.599 about Christmas inventories. If that continues between now in July, 0:05:18.480 --> 0:05:21.719 companies have adjusted their innovative they find a way around 0:05:21.800 --> 0:05:23.920 some of these headwinds that we see in the economy. 0:05:24.560 --> 0:05:26.960 Does that hurt them later though, if the consumer winds 0:05:27.000 --> 0:05:30.600 up getting hurt and they're stuck with all that inventory. 0:05:29.600 --> 0:05:32.560 You know, it will come down to consumer resilience. And 0:05:32.720 --> 0:05:35.680 thus far consumption has held in there. We look at 0:05:35.920 --> 0:05:40.440 second quarter GDP, potentially consumption looks above two percent higher 0:05:40.480 --> 0:05:42.719 than the first quarter. So we are seeing a consumer 0:05:42.760 --> 0:05:47.640 that's relatively resilient. But yes, overbuilding inventories can come back 0:05:47.680 --> 0:05:50.320 to bite you, but from a consumer perspective, it's not 0:05:50.360 --> 0:05:52.840 a bad place to be. They're not going to experience 0:05:52.880 --> 0:05:54.320 some of this dramatic move. 0:05:54.200 --> 0:05:55.680 And tariffs that we might have seen because you know 0:05:55.720 --> 0:05:57.320 what overbuilding inventory means for me. 0:05:57.279 --> 0:06:01.479 Paul, see there it is, yeah, and we all know 0:06:01.680 --> 0:06:05.640 Alex and her sales not one of the seventy three 0:06:05.680 --> 0:06:08.880 forecasters in Bloomberg survey had penciled in a zero point 0:06:08.920 --> 0:06:10.960 one percent core CPI increased. 0:06:11.080 --> 0:06:14.920 That's according to Chris Anstey, senior editor for Bloomberg News 0:06:14.960 --> 0:06:17.040 on the Top Live, which is just awesome by the way, folks. 0:06:17.200 --> 0:06:18.320 You've got a Bloomberg from On. 0:06:18.279 --> 0:06:20.880 The Top Live folks, and when big stuff crosses to 0:06:20.960 --> 0:06:22.480 take they're all over. 0:06:22.839 --> 0:06:24.719 So mona, just real quick, We'll let you go. 0:06:24.760 --> 0:06:27.400 But I mean, does this you know, kind of a 0:06:27.440 --> 0:06:29.360 little bit more of a benign inflation outlook? 0:06:29.400 --> 0:06:30.520 Does it kind of change the. 0:06:30.440 --> 0:06:32.760 Way you guys are going to be talking to your 0:06:32.800 --> 0:06:35.360 clients in every county of the United States. 0:06:35.600 --> 0:06:37.839 Yeah, you know, Look, I think this one print alone 0:06:37.880 --> 0:06:40.240 doesn't change the overall narrative. What we will say is 0:06:40.240 --> 0:06:42.760 we're up twenty percent plus in a pretty short period 0:06:42.760 --> 0:06:45.839 of time. Could we get more bounts of volatility ahead, Absolutely, 0:06:45.920 --> 0:06:48.800 especially as we digest some of this summer news, you know, 0:06:48.920 --> 0:06:51.320 post ninety day pause, et cetera. But as we look 0:06:51.360 --> 0:06:53.120 towards the back half of the year, we do think 0:06:53.279 --> 0:06:56.039 the setup back half into twenty six is not bad. 0:06:56.160 --> 0:06:58.200 You know, we're seeing potentially a FED that could be 0:06:58.240 --> 0:07:00.919 cutting rates. We are seeing ten a tax bill that 0:07:01.080 --> 0:07:04.040 is in place and supporting on the fiscal front as well, 0:07:04.200 --> 0:07:06.480 and then of course companies will have a little bit 0:07:06.480 --> 0:07:09.400 more certainty in the earnings profile may reaccelerate in twenty 0:07:09.400 --> 0:07:12.080 twenty six. So we do think volatility can provide some 0:07:12.080 --> 0:07:13.520 opportunities for our investors. 0:07:13.800 --> 0:07:16.760 Well, you want smart equity talk here, Alex in this 0:07:16.880 --> 0:07:19.840 studio right now, two of my all time phaves in 0:07:19.960 --> 0:07:23.520 terms of equity strategy, Mona Mahadjen Senior investment strategist Aaric Jones, 0:07:23.520 --> 0:07:25.960 and Gina Martin Adams and Bloomberg Intelligence doing the same thing. 0:07:26.000 --> 0:07:28.360 I mean, it doesn't get any better than that. Mona, 0:07:28.360 --> 0:07:30.440 thank you so much for joining us. Appreciate you coming 0:07:30.440 --> 0:07:35.520 into our studio. Gina read on this inflation data. I 0:07:35.560 --> 0:07:38.000 don't know I'm blaming Michael McKee here. I mean, yeah, 0:07:38.040 --> 0:07:40.080 there's no inflation, it seems like in this market. 0:07:40.160 --> 0:07:43.480 No, And certainly the disceleration and services inflation is great 0:07:43.480 --> 0:07:46.920 news broadly. I think, frankly, what matters and oftentimes gets 0:07:46.960 --> 0:07:51.960 overlooked though, is the difference between producer price inflation and prices. Yeah, 0:07:52.000 --> 0:07:53.600 this is something that we spend a lot of time 0:07:53.640 --> 0:07:56.960 on is Okay, Sure, the headline level of CPI, you 0:07:57.000 --> 0:07:58.960 want to pay attention to it, But the only real 0:07:59.000 --> 0:08:00.880 reason to pay attention to it is because of the 0:08:00.880 --> 0:08:04.040 FED and the implications for valuations. So this is valuation 0:08:04.200 --> 0:08:06.840 supportive because it doesn't suggest the FED is going to 0:08:06.840 --> 0:08:09.800 have to hike anytime soon. It may even support the 0:08:09.840 --> 0:08:13.320 ease that is now priced into markets coming later this year. 0:08:14.200 --> 0:08:16.960 But what will matter for profits is how does this 0:08:17.040 --> 0:08:18.760 compare to PPI coming out tomorrow? 0:08:19.560 --> 0:08:20.880 And so what do you think. 0:08:21.240 --> 0:08:24.120 He guy is higher? Then we get a margin squeeze. 0:08:23.800 --> 0:08:25.400 Right, yeah, we start to get a margin squeeze, and 0:08:25.440 --> 0:08:28.320 that's frankly where we've been for the last several consecutive months. 0:08:28.320 --> 0:08:29.240 It's just a tiny bit. 0:08:29.720 --> 0:08:34.080 Yeah, I know, I know switching, I know she did 0:08:34.080 --> 0:08:34.520 the whole thing. 0:08:34.559 --> 0:08:35.920 He was walking one out of the studio. 0:08:36.679 --> 0:08:36.839 I know. 0:08:37.040 --> 0:08:39.440 I know it is important for the FED, right, it 0:08:39.480 --> 0:08:42.120 is important for valuations, But ultimately we care about where 0:08:42.120 --> 0:08:44.440 profits are going, and we care about what's happening with 0:08:44.480 --> 0:08:48.360 margins and companies are you know, despite what you know, 0:08:48.400 --> 0:08:50.640 this low CPI is not a great sign of what 0:08:50.679 --> 0:08:53.760 companies are contending with. When PPI is accelerating faster. So 0:08:53.800 --> 0:08:55.880 you've got a little bit of margin pressure that has 0:08:55.960 --> 0:08:59.160 emerged over the course of twenty twenty five. It is 0:08:59.280 --> 0:09:02.280 likely to contain depending upon what we see in PPI tomorrow. 0:09:03.840 --> 0:09:06.880 So yeah, So where do you think the industries are 0:09:06.920 --> 0:09:08.719 going to be that have that margin. 0:09:09.920 --> 0:09:14.320 Ability to control some degree of pricing of power. So far, 0:09:14.679 --> 0:09:17.839 and we've certainly seen this after the tariff pause, it's 0:09:17.840 --> 0:09:19.920 all Mag seven, right. If you look at the divergence 0:09:19.960 --> 0:09:23.520 that has existed so far in the post tariff pause world, 0:09:23.600 --> 0:09:26.960 it is companies outside of the MAG seven are experiencing 0:09:27.000 --> 0:09:30.960 the greatest acceleration and earnings growth prospects. Inside the MAG 0:09:31.000 --> 0:09:33.760 seven you still have that big moat. As a result, 0:09:33.800 --> 0:09:37.200 the market has gone back to sort of pre twenty 0:09:37.240 --> 0:09:41.000 twenty five trends and started to excessively price the stability 0:09:41.080 --> 0:09:44.600 of the Mag seven earning stream. So where you this 0:09:44.640 --> 0:09:47.080 is a very consistency theme over the last two to 0:09:47.160 --> 0:09:49.360 three years, is any time we enter a period of 0:09:49.400 --> 0:09:53.400 strain on earnings, investors believe just rush right back into 0:09:53.440 --> 0:09:57.040 MAG seven because they do have some degree of stability, 0:09:57.080 --> 0:10:00.520 They do have an incredible amount of cash, They generate 0:10:00.559 --> 0:10:04.000 a lot of cash flow. They have relatively sticky margins, 0:10:04.920 --> 0:10:06.800 but you get to a point where this group is 0:10:06.880 --> 0:10:09.600 priced so excessively relative to the rest of the index, 0:10:09.640 --> 0:10:11.520 and an he tweaks around the margin. Let's say we 0:10:11.559 --> 0:10:16.440 get an easier PPI number tomorrow, that's actually great news 0:10:16.480 --> 0:10:19.559 for the non mag seven. Any sort of tariff resolution 0:10:20.120 --> 0:10:23.160 great news for the non Mag seven. So I think 0:10:23.160 --> 0:10:25.680 you want to really play this as a MAG seven 0:10:25.760 --> 0:10:29.000 versus x Mag seven trade, which started to emerge as 0:10:29.040 --> 0:10:32.560 a real possibility in twenty twenty four, got squeezed out 0:10:33.080 --> 0:10:36.280 by the tariff pause. As the tariff pause ends, we 0:10:36.400 --> 0:10:38.480 might see the non Mag seven start to come back 0:10:38.480 --> 0:10:38.800 to life. 0:10:38.880 --> 0:10:43.760 Let's see what factors are you guys focusing on these 0:10:43.840 --> 0:10:46.520 days to leave it there, Yeah. 0:10:46.440 --> 0:10:49.880 Yeah, yeah, so the factors. Our factor strategy is run 0:10:49.880 --> 0:10:53.360 by our con strategist, Chris Kaney. Just updated this, just 0:10:53.480 --> 0:10:57.320 updated this late late last week, and one of the 0:10:57.320 --> 0:11:00.440 things that just continues to shine in factor land is 0:11:00.440 --> 0:11:03.240 low volatility stocks. It's kind of unbelievable, but even in 0:11:03.440 --> 0:11:06.760 last year's rally in the equity market, low vall was 0:11:06.800 --> 0:11:09.560 the best performing and just stuck at the top of 0:11:09.600 --> 0:11:13.319 our factor scoring methodology. It still is at the top 0:11:13.360 --> 0:11:17.120 of the scorecard. It's not terribly expensive to buy low 0:11:17.240 --> 0:11:21.240 volatility stocks. It's all sector adjusted, so we sector neutralize 0:11:21.280 --> 0:11:24.400 all our factors. But it means low volatility. It just 0:11:24.440 --> 0:11:27.520 means how do the stock prices behave in an environment 0:11:27.559 --> 0:11:31.200 where volatility is on trend rising from lows made back 0:11:31.240 --> 0:11:34.160 in early late twenty twenty three early twenty twenty four. 0:11:34.559 --> 0:11:38.120 It makes sense that lower volatility stacks would probably perform better. 0:11:38.559 --> 0:11:41.760 They tend to also have better earnings revision momentum than 0:11:41.800 --> 0:11:45.160 the rest of the index. They are more stable as 0:11:45.160 --> 0:11:48.240 a general rule, and that stability is definitely shining in 0:11:48.280 --> 0:11:49.760 today's world of volatility. 0:11:49.960 --> 0:11:51.800 Before we let you go, do you think the equity 0:11:51.840 --> 0:11:54.120 market is at risk for a melt up? As we 0:11:54.200 --> 0:11:57.480 got the trade headlines today, we got the CPI, what 0:11:57.520 --> 0:11:57.720 do you. 0:11:57.720 --> 0:12:01.160 Think, Well, we've had an extra ary melt up already. 0:12:01.360 --> 0:12:04.120 So when we look at what's really driven the equity 0:12:04.120 --> 0:12:07.480 market since the tariff pause, it's been almost entirely technical. 0:12:07.520 --> 0:12:10.760 So we can plot across global equity markets buy beta. 0:12:11.280 --> 0:12:14.160 The higher beta markets have performed best. That would include, 0:12:14.200 --> 0:12:16.400 of course, the S and P five hundred, especially the 0:12:16.480 --> 0:12:19.480 MAG seven which tend to be generally higher beta than 0:12:19.520 --> 0:12:22.400 the rest of the global equity markets. I think that 0:12:22.520 --> 0:12:25.760 trade is largely coming to an end, and the next 0:12:25.920 --> 0:12:29.360 layer of improvement in the S and P five hundred 0:12:29.880 --> 0:12:32.040 probably has to be driven by one of two things. 0:12:32.160 --> 0:12:34.840 Either of much better than expected recovery in the economy 0:12:34.840 --> 0:12:39.079 because we get tariff resolution emerges and that drives rotation 0:12:39.320 --> 0:12:42.840 into some of the higher volatility value type shares that 0:12:42.880 --> 0:12:47.160 have really lagged in the recovery, or you get some 0:12:47.200 --> 0:12:50.000 sort of fetties coming. If you get a fetties, there 0:12:50.120 --> 0:12:52.600 certainly is room for more advancement in some of the 0:12:52.679 --> 0:12:55.800 underappreciated segments of the index as well. So I think 0:12:55.800 --> 0:12:59.480 you'll see the market rotate to new drivers. Clearly in 0:12:59.520 --> 0:13:02.640 the post sort of the pause regime, it's been all beta, 0:13:03.000 --> 0:13:05.800 it's been almost all technical. There's not been a great 0:13:05.800 --> 0:13:09.720 fundamental case to kind of jump back into stocks. We've 0:13:09.760 --> 0:13:13.959 repriced back to our pre tariff levels. We are, you know, 0:13:14.160 --> 0:13:17.000 now up on the year, so we can maybe move 0:13:17.040 --> 0:13:21.160 into an environment of rationality going forward. But we'll see. 0:13:21.320 --> 0:13:23.760 I think there's more downside the upside. Yeah, if I 0:13:23.800 --> 0:13:25.000 were to tell you that, what would you how would 0:13:25.040 --> 0:13:26.320 you would you argue me, are. 0:13:26.240 --> 0:13:29.719 You well your yeah, your suspicions. 0:13:29.800 --> 0:13:33.120 Yeah, there's still tires out there, yeah, like triple or 0:13:33.120 --> 0:13:34.240 more than we had before. 0:13:34.400 --> 0:13:38.360 You're what you're That statement is basically accurately reflecting what's 0:13:38.400 --> 0:13:42.520 in our models, right. Our models are saying, fundamentally, there's 0:13:42.559 --> 0:13:44.760 not a huge case for this. Right, We're in a 0:13:44.840 --> 0:13:47.240 regime according to our market regime model as well as 0:13:47.240 --> 0:13:50.520 our economic regime model, that we should expect very low 0:13:50.600 --> 0:13:53.840 single digit returns in twenty twenty five. As a general rule, 0:13:54.200 --> 0:13:58.880 we're there now. We just need to see some other 0:13:59.040 --> 0:14:02.480 something change in order to justify a greater upside. I'm 0:14:02.520 --> 0:14:05.240 always open to that. Remember, the default direction of stocks 0:14:05.320 --> 0:14:07.720 is higher, so you have to keep that in the 0:14:07.720 --> 0:14:10.480 back of your head at all times. Usually, to see 0:14:10.520 --> 0:14:13.400 stocks correct to the downside, you need to see some 0:14:13.480 --> 0:14:18.800 trigger manifest right now. That trigger very easily could be 0:14:19.120 --> 0:14:22.360 weaker than expected economic growth, which emerges into the second 0:14:22.400 --> 0:14:23.320 half of this year as well. 0:14:23.400 --> 0:14:25.400 You're so right about just stocks up into the right 0:14:25.400 --> 0:14:25.800 long term. 0:14:25.920 --> 0:14:27.560 When I was very early in my career, I was 0:14:27.600 --> 0:14:30.960 the third analyst covering America Online, so the third analysts 0:14:31.160 --> 0:14:33.560 covering the Internet on Wall Street and I put a 0:14:33.560 --> 0:14:35.640 by on it. I had no idea what I was doing. 0:14:35.800 --> 0:14:37.800 I put a bio on It kept going up, up up. 0:14:37.800 --> 0:14:39.640 But there's a big, big. 0:14:39.400 --> 0:14:41.960 Short seller, I won't tell you his name, huge short seller, 0:14:42.320 --> 0:14:44.160 and he was getting crushed and he called me. 0:14:44.120 --> 0:14:46.040 Ten times a day. So what are you doing? What 0:14:46.040 --> 0:14:48.280 do you do? So calls terrible? I'm like, I don't know, man. 0:14:48.320 --> 0:14:52.200 The market's going up, stocks going up. Shorting stocks is 0:14:52.200 --> 0:14:54.560 a tough very hard to make a living. 0:14:54.640 --> 0:14:56.240 Yeah, very hard business. 0:14:56.480 --> 0:15:00.640 Anyway, all right, but I remembered that that's it's kind 0:15:00.640 --> 0:15:02.440 of go up into it right by and large. 0:15:02.720 --> 0:15:03.640 All right, Thank you so much. 0:15:03.800 --> 0:15:06.640 Geena Martin Adams, she is equity strategist for bloom Market 0:15:06.680 --> 0:15:10.160 TELM appreciate getting Gena's time here in our studios. Let's 0:15:10.200 --> 0:15:14.160 switch some stocks to bonds, Winning Season, Global head of 0:15:14.200 --> 0:15:16.960 strategy for credit sites. So when do you see, I 0:15:16.960 --> 0:15:20.760 guess kind of a benign ish kind of CPI number today? 0:15:21.400 --> 0:15:24.200 What does that mean for your world of credit? 0:15:25.000 --> 0:15:28.160 Sure, it's been a very benign number for CPI. I 0:15:28.200 --> 0:15:32.400 do think that Gina Martin Adam's point around CPI versus 0:15:32.440 --> 0:15:36.640 PPI and the read through to corporate profit margins is important, 0:15:36.720 --> 0:15:40.160 but from a broad based macro perspective, it does seem 0:15:40.240 --> 0:15:43.520 like the market is kind of coalescing along the lines 0:15:43.600 --> 0:15:46.560 of the FED being on hold is actually an okay 0:15:46.640 --> 0:15:50.520 thing for credit spreads, as you won't have seen a 0:15:50.560 --> 0:15:54.360 big shift hire in inflation or a big downdraft in 0:15:54.480 --> 0:15:57.720 the labor market, and that really allows spreads to just 0:15:57.840 --> 0:16:01.480 kind of chug along as technicals continue to drive. Apparently 0:16:01.520 --> 0:16:05.240 every financial market seems like all that liquidity we injected 0:16:05.280 --> 0:16:08.560 into the system during COVID during twenty twenty one is 0:16:08.560 --> 0:16:10.640 still having some long lasting effects. 0:16:11.120 --> 0:16:13.480 So the reaction in the market to CPI was clear, 0:16:13.680 --> 0:16:16.040 it was by the front end. This sort of clears 0:16:16.080 --> 0:16:18.000 the runway a little bit for the FED to cut. 0:16:18.040 --> 0:16:20.000 Do you think that that's a real good takeaway. 0:16:21.000 --> 0:16:23.160 I think that it's a tricky takeaway. You know, we 0:16:23.200 --> 0:16:28.520 are still very early in the tariff game. Who knows 0:16:29.040 --> 0:16:32.280 where we're going to end up From an inflationary perspective. 0:16:32.840 --> 0:16:36.120 I think also the fiscal side of the story, when 0:16:36.160 --> 0:16:40.760 we think about incremental text breaks, which are retroactive to 0:16:41.160 --> 0:16:44.960 twenty twenty five, that could be a little bit inflationary 0:16:45.120 --> 0:16:49.200 as well. So to look at this one CPI report 0:16:49.320 --> 0:16:52.160 and say, hey, we're in the clear. That makes me 0:16:52.240 --> 0:16:54.760 a little bit hesitant. You know, I don't think that 0:16:54.800 --> 0:16:57.080 the Fed is going to be looking at one report 0:16:57.120 --> 0:17:00.480 and saying, okay, now we can begin to ease rates. 0:17:00.880 --> 0:17:03.680 Although I do think that next week's messaging may be 0:17:04.040 --> 0:17:06.879 a little bit more balanced now that we do have 0:17:07.040 --> 0:17:09.320 a little bit more data under our belts. 0:17:10.040 --> 0:17:12.720 So again, you can sit there winning, you know, a 0:17:12.760 --> 0:17:17.480 ten year treasury four point four five percent roughly more 0:17:17.560 --> 0:17:20.240 or less. Is that a place to kind of hang 0:17:20.280 --> 0:17:22.960 your hat or you go on and take some credit risks, 0:17:22.920 --> 0:17:26.720 because I do know that the best performance in fixed 0:17:26.760 --> 0:17:31.119 income once again this year is US high yield. 0:17:31.840 --> 0:17:34.840 Yeah, it's really interesting, and we have gotten a little 0:17:34.840 --> 0:17:38.919 bit more comfortable with taking some duration risk within the 0:17:38.960 --> 0:17:42.320 treasury market. We put that view out a couple of 0:17:42.359 --> 0:17:45.439 weeks ago as long un yields kind of spiraled to 0:17:45.560 --> 0:17:48.600 recent high levels. They've come down a little bit since then. 0:17:49.240 --> 0:17:52.000 Credit is a little bit trickier, you know, when we 0:17:52.040 --> 0:17:56.359 think about high yield especially, we're seeing very strong performance 0:17:56.440 --> 0:17:59.359 from higher quality high yield. So the double b issuers, 0:17:59.480 --> 0:18:02.920 the single be issuers who are going concerns with very 0:18:02.920 --> 0:18:06.879 limited near term liquidity needs. But within the world of 0:18:06.920 --> 0:18:10.800 triple c's, there's been some pretty significant lagging as all 0:18:10.840 --> 0:18:14.240 in borrowing costs are still pretty prohibitive to a number 0:18:14.280 --> 0:18:18.040 of companies. You're still seeing some idiosyncratic sectors that are 0:18:18.080 --> 0:18:20.800 being a bit stressed, some big issuers that are still 0:18:20.800 --> 0:18:24.080 facing some pressure. And so to just say, hey, wave 0:18:24.119 --> 0:18:27.199 in all the credits, how yield looks good is a 0:18:27.200 --> 0:18:29.800 little bit tricky, especially when we think about trying to 0:18:30.080 --> 0:18:33.000 put together a portfolio that has a seven and a 0:18:33.040 --> 0:18:35.760 half percent yield, which is pretty much where high yield 0:18:35.800 --> 0:18:38.639 and aggregate is right now. You have to really be 0:18:38.880 --> 0:18:42.960 taking some pretty significant risk, and that is a much 0:18:43.000 --> 0:18:46.840 more challenging proposition, I would say right now, given this 0:18:47.080 --> 0:18:50.320 still persistent uncertainty that we have within markets. 0:18:50.480 --> 0:18:53.480 I mean, you're the bond person, so you're supposed to 0:18:53.520 --> 0:18:55.639 be worried and pessimistic. Do you know, is the equity 0:18:55.640 --> 0:18:58.640 person she's supposed to be up into the right at 0:18:58.640 --> 0:19:01.200 the end of the day, where's the biggest miss price 0:19:01.480 --> 0:19:02.840 within the fixed income market? 0:19:03.680 --> 0:19:03.879 You know? 0:19:03.960 --> 0:19:06.320 I think that the biggest miss price is actually the 0:19:06.400 --> 0:19:10.480 relative value of agency mortgage backed securities. Versus us investment 0:19:10.520 --> 0:19:13.919 grade corporates. When we look at the long term history 0:19:13.920 --> 0:19:17.840 of that relative value, MBS is screening wildly cheap right now. 0:19:17.840 --> 0:19:20.040 And I realized there are a lot of factors, you know, 0:19:20.480 --> 0:19:24.280 perhaps Fanny and Freddy exiting conservatorship, going back into the 0:19:24.280 --> 0:19:28.359 private sectors making people nervous. There are some home building 0:19:28.480 --> 0:19:31.520 and housing headwinds. But when we think about that relative 0:19:31.600 --> 0:19:36.600 value and the downside outperformance NBS usually has relative to 0:19:36.680 --> 0:19:39.920 investment grade corporates, we are scratching our heads a little bit. 0:19:41.760 --> 0:19:43.679