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Speaker 2: Let's talk about these markets here.
Speaker 3: You know, it's been around triple in the equity markets,
Speaker 3: bonds are hanging in there, feels like we're in a
Speaker 3: trading range.
Speaker 2: The dollar nobody wants to buy the dollar.
Speaker 3: The gold higher yet again, thirty four hundred bucks close
Speaker 3: to and bitdog. I mean, is Tom kean to like
Speaker 3: to say that's higher as well? So it seems like
Speaker 3: people are rulling to take some risk out there. Let's
Speaker 3: talk to us a professional who does this stuff for
Speaker 3: a living. Mona Mahajan, Senior investment strategist for Edward Jones. Mona,
Speaker 3: what are the conversations like when you go on the
Speaker 3: road talking to your institutional investor clients at Edward Jones.
Speaker 2: What's the conver station these days? Yeah?
Speaker 4: And you know, over nine million households as clients. We
Speaker 4: have twenty thousand financial advisors across North America. Every county
Speaker 4: now in North America represent in the US representaation.
Speaker 2: Edward Jones is based in Saint Louis.
Speaker 5: Based in Saint Louis.
Speaker 4: Wow, they've been r one hundred and two years, so yes,
Speaker 4: to your point, you know, look, we were down twenty
Speaker 4: percent earlier in the year. There was some anxiety building
Speaker 4: around the tariffs, and to your point, as we pulled
Speaker 4: tariffs back, or as the administration pulled tariffs back, and
Speaker 4: as the economic data actually is surprised to the upside
Speaker 4: for the large part, whether it was earnings growth GDP
Speaker 4: now looking quite strong, labor market hanging in there. We
Speaker 4: saw this round trip nearly now over twenty percent rally
Speaker 4: in the S and P five hundred.
Speaker 5: And I think.
Speaker 4: Investors really want to know our investors are long term investors.
Speaker 4: But one, should they still be in the tech magnificent
Speaker 4: seven trade? That's a question that comes up often. And two,
Speaker 4: how should they think about bonds here? And I think
Speaker 4: that's one that will continue to come up. I know
Speaker 4: we have a couple of interesting auctions later today, but
Speaker 4: generally speaking, we say at four and a half percent,
Speaker 4: you know, we always refer to that Tina trade. There
Speaker 4: is no alternative US treasury market, deepest most liquid market
Speaker 4: in the world, very regulated and offering interesting yield for
Speaker 4: those long term investors.
Speaker 6: We get CPI in just like two minutes. Are you
Speaker 6: expecting it in anything?
Speaker 4: You know, We're hopeful that it comes in line with
Speaker 4: what consensus is. We will probably see a slight tick
Speaker 4: up on headline and core CPI this month, but keep
Speaker 4: in mind energy prices versus last year at least have
Speaker 4: come down substantially. And the other thing we like to
Speaker 4: point out, remember that two thirds of the CPI basket
Speaker 4: is actually services inflation. And so while we are talking
Speaker 4: about tariffs and trade that primarily impacts goods inflation about
Speaker 4: a third of the CPI basket. But if we are
Speaker 4: seeing a bit of cooling, you know, consumers maybe not
Speaker 4: taking as many vacations or eating out as much, that
Speaker 4: services number will cool as well.
Speaker 3: What is the Edward Jones kind of economic call, be
Speaker 3: guys thinking recession or we've kind of we've avoided that.
Speaker 4: Yeah, you know, our base case continues to be no
Speaker 4: recession and cooling an economic growth. Certainly, we were above
Speaker 4: trend last couple of years, like two and a half percent,
Speaker 4: really nice last year. Could we get a few quarters
Speaker 4: as tariffs do settle in as consumers, maybe it's offten
Speaker 4: a bit in the next couple of quarters below a
Speaker 4: trend growth, so maybe sub two and a half two percent, absolutely,
Speaker 4: but we don't yet see that negative GDP growth number emerging.
Speaker 6: This actually looks like a pretty positive report. I mean,
Speaker 6: inflation still has you know, that two handle on a
Speaker 6: year on year basis, but it is lower, which means
Speaker 6: that we're not seeing necessarily that feed through from any tariffs.
Speaker 6: And then if you have the removal or an agreement
Speaker 6: of tariffs and trade between China and the US, is
Speaker 6: that remove another headwind all together. And that's sort of
Speaker 6: why now we're seeing futures having a nice pop now
Speaker 6: within the market.
Speaker 2: Yeah. I mean, if Michael mckeeber was sitting here, I
Speaker 2: don't know where he is, by the way, he's on TV.
Speaker 2: Oh he's on TV. There he goes, I'd say.
Speaker 3: Hey, man, where's the inflation. I thought with all this
Speaker 3: tariff stuff, there'd be some inflation.
Speaker 2: I think he's proud of respond. You don't know. Yeah,
Speaker 2: we're going to see it.
Speaker 3: If we're going to see it, you will probably see
Speaker 3: it sometime later in the summer. In July data, maybe
Speaker 3: August data, I don't know. We're joined here by Mona Mahadgen,
Speaker 3: Senior investment strategist Edward Jones.
Speaker 2: She is in our Bloomberg Interactive Broker studio, Mona. When
Speaker 2: you see a.
Speaker 3: Benign inflation print like this, does it give you a
Speaker 3: sense that maybe this economy and maybe some of these
Speaker 3: companies are going to be in a better position.
Speaker 2: Then maybe we've maybe initially feared.
Speaker 4: Yeah, you know, A couple of things keep come to
Speaker 4: mind when I see this type of print. Number one,
Speaker 4: it does look like, as we just talked about, the
Speaker 4: services side of the inflation print came out slightly softer
Speaker 4: than expected. So as we talked about two thirds of
Speaker 4: the basket is services, and if that part of the
Speaker 4: economy is starting to just cool a bit, that will
Speaker 4: be reflected in the broader CPI basket, I think a
Speaker 4: two handle. To your point, we're still closer to that
Speaker 4: two percent target than we were really any time over
Speaker 4: the last year or so, so that is also probably
Speaker 4: a benign factor as we think about inflation. But I'll
Speaker 4: finally also note as we think about companies and how
Speaker 4: they're managing tariffs, certainly during this period of pause, it
Speaker 4: is possible that companies continue to build inventories, and as
Speaker 4: they are building inventories, they don't have to then pass
Speaker 4: through as much of that price increase, and so we
Speaker 4: could see you know a lot of companies even thinking
Speaker 4: about Christmas inventories. If that continues between now in July,
Speaker 4: companies have adjusted their innovative they find a way around
Speaker 4: some of these headwinds that we see in the economy.
Speaker 6: Does that hurt them later though, if the consumer winds
Speaker 6: up getting hurt and they're stuck with all that inventory.
Speaker 4: You know, it will come down to consumer resilience. And
Speaker 4: thus far consumption has held in there. We look at
Speaker 4: second quarter GDP, potentially consumption looks above two percent higher
Speaker 4: than the first quarter. So we are seeing a consumer
Speaker 4: that's relatively resilient. But yes, overbuilding inventories can come back
Speaker 4: to bite you, but from a consumer perspective, it's not
Speaker 4: a bad place to be. They're not going to experience
Speaker 4: some of this dramatic move.
Speaker 6: And tariffs that we might have seen because you know
Speaker 6: what overbuilding inventory means for me.
Speaker 7: Paul, see there it is, yeah, and we all know
Speaker 7: Alex and her sales not one of the seventy three
Speaker 7: forecasters in Bloomberg survey had penciled in a zero point
Speaker 7: one percent core CPI increased.
Speaker 3: That's according to Chris Anstey, senior editor for Bloomberg News
Speaker 3: on the Top Live, which is just awesome by the way, folks.
Speaker 2: You've got a Bloomberg from On.
Speaker 3: The Top Live folks, and when big stuff crosses to
Speaker 3: take they're all over.
Speaker 2: So mona, just real quick, We'll let you go.
Speaker 3: But I mean, does this you know, kind of a
Speaker 3: little bit more of a benign inflation outlook?
Speaker 2: Does it kind of change the.
Speaker 3: Way you guys are going to be talking to your
Speaker 3: clients in every county of the United States.
Speaker 4: Yeah, you know, Look, I think this one print alone
Speaker 4: doesn't change the overall narrative. What we will say is
Speaker 4: we're up twenty percent plus in a pretty short period
Speaker 4: of time. Could we get more bounts of volatility ahead, Absolutely,
Speaker 4: especially as we digest some of this summer news, you know,
Speaker 4: post ninety day pause, et cetera. But as we look
Speaker 4: towards the back half of the year, we do think
Speaker 4: the setup back half into twenty six is not bad.
Speaker 4: You know, we're seeing potentially a FED that could be
Speaker 4: cutting rates. We are seeing ten a tax bill that
Speaker 4: is in place and supporting on the fiscal front as well,
Speaker 4: and then of course companies will have a little bit
Speaker 4: more certainty in the earnings profile may reaccelerate in twenty
Speaker 4: twenty six. So we do think volatility can provide some
Speaker 4: opportunities for our investors.
Speaker 3: Well, you want smart equity talk here, Alex in this
Speaker 3: studio right now, two of my all time phaves in
Speaker 3: terms of equity strategy, Mona Mahadjen Senior investment strategist Aaric Jones,
Speaker 3: and Gina Martin Adams and Bloomberg Intelligence doing the same thing.
Speaker 3: I mean, it doesn't get any better than that. Mona,
Speaker 3: thank you so much for joining us. Appreciate you coming
Speaker 3: into our studio. Gina read on this inflation data. I
Speaker 3: don't know I'm blaming Michael McKee here. I mean, yeah,
Speaker 3: there's no inflation, it seems like in this market.
Speaker 8: No, And certainly the disceleration and services inflation is great
Speaker 8: news broadly. I think, frankly, what matters and oftentimes gets
Speaker 8: overlooked though, is the difference between producer price inflation and prices. Yeah,
Speaker 8: this is something that we spend a lot of time
Speaker 8: on is Okay, Sure, the headline level of CPI, you
Speaker 8: want to pay attention to it, But the only real
Speaker 8: reason to pay attention to it is because of the
Speaker 8: FED and the implications for valuations. So this is valuation
Speaker 8: supportive because it doesn't suggest the FED is going to
Speaker 8: have to hike anytime soon. It may even support the
Speaker 8: ease that is now priced into markets coming later this year.
Speaker 8: But what will matter for profits is how does this
Speaker 8: compare to PPI coming out tomorrow?
Speaker 2: And so what do you think.
Speaker 6: He guy is higher? Then we get a margin squeeze.
Speaker 8: Right, yeah, we start to get a margin squeeze, and
Speaker 8: that's frankly where we've been for the last several consecutive months.
Speaker 8: It's just a tiny bit.
Speaker 2: Yeah, I know, I know switching, I know she did
Speaker 2: the whole thing.
Speaker 6: He was walking one out of the studio.
Speaker 3: I know.
Speaker 8: I know it is important for the FED, right, it
Speaker 8: is important for valuations, But ultimately we care about where
Speaker 8: profits are going, and we care about what's happening with
Speaker 8: margins and companies are you know, despite what you know,
Speaker 8: this low CPI is not a great sign of what
Speaker 8: companies are contending with. When PPI is accelerating faster. So
Speaker 8: you've got a little bit of margin pressure that has
Speaker 8: emerged over the course of twenty twenty five. It is
Speaker 8: likely to contain depending upon what we see in PPI tomorrow.
Speaker 6: So yeah, So where do you think the industries are
Speaker 6: going to be that have that margin.
Speaker 8: Ability to control some degree of pricing of power. So far,
Speaker 8: and we've certainly seen this after the tariff pause, it's
Speaker 8: all Mag seven, right. If you look at the divergence
Speaker 8: that has existed so far in the post tariff pause world,
Speaker 8: it is companies outside of the MAG seven are experiencing
Speaker 8: the greatest acceleration and earnings growth prospects. Inside the MAG
Speaker 8: seven you still have that big moat. As a result,
Speaker 8: the market has gone back to sort of pre twenty
Speaker 8: twenty five trends and started to excessively price the stability
Speaker 8: of the Mag seven earning stream. So where you this
Speaker 8: is a very consistency theme over the last two to
Speaker 8: three years, is any time we enter a period of
Speaker 8: strain on earnings, investors believe just rush right back into
Speaker 8: MAG seven because they do have some degree of stability,
Speaker 8: They do have an incredible amount of cash, They generate
Speaker 8: a lot of cash flow. They have relatively sticky margins,
Speaker 8: but you get to a point where this group is
Speaker 8: priced so excessively relative to the rest of the index,
Speaker 8: and an he tweaks around the margin. Let's say we
Speaker 8: get an easier PPI number tomorrow, that's actually great news
Speaker 8: for the non mag seven. Any sort of tariff resolution
Speaker 8: great news for the non Mag seven. So I think
Speaker 8: you want to really play this as a MAG seven
Speaker 8: versus x Mag seven trade, which started to emerge as
Speaker 8: a real possibility in twenty twenty four, got squeezed out
Speaker 8: by the tariff pause. As the tariff pause ends, we
Speaker 8: might see the non Mag seven start to come back
Speaker 8: to life.
Speaker 3: Let's see what factors are you guys focusing on these
Speaker 3: days to leave it there, Yeah.
Speaker 8: Yeah, yeah, so the factors. Our factor strategy is run
Speaker 8: by our con strategist, Chris Kaney. Just updated this, just
Speaker 8: updated this late late last week, and one of the
Speaker 8: things that just continues to shine in factor land is
Speaker 8: low volatility stocks. It's kind of unbelievable, but even in
Speaker 8: last year's rally in the equity market, low vall was
Speaker 8: the best performing and just stuck at the top of
Speaker 8: our factor scoring methodology. It still is at the top
Speaker 8: of the scorecard. It's not terribly expensive to buy low
Speaker 8: volatility stocks. It's all sector adjusted, so we sector neutralize
Speaker 8: all our factors. But it means low volatility. It just
Speaker 8: means how do the stock prices behave in an environment
Speaker 8: where volatility is on trend rising from lows made back
Speaker 8: in early late twenty twenty three early twenty twenty four.
Speaker 8: It makes sense that lower volatility stacks would probably perform better.
Speaker 8: They tend to also have better earnings revision momentum than
Speaker 8: the rest of the index. They are more stable as
Speaker 8: a general rule, and that stability is definitely shining in
Speaker 8: today's world of volatility.
Speaker 6: Before we let you go, do you think the equity
Speaker 6: market is at risk for a melt up? As we
Speaker 6: got the trade headlines today, we got the CPI, what
Speaker 6: do you.
Speaker 8: Think, Well, we've had an extra ary melt up already.
Speaker 8: So when we look at what's really driven the equity
Speaker 8: market since the tariff pause, it's been almost entirely technical.
Speaker 8: So we can plot across global equity markets buy beta.
Speaker 8: The higher beta markets have performed best. That would include,
Speaker 8: of course, the S and P five hundred, especially the
Speaker 8: MAG seven which tend to be generally higher beta than
Speaker 8: the rest of the global equity markets. I think that
Speaker 8: trade is largely coming to an end, and the next
Speaker 8: layer of improvement in the S and P five hundred
Speaker 8: probably has to be driven by one of two things.
Speaker 8: Either of much better than expected recovery in the economy
Speaker 8: because we get tariff resolution emerges and that drives rotation
Speaker 8: into some of the higher volatility value type shares that
Speaker 8: have really lagged in the recovery, or you get some
Speaker 8: sort of fetties coming. If you get a fetties, there
Speaker 8: certainly is room for more advancement in some of the
Speaker 8: underappreciated segments of the index as well. So I think
Speaker 8: you'll see the market rotate to new drivers. Clearly in
Speaker 8: the post sort of the pause regime, it's been all beta,
Speaker 8: it's been almost all technical. There's not been a great
Speaker 8: fundamental case to kind of jump back into stocks. We've
Speaker 8: repriced back to our pre tariff levels. We are, you know,
Speaker 8: now up on the year, so we can maybe move
Speaker 8: into an environment of rationality going forward. But we'll see.
Speaker 3: I think there's more downside the upside. Yeah, if I
Speaker 3: were to tell you that, what would you how would
Speaker 3: you would you argue me, are.
Speaker 8: You well your yeah, your suspicions.
Speaker 3: Yeah, there's still tires out there, yeah, like triple or
Speaker 3: more than we had before.
Speaker 8: You're what you're That statement is basically accurately reflecting what's
Speaker 8: in our models, right. Our models are saying, fundamentally, there's
Speaker 8: not a huge case for this. Right, We're in a
Speaker 8: regime according to our market regime model as well as
Speaker 8: our economic regime model, that we should expect very low
Speaker 8: single digit returns in twenty twenty five. As a general rule,
Speaker 8: we're there now. We just need to see some other
Speaker 8: something change in order to justify a greater upside. I'm
Speaker 8: always open to that. Remember, the default direction of stocks
Speaker 8: is higher, so you have to keep that in the
Speaker 8: back of your head at all times. Usually, to see
Speaker 8: stocks correct to the downside, you need to see some
Speaker 8: trigger manifest right now. That trigger very easily could be
Speaker 8: weaker than expected economic growth, which emerges into the second
Speaker 8: half of this year as well.
Speaker 2: You're so right about just stocks up into the right
Speaker 2: long term.
Speaker 3: When I was very early in my career, I was
Speaker 3: the third analyst covering America Online, so the third analysts
Speaker 3: covering the Internet on Wall Street and I put a
Speaker 3: by on it. I had no idea what I was doing.
Speaker 3: I put a bio on It kept going up, up up.
Speaker 2: But there's a big, big.
Speaker 3: Short seller, I won't tell you his name, huge short seller,
Speaker 3: and he was getting crushed and he called me.
Speaker 2: Ten times a day. So what are you doing? What
Speaker 2: do you do? So calls terrible? I'm like, I don't know, man.
Speaker 2: The market's going up, stocks going up. Shorting stocks is
Speaker 2: a tough very hard to make a living.
Speaker 8: Yeah, very hard business.
Speaker 3: Anyway, all right, but I remembered that that's it's kind
Speaker 3: of go up into it right by and large.
Speaker 2: All right, Thank you so much.
Speaker 3: Geena Martin Adams, she is equity strategist for bloom Market
Speaker 3: TELM appreciate getting Gena's time here in our studios. Let's
Speaker 3: switch some stocks to bonds, Winning Season, Global head of
Speaker 3: strategy for credit sites. So when do you see, I
Speaker 3: guess kind of a benign ish kind of CPI number today?
Speaker 3: What does that mean for your world of credit?
Speaker 9: Sure, it's been a very benign number for CPI. I
Speaker 9: do think that Gina Martin Adam's point around CPI versus
Speaker 9: PPI and the read through to corporate profit margins is important,
Speaker 9: but from a broad based macro perspective, it does seem
Speaker 9: like the market is kind of coalescing along the lines
Speaker 9: of the FED being on hold is actually an okay
Speaker 9: thing for credit spreads, as you won't have seen a
Speaker 9: big shift hire in inflation or a big downdraft in
Speaker 9: the labor market, and that really allows spreads to just
Speaker 9: kind of chug along as technicals continue to drive. Apparently
Speaker 9: every financial market seems like all that liquidity we injected
Speaker 9: into the system during COVID during twenty twenty one is
Speaker 9: still having some long lasting effects.
Speaker 6: So the reaction in the market to CPI was clear,
Speaker 6: it was by the front end. This sort of clears
Speaker 6: the runway a little bit for the FED to cut.
Speaker 6: Do you think that that's a real good takeaway.
Speaker 9: I think that it's a tricky takeaway. You know, we
Speaker 9: are still very early in the tariff game. Who knows
Speaker 9: where we're going to end up From an inflationary perspective.
Speaker 9: I think also the fiscal side of the story, when
Speaker 9: we think about incremental text breaks, which are retroactive to
Speaker 9: twenty twenty five, that could be a little bit inflationary
Speaker 9: as well. So to look at this one CPI report
Speaker 9: and say, hey, we're in the clear. That makes me
Speaker 9: a little bit hesitant. You know, I don't think that
Speaker 9: the Fed is going to be looking at one report
Speaker 9: and saying, okay, now we can begin to ease rates.
Speaker 9: Although I do think that next week's messaging may be
Speaker 9: a little bit more balanced now that we do have
Speaker 9: a little bit more data under our belts.
Speaker 3: So again, you can sit there winning, you know, a
Speaker 3: ten year treasury four point four five percent roughly more
Speaker 3: or less. Is that a place to kind of hang
Speaker 3: your hat or you go on and take some credit risks,
Speaker 3: because I do know that the best performance in fixed
Speaker 3: income once again this year is US high yield.
Speaker 9: Yeah, it's really interesting, and we have gotten a little
Speaker 9: bit more comfortable with taking some duration risk within the
Speaker 9: treasury market. We put that view out a couple of
Speaker 9: weeks ago as long un yields kind of spiraled to
Speaker 9: recent high levels. They've come down a little bit since then.
Speaker 9: Credit is a little bit trickier, you know, when we
Speaker 9: think about high yield especially, we're seeing very strong performance
Speaker 9: from higher quality high yield. So the double b issuers,
Speaker 9: the single be issuers who are going concerns with very
Speaker 9: limited near term liquidity needs. But within the world of
Speaker 9: triple c's, there's been some pretty significant lagging as all
Speaker 9: in borrowing costs are still pretty prohibitive to a number
Speaker 9: of companies. You're still seeing some idiosyncratic sectors that are
Speaker 9: being a bit stressed, some big issuers that are still
Speaker 9: facing some pressure. And so to just say, hey, wave
Speaker 9: in all the credits, how yield looks good is a
Speaker 9: little bit tricky, especially when we think about trying to
Speaker 9: put together a portfolio that has a seven and a
Speaker 9: half percent yield, which is pretty much where high yield
Speaker 9: and aggregate is right now. You have to really be
Speaker 9: taking some pretty significant risk, and that is a much
Speaker 9: more challenging proposition, I would say right now, given this
Speaker 9: still persistent uncertainty that we have within markets.
Speaker 6: I mean, you're the bond person, so you're supposed to
Speaker 6: be worried and pessimistic. Do you know, is the equity
Speaker 6: person she's supposed to be up into the right at
Speaker 6: the end of the day, where's the biggest miss price
Speaker 6: within the fixed income market?
Speaker 2: You know?
Speaker 9: I think that the biggest miss price is actually the
Speaker 9: relative value of agency mortgage backed securities. Versus us investment
Speaker 9: grade corporates. When we look at the long term history
Speaker 9: of that relative value, MBS is screening wildly cheap right now.
Speaker 9: And I realized there are a lot of factors, you know,
Speaker 9: perhaps Fanny and Freddy exiting conservatorship, going back into the
Speaker 9: private sectors making people nervous. There are some home building
Speaker 9: and housing headwinds. But when we think about that relative
Speaker 9: value and the downside outperformance NBS usually has relative to
Speaker 9: investment grade corporates, we are scratching our heads a little bit.
Speaker 2: Credit risk that.
Speaker 3: Has not been a concern for credit investors really since
Speaker 3: a great financial crisis, the pandemic.
Speaker 2: How do you think about credit risk here?
Speaker 9: Yeah, credit risk is interesting, and I would say that
Speaker 9: we've had a few bouts of credit risk. We did
Speaker 9: have a pretty nasty downgrade in default cycle and energy
Speaker 9: and commodity sectors in twenty sixteen through twenty eighteen. In fact,
Speaker 9: energy was a place that a lot of credit investors,
Speaker 9: from investment grade all the way down to high yield,
Speaker 9: had a really hard time generating any sort of consistent
Speaker 9: returns credit risk. Right now, I think most investors are
Speaker 9: looking at the IG market a double B rated part
Speaker 9: of the market and saying, you know, these balance sheets
Speaker 9: actually look like they're in pretty good shape. But there
Speaker 9: are some outliers, for sure. We're seeing, you know, what's
Speaker 9: going on with Warner brother Discoveries, what's going on with
Speaker 9: Bousch Health, what's going on with Altese friends, And it
Speaker 9: seems like there is a little bit of a game
Speaker 9: of whack a mole on these idiosyncretic situations and trying
Speaker 9: to get ahead of what is going to be the
Speaker 9: next thing in a otherwise kind of vanilla benign market.
Speaker 9: But you know, that's the thing with credit, it's, you know,
Speaker 9: always a hurry up and wait type of situation.
Speaker 3: All right, Wennie, thank you so much for joining us.
Speaker 3: Always appreciate getting your perspective. When he sees her global
Speaker 3: head of strategy for credit sites, I think when you
Speaker 3: spent basically half for life, I'm going to say at
Speaker 3: Emory University.
Speaker 2: I knew you were going to say that. I'm a
Speaker 2: huge fan of Emory University.
Speaker 3: She did her undergraduate degree there and a jd Mbah,
Speaker 3: All right, enough, we got the education, we get it smart,
Speaker 3: all that kind of good stuff, and helping us out
Speaker 3: on the fixed income site.
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Speaker 3: Virginia Massado joins US Global CIO for the equity business
Speaker 3: for Alian's global investors. Virginny, can you talk to us
Speaker 3: about what we saw earlier this year, which was a
Speaker 3: decisive move from a lot of global investors out of
Speaker 3: the US market, particularly US equities and into the rest
Speaker 3: of the world, particularly Europe. Is that a short term trade?
Speaker 3: Is that a long term investment strategy? How do you
Speaker 3: view the geographic allocation?
Speaker 10: Thank you very much. So, I think you had a
Speaker 10: pendulum swing. The exposure to the US, as you know,
Speaker 10: was driven partially by the benchmarks which had reached a very,
Speaker 10: very high level. The dollar was strong, and of course
Speaker 10: the US exceptionalism, if you want, with the innovation and
Speaker 10: the AID pushed a lot of people in that market.
Speaker 10: The gap in terms of valuation versus Europe and Asia
Speaker 10: had opened up, and with the uncertainty that we've seen
Speaker 10: since the new presidency, that has created if you want
Speaker 10: a wake up call for a lot of global investors
Speaker 10: who said, well, maybe I don't need to be so
Speaker 10: much underweight in other parts of the world. So that's
Speaker 10: number one. Number two in other parts of the world
Speaker 10: came up new dynamics such as the fiscal plan around
Speaker 10: defense out of Europe, which is going to be quite transformational,
Speaker 10: and of course the fact that most investors are not
Speaker 10: invested in China anymore, wile China has surprised by some
Speaker 10: of the innovation advantages that it has demonstrated, so as
Speaker 10: well as Japan. Japan is now back on the map.
Speaker 10: So you've had those push and pull factors. That's meant
Speaker 10: that people have rebalanced their portfolios. However, it's not the
Speaker 10: end of exposure to the US market for global investors.
Speaker 10: There's just too many good companies there.
Speaker 6: Right, So I'm glad you mentioned China because where to
Speaker 6: reallocate out of the US Many go to Europe, but
Speaker 6: also em maybe Brazil, other parts and China. Where else
Speaker 6: is there interesting opportunity?
Speaker 10: So if you look at em in general, Taiwan of
Speaker 10: course is interesting, not without volatility, but if you think
Speaker 10: of it as one very large center of excellence for technology,
Speaker 10: semiconductor and Ai definitely there. India is an area that
Speaker 10: we still like very much, tipping point in terms of demographics,
Speaker 10: tipping point in terms of growth if you want, and
Speaker 10: that consumer wealth growth, and also perhaps a more apolitical
Speaker 10: nation versus what everything else going on in the world,
Speaker 10: you know, particularly around the tariff's negotiation. So that is
Speaker 10: in Asia what we like. In Latin America, of course
Speaker 10: some interesting countries and European emerging markets are quite small,
Speaker 10: so there I would play it mostly through developed Europe.
Speaker 3: So again, as we think about Europe, Virginia, as you
Speaker 3: talk to your clients, is there a sense that Europe
Speaker 3: as an economic entity and as an investment opportunity has
Speaker 3: kind of been reborn and it's something you really need
Speaker 3: to think more about.
Speaker 10: Yeah, I agree. So first, you know valuation. Second, rates
Speaker 10: are coming down. We've had Christine Legard's message from the
Speaker 10: last cut in rates, so that's been positive. Inflation below
Speaker 10: two percent, so you've got that macro element that's been supportive.
Speaker 10: But it's really about that package and we're talking close
Speaker 10: to a trillion dollar to be invested in infrastructure and defense,
Speaker 10: which of course will if well implemented, and that's the
Speaker 10: big question. We'll really create an energetic ecosystem around infrastructure
Speaker 10: or technology, etc. So there is an element of rebirths
Speaker 10: of Europe. But also markets are much cheaper than in
Speaker 10: the US.
Speaker 6: How does then the tarraff landscape fit into that? Do
Speaker 6: you kind of ignore it? I mean, I hate to
Speaker 6: say that, but you kind of put it on the
Speaker 6: side and be like that's going to be what's going
Speaker 6: to be? Or do you need to re rate based
Speaker 6: on any sort of baseline ten percent?
Speaker 10: Yeah, yeah, exactly. So Interestingly, the ECB has a model
Speaker 10: that they've run on ten plus forty, so ten percent
Speaker 10: sort of universal tariff plus forty on China, and their
Speaker 10: finding is that it would have more of an impact
Speaker 10: on growth than inflation. Of course, you can't ignore tariffs,
Speaker 10: but we have a lack of clarity and I think
Speaker 10: that except for very large unexpected news, the impact of
Speaker 10: tariffs on markets is diminishing. If you want, the marginal
Speaker 10: impact is diminishing. However, you have to be very careful
Speaker 10: about the sector. So if you take the auto sector
Speaker 10: in Europe, as you know, big employer are probably going
Speaker 10: to be hit by tariffs given the you know, the
Speaker 10: competition between the US and Europe. I think that's an
Speaker 10: area to be very careful about. But within Europe you
Speaker 10: have a lot of companies that are relatively immune to
Speaker 10: the tariffs, and that's where you can also if you
Speaker 10: want to find good opportunities.
Speaker 2: The US technology REGINI.
Speaker 3: The technology sector has been the driver of the US
Speaker 3: equity markets for the longest, as long as most investors
Speaker 3: can remember.
Speaker 2: That's still the case in your perspective.
Speaker 10: Yeah, absolutely so you have you know, you've heard me
Speaker 10: talk about this digital Darwinism trend in a shifting world order.
Speaker 10: This is exactly you know, playing out. And the digital
Speaker 10: Darwinism is about how AI and technology is really advancing
Speaker 10: so fast because that's the way tech moves right, exponential
Speaker 10: versus linear, that it's creating really a diystruction in competitiveness globally.
Speaker 10: The US is a very very strong foothold in that area.
Speaker 10: But of course, because of the rivalry for the top
Speaker 10: spot with China, which explains a lot of restrictions that
Speaker 10: we've put, you know, on China's access to semiconductors, etc.
Speaker 10: You have a bifurcation of global standards, and this is
Speaker 10: why I think you still play text through the US,
Speaker 10: but you also want tech in China and other parts
Speaker 10: of the world like Japan for example. But absolutely yes,
Speaker 10: the leadership is still there on the innovation, the ecosystem,
Speaker 10: and the spirit. I would say the mindset is an equaled.
Speaker 6: Is such a good point, and that's why you can't
Speaker 6: really done out of the US. For example, before we
Speaker 6: let you go, we got CPI in about an hour.
Speaker 6: Is it going to move markets? Are you excited?
Speaker 10: Well? I think you also have to add this new
Speaker 10: element of oil right with the Iran negotiation. But I
Speaker 10: think consensus is for a pickup in core. It is
Speaker 10: an important number though, because you know the font loading
Speaker 10: effects from Q one is fading that we had seen.
Speaker 10: And we'll see how tariffs will impact inflation because we
Speaker 10: know some of the tariff will be absorbded by consumers,
Speaker 10: some by companies margin, some of it by currency. So
Speaker 10: it's going to be a very interesting number. But I
Speaker 10: would bet on a slight pickup in court.
Speaker 3: All right, Virginia, thanks so much for joining US. Virginia
Speaker 3: Massive Global CIO covering the equity business for Alliance Global
Speaker 3: Investors over there in London.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 1: Just say Alexa Play Bloomberg eleven thirty.
Speaker 2: Let's go to the pros here.
Speaker 3: Lori Calvacina, kind of US equity Strategy, RBC Capital Markets
Speaker 3: and a former resident of the lawn at the University
Speaker 3: of Virginia. If you don't know what it means to
Speaker 3: live on the lawn at UVA, go google it.
Speaker 2: Laurie, thanks so much for joining us here.
Speaker 3: How do you view kind of the earnings out there
Speaker 3: at the market's discounting right now?
Speaker 2: Are we too low in our earnings expectations? Are we
Speaker 2: too high? How do you view that?
Speaker 11: Well, it's a great question, Paul, And look, I think
Speaker 11: there's a lot of uncertainty in the earnings outlook. That
Speaker 11: doesn't mean that people like me don't have to come
Speaker 11: up with forecasts. And so we've got two fifty eight
Speaker 11: for this year. We have not put out a twenty
Speaker 11: twenty six earnings number yet. We don't typically do that
Speaker 11: this early in the year, but we have said you
Speaker 11: can look at the bottom up consensus for twenty twenty six,
Speaker 11: which has been tracking around two ninety nine. And if
Speaker 11: you apply the typical haircut to it, so in other words,
Speaker 11: that you know, kind of the typical downward revision, it
Speaker 11: would come in around two seventy two. So, you know,
Speaker 11: still very healthy numbers overall. But you know, I will say, Paul,
Speaker 11: it's kind of you know, intimidating to look at that
Speaker 11: two ninety nine for next year and say it's way
Speaker 11: too high. It's got to come down. We think it
Speaker 11: probably does need to come down. But that is actually
Speaker 11: pretty typical for this point of the cycle.
Speaker 6: There's some headlines here about President Trump talking about deal
Speaker 6: with China, saying the deal with China is done, will
Speaker 6: provide to China what was agreed to, Our deal with
Speaker 6: China done subject to she's approval. We are getting a
Speaker 6: fifty five percent tariff, China is getting a ten percent tariff,
Speaker 6: and the relationship is excellent. So I bring that up
Speaker 6: just to say, how do you factor in the uncertainty
Speaker 6: around tariffs? Is your baseline then for earnings like just
Speaker 6: ten percent and then you kind of go from there.
Speaker 11: So look, I would say, you know, when we think
Speaker 11: about earnings. What we're saying is just very different reactions
Speaker 11: to the tariffs by different sectors in the economy. If
Speaker 11: you look at industrials, for example, they've been very confident
Speaker 11: and they've been saying, look, you know, we can pass things,
Speaker 11: you know, any kind of cost increase on through pricing.
Speaker 11: They sound very confident about their ability to manage through
Speaker 11: add just supply chain footprints. Things have gotten a lot
Speaker 11: sloppier when you look at the consumer companies. Some have
Speaker 11: had a better tone than others, but generally there's a
Speaker 11: lot less certainty about whether or not they can pass
Speaker 11: on prices. And so we've actually seen, you know, not
Speaker 11: necessarily great reactions to earning's beats from the consumer companies
Speaker 11: that have reported in recent weeks, because there's all this
Speaker 11: sort of cloud and noise in the outlook. I think
Speaker 11: this next reporting season alex is going to be absolutely
Speaker 11: pivotal because we're going to hear from those industrial companies
Speaker 11: and whether or not they really were able to manage through,
Speaker 11: whether or not they're seeing any kind of impact to demand.
Speaker 11: It was all kind of sunshine and roses in the
Speaker 11: last reporting season. We'll see if that sticks and we'll
Speaker 11: get updates from the consumer companies on how consumers are
Speaker 11: responding and how they're managing through. So I think we're
Speaker 11: just you know, still in a discovery process frankly, even
Speaker 11: as the numbers are still moving around.
Speaker 2: So what's the sentiment out there?
Speaker 3: I mean, I know that's one of the factors you
Speaker 3: look at and other strategist look at.
Speaker 2: What is what's this sentiment here? It seems to have
Speaker 2: kind of whip saw this year.
Speaker 3: We started the year feeling really really good about maybe
Speaker 3: pro growth policies coming out of DC, and then the
Speaker 3: terriff situation really put you know, a knife in that
Speaker 3: who since kind of.
Speaker 2: Come back here. So I don't know what the sentiment
Speaker 2: is out there.
Speaker 11: You know, it kind of depends on who you're talking to,
Speaker 11: which day it is, you know, kind of what part
Speaker 11: of the market they trade, to be honest, Paul. But
Speaker 11: I would say the best kind of summary I still
Speaker 11: think is the AAII Weekly Survey. It's technically a high
Speaker 11: net worth retail investors, but you know, at the same time,
Speaker 11: I think it captures the vibe that I hear from
Speaker 11: the institutional community pretty well also. And what we saw
Speaker 11: there is that you know, from kind of I think
Speaker 11: like early March, you know, through early May, we were
Speaker 11: sitting two standard deviations below the long term average. Sentiment
Speaker 11: was as bad as twenty twenty two, as bad as
Speaker 11: the financial crisis, and it has rebounded, and you know,
Speaker 11: you're not sort of back in net bullish territory on
Speaker 11: a consistent basis yet, but we're you know, we're less
Speaker 11: than one standard deviation below the long term average. We're
Speaker 11: heading back towards that average. Now, if you go back
Speaker 11: to last fall, right around the election, we were one
Speaker 11: standard deviation above the long term average. So you're absolutely
Speaker 11: in your whipsaw. I would say we're healing right now.
Speaker 11: We are healing very rapidly, and I'm actually starting to
Speaker 11: worry we're going to get back to where we were
Speaker 11: last October and November pretty quickly.
Speaker 6: And just to reiterate President Trump posting on social media
Speaker 6: that the deal with China's done subject to is She's
Speaker 6: approval and also talking about how their relationship is excellent. Laurie,
Speaker 6: if things calm down, where do we see the most
Speaker 6: upside you mentioned going back to those October levels. Is
Speaker 6: it going to be in small caps?
Speaker 11: So you know, it's interesting question Alex. We've gotten you know,
Speaker 11: a fair amount of questions on small caps in the
Speaker 11: last few days, and if you look at a relative
Speaker 11: ratio between small cap and large caps, you have seen
Speaker 11: a tiny little sliver of small cap out performance.
Speaker 5: You know.
Speaker 11: It's been interesting to me that we've seen that because
Speaker 11: small caps do generally whenever there's any kind of problem
Speaker 11: in the market, they're less able to manage through. You know,
Speaker 11: I would also say certain pockets of small cap though
Speaker 11: things like financial do have less direct terrific it's more
Speaker 11: kind of broader macro risk, so it's not sort of
Speaker 11: a monolith down within small cap. You know, we think
Speaker 11: that they're actually interesting from a de risking perspective in
Speaker 11: that if you look at the CFTC data, we had
Speaker 11: actually gone back into net short territory recently, which is
Speaker 11: something we frankly never saw for the S and P,
Speaker 11: never saw for Nasdaq. And if you look at valuations
Speaker 11: on small cap around the April eighth lows, they kind
Speaker 11: of hit their typical recession lows, believe it or not.
Speaker 11: So I do think you had, you know, sort of
Speaker 11: a really interesting kind of de risking opportunity here. But
Speaker 11: the catalysts you know, have been you know, sort of
Speaker 11: hard to identify, given that we're in an economic backdrop
Speaker 11: that seems pretty sluggish and has been anticipated by many
Speaker 11: investors to stay sluggish.
Speaker 2: For a while.
Speaker 11: So to get small caps going, I think you need
Speaker 11: things like FED rate cuts to come back, or real
Speaker 11: genuine economic excitement and tailwinds to come back.
Speaker 3: So, Laurie, earlier this morning, Alex and I were speaking
Speaker 3: with a couple investors based in London.
Speaker 2: We were talking about that kind of the non.
Speaker 3: US trade, the europe trade really coming front and center
Speaker 3: earlier this year when some of the t and certainty
Speaker 3: really started to crescendo.
Speaker 2: How do you view when you talk.
Speaker 3: To your clients US versus maybe non US, particularly European
Speaker 3: in terms of allocations.
Speaker 11: Yeah, so it's a great question, Paul. And you know,
Speaker 11: I tend to focus mostly on the US. I'm a
Speaker 11: US equity strategist, but we do have conversations about the
Speaker 11: US and the context of that US versus non US trade,
Speaker 11: and I would say that if you think about the
Speaker 11: non US investor back in March, there was really, you know,
Speaker 11: an intense apprehension about investing in the US, and we
Speaker 11: did start to see, you know, money really push into
Speaker 11: Europe in a pretty significant way. We had seen big
Speaker 11: inflows into the US from both US investors and non
Speaker 11: US investors back around the election, and that really eased back,
Speaker 11: and we started to see some modest outflows, you know,
Speaker 11: just in recent data generally for US equities. So we
Speaker 11: the way we put it, Paul, is there are so
Speaker 11: many headlines coming out right, whether you're talking about trade
Speaker 11: or tariffs, whether you're talking about the tax bill and
Speaker 11: this section eight ninety nine issue. But it does seem
Speaker 11: to me what tariffs did was really kind of open
Speaker 11: the door and a way to the non US investors
Speaker 11: to look at other geographies like Europe in a more
Speaker 11: serious way than they had in a long time. And
Speaker 11: we think it's very difficult for that door to be
Speaker 11: closed once it's been opened.
Speaker 6: She just said, you had two good questions this whole segment.
Speaker 2: Wow.
Speaker 6: I mean, I don't know. I think that's a I
Speaker 6: got none. I'm just saying whatever. But the great thing
Speaker 6: about Laurie is that she doesn't have let Ai do
Speaker 6: her work for her, Like she goes line by line
Speaker 6: through these conference calls. Amy with Silverman, the derivative strategist
Speaker 6: at RBC has her weekly note Doubt, and she highlighted
Speaker 6: going on a road trip with Laurie and how like
Speaker 6: Amy's like, let's go have a drink and hang out.
Speaker 6: Laurie is like, No, I'm line by line looking at
Speaker 6: all the earnings reports. Almost Amy, I'm kind of with
Speaker 6: Laurie on this one. Laurie, what is what is the
Speaker 6: thing that you think investors are getting most wrong as
Speaker 6: you kind of go line by line through some of
Speaker 6: these details, because the narratives are really easy to sort
Speaker 6: of look at and create, right, what do you think
Speaker 6: the biggest misconception is?
Speaker 11: So I think the biggest misconception is and you know, Alex,
Speaker 11: we read transcripts, you know, sort of week to week
Speaker 11: as they come out in reporting season, and I've been
Speaker 11: reading mostly then we just focus on the SMP because
Speaker 11: it's just like an avalanche. But then you know, in between,
Speaker 11: you know, when things slowed down, I'll kind of read
Speaker 11: through h. Russell two thousand, my old stomping Grounds, you know,
Speaker 11: kind of across sectors, and I would say that what
Speaker 11: I what I get the most frustrated about is that
Speaker 11: there's no monolithic story out there, especially if you're talking
Speaker 11: about Terris. If you're talking about the consumers, all the
Speaker 11: financial companies, whether it's a credit card or a bank,
Speaker 11: they're like, Hey, the consumer's spine, the spending levels are good,
Speaker 11: the delinquency levels are low, all the stats look fine.
Speaker 11: And then you fast forward like four weeks later and
Speaker 11: you get all the consumer companies and they're like, the
Speaker 11: high end is trading down. People aren't smoking as much,
Speaker 11: people aren't snacking as much. You know, some companies are saying, yeah,
Speaker 11: we did see and you know, purchases pulled forward. Other
Speaker 11: people are saying, ah, We're not so sure. You know.
Speaker 11: My my favorite sort of, you know, kind of discrepancy
Speaker 11: that I saw was that the telecom companies all set
Speaker 11: in this last reporting season or a bunch of them,
Speaker 11: did anyway that mobile devices were pulled forward by consumers.
Speaker 11: And then we had some of the producers of those
Speaker 11: instruments of those devices say, ah, we don't think that
Speaker 11: consumers did that. Well, who are you going to believe.
Speaker 11: Are you going to believe the manufacturer? Are you going
Speaker 11: to believe the telecom company that actually knows when those
Speaker 11: customers are due to get a new device? And so,
Speaker 11: you know, I think that they're just sort of conflicting
Speaker 11: stories out there. But people tend to latch on if
Speaker 11: they're in a barish mood to the more bearish narrative.
Speaker 11: If they are in a more bullish mood and trying
Speaker 11: to make a more bullish argument, they latch on to
Speaker 11: the more constructive narrative that's out there. And I think
Speaker 11: it's just still really really messy, and I think we're
Speaker 11: going to continue to sort that mess out in the
Speaker 11: next reporting season, Laurie, is.
Speaker 3: There any sector that screens well for you guys right now?
Speaker 3: Is I know you guys screen all this by by
Speaker 3: by industry, sector, by factor as well, growth quality, that
Speaker 3: kind of stuff. What's kind of sticks out for you
Speaker 3: guys these days?
Speaker 11: Yeah, so I would say on growth value, you know,
Speaker 11: this is everybody's favorite debate, megacap versus broadening, megacap, growth
Speaker 11: versus browny, and I don't have a firm, you know,
Speaker 11: kind of view on that. I think we've had a
Speaker 11: tug of war between those two segments of the market,
Speaker 11: and I think that tug of war is going to continue,
Speaker 11: And you know, maybe that's a little bit more of
Speaker 11: a nuanced call that's you know, too much to go
Speaker 11: into here, But that's probably where I differ the most
Speaker 11: from consensus, is I just I think that tug of
Speaker 11: war is there for a reason. I think it's going
Speaker 11: to continue. I would say on the sectors, you know, industrials,
Speaker 11: they're just too expensive for me. You know, we're so
Speaker 11: we're neutral there. You know, we do recognize that these
Speaker 11: companies have a better tone on managing through the challenges
Speaker 11: that are coming through, especially on the tariff side, but
Speaker 11: we just don't like the valuations. Tech we're still neutral on,
Speaker 11: but it has started looking better on both our earnings
Speaker 11: revision and our valuation work, So we're keeping a close
Speaker 11: eye there. If you look at financials, and I know
Speaker 11: I've been talking about this one every single time I
Speaker 11: talk to you, Paul, but it's still screens really well.
Speaker 11: You've got you know, really nice valuations. You're really seeing
Speaker 11: those driven by the regional banks. And you know, even
Speaker 11: though you know, I might kind of chide the banks
Speaker 11: a little bit for not you know, reflecting all of
Speaker 11: the stuff that the consumer companies are talking about, I
Speaker 11: do think what I'm hearing from the banks is just
Speaker 11: a really good ability to manage through and they're kind
Speaker 11: of a boring sector right now. I think they got
Speaker 11: stress tests during SVB, and they were a little expensive
Speaker 11: before all this tariff stuff started, And now you know,
Speaker 11: we've got a very reasonably valued sector attractive on certain metrics. Again,
Speaker 11: So I would say our financials rather is probably the
Speaker 11: one that's most interesting to me right now.
Speaker 6: This may be literally the same question, but when if
Speaker 6: we do have a tariff deal between the US and China,
Speaker 6: what sector could benefit the most?
Speaker 11: So I think if you're comparing sort of the tariff
Speaker 11: sensitive areas, you know, the place that I've seen the
Speaker 11: most commentary frankly, you know, and I wouldn't say it's
Speaker 11: all of a worrisome nature, But where I would say
Speaker 11: the relevancy seems to be highest, it's going to be industrials, healthcare,
Speaker 11: and consumer discretionary. I think out of those three, you've
Speaker 11: really got your better valuations on the consumer discretionary side
Speaker 11: and the healthcare side. Now we're neutral all of those sectors,
Speaker 11: but if I'm just looking at it from a pure
Speaker 11: valuation perspective and who's gotten beaten up the most, I
Speaker 11: would probably say consumer discretion and healthcare sector. You know,
Speaker 11: they look better than the industrial sector, frankly, because there's
Speaker 11: just been more worry priced into the consumer stocks, and
Speaker 11: on the healthcare side, this is a little bit more.
Speaker 11: You know, kind of weighted my comments to the medtech space.
Speaker 11: But we actually when we had our healthcare conference a
Speaker 11: few weeks ago, we did a write up on this
Speaker 11: and if you looked at the tariff commentary and the
Speaker 11: SMP sect, I believe we did the s and P
Speaker 11: five hundred or SMP fifteen hundred healthcare sector. The tariff
Speaker 11: commentary was so much higher this time around than what
Speaker 11: we had seen back during the first China trade war. So,
Speaker 11: you know, we think that's, you know, contributed to some
Speaker 11: of those more attractive valuations that you started to see
Speaker 11: develop on certain metrics in the healthcare space.
Speaker 3: Lourie, are class asking you to appine on just the
Speaker 3: valuation of the broader market these days, because we've had
Speaker 3: that big move down and now back up, all in
Speaker 3: the context of earning's coming down.
Speaker 11: Yeah, you know, I think people are struggling with whether
Speaker 11: they look at twenty twenty five or twenty twenty six.
Speaker 11: I think that some people want to sort of skip
Speaker 11: over twenty twenty five. We think it's probably a little
Speaker 11: bit early to do that, and if you're really going
Speaker 11: to have a high convicted view on twenty twenty six,
Speaker 11: you at least need to understand the starting point and
Speaker 11: how bad or not, frankly, the damage may have been
Speaker 11: to twenty twenty five. You know, what I will say
Speaker 11: is we have one model that's very popular that we
Speaker 11: developed back in twenty twenty two, and so it's something
Speaker 11: you know, that people really remember about our work, where
Speaker 11: we just basically looked at average trailing pees going back
Speaker 11: to the nineteen sixties. We set up we tested a
Speaker 11: bunch of macro variables to see what drivers of those
Speaker 11: pes are and we came up with a set of
Speaker 11: inflation fed funds in ten year yields, So we slot
Speaker 11: in assumptions on those, put them into the model. It
Speaker 11: spits out of pe. We put that, you know, we
Speaker 11: marry it up with our earnings numbers and come up
Speaker 11: with fair value. So the long and short of it
Speaker 11: is that for twenty twenty five, we look like we're
Speaker 11: a little bit over our skis right now, unless we
Speaker 11: get some big step up in the GDP forecast or
Speaker 11: some big decline in the inflation outlook. Our modeling comes
Speaker 11: to fifty seven thirty for next year. You know, depending
Speaker 11: on different scenarios, I look at I can get you
Speaker 11: to sixty two hundred and sixty eight hundred for the
Speaker 11: end of twenty twenty six. Un fair value for the
Speaker 11: S and P so near term over valued, but longer
Speaker 11: term opportunity.
Speaker 2: Great stuff.
Speaker 3: As always Lori Cavsten ahead of US Equity Strategy RBC
Speaker 3: at Capital Markets and a proud of University of Virginia Cavalier.
Speaker 1: This is the Bloomberg Surveillance Podcast. Listen live each weekday
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Speaker 2: Let's be honest.
Speaker 3: I mean, if you're at a Cockta party and you
Speaker 3: pump into like for the last fifteen years, you bump
Speaker 3: into a fixed income person, you just turn.
Speaker 2: Around and walk away. Already there's no yield, there's no yield.
Speaker 3: They got nothing to offer you. Now, However, they're like
Speaker 3: the kids at the party. I mean, you can send
Speaker 3: it to your treasury and can get more than four percent.
Speaker 2: Karen Mann is one of those people.
Speaker 3: I mean investment director of fixed and come at Federator Hermes.
Speaker 3: She's now the cool kid on the block. Karen, What
Speaker 3: are you doing in fixed income these days? Because you
Speaker 3: guys have real yield across the spectrum here?
Speaker 2: What do you guys? How do you guys think about
Speaker 2: allocating and fixed income these days?
Speaker 5: Good morning, and thank you for having me. I don't
Speaker 5: know if I'm quite the cool kid. I think I'm
Speaker 5: probably it's a really thank you, Alex. It's still really
Speaker 5: still nerd herd here. But the income is back in
Speaker 5: fixed income, right, That's where you would pound the table
Speaker 5: and focus on that yield. And the yields do offer
Speaker 5: protection from the interest rate variability or what causes the
Speaker 5: price action part of total return. So when we're thinking
Speaker 5: about fixed income and allocations, first and foremost, it's our
Speaker 5: goal to be boring. This is the boring part of
Speaker 5: your portfolio. When you wake up in the morning, if
Speaker 5: the world isn't right, you want to look at that
Speaker 5: bird in hand, the yield that you've collected, and have
Speaker 5: some level of satisfaction rather than overreaching. So at this
Speaker 5: point in time, we continue to like up in quality.
Speaker 5: We don't think that there's any need to really reach
Speaker 5: into the lower realms of credit, and I think shorter
Speaker 5: duration instruments now focusing on anywhere from cash liquidity, money
Speaker 5: markets all the way out to the three year part
Speaker 5: of the curve, continue to be the most attractive part
Speaker 5: of fixed income.
Speaker 6: But it's funny because fixed income has not been boring,
Speaker 6: Like you can make an argument that you looked at
Speaker 6: your portfolio over the last few months and fixed income
Speaker 6: was the scarier part in some ways, with volatility that
Speaker 6: we're not used to, with rates moving to levels that
Speaker 6: could be really painful for stocks and the economy.
Speaker 5: So true, the volatility has been a little bit gut
Speaker 5: wrenching and a little bit more than we anticipate from
Speaker 5: fixed income markets, but we've also heard and seen sharp
Speaker 5: shifts in policies, and the bond market has reacted. I
Speaker 5: would comment, and this is a little bit more editorial,
Speaker 5: but the bond market seems to really be looking and
Speaker 5: trying to anticipate that next downturn in the market, so
Speaker 5: sometimes prices aggressively to the downside on that softer news.
Speaker 5: But as investors, I think that we're all discovering that
Speaker 5: we could just muddle along somewhere in this higher than
Speaker 5: target but not very high inflation environment and in a
Speaker 5: pretty balanced labor economy. So while you might look at
Speaker 5: the screens day to day and see fluctuations that aren't
Speaker 5: what you like to see, we are now viewing data
Speaker 5: over longer cycles because of the news headlines.
Speaker 3: So, Karen, I'm looking at the GO function in the
Speaker 3: Bloomberg terminal. It gives you the Bloomberg Index browser. He're todate,
Speaker 3: there's a lot of green on the screen for across
Speaker 3: the fixed income space, led by US corporate high yield.
Speaker 2: How do you guys think about the hig yield market?
Speaker 5: I know high yield continues to reign supreme and fixed income,
Speaker 5: but for US it's still a little little bit too expensive.
Speaker 5: Our analysts when they're looking at these companies, they are
Speaker 5: remarking that earnings are fairly flat. These are companies that
Speaker 5: broadly speaking, don't have pricing power at this point in time.
Speaker 5: They don't have an ability to grow volumes, so it
Speaker 5: leaves them still in the situation that they can emerge
Speaker 5: from the high yield construct. Moreover, the tariff shifts and
Speaker 5: changes and the policies aren't really giving them the fodder
Speaker 5: where they could necessarily grow. The light at the end
Speaker 5: of the tunnel for the high yield market is really
Speaker 5: when the FED would start to ease and ease considerably.
Speaker 5: And that's not our forecast or the street. So for
Speaker 5: us at option adjusted spreads or the risk that is
Speaker 5: paid over the relevant treasury rates at an average of
Speaker 5: about three hundred basis points right now, we think that
Speaker 5: that's far too low.
Speaker 6: All right, Karen, Thanks so much, Karen Man and vice
Speaker 6: president over at FEDERI. Herm means sort of the semi
Speaker 6: cool kid now at the.
Speaker 2: Party and a proud graduate of the Pennsylvania State University.
Speaker 1: Happy that This is the Bloomberg Surveillance Podcast. Listen live
Speaker 1: each weekday starting at seven am Eastern on Apple Corplay
Speaker 1: and Android Auto with the Bloomberg Business app. You can
Speaker 1: also listen live on Amazon Alexa from our flagship New
Speaker 1: York station, Just say Alexa play Bloomberg eleven thirty.
Speaker 3: Let's take a look at these newspapers today. We do
Speaker 3: that at this time every single day. Well, Lisa Mateo, Lisha,
Speaker 3: what you got for us in the newspapers?
Speaker 12: Okay, I want to preface this first story by saying
Speaker 12: I love my son and daughter the same.
Speaker 2: Okay, So here we go.
Speaker 12: This is from the Times.
Speaker 2: Okay.
Speaker 12: So they're pointing to this new analysis of global births
Speaker 12: that suggests that, you know, this long standing pattern of
Speaker 12: parents hoping for sons rather than daughters to kind of
Speaker 12: bring on the family name, you know that that kind
Speaker 12: of thing, that it's starting to shift, especially in places
Speaker 12: like China and India. So they're saying, what they say,
Speaker 12: quote is that baby boys are increasingly viewed as a
Speaker 12: burden and girl as a boon. So they're saying daughters
Speaker 12: are perceived as more nurturing, like, hey, they're going to
Speaker 12: take care of you.
Speaker 6: The son's going to go out and take care of
Speaker 6: his mother and his wife's smile. You're aware of this,
Speaker 6: Oh totally, yes.
Speaker 12: Yes, So that's what they're saying. But they're taking a
Speaker 12: different place like the you know China with the problem
Speaker 12: in China is that they're having is that some are
Speaker 12: since there's more males and females, the males are often unmarried,
Speaker 12: so other parents are worried that their son's going to
Speaker 12: be alone, so then they have that to worry about.
Speaker 6: Interesting, Oh my gosh, that's fascinating. When you have more
Speaker 6: girls they're definitely gonna get snapped up by They.
Speaker 3: Had that one child policy for the longest time, and
Speaker 3: now they said two. But I think that people have
Speaker 3: been so ingrained with one that it's not happening.
Speaker 6: It's gonna take some time.
Speaker 2: It's gonna take some time. Those chickens and eggs exactly.
Speaker 3: I mean I have three, three sons and a daughter,
Speaker 3: and the daughters by far the one in charge, I
Speaker 3: mean not even She's the only one that got a
Speaker 3: head on straight.
Speaker 12: See, and she's going to take care of you.
Speaker 2: I He's like this.
Speaker 1: Thing.
Speaker 12: Okay, have you heard of these dolls? They're La booboo dolls.
Speaker 11: I don't know.
Speaker 12: Is your daughter into the This is a new thing
Speaker 12: for me.
Speaker 2: Okay, I have not heard.
Speaker 12: Oh just you wait. Okay, So these are there, like
Speaker 12: these toothy monster dolls. They're made by this Beijing company,
Speaker 12: PopMart International.
Speaker 2: Yes, but they're all the.
Speaker 12: Rage because Rihanna carries them like Black Pink's lease that
Speaker 12: carries them around and it shares of searche like one
Speaker 12: hundred and eighty percent this year. But there was an auction.
Speaker 12: They had this like one of a kind mint green
Speaker 12: Laboo Boo doll. I that's top dollar is an auction
Speaker 12: in Beijing.
Speaker 2: It was human size.
Speaker 12: It's old for about one hundred and fifty thousand dollars. Yes,
Speaker 12: human size, human size or the human size Laboo Boo doll.
Speaker 12: But they were like a ton of stuff, like about
Speaker 12: forty seven other like different collectibles. So they all went
Speaker 12: for top dollars.
Speaker 2: No pictures on YouTube.
Speaker 12: See there you go. You have to take a look
Speaker 12: at them. I'm sure your kids probably might have them.
Speaker 12: This is the reason to go to YouTube, the Christmas
Speaker 12: time thing.
Speaker 3: This is the reason to Bloomberg surnounced on YouTube to
Speaker 3: get the La Bubu dolls.
Speaker 2: And you don't get this on radio.
Speaker 12: On YouTube, Yes, your kids will be asking for them.
Speaker 11: No, no, no, no no.
Speaker 12: We're reaching out to Alex's daughter as we speak. So
Speaker 12: let's go to AI. So we've been talking like how
Speaker 12: AI could possibly take away jobs, right, A lot of
Speaker 12: companies are saying it's not going to happen. It's going
Speaker 12: to give people more time to take on bigger tasks, right.
Speaker 12: But the New York Times actually points to this one company.
Speaker 12: Excuse me if I'm mispronounced it, mackenzie. It's a San
Speaker 12: Francisco startup and what they basically want to do is
Speaker 12: take your job. So they have a goal of automating
Speaker 12: all jobs. Right, we're talking about doctors, lawyers, people who
Speaker 12: write your software, design buildings, care for your kids, things
Speaker 12: like that.
Speaker 2: But they want to just start.
Speaker 12: With computer programming first. So that's that's their main focus.
Speaker 2: Yeah, I'm going to take care jolly.
Speaker 12: There's only three people working there, no five people working there.
Speaker 12: It started by three guys. But they have these big
Speaker 12: people backing them, like people from Stripe. You have Google's
Speaker 12: chief AI scientists, like they're all backing them. But it's
Speaker 12: an interesting thing because, like people have been worried about
Speaker 12: their let we get to.
Speaker 2: This last one.
Speaker 3: Yeah, if time is your left story seconds.
Speaker 6: It's like whatever job's AI, who cares. Let's get to
Speaker 6: this important story.
Speaker 12: Okay, yeah, this one is from Business Insider.
Speaker 2: This is the important thing.
Speaker 8: Right.
Speaker 12: We've heard of Hooters a lot of trouble with the restaurants.
Speaker 2: Okay, good, Yes, I think you've heard of this one.
Speaker 12: So they've been having trouble with the restaurant. But who
Speaker 12: can come to the rescue.
Speaker 2: It might be Hulk Hogan.
Speaker 12: His beer brand is trying to make a bid to
Speaker 12: kind of save them, get the chain growing again. I
Speaker 12: didn't even know he had a beer brand, but apparently
Speaker 12: does real American beer.
Speaker 2: Have you? Have you tried it? I haven't.
Speaker 3: The only Hooters I've been till my life is across
Speaker 3: the street from the Masters at Augusta National Golf Club.
Speaker 3: That's where people hang at the Hooters. I'm telling you,
Speaker 3: I don't know why it is, but anyway, that's kind
Speaker 3: of the way it.
Speaker 6: Is, like make Hooters great again.
Speaker 3: There, Alex Steele and Paul swhen you were here, Lisa Taylor,
Speaker 3: thank you so much. We got the newspaper segment in
Speaker 3: there for you. There with Lisa Mittaylor.
Speaker 1: This is the Bloomberg Surveillance podcast, available on Apple, Spotify,
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