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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day
Speaker 2: for insight from the best in markets, economics, and geopolitics
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Speaker 2: with markets on hold, as a strong September payrolls report
Speaker 2: put stocks on a four week winning street. Edgardenny, I
Speaker 2: of Yourdenny Research things the Fed can take the rest
Speaker 2: of the year off. Following Friday's strong September employment report,
Speaker 2: Federal fun Futures Markets predicts five or six ray cuts
Speaker 2: over the next twelve months. We're predicting none and done
Speaker 2: for the rest of this year. Edgar Denny joined us
Speaker 2: now for more EDGM Danny, let's talk about that. Is
Speaker 2: that one jobs report enough to say they're done for
Speaker 2: the year.
Speaker 3: I think it wasn't just the jobs report. We also
Speaker 3: had a very strong purchasing manager's index for the services economy,
Speaker 3: and that's where the strengthen the economy has been. Initial
Speaker 3: unemployment claims have remained very low, and so I think
Speaker 3: there have been actually quite a few numbers. As you know,
Speaker 3: the City Group Economic Surprise indexes positive again, and that's
Speaker 3: one of the reasons the body yield is back up.
Speaker 3: It's a good indicator of the direction of the body yield.
Speaker 2: And if you're right and they are done, and we
Speaker 2: reprice this yield curve higher and we reduce how many
Speaker 2: interest rate cuts a price for the next twelve months.
Speaker 2: How well does this equity market perform in your opinion?
Speaker 3: Well, I think it performs differently. I think we've currently
Speaker 3: seen that this bull market has been led by the pe.
Speaker 3: The evaluation multiple has gone up dramatically. Earnings have also
Speaker 3: been going up, which she wouldn't really have a bull
Speaker 3: market unless you really had the earnings trending higher. And
Speaker 3: for the S and P five hundred, five hundred that
Speaker 3: are all time record high, that's not the case for
Speaker 3: this midcaps, the small and MidCap SMP four hundred and
Speaker 3: six hundred, their earnings have actually been flat. I think
Speaker 3: the market continues to broaden, but instead of broadening out
Speaker 3: to the Rustle two thousand, which would would be correlated
Speaker 3: with interest rates going down, if interest rates stay here,
Speaker 3: I think it broadens out from the Magnificent seven to
Speaker 3: the S and P four hundred and ninety three.
Speaker 4: It's something as different though, this time for this earning
Speaker 4: season than it was in August. In August, we were
Speaker 4: talking about the high bar that equities had to reach.
Speaker 4: This time, it's somewhere below five percent that we're expecting
Speaker 4: earnings growth for this quarter.
Speaker 5: The bar is certainly lower. What does that mean?
Speaker 4: Earning season is about to be upon us? Can this
Speaker 4: not be the leg of the next bowl market rally?
Speaker 4: Whether or not rates are being cut.
Speaker 3: Well, my preference is exactly what's happening here. I would
Speaker 3: prefer that the market goes up on earnings from here
Speaker 3: rather than on valuation. This is not a cheap market.
Speaker 3: We've got the buffet ratio. I think it's two point eight.
Speaker 3: It's in an all time record high. That's the price
Speaker 3: to sales ratio. The forward pe for the S and
Speaker 3: P five hundred is about twenty two, with a Magnificent
Speaker 3: seven selling at almost thirty and the rest of the
Speaker 3: market at nineteen, So you know, you're not getting any
Speaker 3: bargains here. But what the market, I think will do
Speaker 3: is go up on earnings, and we're going to have
Speaker 3: another quarter. Earnings are going to go to a record
Speaker 3: high in the third quarter.
Speaker 4: It has been a market, though, that has been able
Speaker 4: to rally without the mag seven, without the megacaps for
Speaker 4: the most part. In the second half of the year
Speaker 4: so far, only two point nine percent of the rally
Speaker 4: is attributed to those mag seven stocks, according to bespoke.
Speaker 4: Is it a market that, even though it is overvalued,
Speaker 4: at least is more healthy, at least is more broad Well.
Speaker 3: I think it's healthier if the stocks that go up
Speaker 3: that it broadens out to the rest of the market,
Speaker 3: the abreast of the S and P five hundred, beyond
Speaker 3: the Magnificent seven. But again, you know, those multiples which
Speaker 3: are at nineteen could easily get over twenty here very quickly.
Speaker 3: And so I think the health of the stock market's
Speaker 3: going to depend on earnings. I'm a little nervous that
Speaker 3: everybody's turning so bullish and all of a sudden, everybody's
Speaker 3: talking about six thousand. I started out the year talking
Speaker 3: at fifty four hundred for the S and P five
Speaker 3: hundred by year end, and that was an outlier. I
Speaker 3: had to raise that to fifty eight hundred. And now
Speaker 3: you know that's a kind of number where people are
Speaker 3: talking about six thousand. So I think there's a little bit,
Speaker 3: you know, I had a steam here building up that
Speaker 3: could be disappointed.
Speaker 5: Ed you were ahead of the curve.
Speaker 1: In your note today, you also talk about before we
Speaker 1: get too cocky, you say we should know it that
Speaker 1: we aren't completely rolling out the possibility of recession. What
Speaker 1: could trigger a recession for the US economy right now?
Speaker 3: Yeah, Well, we had been thinking that the economy was
Speaker 3: surprise to the upside. We've been saying that for two
Speaker 3: and a half years. Don't underestimate the economy, don't underestimate
Speaker 3: the consumer. Looking ahead here, we're thinking that the economy
Speaker 3: is going to continue to perform quite well. And so
Speaker 3: I think that's consistent with where the bond yield is.
Speaker 3: I think interest rates have normalized. I think the Fed
Speaker 3: really has to reconsider what is the neutral rate, which,
Speaker 3: by the way, I think is a fairy tale number.
Speaker 3: It doesn't exist. It's totally a theoretical construct. But all
Speaker 3: in all, I think the market goes higher on earnings.
Speaker 1: Okay, but what about the geopolitics. You also have one
Speaker 1: eye looking at.
Speaker 3: Yeah, well twenty percent. You know, I don't want to
Speaker 3: get cocky about this thing. As I wrote, I think
Speaker 3: there is a chance of a recession here, which is
Speaker 3: a twenty percent probability in our minds, and it is
Speaker 3: geopolitically related. I know it's a little bit hard to believe,
Speaker 3: but you look at the history of geopolitical crises, and
Speaker 3: more often than that they've actually been buying opportunities. The
Speaker 3: reality is this geopolitical crisis so far really hasn't given
Speaker 3: anybody a buying opportunity. So there's still a possibility that
Speaker 3: with this war between Iran and between Iran and Israel
Speaker 3: getting to be a more direct confrontation, that there could
Speaker 3: be a sell off related to that.
Speaker 2: Youthin is a part of the market, then there's a
Speaker 2: little bit too stretch. Is an index level coal a sector? Coal?
Speaker 3: What is it? Well? I think that it's stretched in
Speaker 3: terms of valuation, and I think that part of that
Speaker 3: is because we do have a very passive investment orientation
Speaker 3: in the marketplace when people get into the market. More
Speaker 3: often than not, they're getting into ETFs, and ETFs really
Speaker 3: don't get very concerned about diversification. If you know, if
Speaker 3: you have an S and P five hundred ETF and
Speaker 3: thirty percent of that is the magnificence of and that's
Speaker 3: what you're buying, whereas managed portfolios might be more conservative,
Speaker 3: and so that's not enough diversification.
Speaker 2: I just want to walk away with the right impression
Speaker 2: of where you stay, and I don't want to mischaracterize
Speaker 2: you for the rest of the weekend. At the moment,
Speaker 2: it sounds like you're bearish. Is that fair?
Speaker 3: No, I'd say that our view is that it's we're
Speaker 3: at the right place in the market relative to evaluation
Speaker 3: and earnings. I think we're we could get to six thousand.
Speaker 3: I guess what I'm saying is I hope we don't
Speaker 3: see a melt up here because I don't like melt ups.
Speaker 3: They forced me to have to figure out when to
Speaker 3: tell people to sell. And I think earnings are going
Speaker 3: to continue to drive the market higher at a slower pace.
Speaker 4: So ed if you think that we can continue to
Speaker 4: move forward, but there's some distortions in the market, it's overvalued.
Speaker 4: Are you in the Cliff Assness camp of AQR that
Speaker 4: this is a less efficient market and that these types
Speaker 4: of mispricings can continue on for longer because of forces
Speaker 4: like passive management.
Speaker 3: I think that's a very good point, you know, I
Speaker 3: agree with that. But at the end of the day,
Speaker 3: that's the theoretical notion. And the line is is this
Speaker 3: market going higher? And I think it is going higher. Look,
Speaker 3: we've got six trillion dollars sitting in money market mutual funds.
Speaker 3: They are all time record high, and so is the
Speaker 3: stock market. In other words, the stock market got to
Speaker 3: a record high without people actually panicking out of money
Speaker 3: market funds and getting into the stock market. So there's
Speaker 3: a tremendous amount of liquidity in the system and there's
Speaker 3: a lot of buying. On a global basis, I would
Speaker 3: continue to overweight the US on a global portfolio. I
Speaker 3: think the China things kind of running out of steam here,
Speaker 3: and I think people are going to go back to overweighting.
Speaker 3: The US's kind of the safe haven in the global
Speaker 3: stock market. Arena.
Speaker 2: John Danny, let's finish there. What is it about Shina
Speaker 2: you dounbelieve in?
Speaker 3: Well, they've got some major structural problems they created. The
Speaker 3: government created its own mess here with the demographics. They
Speaker 3: got very rapidly aging demographic profile. The consumers are stretched.
Speaker 3: I don't think they're going to be going buying additional apartments.
Speaker 3: So even if they managed to stop the debacle in
Speaker 3: the property market, that's not going to be a source
Speaker 3: of economic growth. All in all, it's a it's a
Speaker 3: government run. It's an autocratic government running an economy that's
Speaker 3: done extremely well when they capitalism flourish. Now they're not.
Speaker 2: If your Anny research, i'd appreciate itself between the down
Speaker 2: to a Franklin template of right, we continue to believe
Speaker 2: in a self landing, which is bullish for equities compared
Speaker 2: with the more bearish expectations of an imminent recession. Katrina
Speaker 2: is whether it's around a table here in New York
Speaker 2: KA training co Mornic, good morning, let's start on Friday.
Speaker 2: It's like Friday never ended. What did you make of that?
Speaker 6: I think that we've had We've had some bullish momentum
Speaker 6: in the market. We have been in the self landing
Speaker 6: camp for a long period of time in terms of
Speaker 6: we think that there are so many tools that have
Speaker 6: been available to be able to kind of land this
Speaker 6: economy on that landing strip and do something in terms of,
Speaker 6: you know, managing the inflation and getting that down, which
Speaker 6: I think we can kind of check mark on that.
Speaker 6: We'll see the data that comes later this week. You
Speaker 6: look at the employment outlook, it's been bullish. People are good,
Speaker 6: and so I think that the Fed has actually done
Speaker 6: a very very good job here.
Speaker 2: There's a feedling on Friday that good news is still
Speaker 2: good news. Equities will hire. Bond yards were two, They're
Speaker 2: up again this morning by seven basis points at the
Speaker 2: front end on a ten year, up by three. Should
Speaker 2: they be anxious? Should equity bills be anxious about what's
Speaker 2: developing in the bond market?
Speaker 6: Again, I think that we've all I grew up where
Speaker 6: we used to look at the bond market and it
Speaker 6: would inform us as equity investors, And now I think
Speaker 6: that the narrative has shifted. I think that we've got
Speaker 6: so many indicators coming out of equity markets, and I
Speaker 6: think that the equity markets have been at the forefront
Speaker 6: of some of the bond markets.
Speaker 4: So, Katrina, you also, though mentioned some of the bearishness
Speaker 4: and the technical backdrop, the fact that hedge funds need
Speaker 4: to take down their exposure with the volatility that corporates
Speaker 4: are in a blackout period, how much does that weigh
Speaker 4: on a potential rally in this equity market.
Speaker 6: I think if you combine those two things, which are
Speaker 6: the kind of the hedge fund exposure, you look at
Speaker 6: the fact that that we've got this blackout period and
Speaker 6: buybacks have been a big driver of some of the
Speaker 6: earnings growth as well as the incremental buyer in the market.
Speaker 6: And then we cannot forget about the election. The election
Speaker 6: is causing uncertainty because we actually don't know who's going
Speaker 6: to win this time.
Speaker 5: And for a lot of people that's.
Speaker 6: Good news because it means it's still up in the
Speaker 6: air and there's still a chance for one candidate to
Speaker 6: pull ahead. But when you have uncertainty, the market doesn't
Speaker 6: like it. You'll see, you know, the kind of those
Speaker 6: spikes in volatility, and you'll see that uncertainty get priced in.
Speaker 4: But for risk with a really strong backdrop, how much
Speaker 4: does the election really matter?
Speaker 5: Besides the rhetoric?
Speaker 4: The potential volatility doesn't really change the long term outcome
Speaker 4: when you have earnings and expectations are really low, a
Speaker 4: potential bar to.
Speaker 5: Be and again a labor market that's very strong.
Speaker 6: I think in terms of the election, First of all,
Speaker 6: I think on tariffs, we're in agreement that both parties
Speaker 6: have got incentives to continue that tariff regime. So I
Speaker 6: think that way we can kind of say, doesn't matter
Speaker 6: which side. But think about taxes, that is the area
Speaker 6: and taxes. I always look at an income statement. It's
Speaker 6: a big number, and so if you have any discs,
Speaker 6: you've got a lot of disparity in policy, particular as
Speaker 6: it relates to corporate taxes. And obviously if you have
Speaker 6: a regime where there's a reduction in the corporate tax rate,
Speaker 6: that is bullish for equities and the offset. So I
Speaker 6: think that that's the unknown that we have. And no,
Speaker 6: I don't think we're going to have the next day
Speaker 6: change in tax rates, but it could happen fairly quickly,
Speaker 6: particularly if you get a Republican's fleite.
Speaker 1: Well, also because TCJA is expiring next year, so taxes
Speaker 1: are completely in focus. But if you're concerned about the
Speaker 1: corporate tax rate, do you care more about the composition
Speaker 1: of Congress than you care about who's in the White House.
Speaker 6: I still do care about who is in the White
Speaker 6: House because I think that that is the driving force,
Speaker 6: that is a representation of America, and I think that
Speaker 6: they're the person who kind of drives where we end
Speaker 6: up as a policy. I think, you know, as a country,
Speaker 6: we have this kind of tension in that we do
Speaker 6: believe that lower taxes.
Speaker 5: Are good for America. They're good for American business.
Speaker 6: But we do obviously have some fairly high deficits out there.
Speaker 1: We do, and there's new projections actually what those deficits
Speaker 1: would look like from Washington from the Grecial Budget Office.
Speaker 1: About whether tariffs or Trump. You mentioned inflation and tariffs.
Speaker 1: If you think both of these candidates are interested in
Speaker 1: using tariffs as a policy, and we just got data
Speaker 1: that showed wage growth accelerated by next year, shouldn't we
Speaker 1: be concerned again with inflation?
Speaker 6: I think on the wage growth that's a really big
Speaker 6: lagging indicator in terms of the inflation outlook. So I
Speaker 6: would say that any kind of job related inflation lags
Speaker 6: what we expect to see. In terms of how do
Speaker 6: we expect tariffs to impact It really depends on how
Speaker 6: we respond to them. If I have a company, a
Speaker 6: small company and the alternative is to buy something domestically
Speaker 6: versus a cheaper Chinese import that suddenly gets inflated up.
Speaker 6: It's good for America because I'm you doing.
Speaker 5: That in house. So I think that the inflation number
Speaker 5: is not.
Speaker 6: Directly a collery of the fact that I'm increasing tariffs
Speaker 6: and then suddenly I'm going to see inflation in America.
Speaker 6: I think it really is going to depend on what
Speaker 6: that adjustment is. And I think a lot of companies
Speaker 6: have been doing a lot of actions where they're matching
Speaker 6: they're manufacturing to where they're selling, so that these tariffs
Speaker 6: may not be as impactful as we initially thought.
Speaker 2: Let's get your equity calls the US versus the rest
Speaker 2: of the world, within the US large versus small, How
Speaker 2: are you thinking about things?
Speaker 6: I think in terms of the US market, the momentum
Speaker 6: of the US market, and that is something that we're
Speaker 6: bullish on. We are concerned about that concentration. We've looked
Speaker 6: at the concentration and there's no necessary research that kind
Speaker 6: of says, well, a highly concentrated market will sell off
Speaker 6: x percent because you have different situations. So on the concentration, though,
Speaker 6: that is something that worries US. We do see a
Speaker 6: situation where you can have some of these large companies
Speaker 6: flatish means that they're going to grow their ownings, which
Speaker 6: is what the market's expecting, and they're going to grow.
Speaker 6: The valuation will decline as the earnings increase, and you
Speaker 6: kind of had a kind of tempered market return, and
Speaker 6: that's good for the overall equity market. What we're seeing
Speaker 6: is that that now that bullishness in the top of
Speaker 6: the market is starting to filter down, where I think
Speaker 6: people are focused is going straight to small caps. But
Speaker 6: I think that there's actually a really big middle in
Speaker 6: America that is getting ignored, and that's the part of
Speaker 6: the market that I actually like at the moment. The
Speaker 6: small caps in a regime where you're anti FTC may
Speaker 6: not have that takeout premium, so there's a little risk there.
Speaker 6: But that mid part of the market I think could
Speaker 6: actually be where.
Speaker 2: Opperation is to apect a preference within the mid caps.
Speaker 6: In terms of sector preference, I would go towards some
Speaker 6: of the industrial names, where I think that they've got
Speaker 6: that resiliency to be able to take advantage of moving
Speaker 6: things around that they're not going to be hurt by
Speaker 6: that rising tariff regim and maybe they've got some ability
Speaker 6: to benefit from new policy.
Speaker 4: There has been some of that the mag seven, it's
Speaker 4: thirty percent weighted in the S and P. Bespoth points out,
Speaker 4: it's only accounted for two point nine percent of the
Speaker 4: index has gained so far in the second half.
Speaker 5: Is it a healthier market now? I don't think it's
Speaker 5: quite yet healthy.
Speaker 6: I think you've still got those Magnificent seven still dominating.
Speaker 5: Even the numbers you.
Speaker 6: Quote sound very small, but it's still dominating returns and
Speaker 6: dominating the narrative. I think that what we're seeing, however,
Speaker 6: is people starting to look at what are the second
Speaker 6: derivatives of say the AI, and that's where they're going
Speaker 6: into the MidCap names. I also think that some of
Speaker 6: the exposure that you're looking at in the Magnificent seven,
Speaker 6: people are starting to say, well, maybe I don't want
Speaker 6: an in video, I want an in VideA that you know,
Speaker 6: the second deriva, So the picks and shovels.
Speaker 4: Do you understand at this point how big cap tech
Speaker 4: reacts to lack of FED cuts lack of magnitude of
Speaker 4: FED cuts at this point.
Speaker 6: In terms of understanding, I think that we have to
Speaker 6: go back to find that's one oh one. I'm so sorry,
Speaker 6: but you know the problem with some of these names
Speaker 6: when you've got such high earnings growth expectation which they're
Speaker 6: delivering on. Let's to be very clear, you know, any
Speaker 6: type of movement in interest rates, you have so much
Speaker 6: of the value as sitting in that terminal number that
Speaker 6: you know, interest rates become something that they're very, very
Speaker 6: sensitive to, even though you would say they're probably the
Speaker 6: least leathered companies and they would have the least short
Speaker 6: term exposure, but the valuation component and that terminal formula
Speaker 6: is what's really driving them.
Speaker 2: Katrina, it's going to see you as always to catch
Speaker 2: another there's Katrina Downte there. Franklin Sempleton. Bobdah A cross
Speaker 2: Mark Global Investment suggests it's hard to be bearish monetary
Speaker 2: policy is now easing, even though there is limited evidence
Speaker 2: that had been a major drag for the US economy
Speaker 2: to begin with. Any caution towards equities has admittedly been
Speaker 2: wrong or at least premature. Bob Doe John just now
Speaker 2: for more, but welcome back to the program, buddy. Let's
Speaker 2: just pick it up where we left things on Friday payrolls.
Speaker 2: Big blowout jobs report is good news, good news when
Speaker 2: you're seeing this repricing in the bond market.
Speaker 7: First of all, it was one month. Look at all
Speaker 7: the prior months. How many downward revisions have we had.
Speaker 7: I'm not saying it wasn't a good number. It was
Speaker 7: an outstanding number, no question about it. But when you
Speaker 7: look at the unemployment data around the isms, both manufacturing
Speaker 7: and services.
Speaker 8: They were weak. So which is it? Which has it? Right? Time?
Speaker 8: Will tell?
Speaker 7: Put the inflation question, as you've all we've just been discussing,
Speaker 7: is back on the table.
Speaker 2: So Bobby, just raise an important question. Which one was
Speaker 2: the headfake? The summer deceleration or the re acceleration coming
Speaker 2: out of the summer.
Speaker 8: I think they're both true.
Speaker 7: Economies don't move in one direction NonStop. So where I
Speaker 7: think we're going to have this fits and starts. Some
Speaker 7: people call it a bumpy landing. I like that term,
Speaker 7: and I think that's what we're in for.
Speaker 8: It be a good number and that are not so
Speaker 8: good number, and they'll confuse all of us.
Speaker 4: Yeah, great, wonderful, Great to hear that, Bob. I know
Speaker 4: in the meantime, you are looking for a significant economic
Speaker 4: slow down or mild recession that had been at least
Speaker 4: your base case scenario. If this is just one month,
Speaker 4: does it change it at all?
Speaker 5: Bob?
Speaker 8: It certainly lowers the probability of us getting that right.
Speaker 7: When I look at all the statistics over several months,
Speaker 7: to me, it's still pretty clear that the economy is slowing.
Speaker 7: We're seeing that in many of the employment numbers, not
Speaker 7: we're standing last Fridays. We're seeing that in ability to
Speaker 7: find jobs, people trying to find full time jobs, settling
Speaker 7: for part time jobs. Economy slowing. We just don't know
Speaker 7: how fast that's happening. And of course the FED has
Speaker 7: seen some of that too, we got fifty basis points.
Speaker 7: But you know there are numbers still very high relative
Speaker 7: to other things. How many things can you find that
Speaker 7: have not nominal growth as strong as the FED funds
Speaker 7: right now?
Speaker 6: So it.
Speaker 8: Is leaning on the economy even with this cut.
Speaker 4: Can you just help me sort out then, what kind
Speaker 4: of economic environment we're dealing with here, Bob? If you're
Speaker 4: worried about a slow down, but now we need to
Speaker 4: worry about inflation again, how do you square all.
Speaker 7: Of those oh, that can happen in many many cases
Speaker 7: in the past, economy slows and inflation's picking up. I'm
Speaker 7: not arguing for stagflation, but we've had that many times before,
Speaker 7: and I guess I should enter the fact that pees
Speaker 7: are in the twenties. When the pees are that high,
Speaker 7: things better be nearly close to perfect. So if there's
Speaker 7: fly in the oint, man, whatever that fly is, that
Speaker 7: twenty two pe has got to be questioned somewhat hard
Speaker 7: to see a lot of upside frequities, maybe not downside,
Speaker 7: but hard to see upside.
Speaker 5: Bob.
Speaker 1: I know you keep trying to stress it. This is
Speaker 1: just one month, but how do we reconcile how good
Speaker 1: this month was, which all the survey data showing that
Speaker 1: actually jobs plentiful, that's coming down, jobs hard to find.
Speaker 1: More people are saying that's what their picture is right
Speaker 1: now in the labor market.
Speaker 7: That's why I'm raising the question that it's one month
Speaker 7: and all the other things the same statistic prior months.
Speaker 7: All the other numbers are showing not so fast, that
Speaker 7: the economy is great and that there are plenty of jobs.
Speaker 7: So let's see what next month brings and watch all
Speaker 7: the other statistics that you just accurately point out do you.
Speaker 1: Just then take maybe sixty or seventy off this payrolls
Speaker 1: report because of the revisions we've seen in the past.
Speaker 8: Oh, that's probably not a bad thought. I had come
Speaker 8: to grips with that, but that's probably a good idea, Bob.
Speaker 2: I want to talk to you about what's happening in
Speaker 2: this bond market. We're starting to see a reinversion, never
Speaker 2: mind a disinversion, and bub. I wonder for an equity
Speaker 2: market strategist, for an equity market investor, what they should
Speaker 2: be doing with what's happening in the bond market. After
Speaker 2: we heard from tons of people coming on this program
Speaker 2: who are saying, get out of cash, deploy it into risk,
Speaker 2: go out further along the bond market, take on tour
Speaker 2: ration in the bond markets, take on credit risk. But
Speaker 2: what's your advice now.
Speaker 7: Yeah, I think people that have a lot of cash,
Speaker 7: that have enjoyed high returns, put a little to work.
Speaker 7: The ten year over four is a whole lot more
Speaker 7: interesting than the ten year that was below three seventy five,
Speaker 7: not but a couple of weeks ago.
Speaker 8: So I would take periods of weakness in the bond
Speaker 8: market and do some adding. You don't have to be
Speaker 8: a hero. Take your time. But that's what's weighing on
Speaker 8: the stock market.
Speaker 7: The rise and interest rates, the rise in oil prices,
Speaker 7: and you know, maybe the economy isn't okay. The employment
Speaker 7: report may say, But on the other hand, why are
Speaker 7: earnings revisions so negative for the third quarter?
Speaker 2: Howld up, Bob, this is an important point you suggested.
Speaker 2: We've got to the point in the bond market where
Speaker 2: yields up on good news is now band news for requities?
Speaker 8: Yes, I think.
Speaker 7: You know, most people say when the tenure gets about four,
Speaker 7: we begin to have those problems. I don't know if
Speaker 7: it's exactly four, but the pace of the increase in
Speaker 7: yields also, John, I think has to be brought into
Speaker 7: the equation, and that is weighing on stocks.
Speaker 2: So let's get into the stock market, lift a lid
Speaker 2: on the index. Where do you want to be? Where
Speaker 2: do you want to avoid? With all of that in mind,
Speaker 2: so I'm a.
Speaker 7: Broken record for quite some time, I've argued for companies
Speaker 7: with high earnings, predictability, high earnings.
Speaker 8: Persistence, and strong and growing free cash flow. You might
Speaker 8: call that quality.
Speaker 7: Because all the unknowns we've been discussing and debating back
Speaker 7: and forth here, I want to have companies that are
Speaker 7: somewhat independent of the economy. Those dots have done just
Speaker 7: fine as the market has moved higher. I think if
Speaker 7: we get any kind of selling squall, these names will
Speaker 7: do even better.
Speaker 4: Bob, does I mean this market's ability to broaden out,
Speaker 4: to go beyond the mag seven, go beyond the cash
Speaker 4: rich companies, go into small caps?
Speaker 5: Do not see the market able.
Speaker 6: To do that?
Speaker 4: Then if you're still looking at this maybe safer part
Speaker 4: of this equity market.
Speaker 7: So I'm not sure that the magnificent seven or five
Speaker 7: or whatever the number is, is this safest part Because
Speaker 7: of the big valuation differential between the top ten if
Speaker 7: you will, more than thirty times earnings and the other
Speaker 7: four hundred and ninety call it eighteen times earnings.
Speaker 8: I think the market can continue to broaden. I'd say
Speaker 8: within the S ANDP, within.
Speaker 7: Large cap stocks, not so much down to small We
Speaker 7: need confidence that we have a really good economy for
Speaker 7: the small stocks to do well. As you probably know,
Speaker 7: almost half of the Russell two thousand companies are losing money.
Speaker 7: That's not real attractive.
Speaker 4: So, Bob, in this environment where higher yields can indeed
Speaker 4: punish equity markets. Yet again, how worried are you for
Speaker 4: Thursday CPI report.
Speaker 8: I think we have to have our antenna up on it. Look,
Speaker 8: I never say back to the employment report.
Speaker 7: One month makes a trend, but this notion that the
Speaker 7: Fed had inflation under control it's going to inevitably get
Speaker 7: to two percent has to be in question. I've questioned
Speaker 7: all I think there's anyway we get two percent inflation
Speaker 7: unless we have a recession.
Speaker 2: Bubb tell across Mark, Bob, appreciate it, sir, You've been
Speaker 2: pretty consistent on that point. Go to catch up after
Speaker 2: payrolls on Friday, looking ahead to SEEPR on Thursday.
Speaker 3: This is the.
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