Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This has been a busy stretch for Sam Potter, a
Speaker 2: senior editor for Markets at Bloomberg, And it's like this
Speaker 2: every year. Starting in mid November.
Speaker 1: That's when the very earliest outlooks for the next year
Speaker 1: start to arrive on my desk, coming through email. I
Speaker 1: generally let a little pile build up til I'm ready
Speaker 1: to tackle them.
Speaker 2: Then Sam starts reading, looking for the big themes Wall
Speaker 2: Street strategists and economists and portfolio managers expect will shape
Speaker 2: the year ahead. It's a lot.
Speaker 1: I mean, there are dozens and dozens of these things,
Speaker 1: and many of them run to hundreds of pages.
Speaker 2: For years now, Sam has boiled all that down, synthesizing
Speaker 2: how some of the top names and finance are thinking
Speaker 2: about the coming year. The end product is this amazing
Speaker 2: tool you can find at Bloomberg dot com.
Speaker 1: What I try and do is take the top line
Speaker 1: calls and then we piece them all together in the
Speaker 1: feature and we make it searchable. You know, you can
Speaker 1: filter buy the financial institution, or by the topic, or
Speaker 1: buy the asset, and it allows you to compare and
Speaker 1: contrust all the different calls.
Speaker 2: Sam identifies each firm's base case for the economy and
Speaker 2: markets and what he's keeping an eye out for are
Speaker 2: high conviction calls.
Speaker 1: Lots of them are very much they sit on the fence.
Speaker 1: They say, well, this could happen all that conviction. We're optimistic,
Speaker 1: but they're at risk. Or you get these ones that
Speaker 1: try and be creative and thematic, and they will say,
Speaker 1: here are the top five trends that we think will
Speaker 1: shape humanity in the year's ahead. They are ultimately their
Speaker 1: marketing tools, but some of them can be super interesting,
Speaker 1: either super bullish or super bearish.
Speaker 2: It may not surprise you, given how twenty twenty five
Speaker 2: shaped up, that the biggest theme for twenty twenty six
Speaker 2: is artificial intelligence.
Speaker 1: The thing it sort of leapt out of me in
Speaker 1: this year's outlet was this idea that everyone on Wall Street,
Speaker 1: or seemingly everyone in Wall Street, is bullish about AI.
Speaker 1: They talk of it as a game changing, revolutionary technology,
Speaker 1: but at the same time, the biggest risk that most
Speaker 1: of them see is that the AI investment cycle is overhyped,
Speaker 1: that we could be in a bubble and that things
Speaker 1: could turn ugly.
Speaker 2: And it wasn't lost on me as I talked to
Speaker 2: Sam about all the work that went into this project,
Speaker 2: that maybe AI, the technology that led markets to record highs,
Speaker 2: could have made his job a lot easier.
Speaker 1: Actually, in the end, I made a point of not
Speaker 1: using AI for this. I used the same method that
Speaker 1: I was using seven years ago, which means possibly I'm
Speaker 1: inserting my own bias and misfunctioning brain instead of AIS.
Speaker 1: But at least it's consistent over the years.
Speaker 2: I'm David Gerat, and this is the take from Bloomberg
Speaker 2: News today on the show, From AI to Geopolitical Risks
Speaker 2: to Gold What Wall Street expects for twenty twenty six.
Speaker 2: We're at this moment where more investors seem to be
Speaker 2: questioning or thinking differently about AI's growth, in particular, how
Speaker 2: much money is being poured into the infrastructure that power
Speaker 2: is AI. How does Wall Street see that playing out
Speaker 2: in twenty twenty six?
Speaker 1: On balance, they lean on optimism here. Most of them
Speaker 1: see the transformative power of AI changing the way we work,
Speaker 1: changing the way we innovate, boosting productivity. They also look
Speaker 1: at the expenditure and say, well, who's paying for all this?
Speaker 1: And in many cases, these multi multi billion dollar deals
Speaker 1: that we see hit the headlines. The company behind them
Speaker 1: is one of the tech megacaps, you know, heavily cash rich.
Speaker 1: They can afford to make this expenditure until they see
Speaker 1: returns on it. And these tech megacaps, their earnings are
Speaker 1: still super solid. It's not like the dot com where
Speaker 1: the firms that were throwing out these huge deals didn't
Speaker 1: really have earnings potential, were very concentrated. You know. The
Speaker 1: Magnificent Seven are highly diversifized companies with massive earnings potential.
Speaker 1: So a lot of Wall streak takes comfort from that,
Speaker 1: and it sort of backs them into thinking that this
Speaker 1: AI expansion is going to be sustainable for the near
Speaker 1: future at least.
Speaker 2: Are there any outliers of note, anyone who is calling
Speaker 2: this a bubble?
Speaker 1: Definitively, there's not an awful lot this year. There's not
Speaker 1: an awful lot of kind of outlier that firms Vanguard
Speaker 1: springs to mind. They're very cautious on the valuations currently
Speaker 1: being quoted for the Magnificent Seven. They're worried about it.
Speaker 1: But even there they say, we think that market's over concentrated.
Speaker 1: We think these companies are potentially overvalued, but we don't
Speaker 1: recommend you get out of AI investing instead, look for
Speaker 1: the second order, so the company is the ones who
Speaker 1: will benefit from AI, or look for the infrastructure investments
Speaker 1: that are tied in with it.
Speaker 2: Twenty twenty five was this year in which so much
Speaker 2: focus was on in so many of the returns came
Speaker 2: from just a handful of stocks. It's also true of
Speaker 2: twenty twenty four. I should say, all the while, there's
Speaker 2: been this conversation, this persistent conversation in the background about
Speaker 2: whether this market is going to broaden out, the need
Speaker 2: for it to broaden out. As these strategists look ahead
Speaker 2: to twenty twenty six, is there any confidence that is
Speaker 2: going to happen?
Speaker 1: They certainly think so. A lot of the recommendations are
Speaker 1: AI is not a bubble, or it's not yet a bubble,
Speaker 1: but given the valuations and the market concentration surrounding the megacaps,
Speaker 1: it may be time to diversify and bind. Diversify they
Speaker 1: mean look for the sectors that are going to really
Speaker 1: benefit from implementing AI. Look at where this expenditure is going,
Speaker 1: so in infrastructure and data centers. So these outlooks are
Speaker 1: telling us get ready for this market to broaden out.
Speaker 1: But would just point out, this isn't the first year
Speaker 1: we've heard that, and probably not the second year we've
Speaker 1: heard that. Either. I was interested to write the summary
Speaker 1: section for AI, and as I wrote it, I was
Speaker 1: actually in the on the back end in the system
Speaker 1: we use. I was deleting the old one from last year,
Speaker 1: and the old one from last year was talking about
Speaker 1: we expect the gains of AI to broaden out into
Speaker 1: more sectors, and you look for the winners from AI.
Speaker 1: So it seems like we're still waiting for that broadening
Speaker 1: out and for those sectors to really adopt and apply it.
Speaker 1: So a good question is whether in a year's time
Speaker 1: we're going to be having a very similar conversation to this,
Speaker 1: I suppose.
Speaker 2: So what about other risk gas That's something stocks commodities.
Speaker 2: Does Wallstreet expect they're going to continue to climb?
Speaker 1: Yeah, mostly again off the back of the AI boom
Speaker 1: and the frenzy around that. Plus we have very fiscally
Speaker 1: loose governments. Plus we have central banks leaning towards easier
Speaker 1: policy in most major geographies. All of these things are
Speaker 1: seen as a tailwind for risk assets. So while no
Speaker 1: one's predicting huge double digit returns this year, everyone seems
Speaker 1: pretty confident that you're better off being invested than not.
Speaker 2: Put in that way, I wanted to ask you about gold.
Speaker 2: What do these outlooks say about the prospects for assets
Speaker 2: that aren't risky, ones that are considered kind of more
Speaker 2: haven or safer assets.
Speaker 1: Yeah, there's some advice to look for new hedges. I
Speaker 1: think one thing noted that given the situation where we've
Speaker 1: potentially got short term boring rates coming down, but very
Speaker 1: fiscally expansive program in government, that means the long end
Speaker 1: yields are going to stay high, so a steeper curve.
Speaker 1: What that can mean is that maybe bonds bonds will
Speaker 1: provide you income, they're not necessarily going to act as
Speaker 1: that hedge against equity risk. So there's talk about where
Speaker 1: you find your hedges. Gold is still up. There seems
Speaker 1: like not many firms want to predict the end of
Speaker 1: gold's upswing.
Speaker 2: We start twenty twenty six with the Federals are still
Speaker 2: very much focused on inflation higher than it wants it
Speaker 2: to be, also very clearly worried about future prospects of
Speaker 2: the labor market. What did you learn say from these
Speaker 2: outlooks about what Wall Street expects from the economy in
Speaker 2: twenty twenty six.
Speaker 1: Yes, so it's interesting. The FED is definitely a big
Speaker 1: question because they are very much seen caught between slowly
Speaker 1: declining but still very sticky inflation that's way above target
Speaker 1: and a labor market that is sort of feeling the
Speaker 1: pressures of rising costs of tariffs and the political pressure,
Speaker 1: let's face it, from the Trump administration for lower rates,
Speaker 1: and we also have the FED chair set to be
Speaker 1: replaced a number of votes surrounding other members of the
Speaker 1: Federal Reserve. On balance, mostly people expect the FED to
Speaker 1: ease a little bit, but the stickiness of inflation will
Speaker 1: mean they can't go quite as far as perhaps Trump
Speaker 1: and the politics want. Economy wise, the various tailwinds mean
Speaker 1: moderating growth, most of them saying growth is going to
Speaker 1: be pretty much in line with the long term trend.
Speaker 2: Another big theme in twenty twenty five was private markets,
Speaker 2: private credit, and a couple of bankruptcies in that space
Speaker 2: that really raised worries that an economic downturn could maybe
Speaker 2: expose troubled companies. We had JP Morgan Chase CEO Jamie
Speaker 2: Diamond now famously warning that when you see a cockroach,
Speaker 2: there are probably more that could emerge in the space.
Speaker 2: I'm curious how much ink was spilled about that in
Speaker 2: these outlooks, kind of raising concerned raising quests, thinking about
Speaker 2: sort of the way that private markets are going to
Speaker 2: play a role, a continued role in the economy in
Speaker 2: twenty twenty six.
Speaker 1: Yeah, a lot of them tackle that pretty much head on.
Speaker 1: They see the various you know, the cockroaches. It's pretty
Speaker 1: much contained, to be honest, there's a lot of positivity
Speaker 1: around private market still, private equity and credit, various credit structures.
Speaker 1: I think their argument is that it's a good diversifier,
Speaker 1: that their returns are potentially good, that mostly companies corporations
Speaker 1: are in pretty rude health. It does bear saying, though
Speaker 1: that most of them say, private markets look good, but
Speaker 1: what you need is expertise to guide you through it,
Speaker 1: and we're the ones to give you that expertise. So
Speaker 1: I'm always well aware that the more complicated or obscure
Speaker 1: or hard to invest in the market, the more money
Speaker 1: that Wall Street can make from helping you invest in it. So, yeah,
Speaker 1: a lot of talk about private markets. They think that
Speaker 1: bandwagon has got some distance to go.
Speaker 2: Yet coming up, How accurate were last year's calls and
Speaker 2: what does that say about how we should look at
Speaker 2: this year's Bloomberg. Sam Potter has done this analysis of
Speaker 2: Wall Street outlooks for seven years in a row now,
Speaker 2: and while he looks ahead, Sam also takes stock of
Speaker 2: how accurate the preceding years outlooks were. So I asked
Speaker 2: him how often Wall Street's predictions pan out?
Speaker 1: That's so hard to answer because so often they couch
Speaker 1: everything and this could happen, this may happen. This is
Speaker 1: what we're worried about. I think if you're in our business,
Speaker 1: if you're in the financial business, what you're probably dealing
Speaker 1: in as much as anything else's ideas, ideas and possibility,
Speaker 1: and oftentimes the audience to these things are going to
Speaker 1: be making their own mind up as well. They're going
Speaker 1: to be experienced professionals, They're going to have their own expertise.
Speaker 1: When I look through them, I'm looking for something, anything
Speaker 1: that jumps out as unique or sticks out about a
Speaker 1: year ahead. And also the common themes when we see
Speaker 1: dozens of reports saying we don't think AI is a
Speaker 1: bubble that lends you some maybe confidence, I don't know,
Speaker 1: maybe we should be worried everyone thinks it's not a bubble.
Speaker 1: Maybe that's the contrarian warning sign.
Speaker 2: Sam says. One of last year's most prescient calls also
Speaker 2: involved breaking from the pack.
Speaker 1: We saw that actually in twenty twenty five. One that
Speaker 1: stood out last year BCA were extremely bearish on tariffs,
Speaker 1: and they basically in their outlook said, everyone's underestimating Trump
Speaker 1: and what he wants to do with tariffs. It's going
Speaker 1: to be ugly. This is what we think is going
Speaker 1: to happen. And of course come April they were pretty
Speaker 1: much spot on.
Speaker 2: Sam, You've been through this cycle a few times now,
Speaker 2: and every year you start with a stack of calls
Speaker 2: that may look totally reasonable. What sort of things tend
Speaker 2: to upbend them? What are the X factors?
Speaker 1: Geopolitics is always the one that they worry most about
Speaker 1: because it's the hardest to foresee, particularly with Trump administration,
Speaker 1: and he's a fairly unpredictable guy. In fact, at one
Speaker 1: point that was seen as a deliberate policy that he
Speaker 1: would sort of surprise people. But the shocks, Yeah, I
Speaker 1: think it's not so much shocks they're worried about this
Speaker 1: year as any major shift in trend. So AI maybe
Speaker 1: it's a bubble. Maybe it isn't a bubble. Even if
Speaker 1: it's not a bubble, if confidence starts to weigh in AI,
Speaker 1: then it would be it would be like the tanker turning,
Speaker 1: you know, it'd be a big mega trend turning and
Speaker 1: in credit and private credit and private markets. If they're
Speaker 1: wrong and there are more cock croaches than they think,
Speaker 1: it could bring to an end a sort of long
Speaker 1: term trend. If Trump does do something unexpected and there
Speaker 1: is more trade friction and inflation actually starts to increase,
Speaker 1: a big inflation shock is actually probably that's one of
Speaker 1: the biggest potential tail risks that people say. You know,
Speaker 1: that's the fat tale. If inflation goes the wrong way,
Speaker 1: then it throws so much other stuff, fiscal monetary out
Speaker 1: of the window.
Speaker 2: We've talked about AI, We've talked about the megacaps, talked
Speaker 2: about this narrow market. When you compare the outlooks for
Speaker 2: twenty twenty six the outlooks for twenty twenty five, how
Speaker 2: much do they have in common? How similar are they
Speaker 2: this year to what we saw last year?
Speaker 1: Thematically? Yeah, last year, I remember leading the story part
Speaker 1: of the feature with Trump because he had just been
Speaker 1: re elected, he was set to take office, and that
Speaker 1: that kind of overhung everything. Obviously, that's much more if
Speaker 1: you can ever call Trump and I'm quantity, but it
Speaker 1: is much more of a known quantity. Now the tariff
Speaker 1: situation is seen as stable, if not settled, So we've
Speaker 1: been able to move on from last year, move on
Speaker 1: a little bit from Trump. I think people also look
Speaker 1: ahead and see the midterms and think that that might
Speaker 1: restrain Trump's excesses a little bit. But there remain some
Speaker 1: big similarities.
Speaker 2: Before I let him go, I ask Sam how he
Speaker 2: helps people in the industry. Readers and the generally curious
Speaker 2: will use his tool.
Speaker 1: So I think that such as the volume of stuff
Speaker 1: that Wall Street produces for the year ahead and so
Speaker 1: sort of disparate, I don't think people have the time
Speaker 1: or necessarily the easy access to read it or to
Speaker 1: consume it, or I hope what I do, if nothing else,
Speaker 1: is give them a tool that aggregates and allows them
Speaker 1: to compare and control, and it allows them to sort
Speaker 1: of fix their place in the Wall Street universe, their
Speaker 1: firm standing alongside others. I'd also hope that if I
Speaker 1: was in the industry, I'd want to be checking it
Speaker 1: and make sure that I wasn't accidentally in a huge
Speaker 1: outlier position with all my money on betting against AI
Speaker 1: or something when everyone else on Wall Street feels differently.
Speaker 2: This is the Big Take from Bloomberg News. I'm David Gura.
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