WEBVTT - Examining the FX Space, Fed Policy Outlook 0:00:02.520 --> 0:00:07.040 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.000 --> 0:00:14.320 Welcome to the Bloomberg Daybreak Asia podcast. I'm Doug Chrisner. 0:00:14.720 --> 0:00:17.760 This will be the third consecutive week of abbreviated trading 0:00:17.840 --> 0:00:20.639 in the US equity market will be closed Thursday for 0:00:20.720 --> 0:00:23.799 a national day of mourning for former President Jimmy Carter. 0:00:24.239 --> 0:00:27.440 Even so, there's been no shortage of FED speak and 0:00:27.480 --> 0:00:29.920 that will continue. And in a moment we'll be checking 0:00:29.960 --> 0:00:32.480 in with Matt Orton. He is the chief market strategist 0:00:32.520 --> 0:00:35.920 at Raymond James Investment Management. We'll get his thoughts on 0:00:35.960 --> 0:00:38.800 the FED. But we begin in Sydney and a look 0:00:38.840 --> 0:00:42.320 at currencies. We're joined now by Peter Maguire, CEO of 0:00:42.640 --> 0:00:45.840 XM Australia. Peter, it's always a pleasure, Happy new year 0:00:45.840 --> 0:00:49.000 to you. Let's begin with your outlook for the dollar. 0:00:49.040 --> 0:00:50.879 I think it's fair to say that the market right 0:00:50.920 --> 0:00:54.240 now is expecting far fewer rate cuts from the FED 0:00:54.280 --> 0:00:56.920 in twenty twenty five, and I would imagine that in 0:00:56.960 --> 0:01:01.720 your view that equates to continued dollar strength. Am I right? 0:01:02.240 --> 0:01:02.520 Yes? 0:01:02.560 --> 0:01:05.800 Well, good morning Doug, and happy New Year, and thank you. Yes, 0:01:05.880 --> 0:01:07.680 I think so. I mean, you know, last week I 0:01:07.680 --> 0:01:09.600 think I took everyone by a bit of surprise. We 0:01:09.640 --> 0:01:11.280 had a one O nine nearly one O nine to 0:01:11.319 --> 0:01:14.120 fifty handle for the US dollar index sitting there at 0:01:14.120 --> 0:01:15.759 about one eight thirty five. 0:01:15.720 --> 0:01:16.280 At the moment. 0:01:16.920 --> 0:01:19.200 I feel as though, as you said, you know, do 0:01:19.280 --> 0:01:21.440 we get two rate cuts, one rate cut or no 0:01:21.600 --> 0:01:24.399 rate cuts in twenty five and the momentum is going 0:01:24.400 --> 0:01:26.560 to be to the upside. I feel as though you're 0:01:26.600 --> 0:01:29.360 going to see intervention from the likes of Japan shortly 0:01:29.760 --> 0:01:32.200 at nearly one sixty. For the end, You've got the 0:01:32.360 --> 0:01:35.759 euro sitting at one O three eighty. It's probably parodies 0:01:35.800 --> 0:01:40.520 on its radar, maybe even this month. So I feel, yeah, 0:01:40.600 --> 0:01:43.000 there's going to be continued up lift the US dollar 0:01:43.040 --> 0:01:45.720 and its overall strength. There's been a standing over the 0:01:45.760 --> 0:01:47.760 last couple of months. It's been a great trade to 0:01:47.800 --> 0:01:50.600 be in, and I don't think it's going to disappoint 0:01:50.640 --> 0:01:51.280 moving forward. 0:01:51.640 --> 0:01:53.760 One of the things we're also keeping a very close 0:01:53.800 --> 0:01:58.400 eye on the tariff story. Today the Washington Post indicated 0:01:58.440 --> 0:02:01.960 that President electroump Here aids at least we're exploring plans 0:02:02.000 --> 0:02:06.520 for limited tariffs apply to all countries, but only with 0:02:06.640 --> 0:02:09.920 respect to critical imports. Do you have a sense of 0:02:09.960 --> 0:02:13.520 what the market right now is discounting. In the tariff story, 0:02:13.880 --> 0:02:15.880 is a lot of noise that has to do with 0:02:16.560 --> 0:02:19.440 really not understanding where Trump is at the moment, and 0:02:19.480 --> 0:02:22.280 maybe a lot of what we're hearing rhetorically has to 0:02:22.320 --> 0:02:25.760 do with a negotiating strategy, and it will be some 0:02:25.960 --> 0:02:29.040 time before we get clarity. And is the tariff story 0:02:29.040 --> 0:02:30.720 a part of this at all? 0:02:30.760 --> 0:02:32.320 I think it is, Doug And I think you know 0:02:32.400 --> 0:02:35.520 when you're when you're looking at President Trump and the 0:02:35.560 --> 0:02:37.960 way he operates, and that's this is from an Australian 0:02:38.080 --> 0:02:43.959 looking in, certainly unorthodox. Certainly he presents the art of 0:02:44.000 --> 0:02:46.600 the deal and goes in hard to start with and 0:02:46.600 --> 0:02:50.040 then renegotiates, So that could be the storyline there. 0:02:50.520 --> 0:02:52.440 We've got to be very patient. 0:02:52.040 --> 0:02:56.920 Because there could be all sorts of in the sense 0:02:56.960 --> 0:03:00.160 of different countries will be responsible for different rates. So 0:03:00.200 --> 0:03:01.799 I feel as though that that will be if they 0:03:01.800 --> 0:03:04.880 don't play ball with him, and then how that moves 0:03:04.919 --> 0:03:07.959 forward to the interpretation from the market, what happens to 0:03:08.000 --> 0:03:11.280 the likes of China. It's going to be I think 0:03:11.320 --> 0:03:14.720 a very dynamic first sixty days in and I think 0:03:14.760 --> 0:03:16.200 he's going to hit the ground running. 0:03:16.680 --> 0:03:19.040 Do you mean that there's going to be just broadly speaking, 0:03:19.080 --> 0:03:21.400 in terms of the foreign exchange, a lot more volatility. 0:03:21.919 --> 0:03:25.399 Yes, I really do, because it creates a sense, as 0:03:25.440 --> 0:03:27.520 you know, from a trading perspective, you want a little 0:03:27.520 --> 0:03:29.880 bit of certainty. You like a from a risk the 0:03:30.000 --> 0:03:33.000 dynamics of risk and behavioral you want, but you want 0:03:33.080 --> 0:03:37.440 some certainty. And this can change through just a simple 0:03:37.680 --> 0:03:40.120 stroke of a pen or a comment by President Trump 0:03:40.760 --> 0:03:45.040 or his senior advisors. That can really change the perception 0:03:45.200 --> 0:03:48.280 to the market and sentiment quickly, and in turn that 0:03:48.320 --> 0:03:51.840 creates that lovely word called volatility. And I think that 0:03:51.840 --> 0:03:54.640 that will be the frame moving forward, certainly for the 0:03:54.640 --> 0:03:55.200 first quarter. 0:03:55.480 --> 0:03:57.720 I was trucked today by the rally and the Canadian 0:03:57.800 --> 0:04:01.960 dollar on news that prim mister Trudeau is going to 0:04:01.960 --> 0:04:04.560 be stepping down here as soon as a new leader 0:04:04.640 --> 0:04:08.840 can be agreed upon for the Liberal Party. What's your 0:04:08.840 --> 0:04:10.640 outlook on the Canadian dollar. 0:04:11.160 --> 0:04:13.800 Well, I think that that's that's been interesting. I mean, 0:04:13.840 --> 0:04:16.440 it's been massively sold off as we know, over the 0:04:16.520 --> 0:04:18.640 last couple of months, and all the all the commodity 0:04:18.640 --> 0:04:22.520 currencies were similar. Fate Ossie's nearly at sixty cents there 0:04:22.560 --> 0:04:25.440 at one stage and keiw So if you're wrapper three 0:04:25.480 --> 0:04:27.719 of them up and then now you've had a leadership change, 0:04:28.480 --> 0:04:30.720 I wouldn't be surprised to take a little bit more 0:04:30.839 --> 0:04:32.120 uptick as far as. 0:04:32.279 --> 0:04:33.760 Strength to the Canadian dollar. 0:04:33.880 --> 0:04:38.280 Let's see who's elected and it's been massively sold off 0:04:38.279 --> 0:04:40.479 from you know that one thirty five hand or come 0:04:40.600 --> 0:04:43.000 mid September all the way through to you know the 0:04:43.040 --> 0:04:46.719 one forty five nearly, so possibly you're going to see 0:04:46.720 --> 0:04:49.039 a one forty two one point four one. 0:04:49.400 --> 0:04:50.920 I just have to see where it goes. 0:04:50.960 --> 0:04:54.760 But it's again, it's going to be volatile until we 0:04:54.839 --> 0:04:57.760 get some sort of I suppose indication who's going to 0:04:57.760 --> 0:04:59.120 take the leadership. 0:04:58.880 --> 0:05:01.240 You mentioned a moment ago, you're looking at the Japanese 0:05:01.320 --> 0:05:05.280 yen where the possibility of intervention is concerned. We're a 0:05:05.320 --> 0:05:07.320 little bit on the strong side of one fifty nine 0:05:07.360 --> 0:05:10.080 against the greenback at the moment. At what point do 0:05:10.120 --> 0:05:13.440 you think it's not going to be about intervention but 0:05:13.720 --> 0:05:16.320 about boj policy and the fact that we've got to 0:05:16.320 --> 0:05:18.320 get a rate hike in here, perhaps as soon as 0:05:18.320 --> 0:05:18.799 this month. 0:05:19.360 --> 0:05:21.960 Yeah, twenty fourth, I think is the day that everyone's 0:05:21.960 --> 0:05:24.760 got table. That's when the meeting's on and decision time. 0:05:24.880 --> 0:05:27.400 So I think though I looked at that last week, 0:05:27.440 --> 0:05:31.279 I'm holding that in memory. So if it's above one sixty, 0:05:32.000 --> 0:05:33.960 I think they'd wait. It'll be a wait and see 0:05:34.000 --> 0:05:36.880 game until the twenty fourth and do we see. 0:05:36.720 --> 0:05:37.840 Twenty five basis points? 0:05:37.880 --> 0:05:41.360 As far as a hike and how what's the retrick 0:05:41.480 --> 0:05:45.520 coming out naturally from Governor Uida and the overall I 0:05:45.520 --> 0:05:49.400 suppose again sentiment from the BOJ and policy moving forward, 0:05:49.720 --> 0:05:52.040 and I wouldn't be surprised. I mean, if rates go up, 0:05:52.080 --> 0:05:55.080 that's going to quickly change. I think the footprint as 0:05:55.080 --> 0:06:02.719 far as yen versus dollar from a from a market indication. 0:06:03.080 --> 0:06:05.039 So we'll just wait and see. But it's not long 0:06:05.040 --> 0:06:07.040 to wait, you know, two weeks and we'll get a decision. 0:06:07.240 --> 0:06:10.160 I'm looking at a euro here, this is stunning. I 0:06:10.200 --> 0:06:13.320 mean a dollar three rate. Now are you looking at 0:06:13.520 --> 0:06:15.880 a world here in the near term where we see 0:06:16.240 --> 0:06:17.440 euro dollar parody? 0:06:18.040 --> 0:06:19.960 I think so, I wouldn't be surprised, Doug. Do we 0:06:19.960 --> 0:06:20.719 even go lower. 0:06:20.960 --> 0:06:23.400 Everyone's saying you might see a ninety eight or ninety 0:06:23.440 --> 0:06:27.520 nine handled sometime February, So that's what the traders are saying. 0:06:27.560 --> 0:06:29.560 We've just got to see because that US dollars got 0:06:29.600 --> 0:06:32.760 so much uptick. You know, as far as the ECB 0:06:32.920 --> 0:06:34.840 is concerned, you could see another one hundred and ten 0:06:34.920 --> 0:06:38.640 basis of points cut out by December. We've got structural weaknesses. 0:06:38.680 --> 0:06:41.599 We know in Germany, the euro Land is pretty tough. 0:06:41.880 --> 0:06:46.560 You've got CPI preliminary datak for December that's coming out. 0:06:46.640 --> 0:06:48.360 So we've just got to see how all of that 0:06:49.080 --> 0:06:52.920 is interpreted from the market. And yeah, it's I think 0:06:52.920 --> 0:06:56.240 the euro will continue to be sold off and that's 0:06:56.279 --> 0:06:57.200 another great trade. 0:06:57.240 --> 0:06:59.640 It's just been extraordinary over the last couple of weeks. 0:07:00.040 --> 0:07:02.480 Talk to me a little bit, Peter about your home currency, 0:07:02.920 --> 0:07:05.120 the Aussie. How do things look for twenty twenty five. 0:07:05.600 --> 0:07:08.840 It's a great peso at the moment, Dug. We've changed 0:07:08.880 --> 0:07:10.720 the name of it. I think it's the Aussi peso, 0:07:10.880 --> 0:07:15.920 not the Aussie dollar. It's been sold off. I said 0:07:15.960 --> 0:07:18.320 to your team, you know, if you haven't made Australia 0:07:18.800 --> 0:07:21.440 a visiting point with a dollar at sixty one or 0:07:21.480 --> 0:07:25.040 sixty cents, that's the Aussie versus the US. Now's the 0:07:25.080 --> 0:07:27.640 time to visit in February because of the buying power 0:07:27.640 --> 0:07:30.800 of your strong US dollar against US, of course, and 0:07:31.080 --> 0:07:32.320 I feel as though that we. 0:07:32.320 --> 0:07:33.440 Could be sub sixty. 0:07:33.480 --> 0:07:36.760 I'm worried about China. I take on board their situation. 0:07:36.880 --> 0:07:38.680 It's a little bit of a proxy as far as 0:07:38.760 --> 0:07:44.680 Ossie versus for the China, So I'm expecting more softness 0:07:44.680 --> 0:07:47.280 there and maybe a fifty eight handle is where we're 0:07:47.320 --> 0:07:47.680 heading to. 0:07:48.200 --> 0:07:50.640 I'm wondering if there's a surprise right now that you're 0:07:50.680 --> 0:07:54.800 beginning to anticipate something on the horizon that maybe a 0:07:54.920 --> 0:07:58.240 few people are considering that could really create a lot 0:07:58.320 --> 0:08:01.720 more volatility in in the foreign exchange right now, something 0:08:01.760 --> 0:08:03.920 that you could share with us. Maybe that's different from 0:08:03.960 --> 0:08:04.800 the dollar story. 0:08:05.280 --> 0:08:08.960 I think yes, I feel as possibly the China situation, 0:08:09.120 --> 0:08:13.200 what's going on there as far as their rates, is 0:08:13.240 --> 0:08:17.760 the stimulus going to be the action point that everyone 0:08:17.880 --> 0:08:20.679 thought was going to turn things around. 0:08:21.280 --> 0:08:24.760 And I'm worried about China. 0:08:25.240 --> 0:08:29.440 I've just I'm concerned naturally with their real estate market. 0:08:29.760 --> 0:08:32.160 You've got eighteen trillion. I was looking at a comment 0:08:32.200 --> 0:08:35.720 by Barclay. Since twenty twenty one, eighteen trillion in wealth 0:08:35.760 --> 0:08:39.960 has been evaporated or destroyed in property, So that worries me. 0:08:40.000 --> 0:08:43.040 Who's holding the debt? And in turn, where does that 0:08:43.080 --> 0:08:44.080 play for Australia. 0:08:44.480 --> 0:08:47.840 We're very reliant on a strong China and that's not 0:08:47.880 --> 0:08:49.400 necessarily the case at the moment. 0:08:49.600 --> 0:08:52.880 Will that necessarily force Beijing to kind of do more 0:08:52.920 --> 0:08:54.680 in the way of intervention. 0:08:54.640 --> 0:08:57.559 Well, it does, and I'm conscious of it. But when 0:08:57.559 --> 0:09:00.280 you've got your ten year running at what is an 0:09:00.280 --> 0:09:03.560 a rand about four point six two four point sixty three, 0:09:04.840 --> 0:09:07.800 investors can really get three hundred basis points risk free 0:09:07.840 --> 0:09:12.080 investment buying US treasuries versus Chinese treasuries. So who's going 0:09:12.120 --> 0:09:15.800 to choose those Chinese government bonds? That's a worry. And 0:09:16.400 --> 0:09:18.480 you know, with the way your ten years going, you 0:09:18.559 --> 0:09:21.280 might be running higher at you know, by end of month. 0:09:21.320 --> 0:09:23.440 I wouldn't be surprised possibly even a four to seven 0:09:23.480 --> 0:09:24.080 five handle. 0:09:24.280 --> 0:09:26.920 Wow, Peter, it's always a pleasure. Thanks so much for 0:09:26.960 --> 0:09:29.080 spending time with us. Peter maguire there, he is the 0:09:29.120 --> 0:09:32.880 CEO of XM Australia, joining us here on the Daybreak 0:09:32.920 --> 0:09:44.000 Asia podcast. Welcome back to the Daybreak Asia Podcast. I'm 0:09:44.080 --> 0:09:46.959 Doug Krisner. In the US equity market today, we had 0:09:46.960 --> 0:09:49.840 a rally in tech megacaps, helping to send the S 0:09:49.880 --> 0:09:51.520 and P to a gain of around six tens to 0:09:51.640 --> 0:09:55.000 one percent. Meta platforms up more than four percent today. 0:09:55.320 --> 0:09:58.000 That was after Jeffrey said that Meta could offer the 0:09:58.040 --> 0:10:01.559 best AI play in the consumers this year. Let's take 0:10:01.559 --> 0:10:03.760 a closer look at the tech trade and markets more 0:10:03.800 --> 0:10:07.439 broadly with Matt Orton. He is the chief market strategist 0:10:07.720 --> 0:10:11.440 at Raymond James Investment Management, joining us from the firm's 0:10:11.440 --> 0:10:15.439 headquarters in Saint Petersburg, Florida. Matt, thanks for being with us. 0:10:15.559 --> 0:10:17.600 Happy New year too. You how things are going well 0:10:17.640 --> 0:10:20.680 for you? Talk to me about this theme of AI. 0:10:20.760 --> 0:10:23.600 It certainly provided a lot of oomph to the market 0:10:23.679 --> 0:10:25.560 last year. Do you think the same will hold true 0:10:25.559 --> 0:10:26.520 in twenty twenty five? 0:10:27.320 --> 0:10:29.720 And uncappy new year to you as well, and always 0:10:29.720 --> 0:10:32.400 great to join and I do. I think there's a 0:10:32.480 --> 0:10:36.679 lot of tailwinds to the artificial intelligence trade. I think 0:10:36.760 --> 0:10:39.840 the key difference this year versus what we've seen for 0:10:39.920 --> 0:10:42.760 the past two years is I think a lot of 0:10:42.800 --> 0:10:45.640 the games that we are likely to see are not 0:10:45.840 --> 0:10:49.160 going to be as concentrated in the handful of hyperscalers 0:10:49.520 --> 0:10:53.000 where you've seen a lot of the momentum already occur. 0:10:53.640 --> 0:10:56.320 I talked to clients about this basket of AI two 0:10:56.360 --> 0:10:59.959 point zero companies, kind of who are the capex beneficiaries 0:11:00.240 --> 0:11:03.520 of the artificial intelligence spend on the part of these 0:11:03.559 --> 0:11:08.120 megacap tech names, and that leads me to electrical equipment 0:11:08.160 --> 0:11:10.840 head companies. It leads me even to some industrials that 0:11:10.880 --> 0:11:14.880 are involved in machinery or helping construct some of the 0:11:14.960 --> 0:11:18.360 data centers or the semiconductor fabs that we're moving back 0:11:18.400 --> 0:11:21.480 to the country. Even within the tech space, you know, 0:11:21.520 --> 0:11:25.280 you have a number of other software companies that are 0:11:25.280 --> 0:11:28.640 helping to work to develop apps and enable artificial intelligence. 0:11:28.640 --> 0:11:31.959 And so I think the trade broadens out, which is 0:11:32.280 --> 0:11:35.120 a keyword for for twenty twenty five. We're not off 0:11:35.160 --> 0:11:37.640 to a great start for the past few trading days 0:11:37.679 --> 0:11:39.959 on the breast side of things, but I think there's 0:11:40.000 --> 0:11:41.800 a lot of tailwinds to go and it's all going 0:11:41.840 --> 0:11:43.800 to be backed by earnings and earnings momentum. 0:11:43.840 --> 0:11:45.520 Over the last two years for the S and P, 0:11:45.679 --> 0:11:48.720 I think we had a gain of something around fifty percent. 0:11:48.800 --> 0:11:52.120 That seems stunning. What's the likelihood that we're going to 0:11:52.120 --> 0:11:56.840 remain positive, not necessarily to that extent, but positive for 0:11:57.000 --> 0:12:00.120 US equities and perhaps not ripe for a little bit 0:12:00.120 --> 0:12:00.760 of a pullback. 0:12:01.400 --> 0:12:04.000 So I think we have to kind of disaggregate this 0:12:04.080 --> 0:12:07.280 idea of a pullback and the ability of US markets 0:12:07.320 --> 0:12:10.400 to continue to push higher. Now. I actually think we're 0:12:10.440 --> 0:12:13.400 going to see a higher volatility bull market in twenty 0:12:13.440 --> 0:12:16.240 twenty five. We're already getting a preview of what that 0:12:16.320 --> 0:12:19.160 looks like. Iven Some of the uncertainties are on tariffs, 0:12:19.280 --> 0:12:22.679 the path of rates, what's happening with inflation. But that 0:12:22.720 --> 0:12:25.600 doesn't mean the market can't continue to push higher. And 0:12:25.640 --> 0:12:28.199 I think that's rooted in the big picture, Doug. It's 0:12:28.280 --> 0:12:31.680 rooted in the fact that earnings are going to continue 0:12:31.720 --> 0:12:34.360 to move higher. We're looking at thirteen percent or so 0:12:34.440 --> 0:12:37.680 EPs growth is consensus right now. I think we're going 0:12:37.720 --> 0:12:40.839 to see that and potentially better. Margins are near record 0:12:40.920 --> 0:12:43.000 highs currently. I think we're going to be able to 0:12:43.040 --> 0:12:46.000 sustain that, and so as long as earnings are able 0:12:46.040 --> 0:12:48.880 to deliver, coupled with what I would argue is a 0:12:49.080 --> 0:12:53.760 very solid fundamental economic backdrop for the United States, along 0:12:53.800 --> 0:12:57.240 with hopefully some additional deregulation or clarity with respect to 0:12:57.320 --> 0:13:00.920 taxes going forward. That sets up a very environment that 0:13:01.040 --> 0:13:03.880 makes me comfortable recommending to clients that when we have 0:13:04.080 --> 0:13:07.120 five ten percent pullbacks, which I think could be likely 0:13:07.200 --> 0:13:11.760 this year, use those opportunistically use those as buying opportunities 0:13:11.880 --> 0:13:15.000 to help better diversify your portfolio away from just the 0:13:15.040 --> 0:13:17.560 megacat names that have worked over the past few years. 0:13:17.600 --> 0:13:19.880 So let's talk a little bit about the rates environment. 0:13:20.520 --> 0:13:23.600 Earlier today, Lisa Cooke, a FED governor, was saying that 0:13:23.640 --> 0:13:26.680 the FED can proceed a little bit more cautiously. The 0:13:26.800 --> 0:13:30.480 labor market seems to be sturdy, although there are lingering 0:13:30.800 --> 0:13:35.679 concerns about inflation, particularly when you begin to consider the 0:13:35.679 --> 0:13:40.359 potential inflationary impact of policies from the incoming Trump administration, 0:13:40.840 --> 0:13:42.880 And a lot of the FED speak over the last 0:13:43.000 --> 0:13:46.920 several days is skewed more hawkish. We know now as 0:13:46.920 --> 0:13:48.960 a result of what we heard from the FED share 0:13:49.000 --> 0:13:51.839 at the end of the last FED meeting that maybe 0:13:51.840 --> 0:13:54.080 only two rate cuts are being predicted for the new 0:13:54.160 --> 0:13:57.360 year instead of four. How are you feeling about the 0:13:57.400 --> 0:14:00.200 outlook for interest rates right now? And how aggressive do 0:14:00.200 --> 0:14:03.200 you feel the FED will be in accommodating? 0:14:03.880 --> 0:14:06.680 So I think the path for rates is certainly higher 0:14:06.720 --> 0:14:09.320 than it was, you know, even a month or especially 0:14:09.360 --> 0:14:11.920 a month or two ago. But I think the good 0:14:12.000 --> 0:14:15.640 news is the market has done a lot of adjusting already. 0:14:16.000 --> 0:14:18.920 The market is already pricing in only one to two 0:14:19.000 --> 0:14:22.400 rate cuts for twenty twenty five. So I think any 0:14:22.480 --> 0:14:27.800 surprises with respect to inflation continuing to make slow but 0:14:28.000 --> 0:14:31.520 consistent progress a little bit lower, I think that could 0:14:31.520 --> 0:14:34.320 certainly tip the scales to help rates start to come 0:14:34.360 --> 0:14:36.880 down a little bit later in the year. I think 0:14:37.520 --> 0:14:40.880 there's risks, especially in the near term, to seeing you know, 0:14:41.160 --> 0:14:44.000 four seventy five five percent or so in the ten year. 0:14:44.520 --> 0:14:47.480 But for longer term investors, those maybe looking to move 0:14:47.480 --> 0:14:49.880 from cash and lock in longer term yields, I think 0:14:49.920 --> 0:14:53.480 those are good opportunities to perhaps lock in those yields 0:14:53.480 --> 0:14:55.640 because I don't think you're going to stay at those 0:14:55.720 --> 0:14:59.280 levels for very long. Because again, I do think inflation 0:14:59.480 --> 0:15:02.600 over the lone term is going to continue to come down. 0:15:02.880 --> 0:15:05.080 It's just a matter of how slow that path is 0:15:05.120 --> 0:15:05.600 going to be. 0:15:06.200 --> 0:15:09.120 The December employment report, it will be the main attraction 0:15:09.200 --> 0:15:11.960 on Friday. It's going to indicate a lot in terms 0:15:11.960 --> 0:15:15.600 of how well the labor market is performing, and by extension, 0:15:16.280 --> 0:15:18.840 how strong the consumer may be. What's your sense of 0:15:18.920 --> 0:15:20.440 the American consumer right now? 0:15:20.880 --> 0:15:23.240 Yeah, dog, I think, and I've thought for a long time, 0:15:23.280 --> 0:15:26.360 but the American consumer isn't a good place. I think 0:15:26.480 --> 0:15:30.600 a lot of economists investors like it. People have missed 0:15:30.600 --> 0:15:33.760 how strong the American consumer is. I guess. Being based 0:15:33.840 --> 0:15:36.320 in Florida, I have the luxury of kind of seeing 0:15:36.440 --> 0:15:39.720 vacationers on a steady basis and seeing them out at restaurants, 0:15:39.720 --> 0:15:43.040 continuing to spend money both at high end, medium and 0:15:43.160 --> 0:15:45.680 low end hotels, and I'll tell you I have not 0:15:45.880 --> 0:15:48.920 really seen a slowdown even after the hurricanes, people continue 0:15:48.920 --> 0:15:51.800 to come down. And when I talk to management teams 0:15:51.840 --> 0:15:56.600 of consumer oriented companies, a lot of the big picture spending, 0:15:57.480 --> 0:16:01.640 especially on discretionary trips, kind of the experiences that stays 0:16:01.640 --> 0:16:05.720 in place. There is, however, a bifurcated consumer, and I 0:16:05.720 --> 0:16:09.160 think selectivity in the consumer space matters a lot. So 0:16:09.920 --> 0:16:12.600 I really discourage clients from trying to take a broad 0:16:12.640 --> 0:16:15.440 approach to attacking the consumer. You have to be very 0:16:15.480 --> 0:16:18.920 specific about what consumer you have exposure to, and I'd 0:16:19.000 --> 0:16:22.000 much rather have exposure to consumers that are more lever 0:16:22.160 --> 0:16:26.200 towards the high end, towards discretionary experiential travel. Because you're 0:16:26.280 --> 0:16:28.920 still seeing that play out. You hear it from Visa, 0:16:29.040 --> 0:16:31.160 from American Express, you hear it from some of the 0:16:31.200 --> 0:16:35.560 companies that sell those goods or travel. I think that'll continue. 0:16:35.760 --> 0:16:38.000 And what I would pay attention to in the labor 0:16:38.040 --> 0:16:41.440 report on Friday in particular is wage growth, because wage 0:16:41.480 --> 0:16:44.280 growth has improved across the board for the economy, but 0:16:44.680 --> 0:16:47.880 it's a double edged sword. If wage growth comes in 0:16:48.080 --> 0:16:51.520 higher than expect it, it's just another it's just another 0:16:51.640 --> 0:16:54.640 challenge for the FED and for the inflation overall to 0:16:54.680 --> 0:16:56.920 continue to come down, since so much of it is 0:16:57.000 --> 0:16:58.240 services based inflation. 0:16:58.480 --> 0:17:02.400 So, man, if you're a reasonable optimistic about the domestic economy, 0:17:02.440 --> 0:17:05.040 do you want to be a little bit more exposed 0:17:05.080 --> 0:17:08.159 to small and mid cap names, let's say, as opposed 0:17:08.160 --> 0:17:11.439 to some of the big multinationals at this point, I do. 0:17:11.560 --> 0:17:12.879 I mean I want to. I still want to have 0:17:12.960 --> 0:17:16.639 exposure to the multinationals because they're earning story is incredible 0:17:17.359 --> 0:17:21.240 by and large, but I think the market is really 0:17:21.440 --> 0:17:24.359 missing the growth that we're likely to see in small 0:17:24.400 --> 0:17:28.199 and mid cap companies. I certainly understand and appreciate the 0:17:28.280 --> 0:17:32.440 rate argument and the challenges that higher rates could pose 0:17:32.520 --> 0:17:36.800 to smaller companies, but higher quality small cap companies are 0:17:36.840 --> 0:17:40.520 already benefiting from lower funding costs. Because rates have already 0:17:40.520 --> 0:17:42.760 come down one hundred basis points from from the peak 0:17:42.800 --> 0:17:46.240 of where we were last year. You're not seeing challenges 0:17:46.320 --> 0:17:50.600 for small cap companies with good balance sheets generating free 0:17:50.600 --> 0:17:54.679 cash flow. Those companies are very underappreciated by the market. 0:17:54.880 --> 0:17:58.120 They're under owned and investor portfolios, and we have near 0:17:58.280 --> 0:18:02.679 historic valuation different between large and small cap companies. I 0:18:02.720 --> 0:18:05.760 think there's a very compelling case to be made, especially 0:18:06.240 --> 0:18:09.280 if you believe that there's going to be strong economic growth. 0:18:09.760 --> 0:18:11.720 I don't think there's a better way to play that 0:18:11.920 --> 0:18:15.240 than being selective in small caps, particularly with respect to 0:18:15.280 --> 0:18:18.239 the companies that are involved in the AI trade and 0:18:18.320 --> 0:18:21.560 also on the banks, the financials, the deregulatory side of things. 0:18:22.000 --> 0:18:24.040 I think there's a lot of ways you can play 0:18:24.080 --> 0:18:26.840 small in midcaps, and once that part of the market 0:18:26.840 --> 0:18:30.239 starts to move, it can move very very quickly. I 0:18:30.240 --> 0:18:33.399 would use that pullback in December, we've had to really 0:18:33.480 --> 0:18:36.679 think about adding exposure to small and midcaps in your portfolio. 0:18:36.800 --> 0:18:39.639 Well, I'm glad you mentioned the financials because today we 0:18:39.720 --> 0:18:42.960 had news that Michael Barr, the Fedzvice Chair of Supervision, 0:18:43.160 --> 0:18:46.600 plans to step down. We know he was instrumental in 0:18:46.680 --> 0:18:48.760 getting that plan to force some of the big banks 0:18:48.760 --> 0:18:54.120 to hold more capital. Obviously, the goal here is aspirational. 0:18:54.200 --> 0:18:57.960 You want to prevent bank failures and also prevent systemic 0:18:58.000 --> 0:19:01.159 financial crises. But he may have been potential target for 0:19:01.200 --> 0:19:04.760 the incoming administration. We really don't know. What he did 0:19:04.800 --> 0:19:07.440 say is that he wanted to eliminate the risk. 0:19:07.240 --> 0:19:08.040 Of a dispute. 0:19:08.080 --> 0:19:10.240 But I was struck by the way in which bank 0:19:10.280 --> 0:19:13.240 stocks climbed on that news. The KBW Bank index was 0:19:13.359 --> 0:19:16.880 up today by around to eight tens one percent. Talk 0:19:16.920 --> 0:19:20.199 to me about the outlook that you see in the financials, 0:19:20.240 --> 0:19:23.760 maybe deal flow M and A activity as well as 0:19:24.080 --> 0:19:27.280 maybe easier regulations when it comes to the big banks. 0:19:27.600 --> 0:19:30.120 Yeah, it's a really good point, Doug, and I think 0:19:30.160 --> 0:19:35.359 this deregulation theme for twenty twenty five is very, very real. 0:19:36.200 --> 0:19:39.280 We have a huge regulatory burden in this country. I 0:19:39.359 --> 0:19:42.639 mean we added over ninety thousand new pages in the 0:19:42.640 --> 0:19:47.840 Federal Register last year alone. It is. It is incredibly 0:19:47.880 --> 0:19:50.360 burdened sum It is a key reason why a lot 0:19:50.400 --> 0:19:53.320 of companies outside of just the fact that they're well financed, 0:19:53.359 --> 0:19:55.160 but it's a key reason why a lot of companies 0:19:55.200 --> 0:20:00.000 don't want to go public. You have an over resource 0:20:00.760 --> 0:20:03.800 regional bank community banking sector in the United States, and 0:20:03.880 --> 0:20:06.800 there it's right for consolidation. When I talk to CFOs 0:20:06.880 --> 0:20:10.639 or CEOs or regional banks, all of them are very, 0:20:11.000 --> 0:20:15.399 very bullish and enthusiastic about consolidation in the industry. So 0:20:15.440 --> 0:20:18.720 I think that's going to help on the sea regulation front, 0:20:18.960 --> 0:20:23.439 and specifically with respect to financial regulations, that's also been 0:20:23.480 --> 0:20:27.560 an incredible burden. So I think seeing tangible changes already 0:20:27.560 --> 0:20:31.280 takes place, I think that renews the enthusiasm that was 0:20:31.320 --> 0:20:34.399 there after the Trump election around the financial trade. So 0:20:34.440 --> 0:20:36.400 I still think there's a lot of legs to go there. 0:20:36.680 --> 0:20:38.359 Matt will leave it there. Thank you so much for 0:20:38.400 --> 0:20:41.240 being with us. Matt Orton is the chief market strategist 0:20:41.480 --> 0:20:45.560 at Raymond James Investment Management, joining from Saint Petersburg, Florida. 0:20:45.600 --> 0:20:50.760