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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside

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Speaker 1: my co host Matt Miller. Every business day, we bring

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Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along

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Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast

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Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and

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Speaker 1: at Bloomberg dot com slash podcast. Matt and I are

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Speaker 1: safely Wisconsin our radio studios. We do not have to

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Speaker 1: trade this market, but somebody who does are more likely

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Speaker 1: invests in this market is a professional by the name

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Speaker 1: of Phil Orlando, chief equity market strategist ahead of client

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Speaker 1: portfolio management at Federated Hermes of They've got a couple

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Speaker 1: of shekels under management there. I can attest to that. So, Phil,

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Speaker 1: when you see kind of this volatility here, and I

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Speaker 1: guess it's understandable given all the macro cross winds out there,

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Speaker 1: what's your two view on let's just on these equity markets. So,

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Speaker 1: you know, starting with the volatility issue over the last fortnite,

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Speaker 1: I guess from thanks th week through you know last night, Uh,

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Speaker 1: the S and P five was down about five and

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Speaker 1: and other indicries like the NASDAC composit, you know, down

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Speaker 1: even more and and to some degree, um the stock

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Speaker 1: market has done really really well. You know, we're up

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Speaker 1: a hundred and sixteen percent since the bottom of the

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Speaker 1: market March a year ago. And this omikron variant has

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Speaker 1: really captured everyone's imagination over the last couple of weeks.

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Speaker 1: But what I think is sparking the rally here is that, Okay,

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Speaker 1: a macron has now been identified in seventeen states and

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Speaker 1: forty countries. It's moving or transmitting faster than Delta was,

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Speaker 1: but the conditions appear to be more mild, and I

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Speaker 1: think the market is taking some confidence in that that

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Speaker 1: the you know, the mortality rates haven't materially increased, and

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Speaker 1: maybe Fiser and Maderna we'll be able to figure out

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Speaker 1: a tweak um that that will allow their existing vaccines

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Speaker 1: to continue to be efficacious. So as we look out

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Speaker 1: the calendar twenty two, I think we've got to start

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Speaker 1: with sort of that foundation. Where are we going with

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Speaker 1: covid um and and our view. So let's let's say,

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Speaker 1: phil Um, everything's taken care of that, oh macron, isn't.

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Speaker 1: I mean, I know that there's a lot still to

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Speaker 1: be discovered. But let's let's just say, oh, macron isn't

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Speaker 1: more fatal than um other other variants, and um, we

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Speaker 1: have useful vaccines. What about the Fed? Why our investors

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Speaker 1: piling in too treasuries? When Jerome Powell takes a hawkish

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Speaker 1: pivot and we start to expect them to raise rates earlier, Well,

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Speaker 1: there must be a concern that at the Fed is

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Speaker 1: going to get a bit more aggressive, And that's certainly

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Speaker 1: our view. We think they're going to double the pace

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Speaker 1: of tapering starting in the first quarter and have the

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Speaker 1: taper completed by the end of March, and then probably

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Speaker 1: execute We think three quarter point rate hikes over the

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Speaker 1: course of calendar two and then four more over the

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Speaker 1: course of calendar twenty three. And so I think investors

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Speaker 1: are saying, well, if the Fed has found religion on inflation,

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Speaker 1: and and you know, Powell's thrown in the towel on transitory,

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Speaker 1: you know, which he announced last week, then then potentially

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Speaker 1: that at the margin is going to slow economic growth,

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Speaker 1: maybe corporate earnings growth, and therefore we ought to be

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Speaker 1: buying treasuries rather than selling treasuries here to anticipate, you know,

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Speaker 1: a weaker economic backdrop alright, Phil, I mean you talk

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Speaker 1: about those rate increases three potentially and then followed up

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Speaker 1: by four, and that's an ironment that not many investors

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Speaker 1: have experienced before. Where do you want to be in

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Speaker 1: that type of rate environment from an equity perspective, Well,

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Speaker 1: you want to be in stocks that are more attractively valued,

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Speaker 1: number one. And that would suggest the value trade rather

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Speaker 1: than the growth trade. Value stocks right now are trading

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Speaker 1: in the mid teens. Growth stocks are trading in the

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Speaker 1: mid thirties. So that's a pretty significant difference. And then second,

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Speaker 1: because of the issues that we're dealing with UH in

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Speaker 1: terms of inflation and in terms of FED policy, question

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Speaker 1: is which companies have the ability to execute some pricing

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Speaker 1: power that that we know wages are going up, commodity

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Speaker 1: costs going up, shipping costs are going up. Which companies

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Speaker 1: are able to price those increases in and and actually

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Speaker 1: continue to maintain healthy margins or maybe even expand margins.

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Speaker 1: And for the most part, what we saw in with

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Speaker 1: the third order earnings is that it's the economically sensitive

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Speaker 1: categories you know, financials, materials, energy, consumer discretionary industrials that

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Speaker 1: that you know, by and large are able to do that.

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Speaker 1: So from an asset allocation standpoint, I think the value

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Speaker 1: trade rather than the growth trade, is still the way

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Speaker 1: You've got to look at what's happening in or what

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Speaker 1: we think is going to happen in kelendar twenty two. Hey, Phil,

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Speaker 1: thanks so much for joining us. We always appreciate getting

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Speaker 1: your perspective and the benefit of your experience here. Uh.

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Speaker 1: Phil Orlando, chief equity market strategist, and he's also ahead

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Speaker 1: of the client portfolio management team at Federated Hermes six

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Speaker 1: hundred billion dollars in assets on their management. I knew

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Speaker 1: Federated was big. I didn't know they were that big.

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Speaker 1: That's Federated Phil Orlando. We've got an equity outlook with

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Speaker 1: Phil Orlando from Federated Hermes. Earlier lists turn around and

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Speaker 1: take a look at the fixed income biz. We do

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Speaker 1: that with Kevin Nuckelson, Global Fixed Income co c i

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Speaker 1: O and co head of Investment Committee at Riverfront Investment Group. Kevin,

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Speaker 1: I'm looking at the ten year treasury yielding one point

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Speaker 1: three eight five today, it's something about four basis points.

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Speaker 1: But I've got a FED that's talking about tapering. I've

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Speaker 1: got a FED that's talking about raising rates. What do

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Speaker 1: I do in the fixing income market in two? Given

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Speaker 1: again we're I think the FED is going to take

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Speaker 1: this market. Well, I think that when you think about

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Speaker 1: um fixing income in two, you have to think about

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Speaker 1: yields are actually going to move higher. Our our base

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Speaker 1: case for two is that you're going to have the

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Speaker 1: tenure in the year at UM. Now, when we think

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Speaker 1: about investing in fixing income next year, we don't see

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Speaker 1: that there's going to be a lot of price appreciation.

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Speaker 1: It's really going to come from income. So you're gonna

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Speaker 1: be looking at place like high yale bank loans on

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Speaker 1: things that that nature that are going to be able

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Speaker 1: to give you a little bit more yield um and

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Speaker 1: not extreme you out on the duration curb. We did

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Speaker 1: see last week traders pull money from the I shares

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Speaker 1: I box, high Yield Corporate Bond et F h y

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Speaker 1: G as it's popularly known, for a third week in

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Speaker 1: a row. The short interest on UM I shares, I

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Speaker 1: box and investment grade corporate bond e t F is

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Speaker 1: also near an all time high. Why are investors right

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Speaker 1: now at least souring on corporate debt? Well, I think

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Speaker 1: the investors are staring on corporate debt right now because

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Speaker 1: there is a risk off trade in the market. If

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Speaker 1: you look at what happened in the bond market last week,

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Speaker 1: you basically had an overreaction, in my opinion, to the

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Speaker 1: FED talking about moving tapering up. Let's remember capery is

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Speaker 1: not raising rates, and that's the big thing that I

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Speaker 1: think that is missing here. Um. We when you look

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Speaker 1: at the Yok curve and what happened over the last

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Speaker 1: a few days, the UH bond market would be arguing that,

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Speaker 1: you know, the Fed is going to make a policy mistake. However,

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Speaker 1: I believe that what the Fed has done is that

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Speaker 1: they bought themselves more time. And in the sense that

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Speaker 1: we know that Chairman Pal is very data dependent, and

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Speaker 1: so by moving up the taper, what he's effectively done

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Speaker 1: is he's given himself more time to look at the data,

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Speaker 1: the incoming data. And we believe that you know, interest

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Speaker 1: rates are going or excuse me, inflation is going to

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Speaker 1: peak after the you know, in the first half of

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Speaker 1: next year, um and then you know start to moderate,

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Speaker 1: and so I think that you won't see as many

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Speaker 1: hypes um and and so I think that you know,

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Speaker 1: you will see interest rates move higher, but not too

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Speaker 1: much higher. All right, Kevin, given that that interest rate outlook,

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Speaker 1: given the inflation environment that we do see ourselves, and

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Speaker 1: at least here for the short intermediate term in the

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Speaker 1: corporate bond market. For two, what sectors are you guys

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Speaker 1: looking at? When I turned to corporates, I'm you know,

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Speaker 1: I'm going to continue to look at industrials, UH. Specifically

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Speaker 1: you know, like we like machinery uh and anything that

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Speaker 1: has to do with any type of infrastructure. UM. We

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Speaker 1: believe that you know, they're going to do pretty well,

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Speaker 1: um if if you're getting down into the subsectors here um,

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Speaker 1: But specifically when I'm thinking about fixed income um, you know,

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Speaker 1: in the corporate investing I also like financials because as

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Speaker 1: interest rates move up, you know, financial should do better

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Speaker 1: as they hopefully their loan growth improves. UM. And so

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Speaker 1: I think that you'll be able to pick up some

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Speaker 1: extra YEO in the investment grade space when you're focusing

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Speaker 1: on financials. All right. So we saw Goldman Sachs uh

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Speaker 1: cut us GDP forecast yesterday because of an Omicon drag need.

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Speaker 1: A lot of other banks are saying, oh, Omicron isn't

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Speaker 1: gonna be a big deal. How much does this how

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Speaker 1: much taking a view on this um make a difference

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Speaker 1: in your strategy. Well, I think that the view that

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Speaker 1: we're taking is that Omicron is not going to be

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Speaker 1: any worse off than the delta variants. And what we're

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Speaker 1: seeing so far coming out of South Africa, they're reporting

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Speaker 1: that people are getting not getting as sick as they

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Speaker 1: did with the other variants. So therefore, we're not changing

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Speaker 1: our forecast for two at this point because we don't

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Speaker 1: believe that, you know, it's going to have a huge effect.

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Speaker 1: We've come to the realization that we're going to have

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Speaker 1: to live with these various variants, uh, you know, for

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Speaker 1: the foreseeable future, and it may be the new norm. Hey, Kevin,

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Speaker 1: thanks so much for joining us. Really appreciate getting your thoughts.

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Speaker 1: Kevin Nicholson. He's Global fixed Income co c i O,

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Speaker 1: CO head of Investment Committee at Riverfront Investment Group. I'm

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Speaker 1: looking at the marketer. I'm going to quote the down

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Speaker 1: Matt even though it's a John for oh no, no,

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Speaker 1: but he's not here. It's up six twenty points. That

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Speaker 1: gets my attention. One eight percent here. I know NASAC

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Speaker 1: is not following suit. There but it's interesting to see

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Speaker 1: that kind of rebound in the marketplace, and that's a

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Speaker 1: wall of worry that this market continues to successfully climb.

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Speaker 1: Let's see if that's an issue for our next guest,

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Speaker 1: Lisa Erickson, Senior vice president and co had a public

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Speaker 1: markets group at US Bank. Lisa, what's your outlook for two? Well,

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Speaker 1: we are still positive on the outlook for two and

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Speaker 1: the reason why is if you look at the underlying

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Speaker 1: economic indicators, we see some really nice action. While there's

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Speaker 1: been a slight slowdown in some of the macro variables, overall,

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Speaker 1: if you just measure across the broad way indicators, what

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Speaker 1: we see is definitely readings that still remain in the

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Speaker 1: expansion phase. And on top of that, you see companies

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Speaker 1: being able to really translate that information into positive sales

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Speaker 1: and earnings growth. And people are generally expecting that positive

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Speaker 1: trend to continue because what we're seeing is the earning

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Speaker 1: system of revisions continue to go up. I think the

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Speaker 1: final thing that really gives us some confidence going into

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Speaker 1: the new year is the fact that while obviously there's

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Speaker 1: moves to continue to look at tapering as well as

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Speaker 1: when liftoff might occur, overall the level of interest rates

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Speaker 1: and inflation are still at moderate or low levels, and

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Speaker 1: so all of those kinds of things do give us

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Speaker 1: some confidence. That was just about to ask you about inflation,

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Speaker 1: because we're looking for Bloomberg Intelligence forecasts a number for

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Speaker 1: CPI at six point seven percent on Friday. That's the

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Speaker 1: highest we've seen it since Olivia Newton, John charted with

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Speaker 1: physical Um back back when we knew John mellencamp as

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Speaker 1: John Cougar, when Et came out in the theaters. It's

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Speaker 1: been a long time since. Are we gonna Are we

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Speaker 1: gonna come back down? Do you think, Um, this is

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Speaker 1: I don't want to say transitory, but um, do you

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Speaker 1: think that we're going to get over this and next

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Speaker 1: year we're gonna start getting back to lower numbers? Yeah,

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Speaker 1: that's a great question. So our hope in our base

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Speaker 1: cases that we start to see some moderation in the

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Speaker 1: inflation numbers next year, and there's a few reasons for that.

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Speaker 1: So the first really is that if you think about

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Speaker 1: what's happened this year, obviously we have had a tougher

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Speaker 1: time with price increases, but that honestly makes a year

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Speaker 1: over year comparisons going into next year tougher. So in

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Speaker 1: other words, it's going to be hard harder for prices

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Speaker 1: to maintain that level of upward trajectory. And in addition

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Speaker 1: to that, you know, if you just monitor the news

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Speaker 1: flow that's been coming along here over the last few weeks,

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Speaker 1: what we are starting to see is some signs that

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Speaker 1: the supply constraints are coming off. And we really did

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Speaker 1: have a very nice November report, and while it's just

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Speaker 1: one month, it was encouraging to see that labor participation

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Speaker 1: rate go up, and so we are very hopeful. But

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Speaker 1: you know, really to your point, that is going to

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Speaker 1: be a key variable to continue the SS. We are

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Speaker 1: going to have a more elevated reading this month, but

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Speaker 1: hopefully again as we transverse into the new year, we

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Speaker 1: get some readings that start to show some signs of deceleration. Lisa,

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Speaker 1: just real quick twenty seconds here. Are you comfortable with

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Speaker 1: where the Fed is guiding this market in terms of rates? Well,

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Speaker 1: certainly the Fed really has a tough road to ho

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Speaker 1: here going forward. Um, certainly they need to be attended

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Speaker 1: to what happens on the price side while still trying

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Speaker 1: to be supportive of the economic recovery that's going Uh, forward,

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Speaker 1: and so what they've done so far is a fairly

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Speaker 1: nice job in terms of communication, in terms of yeah,

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Speaker 1: and that's and that's for this marketplace. All right, Lisa,

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Speaker 1: thanks so much for joining us too short of a time.

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Speaker 1: We're gonna get you back soon. Lisa Erickson, Senior Vice

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Speaker 1: president and COHD of the Public Markets Group at US Bank.

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Speaker 1: All right, So we have the omicron variant out there,

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Speaker 1: and the question is how effective well the existing vaccines

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Speaker 1: that we have in dealing with that. Let's bring in someone,

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Speaker 1: I think as a thought or two them that Dave Herring,

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Speaker 1: chief operating officer of Adagio Therapeutics. Previously he led Fiser's

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Speaker 1: vaccine program from North America. Dave, thanks so much for

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Speaker 1: joining us. We we know your time is precious here.

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Speaker 1: What do you know about the therapeutics, whether it's fightsers

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Speaker 1: or moderners as it relates to this new omicron variant. Yeah, no,

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Speaker 1: thanks for having me. Um. Uh, it's a it's an

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Speaker 1: interesting question, right, A lot to still be known. I've

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Speaker 1: seen what has been said publicly, which is there's a

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Speaker 1: lot of concern about whether the current vaccines will be

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Speaker 1: effective against this variant. Uh, and really, to me, this

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Speaker 1: is a wake up call both for the country in

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Speaker 1: the world. We always suspected that there could be variants

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Speaker 1: that would escape both the current vaccines as well as

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Speaker 1: some of the bodies. And you know, so far knock

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Speaker 1: on what it looks like. It's not as severe as

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Speaker 1: as people had feared. But we also know that this

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Speaker 1: virus will continue to mutate. So this is my concern. Um,

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Speaker 1: although I've heard opposing views, I was thinking, if this

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Speaker 1: variant is more transmissible but less dangerous, that's still um,

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Speaker 1: that's that's still leaves room to be cautious because what

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Speaker 1: if it then mutates as it spreads to so many

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Speaker 1: people into something that is more fatal. I totally agree

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Speaker 1: with you, right, And we don't know yet what's going

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Speaker 1: to happen when even this variant reaches some of the

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Speaker 1: more vulnerable populations, whether that's you know, older adults, people

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Speaker 1: in nursing homes, et cetera. And uh, what we do

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Speaker 1: know is every time people get infected, the virus has

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Speaker 1: this opportunity to mutate. And we've said all along there's

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Speaker 1: likely going to be more variants than there are group

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Speaker 1: letters in the alphabet. So I think your your fear

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Speaker 1: is grounded. I mean that the opposing view I read

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Speaker 1: and it was somebody on Wall Street this morning, So

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Speaker 1: it wasn't a virologist who said this is great news,

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Speaker 1: because it means that the variant is that the virus

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Speaker 1: is mutating into something more like the flu, which is

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Speaker 1: kind of like what happened with the Spanish flu. At

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Speaker 1: least that's what we all think. I don't know the

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Speaker 1: history exactly, um that eventually this becomes sort of a

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Speaker 1: common cold or something that everyone can get but very

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Speaker 1: few people die from. Is that how viruses typically do

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Speaker 1: mutate into less fatal diseases. Well, I mean, I think

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Speaker 1: you're going a little bit outside of my comfort zone here,

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Speaker 1: but I mean what we do see is is, of course,

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Speaker 1: you know, as people get affected, you do start to

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Speaker 1: develop different immunities. Although I would argue influenza is still

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Speaker 1: quite a deadly disease, you know, one that we haven't

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Speaker 1: come up with a good solution to. Uh and it's

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Speaker 1: certainly one that needs more attention, and people are continually

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Speaker 1: worried about influenza, pandemics coming along and new ones that

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Speaker 1: are you know there I think for for currently, for

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Speaker 1: for COVID, we're not there yet, and even as an endemic,

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Speaker 1: we're talking about a lot of people who are at risk,

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Speaker 1: haven't been vaccinated, don't have treatments. UM. And so from

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Speaker 1: from our perspective, we really feel around the world United

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Speaker 1: States in particular, we should be putting more effort to

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Speaker 1: finding more products to make it so, as you say, UM,

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Speaker 1: we could make it more like the common cold, and

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Speaker 1: at least if we're going to have to live with it,

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Speaker 1: make it h something we can do in a much

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Speaker 1: less deadly and impactful way. So, Davis, as these variants

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Speaker 1: continue to come along, what can you tell us about

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Speaker 1: the ability of folks like visor Moderna too tweak their

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Speaker 1: existing vaccines to kind of meet the demand into these

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Speaker 1: newer variants. How does that tongs that take? Can it

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Speaker 1: be done? How hard is it to get done? Yeah?

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Speaker 1: I mean the good news is uh, with the m

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Speaker 1: R and A technology, it can be done. I did

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Speaker 1: read recently though, the FDA thinks the soonest that those

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Speaker 1: products could be tweaked and available as April. Which is

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Speaker 1: why you know, from from our perspective at Adagio and

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Speaker 1: the product that that we're working on for an antibody, UM,

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Speaker 1: we think we need more shots on goal. We need

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Speaker 1: more products. We need you know, warp speed two point oh,

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Speaker 1: if you will to make sure that if something like

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Speaker 1: O Macron comes along and is more deadly, we're prepared

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Speaker 1: and that we don't have to wait three or four months. Uh.

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Speaker 1: You know, our our product was designed to be useful

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Speaker 1: against all the variants. We're waiting to see if that

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Speaker 1: proves to be true. Um, and if that's the case,

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Speaker 1: we want the governments around the world to be accelerating

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Speaker 1: and expediting these these tools so that we have solutions

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Speaker 1: to to this variant and future one. We only got

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Speaker 1: a minute left. But are these um kinds of virus

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Speaker 1: is going to pop up more and more often? I

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Speaker 1: know you have worked at Novartists and Fightser, you've dealt

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Speaker 1: with H one and one and other pandemics. Is this

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Speaker 1: is this kind of thing going to happen more and

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Speaker 1: more often? I mean unfortunately, right? I mean I started

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Speaker 1: working on pandemics and two thousand nine, I've worked on

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Speaker 1: a bowl, I've worked on mirrors, Stars and a few

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Speaker 1: other ones. I mean, I sure hope not. I would

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Speaker 1: like this to be the last pandemic than any of

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Speaker 1: us see for a while, but I think probably the

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Speaker 1: reality of the situation is we need to be more

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Speaker 1: prepared UM and be ready for these things, whether it's

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Speaker 1: something that mother Nature throws at us or or even

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Speaker 1: the threat of some sort of bioterrorism and UH, and

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Speaker 1: that to me is is what we should be we're

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Speaker 1: working towards. Hey, Dave, thanks so much for joining us.

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Speaker 1: Really appreciate getting your UM perspective. Chief offerating officer for

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Speaker 1: Adagio Therapeutics previously led Fiser's vaccine program for North America. UH,

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Speaker 1: trying to get a better handle on how this omicron

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Speaker 1: variant will stack up against the existing vaccine. Thanks for

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Speaker 1: listening to the Bloomberg Markets podcast. You can subscribe and

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Speaker 1: listen to interviews with Apple Podcasts or whatever podcast platform

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Speaker 1: you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller.

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Speaker 1: Ye put on fall Sweeney. I'm on Twitter at pt Sweeney.

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Speaker 1: Before the podcast. You can always catch us worldwide at

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Speaker 1: Bloomberg Radio.