Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside
Speaker 1: my co host Matt Miller. Every business day, we bring
Speaker 1: you interviews from CEOs, market pros, and Bloomberg experts, along
Speaker 1: with essential market moving news. Find the Bloomberg Markets Podcast
Speaker 1: on Apple Podcasts or wherever you listen to podcasts, and
Speaker 1: at Bloomberg dot com slash podcast. Matt and I are
Speaker 1: safely Wisconsin our radio studios. We do not have to
Speaker 1: trade this market, but somebody who does are more likely
Speaker 1: invests in this market is a professional by the name
Speaker 1: of Phil Orlando, chief equity market strategist ahead of client
Speaker 1: portfolio management at Federated Hermes of They've got a couple
Speaker 1: of shekels under management there. I can attest to that. So, Phil,
Speaker 1: when you see kind of this volatility here, and I
Speaker 1: guess it's understandable given all the macro cross winds out there,
Speaker 1: what's your two view on let's just on these equity markets. So,
Speaker 1: you know, starting with the volatility issue over the last fortnite,
Speaker 1: I guess from thanks th week through you know last night, Uh,
Speaker 1: the S and P five was down about five and
Speaker 1: and other indicries like the NASDAC composit, you know, down
Speaker 1: even more and and to some degree, um the stock
Speaker 1: market has done really really well. You know, we're up
Speaker 1: a hundred and sixteen percent since the bottom of the
Speaker 1: market March a year ago. And this omikron variant has
Speaker 1: really captured everyone's imagination over the last couple of weeks.
Speaker 1: But what I think is sparking the rally here is that, Okay,
Speaker 1: a macron has now been identified in seventeen states and
Speaker 1: forty countries. It's moving or transmitting faster than Delta was,
Speaker 1: but the conditions appear to be more mild, and I
Speaker 1: think the market is taking some confidence in that that
Speaker 1: the you know, the mortality rates haven't materially increased, and
Speaker 1: maybe Fiser and Maderna we'll be able to figure out
Speaker 1: a tweak um that that will allow their existing vaccines
Speaker 1: to continue to be efficacious. So as we look out
Speaker 1: the calendar twenty two, I think we've got to start
Speaker 1: with sort of that foundation. Where are we going with
Speaker 1: covid um and and our view. So let's let's say,
Speaker 1: phil Um, everything's taken care of that, oh macron, isn't.
Speaker 1: I mean, I know that there's a lot still to
Speaker 1: be discovered. But let's let's just say, oh, macron isn't
Speaker 1: more fatal than um other other variants, and um, we
Speaker 1: have useful vaccines. What about the Fed? Why our investors
Speaker 1: piling in too treasuries? When Jerome Powell takes a hawkish
Speaker 1: pivot and we start to expect them to raise rates earlier, Well,
Speaker 1: there must be a concern that at the Fed is
Speaker 1: going to get a bit more aggressive, And that's certainly
Speaker 1: our view. We think they're going to double the pace
Speaker 1: of tapering starting in the first quarter and have the
Speaker 1: taper completed by the end of March, and then probably
Speaker 1: execute We think three quarter point rate hikes over the
Speaker 1: course of calendar two and then four more over the
Speaker 1: course of calendar twenty three. And so I think investors
Speaker 1: are saying, well, if the Fed has found religion on inflation,
Speaker 1: and and you know, Powell's thrown in the towel on transitory,
Speaker 1: you know, which he announced last week, then then potentially
Speaker 1: that at the margin is going to slow economic growth,
Speaker 1: maybe corporate earnings growth, and therefore we ought to be
Speaker 1: buying treasuries rather than selling treasuries here to anticipate, you know,
Speaker 1: a weaker economic backdrop alright, Phil, I mean you talk
Speaker 1: about those rate increases three potentially and then followed up
Speaker 1: by four, and that's an ironment that not many investors
Speaker 1: have experienced before. Where do you want to be in
Speaker 1: that type of rate environment from an equity perspective, Well,
Speaker 1: you want to be in stocks that are more attractively valued,
Speaker 1: number one. And that would suggest the value trade rather
Speaker 1: than the growth trade. Value stocks right now are trading
Speaker 1: in the mid teens. Growth stocks are trading in the
Speaker 1: mid thirties. So that's a pretty significant difference. And then second,
Speaker 1: because of the issues that we're dealing with UH in
Speaker 1: terms of inflation and in terms of FED policy, question
Speaker 1: is which companies have the ability to execute some pricing
Speaker 1: power that that we know wages are going up, commodity
Speaker 1: costs going up, shipping costs are going up. Which companies
Speaker 1: are able to price those increases in and and actually
Speaker 1: continue to maintain healthy margins or maybe even expand margins.
Speaker 1: And for the most part, what we saw in with
Speaker 1: the third order earnings is that it's the economically sensitive
Speaker 1: categories you know, financials, materials, energy, consumer discretionary industrials that
Speaker 1: that you know, by and large are able to do that.
Speaker 1: So from an asset allocation standpoint, I think the value
Speaker 1: trade rather than the growth trade, is still the way
Speaker 1: You've got to look at what's happening in or what
Speaker 1: we think is going to happen in kelendar twenty two. Hey, Phil,
Speaker 1: thanks so much for joining us. We always appreciate getting
Speaker 1: your perspective and the benefit of your experience here. Uh.
Speaker 1: Phil Orlando, chief equity market strategist, and he's also ahead
Speaker 1: of the client portfolio management team at Federated Hermes six
Speaker 1: hundred billion dollars in assets on their management. I knew
Speaker 1: Federated was big. I didn't know they were that big.
Speaker 1: That's Federated Phil Orlando. We've got an equity outlook with
Speaker 1: Phil Orlando from Federated Hermes. Earlier lists turn around and
Speaker 1: take a look at the fixed income biz. We do
Speaker 1: that with Kevin Nuckelson, Global Fixed Income co c i
Speaker 1: O and co head of Investment Committee at Riverfront Investment Group. Kevin,
Speaker 1: I'm looking at the ten year treasury yielding one point
Speaker 1: three eight five today, it's something about four basis points.
Speaker 1: But I've got a FED that's talking about tapering. I've
Speaker 1: got a FED that's talking about raising rates. What do
Speaker 1: I do in the fixing income market in two? Given
Speaker 1: again we're I think the FED is going to take
Speaker 1: this market. Well, I think that when you think about
Speaker 1: um fixing income in two, you have to think about
Speaker 1: yields are actually going to move higher. Our our base
Speaker 1: case for two is that you're going to have the
Speaker 1: tenure in the year at UM. Now, when we think
Speaker 1: about investing in fixing income next year, we don't see
Speaker 1: that there's going to be a lot of price appreciation.
Speaker 1: It's really going to come from income. So you're gonna
Speaker 1: be looking at place like high yale bank loans on
Speaker 1: things that that nature that are going to be able
Speaker 1: to give you a little bit more yield um and
Speaker 1: not extreme you out on the duration curb. We did
Speaker 1: see last week traders pull money from the I shares
Speaker 1: I box, high Yield Corporate Bond et F h y
Speaker 1: G as it's popularly known, for a third week in
Speaker 1: a row. The short interest on UM I shares, I
Speaker 1: box and investment grade corporate bond e t F is
Speaker 1: also near an all time high. Why are investors right
Speaker 1: now at least souring on corporate debt? Well, I think
Speaker 1: the investors are staring on corporate debt right now because
Speaker 1: there is a risk off trade in the market. If
Speaker 1: you look at what happened in the bond market last week,
Speaker 1: you basically had an overreaction, in my opinion, to the
Speaker 1: FED talking about moving tapering up. Let's remember capery is
Speaker 1: not raising rates, and that's the big thing that I
Speaker 1: think that is missing here. Um. We when you look
Speaker 1: at the Yok curve and what happened over the last
Speaker 1: a few days, the UH bond market would be arguing that,
Speaker 1: you know, the Fed is going to make a policy mistake. However,
Speaker 1: I believe that what the Fed has done is that
Speaker 1: they bought themselves more time. And in the sense that
Speaker 1: we know that Chairman Pal is very data dependent, and
Speaker 1: so by moving up the taper, what he's effectively done
Speaker 1: is he's given himself more time to look at the data,
Speaker 1: the incoming data. And we believe that you know, interest
Speaker 1: rates are going or excuse me, inflation is going to
Speaker 1: peak after the you know, in the first half of
Speaker 1: next year, um and then you know start to moderate,
Speaker 1: and so I think that you won't see as many
Speaker 1: hypes um and and so I think that you know,
Speaker 1: you will see interest rates move higher, but not too
Speaker 1: much higher. All right, Kevin, given that that interest rate outlook,
Speaker 1: given the inflation environment that we do see ourselves, and
Speaker 1: at least here for the short intermediate term in the
Speaker 1: corporate bond market. For two, what sectors are you guys
Speaker 1: looking at? When I turned to corporates, I'm you know,
Speaker 1: I'm going to continue to look at industrials, UH. Specifically
Speaker 1: you know, like we like machinery uh and anything that
Speaker 1: has to do with any type of infrastructure. UM. We
Speaker 1: believe that you know, they're going to do pretty well,
Speaker 1: um if if you're getting down into the subsectors here um,
Speaker 1: But specifically when I'm thinking about fixed income um, you know,
Speaker 1: in the corporate investing I also like financials because as
Speaker 1: interest rates move up, you know, financial should do better
Speaker 1: as they hopefully their loan growth improves. UM. And so
Speaker 1: I think that you'll be able to pick up some
Speaker 1: extra YEO in the investment grade space when you're focusing
Speaker 1: on financials. All right. So we saw Goldman Sachs uh
Speaker 1: cut us GDP forecast yesterday because of an Omicon drag need.
Speaker 1: A lot of other banks are saying, oh, Omicron isn't
Speaker 1: gonna be a big deal. How much does this how
Speaker 1: much taking a view on this um make a difference
Speaker 1: in your strategy. Well, I think that the view that
Speaker 1: we're taking is that Omicron is not going to be
Speaker 1: any worse off than the delta variants. And what we're
Speaker 1: seeing so far coming out of South Africa, they're reporting
Speaker 1: that people are getting not getting as sick as they
Speaker 1: did with the other variants. So therefore, we're not changing
Speaker 1: our forecast for two at this point because we don't
Speaker 1: believe that, you know, it's going to have a huge effect.
Speaker 1: We've come to the realization that we're going to have
Speaker 1: to live with these various variants, uh, you know, for
Speaker 1: the foreseeable future, and it may be the new norm. Hey, Kevin,
Speaker 1: thanks so much for joining us. Really appreciate getting your thoughts.
Speaker 1: Kevin Nicholson. He's Global fixed Income co c i O,
Speaker 1: CO head of Investment Committee at Riverfront Investment Group. I'm
Speaker 1: looking at the marketer. I'm going to quote the down
Speaker 1: Matt even though it's a John for oh no, no,
Speaker 1: but he's not here. It's up six twenty points. That
Speaker 1: gets my attention. One eight percent here. I know NASAC
Speaker 1: is not following suit. There but it's interesting to see
Speaker 1: that kind of rebound in the marketplace, and that's a
Speaker 1: wall of worry that this market continues to successfully climb.
Speaker 1: Let's see if that's an issue for our next guest,
Speaker 1: Lisa Erickson, Senior vice president and co had a public
Speaker 1: markets group at US Bank. Lisa, what's your outlook for two? Well,
Speaker 1: we are still positive on the outlook for two and
Speaker 1: the reason why is if you look at the underlying
Speaker 1: economic indicators, we see some really nice action. While there's
Speaker 1: been a slight slowdown in some of the macro variables, overall,
Speaker 1: if you just measure across the broad way indicators, what
Speaker 1: we see is definitely readings that still remain in the
Speaker 1: expansion phase. And on top of that, you see companies
Speaker 1: being able to really translate that information into positive sales
Speaker 1: and earnings growth. And people are generally expecting that positive
Speaker 1: trend to continue because what we're seeing is the earning
Speaker 1: system of revisions continue to go up. I think the
Speaker 1: final thing that really gives us some confidence going into
Speaker 1: the new year is the fact that while obviously there's
Speaker 1: moves to continue to look at tapering as well as
Speaker 1: when liftoff might occur, overall the level of interest rates
Speaker 1: and inflation are still at moderate or low levels, and
Speaker 1: so all of those kinds of things do give us
Speaker 1: some confidence. That was just about to ask you about inflation,
Speaker 1: because we're looking for Bloomberg Intelligence forecasts a number for
Speaker 1: CPI at six point seven percent on Friday. That's the
Speaker 1: highest we've seen it since Olivia Newton, John charted with
Speaker 1: physical Um back back when we knew John mellencamp as
Speaker 1: John Cougar, when Et came out in the theaters. It's
Speaker 1: been a long time since. Are we gonna Are we
Speaker 1: gonna come back down? Do you think, Um, this is
Speaker 1: I don't want to say transitory, but um, do you
Speaker 1: think that we're going to get over this and next
Speaker 1: year we're gonna start getting back to lower numbers? Yeah,
Speaker 1: that's a great question. So our hope in our base
Speaker 1: cases that we start to see some moderation in the
Speaker 1: inflation numbers next year, and there's a few reasons for that.
Speaker 1: So the first really is that if you think about
Speaker 1: what's happened this year, obviously we have had a tougher
Speaker 1: time with price increases, but that honestly makes a year
Speaker 1: over year comparisons going into next year tougher. So in
Speaker 1: other words, it's going to be hard harder for prices
Speaker 1: to maintain that level of upward trajectory. And in addition
Speaker 1: to that, you know, if you just monitor the news
Speaker 1: flow that's been coming along here over the last few weeks,
Speaker 1: what we are starting to see is some signs that
Speaker 1: the supply constraints are coming off. And we really did
Speaker 1: have a very nice November report, and while it's just
Speaker 1: one month, it was encouraging to see that labor participation
Speaker 1: rate go up, and so we are very hopeful. But
Speaker 1: you know, really to your point, that is going to
Speaker 1: be a key variable to continue the SS. We are
Speaker 1: going to have a more elevated reading this month, but
Speaker 1: hopefully again as we transverse into the new year, we
Speaker 1: get some readings that start to show some signs of deceleration. Lisa,
Speaker 1: just real quick twenty seconds here. Are you comfortable with
Speaker 1: where the Fed is guiding this market in terms of rates? Well,
Speaker 1: certainly the Fed really has a tough road to ho
Speaker 1: here going forward. Um, certainly they need to be attended
Speaker 1: to what happens on the price side while still trying
Speaker 1: to be supportive of the economic recovery that's going Uh, forward,
Speaker 1: and so what they've done so far is a fairly
Speaker 1: nice job in terms of communication, in terms of yeah,
Speaker 1: and that's and that's for this marketplace. All right, Lisa,
Speaker 1: thanks so much for joining us too short of a time.
Speaker 1: We're gonna get you back soon. Lisa Erickson, Senior Vice
Speaker 1: president and COHD of the Public Markets Group at US Bank.
Speaker 1: All right, So we have the omicron variant out there,
Speaker 1: and the question is how effective well the existing vaccines
Speaker 1: that we have in dealing with that. Let's bring in someone,
Speaker 1: I think as a thought or two them that Dave Herring,
Speaker 1: chief operating officer of Adagio Therapeutics. Previously he led Fiser's
Speaker 1: vaccine program from North America. Dave, thanks so much for
Speaker 1: joining us. We we know your time is precious here.
Speaker 1: What do you know about the therapeutics, whether it's fightsers
Speaker 1: or moderners as it relates to this new omicron variant. Yeah, no,
Speaker 1: thanks for having me. Um. Uh, it's a it's an
Speaker 1: interesting question, right, A lot to still be known. I've
Speaker 1: seen what has been said publicly, which is there's a
Speaker 1: lot of concern about whether the current vaccines will be
Speaker 1: effective against this variant. Uh, and really, to me, this
Speaker 1: is a wake up call both for the country in
Speaker 1: the world. We always suspected that there could be variants
Speaker 1: that would escape both the current vaccines as well as
Speaker 1: some of the bodies. And you know, so far knock
Speaker 1: on what it looks like. It's not as severe as
Speaker 1: as people had feared. But we also know that this
Speaker 1: virus will continue to mutate. So this is my concern. Um,
Speaker 1: although I've heard opposing views, I was thinking, if this
Speaker 1: variant is more transmissible but less dangerous, that's still um,
Speaker 1: that's that's still leaves room to be cautious because what
Speaker 1: if it then mutates as it spreads to so many
Speaker 1: people into something that is more fatal. I totally agree
Speaker 1: with you, right, And we don't know yet what's going
Speaker 1: to happen when even this variant reaches some of the
Speaker 1: more vulnerable populations, whether that's you know, older adults, people
Speaker 1: in nursing homes, et cetera. And uh, what we do
Speaker 1: know is every time people get infected, the virus has
Speaker 1: this opportunity to mutate. And we've said all along there's
Speaker 1: likely going to be more variants than there are group
Speaker 1: letters in the alphabet. So I think your your fear
Speaker 1: is grounded. I mean that the opposing view I read
Speaker 1: and it was somebody on Wall Street this morning, So
Speaker 1: it wasn't a virologist who said this is great news,
Speaker 1: because it means that the variant is that the virus
Speaker 1: is mutating into something more like the flu, which is
Speaker 1: kind of like what happened with the Spanish flu. At
Speaker 1: least that's what we all think. I don't know the
Speaker 1: history exactly, um that eventually this becomes sort of a
Speaker 1: common cold or something that everyone can get but very
Speaker 1: few people die from. Is that how viruses typically do
Speaker 1: mutate into less fatal diseases. Well, I mean, I think
Speaker 1: you're going a little bit outside of my comfort zone here,
Speaker 1: but I mean what we do see is is, of course,
Speaker 1: you know, as people get affected, you do start to
Speaker 1: develop different immunities. Although I would argue influenza is still
Speaker 1: quite a deadly disease, you know, one that we haven't
Speaker 1: come up with a good solution to. Uh and it's
Speaker 1: certainly one that needs more attention, and people are continually
Speaker 1: worried about influenza, pandemics coming along and new ones that
Speaker 1: are you know there I think for for currently, for
Speaker 1: for COVID, we're not there yet, and even as an endemic,
Speaker 1: we're talking about a lot of people who are at risk,
Speaker 1: haven't been vaccinated, don't have treatments. UM. And so from
Speaker 1: from our perspective, we really feel around the world United
Speaker 1: States in particular, we should be putting more effort to
Speaker 1: finding more products to make it so, as you say, UM,
Speaker 1: we could make it more like the common cold, and
Speaker 1: at least if we're going to have to live with it,
Speaker 1: make it h something we can do in a much
Speaker 1: less deadly and impactful way. So, Davis, as these variants
Speaker 1: continue to come along, what can you tell us about
Speaker 1: the ability of folks like visor Moderna too tweak their
Speaker 1: existing vaccines to kind of meet the demand into these
Speaker 1: newer variants. How does that tongs that take? Can it
Speaker 1: be done? How hard is it to get done? Yeah?
Speaker 1: I mean the good news is uh, with the m
Speaker 1: R and A technology, it can be done. I did
Speaker 1: read recently though, the FDA thinks the soonest that those
Speaker 1: products could be tweaked and available as April. Which is
Speaker 1: why you know, from from our perspective at Adagio and
Speaker 1: the product that that we're working on for an antibody, UM,
Speaker 1: we think we need more shots on goal. We need
Speaker 1: more products. We need you know, warp speed two point oh,
Speaker 1: if you will to make sure that if something like
Speaker 1: O Macron comes along and is more deadly, we're prepared
Speaker 1: and that we don't have to wait three or four months. Uh.
Speaker 1: You know, our our product was designed to be useful
Speaker 1: against all the variants. We're waiting to see if that
Speaker 1: proves to be true. Um, and if that's the case,
Speaker 1: we want the governments around the world to be accelerating
Speaker 1: and expediting these these tools so that we have solutions
Speaker 1: to to this variant and future one. We only got
Speaker 1: a minute left. But are these um kinds of virus
Speaker 1: is going to pop up more and more often? I
Speaker 1: know you have worked at Novartists and Fightser, you've dealt
Speaker 1: with H one and one and other pandemics. Is this
Speaker 1: is this kind of thing going to happen more and
Speaker 1: more often? I mean unfortunately, right? I mean I started
Speaker 1: working on pandemics and two thousand nine, I've worked on
Speaker 1: a bowl, I've worked on mirrors, Stars and a few
Speaker 1: other ones. I mean, I sure hope not. I would
Speaker 1: like this to be the last pandemic than any of
Speaker 1: us see for a while, but I think probably the
Speaker 1: reality of the situation is we need to be more
Speaker 1: prepared UM and be ready for these things, whether it's
Speaker 1: something that mother Nature throws at us or or even
Speaker 1: the threat of some sort of bioterrorism and UH, and
Speaker 1: that to me is is what we should be we're
Speaker 1: working towards. Hey, Dave, thanks so much for joining us.
Speaker 1: Really appreciate getting your UM perspective. Chief offerating officer for
Speaker 1: Adagio Therapeutics previously led Fiser's vaccine program for North America. UH,
Speaker 1: trying to get a better handle on how this omicron
Speaker 1: variant will stack up against the existing vaccine. Thanks for
Speaker 1: listening to the Bloomberg Markets podcast. You can subscribe and
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Speaker 1: you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller.
Speaker 1: Ye put on fall Sweeney. I'm on Twitter at pt Sweeney.
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