WEBVTT - Bank Earnings, Energy Uncertainty, Market Concerns 0:00:00.840 --> 0:00:04.000 Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney, alongside 0:00:04.080 --> 0:00:05.240 my co host Matt Miller. 0:00:05.640 --> 0:00:09.720 Every business day we bring you interviews from CEOs, market pros, 0:00:09.720 --> 0:00:13.640 and Bloomberg experts, along with essential market moving news. 0:00:14.160 --> 0:00:17.279 Find the Bloomberg Markets podcast called Apple Podcasts or wherever 0:00:17.400 --> 0:00:20.520 you listen to podcasts, and at Bloomberg dot com slash podcast. 0:00:20.840 --> 0:00:24.800 The Israel Hamas war does seem to be broadening out 0:00:24.840 --> 0:00:28.480 the US and the UK striking back against Houthi rebels 0:00:28.520 --> 0:00:31.240 who've been targeting shipping in the Red Sea, and now 0:00:31.320 --> 0:00:34.360 the Huti are vowing to strike back oil hire as 0:00:34.360 --> 0:00:37.000 a result, Let's take a deeper dive into the story, 0:00:37.240 --> 0:00:40.760 look also at the political fallout. Wendy Schiller, professor at 0:00:40.760 --> 0:00:44.440 Brown University, joins us. Now, Wendy, thanks for being with us. 0:00:44.560 --> 0:00:47.320 We appreciate it. Did the Biden admonstration have much of 0:00:47.360 --> 0:00:50.720 a choice in its response? And what's the worry about 0:00:50.720 --> 0:00:53.920 how deeply we may or may not get involved in 0:00:53.960 --> 0:00:55.000 a broader conflict? 0:00:56.000 --> 0:00:57.880 Well, I mean, I don't think the Biden decision had 0:00:57.920 --> 0:01:01.480 any choice. I mean, obviously we are a major superpower, 0:01:01.480 --> 0:01:04.120 but we also have very strong commercial interests in making 0:01:04.160 --> 0:01:11.800 sure that commercial carriers can use shipping lanes unaccosted. You know, 0:01:11.880 --> 0:01:14.200 we've had issues with piracy in the past and other 0:01:14.240 --> 0:01:17.320 parts of the world, but this is you know, reminiscent 0:01:17.360 --> 0:01:20.040 of a conflicts that we've had over the years, the 0:01:20.080 --> 0:01:25.080 last fifty sixty years, and it reminds voters of our 0:01:25.120 --> 0:01:29.240 dependence on foreign oil and the globalization of the energy market. 0:01:29.400 --> 0:01:31.880 And so I think that's where Biden has to sort 0:01:31.920 --> 0:01:34.320 of figure out how to sell this to the American 0:01:34.319 --> 0:01:37.520 people as important to the United States, but also to 0:01:37.560 --> 0:01:40.640 the environmentalists, talk about where we are in terms of 0:01:40.640 --> 0:01:41.759 our energy independence. 0:01:42.680 --> 0:01:45.120 Now, when you the Houthi rebels, they said they have 0:01:45.160 --> 0:01:49.480 no issue launching more attacks after this, So how much 0:01:49.520 --> 0:01:52.800 of a thread of that and are the our only 0:01:53.080 --> 0:01:54.200 point of concern right now? 0:01:54.960 --> 0:01:56.840 Well, I mean the biggest concern I think to the 0:01:56.920 --> 0:02:00.400 United States directly is that we do have carriers in golf, 0:02:00.440 --> 0:02:03.880 We have personnel all over the Middle East, and we 0:02:03.920 --> 0:02:05.720 want to make sure that they are safe. I think 0:02:05.720 --> 0:02:08.040 that's the biggest fear the Biden decision has currently. But 0:02:08.040 --> 0:02:10.800 there are also lots of civilians who are in commercial shipping, 0:02:11.160 --> 0:02:13.640 and you know, the United States feels some obligation to 0:02:13.680 --> 0:02:16.520 protect that kind of commerce. So I think these are 0:02:16.560 --> 0:02:19.160 the pressures on the Biden administration. I think we're fully 0:02:19.160 --> 0:02:23.240 equipped militarily to really deal with any and all of 0:02:23.280 --> 0:02:26.520 the attacks. But I think they're trying to show fairly 0:02:26.840 --> 0:02:29.520 massive force early. And want to say massive, I mean 0:02:29.800 --> 0:02:32.480 joining with the UK and doing it all at once, 0:02:32.560 --> 0:02:36.080 doing a number of different strikes to limit civilian casualties, 0:02:36.160 --> 0:02:38.840 but also make sure that those that would attack the 0:02:38.919 --> 0:02:42.160 United States know that there will be a response every 0:02:42.200 --> 0:02:45.280 time they do, and that's been I think Obama, Trump, 0:02:45.360 --> 0:02:47.720 and Biden. I don't see a lot of daylight across 0:02:47.760 --> 0:02:49.320 any of the three presidents in that regard. 0:02:49.560 --> 0:02:52.720 All right, let's shift gears a bit. I would imagine Wendy, 0:02:52.919 --> 0:02:55.760 if you live in Iowa a year of a different stock, 0:02:55.880 --> 0:02:58.960 you're kind of a heartier breed. Is the weather going 0:02:59.000 --> 0:02:59.880 to matter for the Caucus? 0:03:01.520 --> 0:03:03.919 I think the weather doesn't matter as much as maybe 0:03:03.960 --> 0:03:05.639 those of us on the East Coast or West Coast 0:03:05.680 --> 0:03:08.120 who are experience in bad weather might be deterred from 0:03:08.120 --> 0:03:10.720 getting out the door. I think that the caucuses are 0:03:10.800 --> 0:03:15.000 locally held, and so I think they are prepared for it. 0:03:15.280 --> 0:03:17.840 I think that Trump supporters, and Trump himself has an 0:03:17.840 --> 0:03:21.639 advantage in that way because there's generally more enthusiasm consistently 0:03:22.080 --> 0:03:25.720 among Trump voters in the nomination process so far, particularly 0:03:25.720 --> 0:03:28.800 in Iowa, than there are the Dysantis or Haley voters. 0:03:29.040 --> 0:03:31.480 So that's the big challenge for Nikki Haley. Can she 0:03:31.639 --> 0:03:34.639 draw close enough? She'll probably lose Iowa. I think most 0:03:34.680 --> 0:03:37.119 of us agree on that, But can she actually draw 0:03:37.160 --> 0:03:40.480 close enough to say I'm viable going into New Hampshire 0:03:40.680 --> 0:03:45.000 and really put DeSantis on the sidelines. And if she 0:03:45.120 --> 0:03:47.920 can do that with some percentage of the vote, maybe 0:03:47.960 --> 0:03:50.640 more than the fifteen percent or twenty percent, maybe twenty 0:03:50.640 --> 0:03:53.480 five percent, something like in that range, I think it 0:03:53.600 --> 0:03:58.840 makes her more viable as a candidate going into New Hampshire. 0:03:58.840 --> 0:04:02.800 As I just said. Also, the broader primary season becomes 0:04:03.000 --> 0:04:05.880 more attractive for donors for Nikka Haley if she can 0:04:06.040 --> 0:04:09.080 slice out a bigger coalition for her in Ireland. 0:04:09.600 --> 0:04:12.520 Remind me how that the caucuses work. That the local 0:04:13.040 --> 0:04:15.440 it's not winner take all, right, No. 0:04:15.080 --> 0:04:19.320 No, it's basically people people. It's yeah, it's in terms 0:04:19.360 --> 0:04:22.120 of the precincts, so people actually go to their precinct. 0:04:22.279 --> 0:04:23.760 It can be a school, it can be a library, 0:04:23.760 --> 0:04:26.960 it can be somebody's home, and people vote in that 0:04:27.120 --> 0:04:33.440 area for their choice. Right, But you know, the Republicans 0:04:33.440 --> 0:04:38.200 have proportional representation in their primaries at least going till 0:04:38.279 --> 0:04:41.320 March fifteenth, So this is an interesting thing people are forgetting. 0:04:41.480 --> 0:04:44.760 You can pick up delegates throughout this contest until the 0:04:44.800 --> 0:04:47.400 middle of March, So even though Trump looks like the 0:04:47.400 --> 0:04:50.159 big front runner, we don't get to winter take off 0:04:50.200 --> 0:04:52.200 for a couple more months. So that means people like 0:04:52.240 --> 0:04:55.360 Haley and the Santis can pick off or collect delegates, 0:04:56.240 --> 0:04:58.240 and I think that makes a difference at least in 0:04:58.279 --> 0:04:59.200 the next couple of weeks. 0:04:59.520 --> 0:05:01.480 So if you can, we'll dig into the economics a 0:05:01.520 --> 0:05:03.120 little bit of this. So like we do, we have 0:05:03.240 --> 0:05:06.320 the electioneer, we have the Warren Ukraine, we have the 0:05:06.320 --> 0:05:09.680 Warren Gaza. How is this affecting the markets? If you 0:05:09.680 --> 0:05:12.320 can just dig deeper into the market reaction from all 0:05:12.320 --> 0:05:14.760 of this put together, well, I mean. 0:05:14.680 --> 0:05:17.760 I think, you know, I think the question is consumer 0:05:17.960 --> 0:05:23.360 confidence in both government but also in market predictions. Because 0:05:23.400 --> 0:05:25.080 you know, there was supposed to be a recession didn't 0:05:25.080 --> 0:05:27.960 really turn out that way. We have maybe a soft lanning. 0:05:27.960 --> 0:05:29.719 Maybe they'll be a little bit more of a slow down, 0:05:29.760 --> 0:05:32.560 but we've seen a very healthy job market just last month. 0:05:32.600 --> 0:05:34.640 So the question is who are we going to believe 0:05:35.040 --> 0:05:38.400 the same kinds of forces that have infiltrated politics in 0:05:38.480 --> 0:05:42.320 terms of misinformation, perception, you know, partisanship, the lens of 0:05:42.320 --> 0:05:45.360 looking at the economy through partisanship will start to affect 0:05:45.520 --> 0:05:48.960 people's trusting of economic reditions and the market at the 0:05:49.040 --> 0:05:52.039 very high elite levels. Not but for people who are thinking, 0:05:52.080 --> 0:05:54.040 do I put my money in a savings account in 0:05:54.120 --> 0:05:56.039 a bank that I know, or do I put it 0:05:56.040 --> 0:05:58.000 in the stock market? You know, the bank that you 0:05:58.120 --> 0:06:01.479 know is becoming far more attractive given interest rates than 0:06:01.640 --> 0:06:04.880 the amorphous stock market. So I think that people who 0:06:04.920 --> 0:06:08.480 do watch consumer behavior in terms of the stock market 0:06:08.600 --> 0:06:10.520 have to pay attention to what's happening in politics now 0:06:10.600 --> 0:06:13.320 in terms of credibility to figure out where people will 0:06:13.320 --> 0:06:15.320 actually end up putting their money as we go forward 0:06:15.360 --> 0:06:15.719 this year. 0:06:16.320 --> 0:06:19.680 One of his cases, Donald Trump showed up yesterday kind 0:06:19.680 --> 0:06:24.039 of turned it into a political rally of sorts. Is 0:06:24.080 --> 0:06:27.600 there any degree that you can sense of maybe as 0:06:27.640 --> 0:06:30.480 it makes all of these appearances in court, usually that 0:06:30.520 --> 0:06:33.400 there's some Trump fatigue. 0:06:34.320 --> 0:06:36.480 I think we're seeing the opposite, and I have been 0:06:36.520 --> 0:06:40.880 surprised by that that trend, but the opposite in terms 0:06:40.920 --> 0:06:44.120 of his core supporters. There is no bad publicity in 0:06:44.160 --> 0:06:48.479 Trump's world. In Trump's mind, every single opportunity to present 0:06:48.600 --> 0:06:51.239 himself and make his case he takes, and he takes 0:06:51.279 --> 0:06:53.600 with vigor and energy. And these are the kinds of 0:06:53.640 --> 0:06:56.080 things that are frustrating to the Biden campaign. So he 0:06:56.160 --> 0:06:59.040 will now get the kind of free press, even if 0:06:59.040 --> 0:07:01.600 we all think maybe it's press, but he thinks it's 0:07:01.680 --> 0:07:04.080 good press, good opportunity, and I'll get the same kind 0:07:04.080 --> 0:07:07.400 of free press he got in twenty sixteen when everybody 0:07:07.440 --> 0:07:09.800 covered him, and I think that's what he's looking for. 0:07:10.040 --> 0:07:12.800 Will will be Trump fatigue three or four months from 0:07:12.800 --> 0:07:15.320 now among independence and suburban voters who have not yet 0:07:15.320 --> 0:07:18.160 committed in their choice for twenty twenty four, that's the 0:07:18.160 --> 0:07:20.600 big question mark. The more we see it here from 0:07:20.640 --> 0:07:23.680 Donald Trump in what we call the mainstream media, do 0:07:23.720 --> 0:07:27.360 we get more tired of Donald Trump? He's betting the opposite, 0:07:27.480 --> 0:07:29.600 at least for the primaries to show up his base 0:07:29.880 --> 0:07:32.120 once we get to the summer. I think that's where 0:07:32.240 --> 0:07:34.000 we really have to take a look at whether people 0:07:34.000 --> 0:07:37.200 are going to choose Trump and all that Trump brings 0:07:37.560 --> 0:07:40.800 versus right now Biden. And that's where if we're going 0:07:40.880 --> 0:07:42.760 to see Trump fatigue, we'll start to see it. 0:07:42.800 --> 0:07:48.040 Then, Okay, what's the gap between undecided versus his core supporters. 0:07:48.680 --> 0:07:51.880 So let's just say maybe there's you know, the public party, 0:07:51.920 --> 0:07:53.800 you know, you'll do polls and people say they'll vote 0:07:53.840 --> 0:07:56.240 for Trump, will vote for Trump. But essentially there's about 0:07:56.440 --> 0:07:58.880 thirty eight to forty percent as we saw in the 0:07:58.920 --> 0:08:03.640 primaries in twenty sixteen and might see again of support 0:08:03.720 --> 0:08:06.480 for Donald Trump that's unwaiverable that they will not budge. 0:08:07.400 --> 0:08:09.960 So it does leave open the possibility of winning the nomination. 0:08:10.400 --> 0:08:13.080 But those people are Trumpers and they're never going to 0:08:13.120 --> 0:08:15.160 sway and they're never going to affect from Trump. But 0:08:15.200 --> 0:08:18.280 there's still a lot of open GOP people. And also 0:08:18.520 --> 0:08:21.960 there are primaries that are open to independence to register, 0:08:22.200 --> 0:08:24.960 like New Hampshire where you can register to vote in 0:08:25.000 --> 0:08:28.320 the Republican primary. So a lot of states have that opportunity. 0:08:28.680 --> 0:08:32.240 That's what could swing these Republican primaries, not the closed 0:08:32.320 --> 0:08:34.120 primaries of the type that are typically in place like 0:08:34.160 --> 0:08:37.440 South Carolina. But the open primaries are semi open where 0:08:37.480 --> 0:08:39.839 you can register as a Republican and then vote in 0:08:39.880 --> 0:08:42.920 that primary if independents choose to do that. That is 0:08:42.960 --> 0:08:46.400 what the Haley campaign is counting on to make her competitive. 0:08:46.400 --> 0:08:48.360 As we move forward, and before. 0:08:48.120 --> 0:08:51.560 You go really quickly Biden's running meete. There's been different talk. 0:08:51.640 --> 0:08:54.880 I know you Mind mentioned it too, Kamala Harris still 0:08:55.080 --> 0:08:57.760 still sticking with them on the side or is he 0:08:57.800 --> 0:08:58.520 going somewhere else? 0:08:59.000 --> 0:09:02.480 Yeah, I've said before that picking somebody like Raphael Warnock, 0:09:02.800 --> 0:09:07.760 who won in Georgia four times technically and who certainly 0:09:07.880 --> 0:09:10.199 in terms of making sure that you stay loyal to 0:09:10.280 --> 0:09:12.360 your promise to the African American community, to pick an 0:09:12.400 --> 0:09:16.480 African American candidate, Biden said, woman candidate. But nonetheless, that's 0:09:16.520 --> 0:09:19.040 somebody who can make Georgia competitive. Right now, Georgia won't 0:09:19.080 --> 0:09:21.280 be competitive. I don't think in twenty twenty four there's 0:09:21.280 --> 0:09:23.800 nobody on the bout that really will generate Democrat turnout. 0:09:24.120 --> 0:09:28.440 So my proposal has been that if he is faltering 0:09:28.600 --> 0:09:31.960 generally in ways that are sort of systemic against Trump 0:09:32.000 --> 0:09:34.760 by the summer, by the convention, there could be a 0:09:34.800 --> 0:09:36.680 shift in who he selects as his VP. 0:09:37.440 --> 0:09:40.079 Wendy, always a pleasure, appreciate it. Thanks for the Updaid, 0:09:40.120 --> 0:09:42.959 Wendy Shilder, Professor at Brown University. 0:09:44.120 --> 0:09:47.520 You're listening to the Team Ken's Are Live program Bloomberg 0:09:47.559 --> 0:09:50.920 Markets weekdays at ten am Eastern on Bloomberg dot Com, 0:09:51.000 --> 0:09:54.160 the iHeartRadio app, and the Bloomberg Business app, or listen 0:09:54.240 --> 0:09:56.280 on demand wherever you get your podcast. 0:09:58.240 --> 0:10:00.679 What stands out to me right now, Lisa? The two 0:10:00.720 --> 0:10:03.880 year treasury which is more policy reactive. That's seven basis 0:10:03.880 --> 0:10:06.959 points lower four sixteen. That would be just around the 0:10:07.000 --> 0:10:12.319 lowest since May, an unexpected decline and producer prices reinforcing bets. 0:10:12.320 --> 0:10:15.560 The Federal Reserve cuts rates this year. Of course, it 0:10:15.600 --> 0:10:19.880 comes after the hotter that expected CPI figures we got yesterday. 0:10:20.000 --> 0:10:22.520 Let's get the MAC review now. Phil Orlando, chief equity 0:10:22.559 --> 0:10:26.600 strategists with Federated Hermes, joins us. Phil, good to talk 0:10:26.640 --> 0:10:32.560 to you. Take your pick. What narrative have you latched onto? 0:10:33.880 --> 0:10:38.160 There are many from which to choose. I'm less inclined 0:10:38.200 --> 0:10:42.040 to look at the PPI, the wholesale inflation this morning. 0:10:42.720 --> 0:10:47.880 Yesterday's CPI critically important, and then the personal Consumption Expenditure 0:10:47.880 --> 0:10:50.719 Index coming up later in the month. So looking at 0:10:50.800 --> 0:10:54.040 yesterday's CPI, that number was just much hotter than expected. 0:10:55.200 --> 0:10:58.600 November year on year nominal was up three point one percent, 0:10:58.960 --> 0:11:02.320 December three point four percent, and that was a couple 0:11:02.320 --> 0:11:05.559 of tecks higher than expected. So what you look at 0:11:05.559 --> 0:11:09.440 what the Federal Reserve has been doing. You've got some 0:11:09.960 --> 0:11:13.960 investors out there. Frankly, I think the consensus is expecting 0:11:13.960 --> 0:11:16.520 the Fed to cut rate six times over the course 0:11:16.559 --> 0:11:19.040 of this year, with that first cut coming in the 0:11:19.080 --> 0:11:23.000 month of March. We just don't see that. Given how 0:11:23.040 --> 0:11:25.400 hot inflation still is, we think the Fed is going 0:11:25.480 --> 0:11:30.240 to be patient, vigilant, try to make sure that inflation 0:11:30.400 --> 0:11:33.880 is heading down to their two percent core PCEE target. 0:11:34.160 --> 0:11:37.760 So we're looking at a couple of rate cuts in 0:11:37.800 --> 0:11:40.960 the back half of the year, not six that are, 0:11:41.640 --> 0:11:43.720 you know, starting in the month of March. 0:11:44.000 --> 0:11:46.400 And what about recession thoughts? Are they on the back burner? 0:11:47.960 --> 0:11:52.480 We are officially in the soft landing camp. That said, 0:11:52.559 --> 0:11:56.520 we still expect the economy to slow materially over the 0:11:56.559 --> 0:11:59.520 course of the next year or so. So you look 0:11:59.559 --> 0:12:02.400 at this fourth quarter that's gonna get flashed in about 0:12:02.440 --> 0:12:05.640 two weeks, we're at one point five percent GDP growth. 0:12:06.160 --> 0:12:09.720 That compares to the third quarter at four point nine percent. 0:12:09.760 --> 0:12:12.480 That's a pretty significant decline. And then as you look 0:12:12.520 --> 0:12:15.679 at say the first three quarters of this year, we're 0:12:15.720 --> 0:12:17.800 gonna be limping along, we think at about a one 0:12:17.840 --> 0:12:20.360 percent run rate. So the Federal Reserve, in our view, 0:12:20.440 --> 0:12:23.079 has done exactly what it intended to do over the 0:12:23.160 --> 0:12:25.360 last two years. They took the funds rate from zero 0:12:25.480 --> 0:12:27.920 to five and a half percent, They cut their balance 0:12:27.960 --> 0:12:31.559 sheet from nine trillion dollars to you know, seven point 0:12:31.600 --> 0:12:35.240 seven trillion dollars. They were hoping to see the economy slow, 0:12:35.720 --> 0:12:39.760 the rate of unemployment increase a little bit, inflation come 0:12:39.800 --> 0:12:43.760 down materially, and all of that's playing out at this point. 0:12:43.840 --> 0:12:46.720 I think they just want to be you know, very careful, 0:12:47.000 --> 0:12:50.600 very cautious, very patient to make sure that inflation is 0:12:50.679 --> 0:12:54.360 sustainably moving down to their target. I think they'll come 0:12:54.400 --> 0:12:56.920 to that conclusion by the time we get to say 0:12:56.960 --> 0:12:58.360 the July FMC meeting. 0:12:58.760 --> 0:13:00.800 I don't want to get two wonky, but I'm still 0:13:00.840 --> 0:13:06.280 having a little trouble wrapping my thoughts around the sheltered 0:13:06.320 --> 0:13:11.280 component and how that specifically is measured in whether it 0:13:11.400 --> 0:13:14.280 really is accurate at this point, well. 0:13:14.160 --> 0:13:16.600 We can discuss or debate whether or not it's accurate 0:13:16.679 --> 0:13:20.920 or not. But here's the big picture. That inflation peaked 0:13:21.000 --> 0:13:24.280 last year and is coming down, no question, full stop. 0:13:25.040 --> 0:13:27.920 But you look at the housing market, and in calendar 0:13:27.960 --> 0:13:31.280 twenty one and calendar twenty two, housing prices in the 0:13:31.400 --> 0:13:34.640 United States went up by fifty percent five zero percent. 0:13:35.679 --> 0:13:39.640 So while it's absolutely true that inflation is generally coming 0:13:39.679 --> 0:13:42.720 down and that housing prices have sort of peaked here, 0:13:42.880 --> 0:13:46.000 we're not seeing a fifty percent decline in housing prices. 0:13:46.640 --> 0:13:50.640 And the investment that we make as individuals in our 0:13:50.679 --> 0:13:53.199 homes for a lot of us is the most significant 0:13:53.240 --> 0:13:56.440 investment that we have in our personal portfolios. I think 0:13:56.480 --> 0:14:01.480 that's weighing on consumer attitude and consumer mentality, and then 0:14:01.520 --> 0:14:09.280 that translates back into the rental component of the CPI calculation, 0:14:09.480 --> 0:14:12.040 which accounts for about forty percent of that number. So 0:14:12.280 --> 0:14:15.400 it will come down and wash itself out over time, 0:14:15.840 --> 0:14:18.400 but it's not going to happen tomorrow, and to some 0:14:18.440 --> 0:14:21.360 degree that's creating some of the noise and some of 0:14:21.400 --> 0:14:22.680 the stickiness in the data. 0:14:23.160 --> 0:14:27.160 So with all that said, felt CPI PPI, How are 0:14:27.160 --> 0:14:29.800 you changing your strategy moving into twenty twenty four. 0:14:30.800 --> 0:14:33.360 So we sort of made that change back in late 0:14:33.400 --> 0:14:36.680 October when the S and P five hundred got to 0:14:36.680 --> 0:14:39.840 that forty one hundred level, we felt that that was 0:14:39.960 --> 0:14:43.920 dramatically oversold, and we felt that we could get to 0:14:43.960 --> 0:14:46.400 the forty eight hundred level by the end of this year, 0:14:46.880 --> 0:14:49.920 the fifty two hundred level by the end of calendar 0:14:49.960 --> 0:14:53.920 twenty four. And we felt that the rally last year 0:14:54.480 --> 0:14:58.840 was disproportionately driven by the mag seven and we felt 0:14:58.840 --> 0:15:00.960 that there was going to be reverse the mean there. 0:15:01.160 --> 0:15:03.840 So what we wanted to do and we're maintaining that 0:15:03.920 --> 0:15:07.760 strategy now is look at the sectors of the market 0:15:07.800 --> 0:15:11.080 that had been left for dead that we felt would 0:15:11.160 --> 0:15:16.120 finally find some love. So domestic small cap growth, domestic 0:15:16.200 --> 0:15:19.800 large cap value, and international the areas that we think 0:15:19.840 --> 0:15:22.760 are going to be the winners in the fourth quarter 0:15:22.760 --> 0:15:25.360 of last year and over the course of calendar twenty four. 0:15:25.640 --> 0:15:29.000 All right, your view overall of technology in the new year, 0:15:29.160 --> 0:15:32.760 and then since we got their earnings today, the financials. 0:15:33.360 --> 0:15:38.280 So you know, growth stocks, technology stocks are still great companies. 0:15:38.320 --> 0:15:41.480 I'm not going to tell you that Google or Softy 0:15:41.560 --> 0:15:44.720 or Nvidio or bad companies. They're not. The question is 0:15:44.760 --> 0:15:47.680 that valuations may have gotten a little bit ahead of 0:15:47.720 --> 0:15:50.920 themselves in terms of all of the AI FOMO that 0:15:50.960 --> 0:15:55.200 we experienced over the course of last year. So at 0:15:55.200 --> 0:15:59.880 this point we are slightly underweight growth and technology, but 0:16:00.000 --> 0:16:05.400 we're not zero. We're maintaining a slight underweight position. Financials 0:16:05.720 --> 0:16:07.920 are one of the areas that we really like, along 0:16:07.960 --> 0:16:10.800 with energy and healthcare. Those were areas you look at 0:16:10.840 --> 0:16:14.560 financials for example, this time last year, first quarter of 0:16:14.680 --> 0:16:19.280 last year, those stocks were absolutely obliterated based upon the 0:16:19.600 --> 0:16:23.240 problems with the commercial real estate market. A lot of 0:16:23.240 --> 0:16:26.840 those stocks were down fifty percent. They sort of double 0:16:26.920 --> 0:16:29.400 bottomed in the fall and then have started to come 0:16:29.440 --> 0:16:31.440 back up. So there's a lot of catch up that 0:16:31.520 --> 0:16:33.920 has to happen there. And you look at some of 0:16:33.960 --> 0:16:36.760 the quality numbers, for example, that came out of JP 0:16:36.920 --> 0:16:39.880 Morgan this morning. We think financials are a sector that 0:16:39.880 --> 0:16:42.280 that's probably going to do pretty well over the course 0:16:42.320 --> 0:16:44.720 of this year as they sort of get back on 0:16:44.800 --> 0:16:46.080 trend in terms of evaluation. 0:16:46.760 --> 0:16:50.880 Felt disinflation good for markets or not good for markets? 0:16:52.520 --> 0:16:55.840 I think everyone would be happy to see the FED 0:16:55.960 --> 0:17:00.680 hit their core PCE number at two percent. But here's 0:17:00.760 --> 0:17:04.800 sort of the interesting thing. We're rapidly approaching that number, 0:17:05.320 --> 0:17:08.199 and by our account, we could be there by the 0:17:08.280 --> 0:17:10.120 end of this year at the beginning of next year. 0:17:10.520 --> 0:17:14.800 But you look at the fed's latest SEP, the Summary 0:17:14.880 --> 0:17:17.880 of Economic Projections that they publish just in the middle 0:17:17.920 --> 0:17:21.679 of December, they're telling us that they're not confident that 0:17:21.680 --> 0:17:23.800 we're going to get to that two percent level until 0:17:23.840 --> 0:17:26.880 the end of calendar twenty twenty six. That's three years 0:17:26.880 --> 0:17:30.200 from now. So where's the disconnect here? Is the FED 0:17:30.280 --> 0:17:33.280 being too conservative or do they know something that we 0:17:33.359 --> 0:17:36.760 don't know that this last mile, so to speak, I'm 0:17:36.800 --> 0:17:39.320 getting to that two percent target is going to be 0:17:39.400 --> 0:17:43.480 like hand to hand combat, and they're taking a very prudent, 0:17:44.440 --> 0:17:47.240 very patient approach, just to make sure that things are 0:17:47.240 --> 0:17:48.159 moving in the right direction. 0:17:48.320 --> 0:17:51.240 All right, unfair question time year ENDO S and P 0:17:51.320 --> 0:17:52.280 five hundred target. 0:17:53.080 --> 0:17:55.399 Not unfair. Fifty two hundred's our number. 0:17:55.680 --> 0:17:59.119 Okay, we're right now forty seven to seventy six. Also, 0:17:59.240 --> 0:17:59.919 you know, still we. 0:18:01.400 --> 0:18:03.080 Think we're going to be up eight or nine percent 0:18:03.119 --> 0:18:05.280 over the course of this year, which is a very 0:18:05.320 --> 0:18:08.760 modest year compared to the twenty four percent game we 0:18:08.800 --> 0:18:09.520 saw last year. 0:18:09.840 --> 0:18:12.280 Phil, always a pleasure, appreciate it. Happy Friday, have a 0:18:12.320 --> 0:18:16.439 great weekend. Phil Orlando, Chief Equity Strategists with Federated Hermes. 0:18:16.760 --> 0:18:19.840 You're listening to the tape Can's our live program Bloomberg 0:18:19.960 --> 0:18:23.560 Markets weekdays at ten am Eastern on Bloomberg Radio, the 0:18:23.600 --> 0:18:26.840 tune in app, Bloomberg dot Com, and the Bloomberg Business App. 0:18:26.880 --> 0:18:29.679 You can also listen live on Amazon Alexa from our 0:18:29.720 --> 0:18:34.119 flagship New York station, Just say Alexa play Bloomberg eleven thirty. 0:18:35.640 --> 0:18:39.000 Well, we all know about geopolitical risk lease. We saw 0:18:39.040 --> 0:18:42.000 oil pop hire after US and allies launched air strikes 0:18:42.040 --> 0:18:45.560 against Houthi rebels and Yemen. As an investor, can you 0:18:45.800 --> 0:18:50.160 mitigate risks like that? Or should even try? Let's get 0:18:50.200 --> 0:18:53.879 some answers this morning Global Macro View with Jeffrey klentz Up, 0:18:53.920 --> 0:18:58.440 the Global Strategist, Chief Global Strategists at Charles Schwab. Thanks 0:18:58.480 --> 0:19:01.520 for being with us. We call risk assets for a reason. 0:19:02.000 --> 0:19:05.080 Should I be losing sleep over events over which I 0:19:05.119 --> 0:19:05.880 have no control? 0:19:07.440 --> 0:19:12.119 Well, these types of events are gosh, you know, just 0:19:12.160 --> 0:19:13.359 an ever present risk. 0:19:13.400 --> 0:19:14.480 When it comes to investing. 0:19:14.520 --> 0:19:17.879 We've seen backups a chow point at the Panama Canal 0:19:18.040 --> 0:19:20.400 for months now. It's only getting worse as we head 0:19:20.400 --> 0:19:26.720 into February, as the cargo traffic through that particular vital 0:19:27.040 --> 0:19:30.360 global supply chain link is really cutting back to less 0:19:30.359 --> 0:19:33.399 than fifty percent of capacity. By February, forty percent of 0:19:33.400 --> 0:19:35.280 the world's freight traffic moves to the Panama Canal. 0:19:35.320 --> 0:19:35.919 That's an issue. 0:19:36.040 --> 0:19:39.240 The Red Sea certainly moves a lot of energy, yet 0:19:39.640 --> 0:19:41.760 the world is oversupplied right now, and so I think 0:19:41.760 --> 0:19:43.399 that's one of the reasons. Yes, we're seeing a balance 0:19:43.400 --> 0:19:46.680 and energy prices, but we are not in a deficit situation, 0:19:46.840 --> 0:19:48.600 and as a result of that, I think this is 0:19:48.640 --> 0:19:52.480 something that can be probably absorbed. We're not likely to 0:19:52.520 --> 0:19:55.199 see the type of surge to input prices that we 0:19:55.280 --> 0:19:58.960 saw during the pandemic tied to supply chain issues related 0:19:59.040 --> 0:20:01.720 to these particular their threats at these two vital supply 0:20:01.800 --> 0:20:04.280 chain choke points. That could be different were they to 0:20:04.640 --> 0:20:07.040 linger into the latter part of this year, where maybe 0:20:07.080 --> 0:20:09.359 we run into an undersupply situation with energy. 0:20:09.400 --> 0:20:10.359 But for right now now, I. 0:20:10.359 --> 0:20:12.320 Don't think you need to lose sleep over this just 0:20:12.400 --> 0:20:15.640 expecting this is part of one of those risks when 0:20:15.640 --> 0:20:16.440 it comes to investing. 0:20:16.640 --> 0:20:19.320 Now something else people might lose some sleepover interest rates. 0:20:19.359 --> 0:20:21.920 I want to talk give a little economic outlook yesterday 0:20:21.920 --> 0:20:24.880 where Cleveland FED President Loretta Mester, she said Central Brankos 0:20:25.000 --> 0:20:27.840 probably will have to wait past March before they can 0:20:27.880 --> 0:20:30.480 start cutting interest rates. What's your take on this. 0:20:31.840 --> 0:20:33.720 I think that the market has gotten a little carried 0:20:33.760 --> 0:20:36.960 away with the magnitude of rate cuts likely in twenty 0:20:37.040 --> 0:20:37.640 twenty four. 0:20:37.680 --> 0:20:38.280 I think it's. 0:20:38.119 --> 0:20:40.800 Probably something closer to what the FIT has been telling us, 0:20:40.800 --> 0:20:43.480 maybe three or four rate cuts rather than five or six. 0:20:43.520 --> 0:20:45.520 And some of the reasons for that is the potential 0:20:45.600 --> 0:20:49.200 volatility in the path of inflation. We know inflation rarely 0:20:49.280 --> 0:20:51.920 subsides in a straight line, and we're now beginning to 0:20:51.920 --> 0:20:53.959 see this. As we get closer to the Fed's target, 0:20:54.119 --> 0:20:56.200 it's getting harder and harder to push those numbers down. 0:20:56.240 --> 0:20:59.199 We know housing remains very challenging in the US to 0:20:59.240 --> 0:21:02.000 try and push those housing rental rates down, and the. 0:21:01.960 --> 0:21:04.200 Result is that, yes, it may take a little bit longer. 0:21:04.240 --> 0:21:06.320 So I think the rally we saw in the market 0:21:06.320 --> 0:21:09.000