1 00:00:00,960 --> 00:00:03,119 Speaker 1: The stock market has been on a tear lately. 2 00:00:03,520 --> 00:00:05,920 Speaker 2: The S and P five hundred of about six tens 3 00:00:05,920 --> 00:00:09,200 Speaker 2: of one percent again five up days in a row, 4 00:00:09,280 --> 00:00:12,080 Speaker 2: the longest winning streak of the year, the best winning 5 00:00:12,200 --> 00:00:14,320 Speaker 2: streak since the middle of December. 6 00:00:14,480 --> 00:00:17,480 Speaker 1: This past Friday, the SMP five hundred closed at an 7 00:00:17,480 --> 00:00:20,040 Speaker 1: all time high for the first time in two years. 8 00:00:20,480 --> 00:00:22,279 Speaker 3: Go back to the S and P five hundred, It 9 00:00:22,280 --> 00:00:24,880 Speaker 3: has been five hundred and fifteen days since we last 10 00:00:24,880 --> 00:00:27,680 Speaker 3: had a record high on the benchmark US Index or 11 00:00:27,720 --> 00:00:30,080 Speaker 3: reclamation of that I and all. 12 00:00:30,040 --> 00:00:31,800 Speaker 1: This seems to be at odds with some of the 13 00:00:31,840 --> 00:00:33,800 Speaker 1: economic predictions we had been hearing. 14 00:00:34,000 --> 00:00:38,000 Speaker 4: Basically, everyone was expecting, if not a caamity, certainly a recession. 15 00:00:38,240 --> 00:00:40,960 Speaker 4: What's happened since then is just sort of a steady 16 00:00:41,000 --> 00:00:43,800 Speaker 4: slog of evidence against that being the case. 17 00:00:44,240 --> 00:00:47,360 Speaker 1: This is Chris Naji. He's the senior executive editor for 18 00:00:47,400 --> 00:00:50,920 Speaker 1: the Bloomberg Markets team. Today on the show, we'll talk 19 00:00:50,960 --> 00:00:53,200 Speaker 1: to Chris about what's behind the S and P five 20 00:00:53,280 --> 00:00:56,560 Speaker 1: hundred's record numbers, how we got here, and why a 21 00:00:56,560 --> 00:00:59,360 Speaker 1: group of stocks called the Magnificent Seven has a lot 22 00:00:59,400 --> 00:01:02,520 Speaker 1: to do with it. I'm your host Sarah Holder and 23 00:01:02,560 --> 00:01:09,720 Speaker 1: This is the big take from Bloomberg News. At the 24 00:01:09,720 --> 00:01:12,440 Speaker 1: beginning of the year, our colleague Sam Potter gave us 25 00:01:12,440 --> 00:01:15,160 Speaker 1: an overview of what investors had expected for Wall Street 26 00:01:15,200 --> 00:01:15,560 Speaker 1: this year. 27 00:01:15,920 --> 00:01:19,600 Speaker 5: Basically, the consensus on Wall Street at the moment is 28 00:01:19,959 --> 00:01:22,200 Speaker 5: that the interest rate hikes that we've seen over the 29 00:01:22,280 --> 00:01:25,760 Speaker 5: last eighteen months to two years, they're finally going to 30 00:01:25,880 --> 00:01:29,000 Speaker 5: start to bite properly, finally going to start to put 31 00:01:29,000 --> 00:01:31,080 Speaker 5: the brakes on the economy. So we're going to see 32 00:01:31,600 --> 00:01:35,920 Speaker 5: some economic slowdown, but it's not going to be It's 33 00:01:35,920 --> 00:01:37,280 Speaker 5: not expected to be extreme. 34 00:01:37,600 --> 00:01:39,639 Speaker 1: But if you look at the stock market right now, 35 00:01:39,959 --> 00:01:42,720 Speaker 1: some slowdown isn't exactly what's happening. 36 00:01:43,040 --> 00:01:46,400 Speaker 4: We've just basically eliminated the decline that started at the 37 00:01:46,440 --> 00:01:47,600 Speaker 4: beginning of twenty twenty two. 38 00:01:47,880 --> 00:01:50,760 Speaker 1: But Chris says Wall Street investors had valid reasons to 39 00:01:50,800 --> 00:01:53,760 Speaker 1: believe some type of slowdown was in our future. Part 40 00:01:53,760 --> 00:01:55,640 Speaker 1: of the reason they were worried was because of what 41 00:01:55,680 --> 00:01:57,000 Speaker 1: the Federal Reserve was doing. 42 00:01:57,400 --> 00:02:00,400 Speaker 4: You don't fight the Fed, it's the classic slogan. And 43 00:02:00,440 --> 00:02:02,520 Speaker 4: when the Fed is being as aggressive as it was, 44 00:02:03,200 --> 00:02:05,560 Speaker 4: generally bad tithings are in store for the market. So 45 00:02:05,600 --> 00:02:08,320 Speaker 4: I think people were sort of buying the pundit class 46 00:02:08,400 --> 00:02:11,000 Speaker 4: view that there was no chance of the market going 47 00:02:11,040 --> 00:02:13,560 Speaker 4: anywhere as long as the FED was fighting inflation as 48 00:02:13,639 --> 00:02:17,360 Speaker 4: aggressively as it was, So probably the best thing to 49 00:02:17,400 --> 00:02:19,320 Speaker 4: do when that's going on is just sort of predict 50 00:02:19,440 --> 00:02:20,800 Speaker 4: maybe a middle of the road year. 51 00:02:21,360 --> 00:02:24,160 Speaker 1: And Chris says another thing that added to that expectation 52 00:02:24,320 --> 00:02:27,239 Speaker 1: of a slowdown was the regional bank crisis the country 53 00:02:27,320 --> 00:02:28,280 Speaker 1: faced last spring. 54 00:02:28,600 --> 00:02:32,480 Speaker 4: People were really convinced that the FED was creating lasting 55 00:02:32,520 --> 00:02:35,639 Speaker 4: problems for the economy, and then suddenly, while you had 56 00:02:35,639 --> 00:02:38,240 Speaker 4: this rocket fuel that hit right at sort of the 57 00:02:38,280 --> 00:02:38,840 Speaker 4: worst time. 58 00:02:39,200 --> 00:02:42,399 Speaker 2: When you as regional lenders Silicon Valley Bank and Signature 59 00:02:42,400 --> 00:02:44,799 Speaker 2: Bank collapse in March, there was hope they would be 60 00:02:44,960 --> 00:02:47,520 Speaker 2: just one offs, but the turmoil quickly spread to. 61 00:02:47,520 --> 00:02:50,239 Speaker 4: Others last March when you had all this sort of 62 00:02:50,360 --> 00:02:54,320 Speaker 4: quasi banking crisis in the US, and it looked very 63 00:02:54,440 --> 00:02:56,600 Speaker 4: much at that point like both the economy and the 64 00:02:56,600 --> 00:02:59,720 Speaker 4: stock market were in big trouble. Anytime you've got banks 65 00:02:59,760 --> 00:03:02,400 Speaker 4: going out of business, that's really the worst thing that 66 00:03:02,440 --> 00:03:06,919 Speaker 4: investors and macroeconomists can see. 67 00:03:07,280 --> 00:03:10,480 Speaker 1: So the consensus view amongst Wall Street investors was that 68 00:03:10,560 --> 00:03:14,240 Speaker 1: all this. The fed's moves, the regional bank crisis, combined 69 00:03:14,240 --> 00:03:17,960 Speaker 1: with other indicators, meant we were headed for trouble. But 70 00:03:18,000 --> 00:03:21,080 Speaker 1: it's important to point out that not everyone shared this view. 71 00:03:21,680 --> 00:03:24,359 Speaker 1: There were people who said, hold on, I don't think 72 00:03:24,400 --> 00:03:26,480 Speaker 1: it's going to play out like that, and so we 73 00:03:26,560 --> 00:03:27,520 Speaker 1: put in this target. 74 00:03:27,520 --> 00:03:29,880 Speaker 3: People thought we were a little bit nuts, and then 75 00:03:29,919 --> 00:03:31,400 Speaker 3: the market just kept going up. 76 00:03:31,760 --> 00:03:35,680 Speaker 1: That's John Stolfus, managing director of Oppenheimer and Company, an 77 00:03:35,680 --> 00:03:38,720 Speaker 1: investment firm based in New York. John says he and 78 00:03:38,760 --> 00:03:41,400 Speaker 1: his team were watching the FED news just like everyone else, 79 00:03:41,840 --> 00:03:43,800 Speaker 1: but they saw the fed's actions differently. 80 00:03:44,320 --> 00:03:47,320 Speaker 6: But we were back in December looking at this. How 81 00:03:47,360 --> 00:03:50,640 Speaker 6: we differentiated ourselves from the rest of the crowd. 82 00:03:50,920 --> 00:03:54,080 Speaker 3: Was that most of the street was acknowledging that it was 83 00:03:54,160 --> 00:03:57,240 Speaker 3: the end of easy money. We called it the end 84 00:03:57,280 --> 00:04:00,240 Speaker 3: of free money. But they looked at it it is 85 00:04:00,280 --> 00:04:02,800 Speaker 3: a bad thing. We looked at it as a good thing. 86 00:04:02,960 --> 00:04:04,880 Speaker 3: And the reason why we felt it was a good 87 00:04:04,920 --> 00:04:08,920 Speaker 3: thing was for years now, since the financial crisis, for 88 00:04:09,080 --> 00:04:12,440 Speaker 3: most of the period, they were raising rates, okay to 89 00:04:12,520 --> 00:04:14,360 Speaker 3: bring rates up, and. 90 00:04:14,040 --> 00:04:17,400 Speaker 6: So what was happening is now we looked at it 91 00:04:17,440 --> 00:04:19,599 Speaker 6: and we thought well where we are now. All of 92 00:04:19,640 --> 00:04:23,520 Speaker 6: a sudden, bond issuers have to pay for the privilege 93 00:04:23,520 --> 00:04:27,719 Speaker 6: of borrowing money and bond buyers get something in return. 94 00:04:28,320 --> 00:04:31,320 Speaker 3: So with that in mind, we didn't think the FED 95 00:04:31,400 --> 00:04:36,760 Speaker 3: cycle would be anywhere near as disruptive as people were suggesting. 96 00:04:37,240 --> 00:04:39,600 Speaker 1: On top of that, John was also watching as a 97 00:04:39,640 --> 00:04:42,320 Speaker 1: new type of technology started to break through and grab 98 00:04:42,360 --> 00:04:43,240 Speaker 1: widespread attention. 99 00:04:44,000 --> 00:04:48,640 Speaker 6: It was last March when the story of AI really broke. 100 00:04:48,760 --> 00:04:50,720 Speaker 6: I think that there was new levels of. 101 00:04:50,640 --> 00:04:53,280 Speaker 3: AI, and it was around the time that we were 102 00:04:53,279 --> 00:04:57,440 Speaker 3: dealing with the problem in the regional banks, and all 103 00:04:57,480 --> 00:05:00,040 Speaker 3: of a sudden, this was what captured the market and 104 00:05:00,080 --> 00:05:02,640 Speaker 3: then created the first of the series of the big 105 00:05:02,760 --> 00:05:05,240 Speaker 3: rallies that carry us through twenty twenty three. 106 00:05:07,880 --> 00:05:10,560 Speaker 1: After the break, we'll look into the role AI has 107 00:05:10,600 --> 00:05:13,120 Speaker 1: played in boosting the stock market and where things might 108 00:05:13,160 --> 00:05:22,520 Speaker 1: go from here. Welcome back to the Big Take from 109 00:05:22,520 --> 00:05:25,880 Speaker 1: Bloomberg News. Before the break, we were talking about why 110 00:05:25,960 --> 00:05:29,039 Speaker 1: some investors didn't see the current stock market rally coming. 111 00:05:30,000 --> 00:05:33,640 Speaker 1: Now we want to dive into what's causing it. One 112 00:05:33,640 --> 00:05:35,680 Speaker 1: thing that's been talked about a lot is the rise 113 00:05:35,680 --> 00:05:38,479 Speaker 1: of AI. We asked Chris how much of the current 114 00:05:38,520 --> 00:05:39,800 Speaker 1: gains we can attribute to that. 115 00:05:40,240 --> 00:05:42,839 Speaker 4: Another big theme of the market was the concentration of 116 00:05:42,920 --> 00:05:48,440 Speaker 4: games and the Magnificent seven AI fueled gigantic tech stock. 117 00:05:49,160 --> 00:05:51,279 Speaker 1: Tell us more about the Magnificent Seven. 118 00:05:51,760 --> 00:05:55,359 Speaker 4: These are stocks that, really, long before this year, have 119 00:05:55,480 --> 00:05:58,320 Speaker 4: been the main contributors to the stock market's health in 120 00:05:58,360 --> 00:06:01,560 Speaker 4: the US and really, in many ways, the country's economic health. 121 00:06:01,560 --> 00:06:05,039 Speaker 4: They're so huge. They are the providers of products that 122 00:06:05,120 --> 00:06:09,120 Speaker 4: basically define American life right now at various levels. So 123 00:06:09,600 --> 00:06:13,680 Speaker 4: to say, Okay, the Magnificent Seven are a phenomenon traceable 124 00:06:13,760 --> 00:06:17,880 Speaker 4: to a hype cycle or sort of sudden craze for 125 00:06:18,000 --> 00:06:20,960 Speaker 4: artificial intelligence, someone, Oh, that's right. They definitely caught a 126 00:06:21,040 --> 00:06:22,440 Speaker 4: huge tailwind from that. 127 00:06:23,200 --> 00:06:25,120 Speaker 1: But as Chris points out, there are a couple of 128 00:06:25,160 --> 00:06:27,839 Speaker 1: reasons not to look at this as just a hype 129 00:06:27,839 --> 00:06:29,480 Speaker 1: cycle in one part of the market. 130 00:06:30,240 --> 00:06:32,359 Speaker 4: One of them is that even if it's only a 131 00:06:32,360 --> 00:06:36,240 Speaker 4: handful of stocks, they represent a gargantuan amount of market caps. 132 00:06:37,000 --> 00:06:40,599 Speaker 4: Then there's another argument that the whole, the broad spectrum 133 00:06:40,600 --> 00:06:43,520 Speaker 4: of American commerce is going to be a beneficiary, for 134 00:06:43,640 --> 00:06:47,719 Speaker 4: better or worse, of AI enhancement. This whole argument that 135 00:06:48,240 --> 00:06:51,280 Speaker 4: a lot of what's done right now inefficiently, and one 136 00:06:51,320 --> 00:06:53,839 Speaker 4: would say by humans is going to be sort of 137 00:06:53,880 --> 00:06:58,039 Speaker 4: outsourced to the robots, and that basically the goal of 138 00:06:58,160 --> 00:07:01,360 Speaker 4: enhancing earnings is going to be made more efficient by 139 00:07:01,839 --> 00:07:04,640 Speaker 4: the adoption of artificial intelligence in the economy. I think 140 00:07:04,640 --> 00:07:07,800 Speaker 4: that it's clearly the toothpastes out of the tube. AI 141 00:07:07,960 --> 00:07:10,520 Speaker 4: can be viewed as just sort of the waightst scalable 142 00:07:10,600 --> 00:07:14,600 Speaker 4: enhancement that companies have at their disposal, so that sort 143 00:07:14,640 --> 00:07:16,480 Speaker 4: of a rising tide lifts all boats. 144 00:07:18,600 --> 00:07:21,200 Speaker 1: Shares of the seven largest tech stocks have doubled in 145 00:07:21,200 --> 00:07:24,280 Speaker 1: the last year thanks to optimism about the promise of AI. 146 00:07:25,000 --> 00:07:28,280 Speaker 1: Of course, that's just part of the story. Falling inflation, 147 00:07:28,680 --> 00:07:31,680 Speaker 1: the hope for future interest rate cuts, and a rebound 148 00:07:31,720 --> 00:07:34,640 Speaker 1: in current earnings are also fueling the market's current run. 149 00:07:35,560 --> 00:07:38,560 Speaker 1: But Chris says, even with all that happening, it's important 150 00:07:38,560 --> 00:07:41,160 Speaker 1: to look at that bigger picture and the possibility that 151 00:07:41,200 --> 00:07:43,880 Speaker 1: this current run might not be as dramatic as it looks. 152 00:07:44,800 --> 00:07:46,720 Speaker 1: It might just be part of a story that has 153 00:07:46,760 --> 00:07:48,240 Speaker 1: been underway for years. 154 00:07:48,520 --> 00:07:50,760 Speaker 4: It's interesting if you take sort of the slope of 155 00:07:50,840 --> 00:07:53,800 Speaker 4: earnings starting take a year before that, anyone knew what 156 00:07:53,840 --> 00:07:56,960 Speaker 4: the pandemic was twenty eighteen twenty nineteen. And this is 157 00:07:56,960 --> 00:08:00,000 Speaker 4: true of stock prices too. Yes, they did these really 158 00:08:00,400 --> 00:08:04,920 Speaker 4: brutal contortions twenty twenty through twenty twenty three. But the slope, 159 00:08:05,040 --> 00:08:07,480 Speaker 4: if you just take the endpoint now and the start 160 00:08:07,480 --> 00:08:10,760 Speaker 4: point in twenty twenty eighteen, it's really very conventional. It's 161 00:08:10,800 --> 00:08:13,800 Speaker 4: basically a six or seven percent gain in earnings over 162 00:08:13,840 --> 00:08:16,960 Speaker 4: that year. The sort of trend line is completely standard 163 00:08:17,280 --> 00:08:20,800 Speaker 4: the stock market, while it went through some crazy ructions 164 00:08:20,880 --> 00:08:23,400 Speaker 4: over that period down and up, if you draw a 165 00:08:23,440 --> 00:08:26,560 Speaker 4: trend line starting in like twenty eighteen, it's really a 166 00:08:26,640 --> 00:08:30,440 Speaker 4: very conventional experience of the stock market. It's basically up 167 00:08:30,480 --> 00:08:32,679 Speaker 4: ten percent a year, which is pretty much on the 168 00:08:32,760 --> 00:08:37,000 Speaker 4: high end of what people expect of it. And I 169 00:08:37,040 --> 00:08:39,000 Speaker 4: think that that's how I probably choose to look at 170 00:08:39,000 --> 00:08:41,840 Speaker 4: everything that the market, while it took a death defying 171 00:08:41,880 --> 00:08:44,520 Speaker 4: trip to get where it is, is really about where 172 00:08:44,559 --> 00:08:47,040 Speaker 4: you'd expect it to be. If you know there had 173 00:08:47,040 --> 00:08:49,840 Speaker 4: never been a pandemic or a FED reaction and inflation 174 00:08:49,960 --> 00:08:51,560 Speaker 4: and all of these things. It's kind of in a 175 00:08:51,600 --> 00:08:55,400 Speaker 4: weird way, at a completely unsurprising place. Even if it 176 00:08:55,480 --> 00:08:56,160 Speaker 4: is a record. 177 00:08:58,640 --> 00:09:01,360 Speaker 1: Thanks for listening to the Big Team from Bloomberg News. 178 00:09:01,679 --> 00:09:05,560 Speaker 1: I'm Sarah Holder. This episode was produced by Adriana Tapia. 179 00:09:05,920 --> 00:09:09,040 Speaker 1: It was edited by Caitlin Kenney and William Selway. It 180 00:09:09,120 --> 00:09:12,200 Speaker 1: was mixed by Alex Sugiura. It was fact checked by 181 00:09:12,200 --> 00:09:15,960 Speaker 1: Stacy Renee. Our senior producers are Naomi Shaven and Jildia 182 00:09:16,040 --> 00:09:20,680 Speaker 1: Di Carli. We get editorial direction from Elizabeth Ponso. Nicole 183 00:09:20,800 --> 00:09:24,360 Speaker 1: Beemster Borr is our executive producer. Sage Bauman is our 184 00:09:24,400 --> 00:09:27,320 Speaker 1: head of podcasts. Special Thanks to Chris n Age and 185 00:09:27,400 --> 00:09:31,320 Speaker 1: Rita Nazareth for their reporting. Thanks for tuning in. We'll 186 00:09:31,360 --> 00:09:32,439 Speaker 1: be back tomorrow.