WEBVTT - Markets React To Jobs, Talk of Fed Cuts 0:00:00.080 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.960 --> 0:00:15.560 This is the Bloomberg Surveillance Podcast. I'm Tom Keene along 0:00:15.600 --> 0:00:18.960 with Paul Sweeney. Join us each day for insight from 0:00:18.960 --> 0:00:23.160 the best in economics, finance, investment, and international relations. You 0:00:23.160 --> 0:00:26.520 can also watch the show live on YouTube. Visit the 0:00:26.520 --> 0:00:31.280 Bloomberg Podcast channel on YouTube to see the show weekday 0:00:31.280 --> 0:00:34.320 mornings from seven to ten am Eastern from our global 0:00:34.360 --> 0:00:39.000 headquarters in New York City. Subscribe to the podcast on Apple, Spotify, 0:00:39.360 --> 0:00:42.920 or anywhere else you listen and always I'm Bloomberg Radio, 0:00:43.080 --> 0:00:46.800 the Bloomberg Terminal, and the Bloomberg Business app. She's been 0:00:46.800 --> 0:00:49.800 speaking to Jerome poll all morning. We speak Claudia Sam 0:00:50.240 --> 0:00:54.840 of Michigan about this report. Claudia, this changes the dialogue 0:00:55.120 --> 0:00:57.840 for the Chairman of the Federal Reserve System. 0:00:59.080 --> 0:01:01.520 The FED is going to look at one month and 0:01:01.880 --> 0:01:04.880 just kind of take it in context of what we've 0:01:04.920 --> 0:01:08.000 seen recently. Yeah, this month, you know, these are not 0:01:08.319 --> 0:01:11.120 great numbers. It's a disappointment. I certainly looked at that 0:01:11.200 --> 0:01:15.400 unemployment rate and yet we have seen solid gains. This 0:01:15.480 --> 0:01:18.040 does not change the story. And honestly, at the FED 0:01:18.120 --> 0:01:20.240 and a lot of places, all eyes are still on 0:01:20.280 --> 0:01:23.400 the CPI and the inflation prints. We still have an 0:01:23.440 --> 0:01:26.000 economy that's really moving in a labor market that's still 0:01:26.040 --> 0:01:29.360 working well, although not in the way that we've seen 0:01:29.920 --> 0:01:32.240 last year where it was still just going really strong. 0:01:32.360 --> 0:01:33.880 I know they're going to be day dependent, but I 0:01:33.920 --> 0:01:37.280 know that everybody listening across the nation and watching it 0:01:37.360 --> 0:01:42.800 on YouTube wants to know from Claudia Sam the recession metric. Now, 0:01:42.800 --> 0:01:45.320 you haven't had time to go out state by state 0:01:45.360 --> 0:01:48.960 and readjust your acclaimed rule. But we had a number 0:01:48.960 --> 0:01:52.840 of people this morning suggesting part of America is in recession. 0:01:53.000 --> 0:01:53.760 Is that true? 0:01:55.120 --> 0:01:59.480 No, that's not true. The recession indicator that I put 0:01:59.480 --> 0:02:03.240 together this is you know, it's calibrated. It's you know, 0:02:03.800 --> 0:02:08.000 looking at the national recessions that we've seen, there are 0:02:08.000 --> 0:02:11.280 times where we have disruptions at you know, local levels. 0:02:11.320 --> 0:02:14.560 Industry bases can be really important in an area like 0:02:14.600 --> 0:02:17.840 California with teg and so you can see states or 0:02:17.880 --> 0:02:20.000 localities move in one way that the rest of the 0:02:20.040 --> 0:02:23.640 economy isn't. It's important to look at increases in unemployment rate. 0:02:23.680 --> 0:02:26.960 These are not good and yet we don't we shouldn't 0:02:27.000 --> 0:02:30.160 think of that as a recession a problem. 0:02:30.840 --> 0:02:33.480 Claudia, sign with us right now. With markets moving, we 0:02:33.520 --> 0:02:35.079 had a lot of red on the screen. We've now 0:02:35.120 --> 0:02:38.760 lifted constructively. Small caps go up four tenths of a 0:02:38.800 --> 0:02:42.120 percent of Russell two thousand. Lorii Calvacina to join us 0:02:42.200 --> 0:02:44.960 later about now, in this eight o'clock hour, we come 0:02:45.000 --> 0:02:48.480 to you commercial free across Apple, car play and YouTube, 0:02:48.600 --> 0:02:50.639 Bloomberg podcasts. 0:02:50.000 --> 0:02:50.520 And Claudia. 0:02:50.639 --> 0:02:53.320 Just again, from the headline perspective, I think what's jumping 0:02:53.320 --> 0:02:55.320 out for a lot of people just looking at various 0:02:55.560 --> 0:02:58.239 reporting here is that headline unemployment rate of three point 0:02:58.360 --> 0:02:58.960 nine percent. 0:02:59.040 --> 0:02:59.720 And there's an. 0:02:59.720 --> 0:03:02.720 Argument to me that the FED would, in fact, you know, 0:03:02.840 --> 0:03:05.440 doesn't mind seeing that number go up because that may 0:03:05.440 --> 0:03:07.400 give them some maybe more ammunition. 0:03:06.960 --> 0:03:09.280 To cut rates. How do you think about that argument? 0:03:10.440 --> 0:03:14.359 Well, first, it's not a flashing red number. The recession indicator. 0:03:14.400 --> 0:03:16.880 The SSAM rule takes the three month average. I mean 0:03:16.880 --> 0:03:18.720 this is, you know, conceptually we should do this on 0:03:18.800 --> 0:03:21.720 any data release. And right now that SAM rule is 0:03:21.840 --> 0:03:25.320 up twenty six bases points and the trigger is fifty yeah. Right, 0:03:25.400 --> 0:03:28.359 so we are still far away from you know, red 0:03:28.400 --> 0:03:30.440 alert territory. You never want to see it go up. 0:03:30.480 --> 0:03:32.920 We saw sometimes last year where it did and then 0:03:32.960 --> 0:03:35.800 it got revised away. So this is not good news. 0:03:35.800 --> 0:03:39.440 But this is not just you know, hair on fire 0:03:39.560 --> 0:03:41.720 kind of news, and it shouldn't change anything the Fed 0:03:41.800 --> 0:03:45.040 is thinking today. That's just how they look at the data. 0:03:45.120 --> 0:03:48.200 So let me translate it for you out on YouTube 0:03:48.560 --> 0:03:52.560 live chat, doctor Sam just said Tom Keene was wrong. 0:03:52.680 --> 0:03:53.800 Okay, just relax. 0:03:54.160 --> 0:03:57.000 Hey, how about these revisions here to the prior month. 0:03:57.040 --> 0:03:59.920 I mean it's almost almost a forty percent revision down 0:04:00.720 --> 0:04:03.560 in that headline change in non farm payrolls. 0:04:04.160 --> 0:04:06.280 Did their spreadsheets just not work last month? 0:04:08.160 --> 0:04:11.560 No, the Bureau Labor Statistics knows what they're doing. You know, 0:04:11.640 --> 0:04:15.240 it's hard. We have an over twenty five trillion dollar economy, 0:04:15.240 --> 0:04:17.960 we have hundreds of millions of people working. It's really 0:04:18.000 --> 0:04:20.040 tough to get a good read. And when you think 0:04:20.080 --> 0:04:22.120 about it, we get that first read on the labor 0:04:22.160 --> 0:04:26.080 market like within weeks of the Beuer of Labor Statistics 0:04:26.120 --> 0:04:30.440 doing those surveys. So this we're gonna have noise. These 0:04:30.440 --> 0:04:33.760 are not I mean again downward revisions taking away a 0:04:33.760 --> 0:04:36.320 big number. That's not good, right. We'd like to see, 0:04:36.560 --> 0:04:39.919 you know, big numbers going all the way forward, and 0:04:40.040 --> 0:04:44.080 yet it's not surprising. Measurement has been very hard throughout 0:04:44.080 --> 0:04:48.960 this whole cycle, and frankly, we get revisions like this, it's. 0:04:48.920 --> 0:04:52.120 Not unusual on a death stile basis. Or I'll let 0:04:52.120 --> 0:04:54.320 you go. You can divide by fists or ten so 0:04:54.440 --> 0:04:57.080 death style, folks, is ten percent of the people out there, 0:04:57.200 --> 0:04:59.960 is the way I'm using this here. Are we lump 0:05:00.760 --> 0:05:05.680 and polarized in our labor economy, Claudia or can you 0:05:05.760 --> 0:05:08.479 say it's one America and you can aggregate as Allan 0:05:08.560 --> 0:05:10.440 Meltzer lectured me years ago. 0:05:13.200 --> 0:05:16.200 It really depends what you're looking at. I will say 0:05:16.279 --> 0:05:19.039 this labor market has worked for more of the death 0:05:19.080 --> 0:05:23.839 styles than usual. The recovery has been and the wage 0:05:23.920 --> 0:05:26.520 gains that have been made, there's a lot of it 0:05:26.800 --> 0:05:29.200 at the bottom. Yeah, they were starting from a very 0:05:29.240 --> 0:05:31.720 low place, so that's not necessarily saying a lot. But 0:05:31.760 --> 0:05:35.880 this has been a more quote unquote inclusive recovery than 0:05:35.920 --> 0:05:38.880 we have seen in a very very long time. And 0:05:38.920 --> 0:05:41.159 the labor market is still in a very good place 0:05:41.920 --> 0:05:46.680 for low wage workers, women, immigrants, people in marginalized groups. 0:05:46.720 --> 0:05:48.839 I mean, you name it. This has been a very inclusive. 0:05:49.400 --> 0:05:50.839 There's a lot of winds to go around. 0:05:50.880 --> 0:05:51.000 Now. 0:05:51.040 --> 0:05:53.920 If you ask people, they may not be feeling the winds, 0:05:54.160 --> 0:05:56.520 and you ask businesses, they may not be feeling the winds. 0:05:56.600 --> 0:06:00.479 This has been very disruptive. This has been a real slog, Paul. 0:06:00.520 --> 0:06:03.359 I'm looking here and it's unfair to you and Claudia, 0:06:03.400 --> 0:06:05.159 but I got the Bloomberg termine in front of me 0:06:05.200 --> 0:06:10.279 doing fancy mathematics and the moving averages to doctor, doctor, 0:06:10.400 --> 0:06:14.560 some folks is correct. I use three moving averages. I'm 0:06:14.560 --> 0:06:16.640 not going to go into the math of it. And 0:06:16.720 --> 0:06:19.880 they're not gloomy down the world's coming to an end. 0:06:20.600 --> 0:06:24.560 The operative word is their flat flattering. We're just moving 0:06:24.640 --> 0:06:30.159 along on a summed moving average basis, as Claudia. Sam 0:06:30.240 --> 0:06:31.640 nailed there at eight thirty one. 0:06:32.080 --> 0:06:32.520 Claudia. 0:06:32.520 --> 0:06:36.920 We also saw the labor four participation rate. It's kind 0:06:36.920 --> 0:06:39.200 of come in at sixty two point five percent, kind 0:06:39.200 --> 0:06:42.240 of steady. Give us context for that number. 0:06:44.680 --> 0:06:47.960 That number is so important, like that's the piece of 0:06:48.120 --> 0:06:51.320 coming out of the big disruptions. I mean, I think 0:06:51.320 --> 0:06:54.400 four years ago we had millions of people leaving the 0:06:54.480 --> 0:06:58.480 labor market because of the pandemic, because of care responsibility, 0:06:58.520 --> 0:07:00.760 I mean it just that was so justive and we 0:07:00.920 --> 0:07:05.159 have not on the population as a whole, gotten back 0:07:05.160 --> 0:07:08.680 to where we were four years ago. And yet we've 0:07:08.680 --> 0:07:10.840 made a lot of progress. Prime age people in their 0:07:10.880 --> 0:07:13.280 prime working years, they're back. We've made a lot of 0:07:13.480 --> 0:07:16.840 really turning the corner last year on the recovery was 0:07:16.920 --> 0:07:20.520 coming from more workers. We solved a labor shortage with 0:07:20.600 --> 0:07:24.080 more labor and not fewer customers. The FED can only 0:07:24.160 --> 0:07:26.480 do the second one, and we got workers back. So 0:07:26.520 --> 0:07:28.720 that's one that's really important, and we have to keep 0:07:28.720 --> 0:07:31.000 building on those games, and we absolutely have to keep 0:07:31.040 --> 0:07:35.560 them so steady as she goes. There's that's very important, 0:07:35.680 --> 0:07:37.960 and the FED is very much watching that number. 0:07:38.040 --> 0:07:40.000 We got the luxury here. We can do this out 0:07:40.040 --> 0:07:43.240 of Michigan with Claudia. Some it's International Women's Day. Some 0:07:43.280 --> 0:07:47.760 people talk, others do, and Claudia sam is one of 0:07:47.760 --> 0:07:51.440 those that has not talked but done, and also someone 0:07:51.520 --> 0:07:55.600 named Bee Stevenson Betsy Stevenson as well at Michigan. Claudia 0:07:55.680 --> 0:08:00.240 review the boom that we saw on women's employment i'll 0:08:00.240 --> 0:08:03.480 say thirty years ago and the changes now and how 0:08:03.480 --> 0:08:07.760 that folds into Paul's good question on labor participation. What's 0:08:07.800 --> 0:08:11.920 the women dynamic that we've seen pre pandemic, into this 0:08:12.000 --> 0:08:14.640 awful pandemic and now out of it. 0:08:16.200 --> 0:08:20.080 We saw gains for women before the pandemic. I remember 0:08:20.120 --> 0:08:22.240 that was a really good expansion. We were in a 0:08:22.280 --> 0:08:24.800 good place and COVID took a lot away from us. 0:08:25.200 --> 0:08:27.920 And what we've seen is we've come into this recovery, 0:08:28.000 --> 0:08:32.360 particularly the past few years. We're back on track and 0:08:32.559 --> 0:08:36.400 we are at a point. Last year women's employment women 0:08:36.440 --> 0:08:40.800 in their prime working years hit all time highs. This 0:08:40.840 --> 0:08:44.160 has been a generation's long progress to give women the 0:08:44.200 --> 0:08:48.600 opportunity those who want to to work, and we're seeing 0:08:48.600 --> 0:08:51.240 it and it's really important. There were some thin silver 0:08:51.320 --> 0:08:54.120 linings that came out of COVID. It's very clear from 0:08:54.160 --> 0:08:57.120 research that the work from home technology has helped open 0:08:57.200 --> 0:09:00.360 up flexibility for women to be working. We have an 0:09:00.360 --> 0:09:02.640 economy with a lot of we're getting more and more 0:09:02.679 --> 0:09:06.559 part time jobs. People with caregiving responsibilities often need flexibility. 0:09:06.920 --> 0:09:11.040 They're getting it, wages, I mean, you name it. We're 0:09:11.040 --> 0:09:14.240 making progress. It's been slow, right, shouldn't be a twenty 0:09:14.320 --> 0:09:17.520 twenty three story, but we are making progress and that's 0:09:17.520 --> 0:09:21.120 a real testament to an economy that is working. 0:09:21.559 --> 0:09:24.000 So we had a red headline just crossing tape. Recently, 0:09:24.240 --> 0:09:28.040 FED swaps priced an additional FED easing in twenty twenty 0:09:28.080 --> 0:09:32.080 four on jobs data, Claudia, does that seem reasonable to you? 0:09:32.360 --> 0:09:33.880 Maybe a little bit of an overreaction. 0:09:35.760 --> 0:09:37.760 My heart goes out to people that really need to 0:09:37.760 --> 0:09:40.400 get this right because of their jobs. I mean, this 0:09:40.480 --> 0:09:43.080 is the FED does not know what the FED is 0:09:43.080 --> 0:09:47.400 going to do right because they do not have the data. Jpowe. 0:09:47.559 --> 0:09:50.000 Every FED official has told us over and over again 0:09:50.080 --> 0:09:52.520 they are not confident yet they need more data. Now. 0:09:52.559 --> 0:09:55.240 There are subtle differences in what they tell us about 0:09:55.280 --> 0:09:58.000 how close they are to confident or not. It's reading 0:09:58.040 --> 0:10:00.000 the tea leaves. If you don't have a really good 0:10:00.040 --> 0:10:03.080 FED speak Dakota ring, good luck right, Like this is 0:10:03.160 --> 0:10:05.600 not again like we were talking about. I look at 0:10:05.600 --> 0:10:06.560 these numbers and. 0:10:06.440 --> 0:10:08.960 I'm like, whoa, whoa, whoa. Do you have a Dakota 0:10:09.080 --> 0:10:10.040 ring for the Fed? 0:10:11.400 --> 0:10:13.880 Well that's what working over a decade at the FED 0:10:13.920 --> 0:10:15.880 gets you. I mean, you know, like you listen to 0:10:15.880 --> 0:10:19.160 the FED speak right. When yesterday j Powell said not 0:10:19.240 --> 0:10:21.920 too far right from getting confident. I was like, eh, 0:10:22.520 --> 0:10:24.840 I mean, I was happy to hear it, but not 0:10:24.960 --> 0:10:28.000 too far in FED land can be many months. 0:10:28.280 --> 0:10:28.920 Is he is? 0:10:29.000 --> 0:10:33.400 He is he wobbly need? Pardon me, he's wobbling need. 0:10:33.559 --> 0:10:37.960 Senator Warrant Warren went after regulation that he's weak need 0:10:38.040 --> 0:10:41.200 or wobblely need or right or whatever. I mean, they 0:10:41.240 --> 0:10:42.600 really went after him yesterday. 0:10:42.600 --> 0:10:46.200 Claudia, Yeah, no, it's but that's their job. I mean, 0:10:46.240 --> 0:10:48.760 those hearings are for Congress to hold the FED accountable. 0:10:49.200 --> 0:10:51.360 They should be asking the Fed tough questions. If they're not, 0:10:51.400 --> 0:10:54.439 we have a big problem in terms of FED accountability. 0:10:54.679 --> 0:10:56.880 Then there was Senator Kennedy from Louisiana. 0:10:57.000 --> 0:11:00.240 Yes, Claudia, thank you so much. Claudia's I'm very I 0:11:00.320 --> 0:11:14.280 love doing this right now. And this goes, folks to 0:11:14.320 --> 0:11:18.000 how we piece the show together. Three four or five 0:11:18.080 --> 0:11:20.360 days ago, I said, to the great team we've got 0:11:20.440 --> 0:11:23.560 working twenty four to seven, just get Calvisina. I just 0:11:23.600 --> 0:11:26.000 want to talk to her about the markets. And I 0:11:26.080 --> 0:11:30.160 get that twenty years trailing, ten years trailing the Russell 0:11:30.200 --> 0:11:32.880 two thousand is underperformed in video. I mean as a 0:11:32.920 --> 0:11:37.360 generalization or the magnificent whatever. But I said, get the 0:11:37.400 --> 0:11:40.960 magnificent Calvisina on because if you go back to twenty nineteen, 0:11:41.480 --> 0:11:43.920 if the Russell two thousand just gives me a seventeen 0:11:43.960 --> 0:11:47.640 percent pop or right back to record his Laurie, thank 0:11:47.640 --> 0:11:50.440 you so much for joining us with RBC Capital Markets. 0:11:50.840 --> 0:11:53.640 To me, small caps are sort of malign. Now they're 0:11:53.679 --> 0:11:56.520 actually doing better than the zeitgeist? Do I have that right? 0:11:57.920 --> 0:11:59.959 You're right, Tom, And you know, look, I was travel 0:12:00.320 --> 0:12:03.280 I've been prouding pretty much since the last week of January, 0:12:03.440 --> 0:12:06.440 and I got to the end of February, wrote my weekly, 0:12:06.840 --> 0:12:09.400 and I realized that actually in February, small cats had 0:12:09.400 --> 0:12:11.560 outperform large caps, and if you looked at the relative 0:12:11.640 --> 0:12:15.520 ratio between small and large, it bottomed on February seventh, 0:12:15.600 --> 0:12:17.680 And I would not have known that. And I didn't 0:12:17.679 --> 0:12:20.200 know that just purely based on all the conversations I 0:12:20.280 --> 0:12:22.840 was having with investors in February, because it was like 0:12:22.880 --> 0:12:24.880 small caps are stuck in the dumps. After that great 0:12:24.960 --> 0:12:27.880 November and December, they've gone right back in the toilet again, 0:12:28.320 --> 0:12:31.800 and all the while they were slowly and stealthily crawling 0:12:31.800 --> 0:12:32.880 their way off to the bottom. 0:12:33.200 --> 0:12:35.320 Is there a leg here, folks, By the way, without 0:12:35.320 --> 0:12:39.559 commercial interruption here or thrilled dev Lori Kelvissina here to 0:12:39.640 --> 0:12:44.560 get us forward, Laurie, when everything's said and done, is 0:12:44.720 --> 0:12:47.880 now the time for Russell two thousand? After this nice 0:12:48.000 --> 0:12:51.079 leg up? Can you say you've got the energy the 0:12:51.840 --> 0:12:54.680 bid to get out to record highs on Russell two 0:12:54.679 --> 0:12:56.640 thousand up seventeen percent from here? 0:12:57.880 --> 0:13:00.320 So I think we can if a couple of things 0:13:00.360 --> 0:13:02.960 fall into place. So I think November and December, I 0:13:02.960 --> 0:13:06.840 think that trade was all about anticipating the FED rate cut. 0:13:06.920 --> 0:13:08.719 So I think that part of the story is done. 0:13:08.800 --> 0:13:11.480 Small caps were maligned last year for their you know what, 0:13:11.520 --> 0:13:14.160 aren't really that bad, but we're perceived as being bad 0:13:14.240 --> 0:13:17.280 balance sheets and fears the FED was never going to cut. Well, 0:13:17.360 --> 0:13:20.240 that expectation has shifted. If you look at positioning data, 0:13:20.280 --> 0:13:22.920 if you look at Russell two thousand PE data, we're 0:13:22.920 --> 0:13:25.720 basically back up to either you know, kind of averages 0:13:25.880 --> 0:13:28.559 on the PE or three year highs on the positioning. 0:13:28.600 --> 0:13:30.480 But we're not at all time highs. We're kind of 0:13:30.480 --> 0:13:33.480 a middle endings trade just on a basis of valuation 0:13:33.600 --> 0:13:37.160 and positioning. I think what's very interesting is that today, 0:13:37.240 --> 0:13:40.319 with this jobs report, you've seen small cap futures actually 0:13:40.400 --> 0:13:43.880 respond more sharply to the upside than large cap futures, 0:13:43.880 --> 0:13:46.920 at least initially off the print. I think what small 0:13:46.960 --> 0:13:49.440 caps are starting to react to in February is the 0:13:49.559 --> 0:13:53.280 idea that the economy is just hotter than anticipated. And 0:13:53.320 --> 0:13:56.199 typically we see that when the economy is running about trend, 0:13:56.240 --> 0:13:58.720 and trend is about two point six percent on real GDP. 0:13:59.160 --> 0:14:02.240 When you're above that two point six percent threshold, small 0:14:02.280 --> 0:14:05.679 caps beat large caps. And if we're we've been kind 0:14:05.679 --> 0:14:07.800 of around two percent. If we can get closer to 0:14:07.840 --> 0:14:10.439 trend and convince the market that we're in a sustainably 0:14:10.480 --> 0:14:12.520 hot economy, I think small caps. 0:14:12.240 --> 0:14:14.800 Are really going to shine, all right, So small caps 0:14:14.800 --> 0:14:16.600 are going to shine any sectors that we should be 0:14:16.679 --> 0:14:19.400 focused on here, if in fact the economy is going 0:14:19.400 --> 0:14:21.360 to hang in there, we're going to have, you know, 0:14:21.520 --> 0:14:22.960 kind of some reduction rates. 0:14:24.520 --> 0:14:26.960 So one of the sectors that does tend to do 0:14:27.120 --> 0:14:30.000 well when we see consumer confidence improving if you look 0:14:30.000 --> 0:14:32.640 at the Michigan sentiment data, and this is really true 0:14:32.680 --> 0:14:34.640 across the market. Caps struck him, But I would say 0:14:34.680 --> 0:14:38.600 financials and if you think about small cap in particular, 0:14:38.760 --> 0:14:41.200 we've been talking about two areas that are more on 0:14:41.240 --> 0:14:44.520 the cyclical side. One is consumer discretionary. It is a 0:14:44.560 --> 0:14:46.800 sector that tends to do well coming off of a 0:14:46.840 --> 0:14:48.960 recession low and I am not in the recession camp 0:14:49.040 --> 0:14:51.160 by any stretch, but if you sort of think about 0:14:51.200 --> 0:14:54.800 the zeitgeist of you know, just having a better economic outlook, 0:14:55.280 --> 0:14:58.360 consumer discretionary stocks tend to do well. And we've also 0:14:58.480 --> 0:15:00.920 just seen they're very cheap and small cap relative to 0:15:01.040 --> 0:15:03.640 large cap. I also have been talking to people a 0:15:03.680 --> 0:15:06.920 lot about how consumers, you know, our economis have done 0:15:06.920 --> 0:15:09.000 a very good job of showing how the economy and 0:15:09.120 --> 0:15:11.680 consumers at large, especially the high end or less sensitive 0:15:11.720 --> 0:15:14.040 to short to short term rates. But I do think 0:15:14.040 --> 0:15:17.240 the lower end consumer is still affected by short term 0:15:17.320 --> 0:15:19.480 rates being high, and so if you get some relief there, 0:15:19.520 --> 0:15:21.400 I think that should help lower end consumers, and I 0:15:21.400 --> 0:15:24.360 think that should also help the small cap consumer discretionary companies. 0:15:24.920 --> 0:15:27.120 So I know from your notes in the past or 0:15:27.160 --> 0:15:30.560 you had a fifty one, fifty twenty twenty four SMP 0:15:30.720 --> 0:15:34.200 five hundred target, we're pretty much there right now a 0:15:34.240 --> 0:15:36.040 little bit higher than there. Does it need to take 0:15:36.080 --> 0:15:38.440 a look at that and maybe think about where that 0:15:38.560 --> 0:15:39.720 possibly could go higher. 0:15:41.000 --> 0:15:43.360 Yeah, so it's a great question. We've been talking about 0:15:43.360 --> 0:15:45.240 that a lot as well in our recent meeting. So 0:15:45.280 --> 0:15:47.360 the fifty one to fifty is basically the median and 0:15:47.440 --> 0:15:50.280 the average of five different models that we use. The 0:15:50.320 --> 0:15:53.960 most conservative one of those models is rapidly improving, and 0:15:54.000 --> 0:15:57.120 that's basically our GDP test, which says, you know, historically 0:15:57.280 --> 0:16:00.200 stocks don't do that great and kind of flat to 0:16:00.280 --> 0:16:02.680 two percent type GDP years. But of course we're right 0:16:02.720 --> 0:16:04.760 on the cusp of that of two percent. So that 0:16:04.800 --> 0:16:07.480 model is starting to improve and head in a better direction. 0:16:07.840 --> 0:16:10.640 Our sentiment work has also been restraining our enthusiasm a 0:16:10.640 --> 0:16:13.800 little bit. Aaii net bowls have been seeing right around 0:16:13.840 --> 0:16:16.520 one standard deviation. You're usually flat over the next three 0:16:16.560 --> 0:16:18.200 months when you get that, and so I keep looking 0:16:18.200 --> 0:16:22.120 for this pullback that hasn't happened. But frankly, our valuation 0:16:22.240 --> 0:16:24.520 model is what we've been talking about most in meetings. 0:16:24.640 --> 0:16:26.760 This one was spot on last year. It was telling 0:16:26.760 --> 0:16:28.600 you to look for twenty one to twenty two times 0:16:28.600 --> 0:16:31.360 trailing pe in the market and forty seven to forty 0:16:31.400 --> 0:16:33.680 eight hundred. I did not listen to it enough. Maybe 0:16:33.680 --> 0:16:35.400 I'm going to be guilty of that again this year. 0:16:36.280 --> 0:16:39.080 Right now, that model, which bakes in forecasts for inflation 0:16:39.240 --> 0:16:42.800 interest rates in GDP, is anticipating about fifty four hundred 0:16:42.840 --> 0:16:44.840 and a pe of over twenty three times on the 0:16:44.880 --> 0:16:46.120 S and P at the end of this year. So 0:16:46.160 --> 0:16:49.080 that's the one that points you to the bowl case, Laurie. 0:16:49.080 --> 0:16:52.400 I was just wondering, in terms of leadership here, the 0:16:52.440 --> 0:16:54.800 technology as long as we can remember, technology has been 0:16:54.840 --> 0:16:56.640 the leadership here and Tom's been calling. 0:16:56.360 --> 0:16:59.360 Out in Nvidia and what a tremendous move it's had there. 0:17:00.120 --> 0:17:03.080 Still the case is, do we need technology to continue 0:17:03.120 --> 0:17:04.560 to be the market leader here? 0:17:06.240 --> 0:17:08.920 I don't think you do. And I've actually been debating 0:17:08.920 --> 0:17:11.320 this with one of my colleagues internally, and this kind 0:17:11.320 --> 0:17:13.320 of goes back to the idea of small cap versus 0:17:13.359 --> 0:17:15.600 large cap. And look, I'm not going to make a 0:17:15.600 --> 0:17:17.440 comment on anyone's stock. You know, some of my clients 0:17:17.480 --> 0:17:19.199 have joke that the Mag seven is turning to the 0:17:19.200 --> 0:17:22.359 Mag one. But the reality is that if you just 0:17:22.440 --> 0:17:25.520 take a little bit of market cap out of those 0:17:25.640 --> 0:17:27.720 top seven names, out of that Mag seven, you know, 0:17:27.800 --> 0:17:31.000 just take a rain drop. It's a blood if you 0:17:31.119 --> 0:17:32.600 take that, you know, think of it as water you 0:17:32.640 --> 0:17:34.400 take that you put into the Rustle two thousand. It's 0:17:34.440 --> 0:17:37.400 really enormous in percentage terms, and I think that's what 0:17:37.480 --> 0:17:39.160 the way we have to think about it. I don't 0:17:39.160 --> 0:17:41.639 think you have to get bearish on the prior leadership, 0:17:41.720 --> 0:17:43.439 just say, hey, there are some other parts of the 0:17:43.480 --> 0:17:46.199 market that deserve a bit of a catch up trade. 0:17:46.240 --> 0:17:48.560 And one chart we've been having a lot of luck with. 0:17:48.720 --> 0:17:49.960 I know I talked to you guys about this a 0:17:49.960 --> 0:17:53.000 few weeks ago. It's just some bloomberg data that your 0:17:53.000 --> 0:17:57.040 team is put together that tracks mag seven expectations on 0:17:57.119 --> 0:17:59.800 earnings and compares those to the rest of the S 0:17:59.840 --> 0:18:03.040 and P and that gap on consensus forecast. And these 0:18:03.080 --> 0:18:04.840 are not my numbers, this is just what's south there 0:18:04.880 --> 0:18:07.119 from the stock pickers is shrinking to less than three 0:18:07.160 --> 0:18:09.560 percent for twenty twenty five. I continue to show that 0:18:09.720 --> 0:18:13.000 chart in most meetings, and I'm finding clients are kind 0:18:13.040 --> 0:18:15.280 of coming around to the idea of the earnings growth 0:18:15.280 --> 0:18:17.800 advantage is just dissipating. And if you continue to boost 0:18:17.880 --> 0:18:21.159 GDP forecasts Rustle two thousand, rest of the S and P, 0:18:21.280 --> 0:18:22.919 those earnings forecasts are going to pick up. 0:18:23.280 --> 0:18:30.439 Thanks, So much, Lori Kelvisina with this, Ellen Zetner joins us. 0:18:30.520 --> 0:18:32.159 Right now, I'm going to cut to the chase my 0:18:32.280 --> 0:18:34.679 chart of the week from many people, including your shop. 0:18:35.080 --> 0:18:39.480 It's suddenly indications of a decline in wage growth. Are 0:18:39.480 --> 0:18:44.679 we going to see in this report tangible lessening of 0:18:44.760 --> 0:18:48.320 wage growth that rolls over into it ECI wages and 0:18:48.359 --> 0:18:52.040 benefits that finally falls back to twenty nineteen levels? 0:18:52.160 --> 0:18:55.400 Yes, I think we continue to see wage growth under pressure. 0:18:56.480 --> 0:18:59.200 You know, in average hourly earnings, it's the mix effect, 0:18:59.240 --> 0:19:02.280 who's who are we creating jobs for that that can 0:19:02.359 --> 0:19:07.040 bounce that around. But you know, we're not expecting a 0:19:07.119 --> 0:19:12.960 material slowing on the year over year. But you create 0:19:13.000 --> 0:19:16.520 a lot more service sector jobs than expected at lower wages, 0:19:16.560 --> 0:19:20.680 and you will get a further decline in growth and 0:19:20.720 --> 0:19:23.320 average hourly earnings. But as you said, the employment cost 0:19:23.400 --> 0:19:26.440 index is what really matters, and labor compensation is slowing, 0:19:26.960 --> 0:19:30.360 and that means that your buying power for consumers are slowing. 0:19:31.040 --> 0:19:33.280 It means that your wage pressures that companies would be 0:19:33.320 --> 0:19:36.800 concerned about continues to recede. And so I think you 0:19:36.840 --> 0:19:40.560 know that underpins what should be a slowing economy. This year, 0:19:40.600 --> 0:19:42.960 But I do still think that we're set up for 0:19:43.840 --> 0:19:46.840 probably stronger growth than people are expecting, even though. 0:19:46.640 --> 0:19:49.280 Slower unemployment rate of three point seven percent, that's kind 0:19:49.280 --> 0:19:52.480 of the headline that feels like full employment. Is that 0:19:52.560 --> 0:19:54.960 kind of misleading on I mean, if I'm the President Biden, 0:19:55.040 --> 0:19:56.680 I'm taking a huge victory lapp here. 0:19:56.880 --> 0:19:59.199 Yeah. Well, all of these jobs numbers are something that 0:19:59.240 --> 0:20:02.320 the president can take victory lap around, and I'm sure 0:20:02.359 --> 0:20:04.600 he'll take advantage of that. I mean, we do have 0:20:04.680 --> 0:20:07.480 a lot of people employed while still creating a lot 0:20:07.520 --> 0:20:10.240 more jobs. And I think when you've got the population 0:20:10.359 --> 0:20:13.000 growing this fast, I think when you've got immigration growing 0:20:13.000 --> 0:20:16.439 this fast and the labor force growing this fast, you 0:20:16.520 --> 0:20:19.120 can create a lot of jobs and keep the unemployment 0:20:19.200 --> 0:20:22.240 rate lower than what normally would be the case. 0:20:22.680 --> 0:20:26.320 There's been some concerns raised about where the jobs are 0:20:26.320 --> 0:20:30.399 being created here. Maybe they're in they're concentrated in healthcare 0:20:30.440 --> 0:20:32.960 and some other areas. Is that a viable concern here, 0:20:33.000 --> 0:20:36.600