WEBVTT - Bloomberg Surveillance TV: May 31, 2024 0:00:02.440 --> 0:00:06.800 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.720 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.240 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:37.520 Terminal and the Bloomberg Business App. Loura Rang of FS 0:00:37.560 --> 0:00:41.120 Investments is with us alongside SoC Gen's Savanter Rishappa. Laura, 0:00:41.159 --> 0:00:43.239 let's start with you your reaction to this date. You've 0:00:43.240 --> 0:00:45.040 had five minutes to chew over it. What stands out 0:00:45.080 --> 0:00:45.360 for you? 0:00:46.760 --> 0:00:49.599 So you know, we've had now sort of four months 0:00:49.600 --> 0:00:54.200 of unfriendly inflation data and growth really continuing to surprise 0:00:54.240 --> 0:00:57.040 with the outside. Today's got to be a huge relief 0:00:57.080 --> 0:00:59.680 because some of the early numbers for April will really 0:00:59.720 --> 0:01:02.960 con firmed by this broader look and this broader data. 0:01:03.400 --> 0:01:06.319 So you know, this is a more Davis report. I 0:01:06.319 --> 0:01:09.240 feel like you have to acknowledge that I do notice 0:01:09.280 --> 0:01:12.319 the slow down and spending, especially the real spending. We're 0:01:12.319 --> 0:01:14.440 starting to get data for Q two, and you know, 0:01:14.520 --> 0:01:15.880 you tease that going into this. 0:01:15.920 --> 0:01:18.679 But we had a you know, still. 0:01:18.520 --> 0:01:21.759 Peeling back the headline number of Q one. The underlying 0:01:21.840 --> 0:01:24.640 data was fairly strong. I think we're now waiting to 0:01:24.680 --> 0:01:27.600 see how Q two shapes up. So far looks like 0:01:27.640 --> 0:01:29.920 it's also going to be a little bit slower. I 0:01:29.920 --> 0:01:34.319 think the landing maybe really sort of orchestrated in Q two. 0:01:34.560 --> 0:01:36.320 Sabatra is that landing insight. 0:01:38.040 --> 0:01:39.800 We think that the Fed's going to stay on hold 0:01:39.840 --> 0:01:41.479 for the for the domain of the year, and this 0:01:41.680 --> 0:01:46.839 data point doesn't really push this. No sense of urgency 0:01:46.920 --> 0:01:50.720 I think from the Fed with the inflation starting to 0:01:50.800 --> 0:01:53.360 ease up, you know, growth is starting to come down. 0:01:53.680 --> 0:01:56.960 But we heard from Williams yesterday and he's expecting growth 0:01:56.960 --> 0:01:58.680 in the context of two to two and a half 0:01:58.720 --> 0:02:01.920 percent for this year. Inflation core PC heading towards two 0:02:01.960 --> 0:02:03.280 and a half percent of the end of the year. 0:02:03.640 --> 0:02:06.400 There's really no urgency for the FED to cut rates 0:02:07.000 --> 0:02:09.720 anytime this year. We see the earliest had Web looking 0:02:10.160 --> 0:02:13.280 for the Fed to cut rates is after the elections 0:02:13.280 --> 0:02:16.400 of the December meeting if the data requires them to 0:02:16.440 --> 0:02:17.000 do so, but. 0:02:17.000 --> 0:02:19.640 Subadra on the margins, given the fact that this isn't 0:02:19.639 --> 0:02:22.440 necessarily a game changer, but it does confirm this idea 0:02:22.480 --> 0:02:25.120 that maybe the this inflationary trend is back on track. 0:02:25.639 --> 0:02:28.400 Does that give you more conviction actually with some of 0:02:28.440 --> 0:02:31.519 your closely held beliefs, this idea that you should buy bonds, 0:02:31.560 --> 0:02:33.760 particularly the longer end, and then inflation will come down 0:02:33.800 --> 0:02:36.720 and then essentially we will essentially normalize. 0:02:37.040 --> 0:02:39.720 You know, you can buy bonds in the long end, 0:02:39.720 --> 0:02:42.200 but it's really much more attracted to hold front end 0:02:42.800 --> 0:02:45.720 treasuries because the yields are way more attractive. 0:02:46.080 --> 0:02:48.040 And that's exactly what you're seeing investors. 0:02:48.040 --> 0:02:51.960 I mean, you're seeing AUMs in money market funds at 0:02:52.040 --> 0:02:55.600 six trillion. Money is going into the very front end 0:02:55.680 --> 0:02:59.000 of the yeal curve just because returns look very, very attractive, 0:02:59.040 --> 0:03:00.680 and the yeal curve is in and I think that 0:03:00.680 --> 0:03:03.440 that trend is here to stay until we know that 0:03:03.480 --> 0:03:05.880 the Fed is going to be cutting rates aggressively. And 0:03:05.919 --> 0:03:08.120 this is really when it gets a little bit tricky 0:03:08.240 --> 0:03:11.799 for me, because you look at the policy path that's 0:03:11.840 --> 0:03:15.440 priced in the markets. You're looking at very few cuts 0:03:15.440 --> 0:03:18.160 between now and the middle of next year, So you're 0:03:18.160 --> 0:03:20.200 looking at less than one hundred basis points of cuts 0:03:20.200 --> 0:03:22.639 by the middle of next year. So that still argues 0:03:22.680 --> 0:03:25.600 for investors to continue to plow money into the very 0:03:25.600 --> 0:03:27.560 front under the yolk of not so much in the long. 0:03:27.520 --> 0:03:30.280 End, Laura, this raises this sort of larger question, which 0:03:30.400 --> 0:03:32.520 is doesn't really matter if the Fed cuts rates once, right, 0:03:32.560 --> 0:03:33.919 I mean, it's sort of this is the issue that 0:03:33.960 --> 0:03:36.320 we have with the ECV as well. Are people looking 0:03:36.360 --> 0:03:39.320 for evidence of a real slowdown that it could lead 0:03:39.680 --> 0:03:43.000 to a protracted rate cutting cycle based on what we're 0:03:43.000 --> 0:03:46.800 seeing now? Does this data go anywhere near beginning to 0:03:46.880 --> 0:03:48.280 move us in that direction? 0:03:49.480 --> 0:03:52.400 Yeah, and maybe I'll take that question a slightly different direction, 0:03:52.520 --> 0:03:55.960 because I agree, you know, twenty five basis points, especially 0:03:56.040 --> 0:03:59.200 given where we are at over five and a quarter, 0:03:59.560 --> 0:04:02.360 is not going to move the needle tremendously on interest 0:04:02.440 --> 0:04:05.760 rate sensitive sectors of the economy. I think the question 0:04:05.960 --> 0:04:09.400 to me is, you know, we're probably not focused enough 0:04:09.520 --> 0:04:13.840 on growth, which has been so strong at three percent, 0:04:14.360 --> 0:04:19.040 Expectations of higher growth are now so built into markets. 0:04:19.320 --> 0:04:20.720 Nominal GDPP growth of. 0:04:20.680 --> 0:04:24.120 Six percent turns out is enough to power equities higher, 0:04:24.560 --> 0:04:28.679 even though rate cut expectations have been ratcheted very far back. 0:04:29.120 --> 0:04:32.680 So going forward, if that slows to five percent, you know, 0:04:32.920 --> 0:04:35.640 this isn't a big slowdown. But I think, you know, 0:04:35.680 --> 0:04:37.800 we need to pay attention to the fact that so 0:04:38.000 --> 0:04:41.560 much growth is priced into earnings expectations, and there's so 0:04:41.720 --> 0:04:44.440 much optimism price in to markets. The two way risk 0:04:44.520 --> 0:04:47.839 on growth numbers are now really significant. We haven't seen 0:04:47.839 --> 0:04:48.800 that in a year and a half. 0:04:49.200 --> 0:04:51.320 Laura, before we run away with the conversation about growth, 0:04:51.320 --> 0:04:53.400 can we just sit on inflation just for one beat longer. 0:04:53.480 --> 0:04:55.880 You've been saying for a while that we'd get stuck 0:04:55.920 --> 0:04:58.080 around three percent, you're rethinking that. 0:04:59.800 --> 0:04:59.840 Not. 0:05:00.240 --> 0:05:02.360 I still think that at the end of the year, 0:05:02.400 --> 0:05:06.400 we're going to see rent for inflation pressures continue to 0:05:06.440 --> 0:05:08.839 creep back up, and I think we're going to see 0:05:08.880 --> 0:05:12.800 the inflationary process really stuck around three percent. I don't 0:05:12.839 --> 0:05:15.200 think that stops the FED from cutting it. The economy 0:05:15.240 --> 0:05:18.160 slows a lot, but I think it makes it very 0:05:18.160 --> 0:05:20.200 hard to maneuver in a place where we're still growing 0:05:20.200 --> 0:05:21.240 at two two and a half percent. 0:05:21.320 --> 0:05:23.160 Mohammed dal Erin has been on this program and he 0:05:23.200 --> 0:05:26.760 talks about stackflation rewins. Lara, are you thinking about stackflation 0:05:26.839 --> 0:05:28.440 rewins at the back end of this year? 0:05:29.120 --> 0:05:32.240 You know, today the economy looks really solid. I'm not 0:05:32.279 --> 0:05:35.000 too worried about it because business investment is going to 0:05:35.120 --> 0:05:37.479 ratchet back up again. I think we're in a good 0:05:37.480 --> 0:05:39.520 place for the economy. I'm trying not to overthink it 0:05:39.560 --> 0:05:39.880 too much. 0:05:39.880 --> 0:05:42.000 It's about you we overthinking it when you say no 0:05:42.120 --> 0:05:44.440 rate cuts this year and you're looking at inflation. What 0:05:44.480 --> 0:05:46.719 does growth look like at the backhand of twenty four. 0:05:47.480 --> 0:05:50.160 Probably going to gradually slow down as we progress through 0:05:50.200 --> 0:05:51.560 the remainder of the year. 0:05:52.120 --> 0:05:53.240 We're not overthinking it. 0:05:53.279 --> 0:05:55.159 I think the simplest path is for the Fed to 0:05:55.200 --> 0:05:57.880 stay on hold for the remainder of the year, instead 0:05:57.920 --> 0:06:01.480 of kind of the conundrum that the ECBs and right now, 0:06:01.520 --> 0:06:04.239 where you know, the market's pricing in for a June 0:06:04.600 --> 0:06:06.720 cut and then the debate on whether they're going to 0:06:06.760 --> 0:06:09.400 cut again in July, whether they're going to cut again 0:06:09.400 --> 0:06:13.520 in September. So the sort of volatility of expectations is 0:06:13.560 --> 0:06:16.240 really what's confusing investors. 0:06:16.240 --> 0:06:19.320 So to me, a very straightforward. 0:06:18.640 --> 0:06:20.840 Path is for the Fed to stay on hold for 0:06:20.880 --> 0:06:24.160 as long as they possibly can, and then embark on 0:06:24.400 --> 0:06:26.960 maybe a cut a quarter or some sort of a 0:06:27.080 --> 0:06:29.719 very steady path of rate cuts from then on. 0:06:29.760 --> 0:06:30.919 As opposed to this back. 0:06:30.720 --> 0:06:34.320 And forth, Laura really raised this two pronged idea of 0:06:34.320 --> 0:06:37.000 both inflation and then this idea of growth. 0:06:37.080 --> 0:06:38.040 And what happens if you. 0:06:38.000 --> 0:06:41.520 Start moving out of the inflation being offset by strong 0:06:41.560 --> 0:06:46.200 growth to maybe not ciflation, but inflation not being offset 0:06:46.279 --> 0:06:48.800 as much subadri Does that make you, if there is 0:06:48.920 --> 0:06:53.000 clear slowing in growth, clear growing and spending, a little 0:06:53.120 --> 0:06:57.000 less sanguine about riskier securities within fixed income just because 0:06:57.000 --> 0:07:00.320 you both have rates on hold still enough inflation to 0:07:00.360 --> 0:07:03.599 make the Fed nervous, but it economily just doesn't have 0:07:03.680 --> 0:07:04.760 the same kind of juice in it. 0:07:05.080 --> 0:07:05.279 Yeah. 0:07:05.800 --> 0:07:07.720 Because of that, That's one of the reasons why we 0:07:07.760 --> 0:07:11.840 think that that across the yield curve, yields are going 0:07:11.880 --> 0:07:13.960 to struggle to get about that five percent level. 0:07:14.360 --> 0:07:15.960 Two year above five percent is. 0:07:15.920 --> 0:07:19.600 Going to require a much more, you know, different stance 0:07:19.640 --> 0:07:21.760 from policy. The Fed either has to hike or not 0:07:21.840 --> 0:07:23.960 cut for the next couple of years, and for the 0:07:24.040 --> 0:07:28.560 tenure to get about five percent, the market is always 0:07:28.600 --> 0:07:31.360 going to be looking towards growth slowing down in the 0:07:31.400 --> 0:07:34.440 second half, and that's really going to cap the rise 0:07:34.480 --> 0:07:37.240 and yields. So even though we've had these discussions about 0:07:37.240 --> 0:07:39.640 our star and whether our start is a lot higher 0:07:40.480 --> 0:07:43.240 and whether you know, debt and deficits start to matter, 0:07:43.600 --> 0:07:45.600 I really think that the focus at LEEDS for the 0:07:45.640 --> 0:07:48.560 second half is going to be on the slowdown and growth, 0:07:48.600 --> 0:07:50.840 and that's going to really cap the rize and yields. 0:07:51.040 --> 0:07:53.040 Ten yearls are going to struggle to get to five 0:07:53.080 --> 0:07:54.720 percent this time around. 0:07:54.760 --> 0:07:56.560 Where are you on the our star debate? 0:07:58.360 --> 0:08:00.360 You know, there's a case to be made a very 0:08:00.360 --> 0:08:04.040 sympathetic to the comments we've had from both Bill Dudley 0:08:04.080 --> 0:08:07.280 as well as Lori Logan that maybe our star is 0:08:07.480 --> 0:08:10.160 a lot higher at least a short term our star 0:08:10.320 --> 0:08:15.400 might be higher than what we're hearing from FED President Williams. 0:08:16.080 --> 0:08:17.640 But the question is how can. 0:08:17.520 --> 0:08:20.880 The FED actually act on that, because what they really 0:08:20.960 --> 0:08:24.520 need to see is the data support a higher our star. 0:08:24.680 --> 0:08:27.239 So we'll find out in maybe three to four years 0:08:27.240 --> 0:08:29.960 where our star is today. It's really hard to know 0:08:30.000 --> 0:08:32.080 where it is right now as it stands. 0:08:32.200 --> 0:08:34.320 And Laura, this sort of goes to this framework of 0:08:34.400 --> 0:08:36.160 it's hard to know where the end zone is going 0:08:36.200 --> 0:08:38.800 to be. Also, just in inflation, as Jean was mentioning, 0:08:38.840 --> 0:08:39.920 you think inflation is going to. 0:08:39.840 --> 0:08:42.320 Remain stuck at around three percent? What would you have 0:08:42.360 --> 0:08:43.400 to see to rethink that. 0:08:43.679 --> 0:08:45.680 We have Neil data coming out this morning with a 0:08:45.720 --> 0:08:49.320 note after this data came out just saying every month 0:08:49.360 --> 0:08:51.560 this year, see month of a month core inflation lower 0:08:51.600 --> 0:08:53.520 than the same month and twenty twenty three. What happens 0:08:53.559 --> 0:08:56.360 if this patterns holds into the summer, is that something 0:08:56.360 --> 0:08:58.600 that could make you rethink this idea of three percent 0:08:58.880 --> 0:09:00.960 is sort of the sticky for inflation. 0:09:02.600 --> 0:09:06.400 I think to me, the problem is that we really 0:09:06.679 --> 0:09:10.480 are don't We don't remember how much everything had to 0:09:10.559 --> 0:09:13.760 go perfectly to get inflation at two percent. You know, 0:09:13.840 --> 0:09:17.280 today we've got commodity prices really moving higher. I think 0:09:17.400 --> 0:09:21.520 rents are going to reaccelerate. Ironically, high FED you know, 0:09:21.640 --> 0:09:26.040 really restrictive FED policy has stopped home construction, which is 0:09:26.040 --> 0:09:29.679 what's needed to help, you know, unravel this whole real 0:09:29.840 --> 0:09:34.120 estate sort of stagnation and stuck at higher prices environment 0:09:34.120 --> 0:09:37.120 that we're in. You know, long story short, when you 0:09:37.320 --> 0:09:39.560 put it all together, we may well you know, see 0:09:39.600 --> 0:09:42.000 inflation dip a little bit lower. 0:09:42.040 --> 0:09:44.200 But I think my forecast is a. 0:09:44.120 --> 0:09:50.040 Longer run problem of stubborn inflation above two percent. Kind 0:09:50.040 --> 0:09:51.640 of the mirror image of where we were for the 0:09:51.640 --> 0:09:54.160 five years before COVID stuck below two percent. 0:09:54.240 --> 0:09:56.800 I always feel like it was regulating us. Thank you. 0:09:57.120 --> 0:09:59.960 They always feel personal. Those ails totally sent amounts of client. 0:10:00.000 --> 0:10:02.720 I'm just saying, yeah, I feel like the census directly, 0:10:03.000 --> 0:10:03.600 it feels like. 0:10:03.520 --> 0:10:05.959 He watches us and then scripes the screen when I speak. 0:10:06.400 --> 0:10:08.760 You have no idea what you're talking about, Primo. 0:10:08.520 --> 0:10:09.959 Just saying, which is basically what he's done on this 0:10:10.040 --> 0:10:10.760 program before. 0:10:10.920 --> 0:10:12.319 That's right, that's our friends. 0:10:12.360 --> 0:10:14.599 Apparently, I kind of believe that. Let's look ahead to 0:10:14.679 --> 0:10:18.200 next week ECP next Thursday. Then we get the payrolls 0:10:18.240 --> 0:10:20.719 report in our survey right now, keep giving you a 0:10:20.720 --> 0:10:23.439 sneak peek. Here's the latest. One eighty one hundred and 0:10:23.480 --> 0:10:26.319 eighty thousand is the meeting estimate in our survey. Previous 0:10:26.400 --> 0:10:29.200 number one seventy five. So Patrick, can we talk about 0:10:29.240 --> 0:10:31.599 next week both the ECP and a payrolls report, And 0:10:31.640 --> 0:10:33.440 let's start with payrolls and we'll finish on the European 0:10:33.480 --> 0:10:35.319 Central Bank in a couple of minutes. What are you 0:10:35.360 --> 0:10:37.079 looking for from that report next Friday. 0:10:37.400 --> 0:10:42.160 So our economists actually have a slightly higher forecast, if 0:10:42.160 --> 0:10:46.000 you will, for apparerolls than the consensus. So I wouldn't 0:10:46.000 --> 0:10:48.360 be surprised if you get a two hundred thousand inch number. 0:10:48.880 --> 0:10:51.840 The unemployment rate is going to stay below four percent 0:10:51.960 --> 0:10:55.640 for perhaps the remainder of the year. So very strong 0:10:55.760 --> 0:11:00.360 employment report is again what we're expecting for next week. 0:11:00.400 --> 0:11:03.040 But if there's any missus, that's when the market's going 0:11:03.080 --> 0:11:06.640 to react. The market's going to shrug off an upside surprise, 0:11:06.679 --> 0:11:07.880 I think, Laura. 0:11:07.600 --> 0:11:10.079 Do you agree, Yeah, I agree. 0:11:10.080 --> 0:11:12.640 The market seems to have happy ears right now. They 0:11:12.679 --> 0:11:15.280 want the rake huts. That's the news that they react 0:11:15.280 --> 0:11:18.200 to you more than you know, anything that would sort 0:11:18.200 --> 0:11:20.319 of push those back, you know, at the end of 0:11:20.320 --> 0:11:23.440 the day, when we look ahead to rate cuts and 0:11:23.480 --> 0:11:25.720 when that could happen, we're starting to push up against 0:11:25.720 --> 0:11:29.080 the election calendar. I think we're just going to kind 0:11:29.080 --> 0:11:30.839 of give up the gost slowly on a rate cut 0:11:30.880 --> 0:11:34.160 before the election and really focus on those December you know, 0:11:34.240 --> 0:11:35.240 maybe November meeting. 0:11:35.320 --> 0:11:37.920 I'm not sure. Dan investors have happy ears, but I 0:11:37.960 --> 0:11:40.800 get your point, Lara Rang of FS Investments, Lara, thank 0:11:40.840 --> 0:11:42.360 you for that. So Bato, I just wanted to give 0:11:42.360 --> 0:11:45.319 you the final word on the ECP. Big conversation around 0:11:45.320 --> 0:11:49.880 this table about central bank divergence, the limits of that divergence, 0:11:49.880 --> 0:11:52.760 how far can this ECP go without a federal reserve. 0:11:54.160 --> 0:11:57.600 So I think our European economy is set it best, 0:11:57.640 --> 0:11:59.560 which is its data independence. 0:11:59.600 --> 0:12:01.840 I mean, FED and the ECB is already. 0:12:01.520 --> 0:12:05.319 Committed to cutting rates in June, and they're going to 0:12:05.400 --> 0:12:08.000 do it even though the inflation data that we got, 0:12:08.640 --> 0:12:12.480 you know, recently, doesn't really justify them to cut rates 0:12:12.480 --> 0:12:15.760 in June. The question really becomes what happened what comes 0:12:15.800 --> 0:12:19.479 after that? And to me, what you know really dictates 0:12:19.559 --> 0:12:22.439 the price action and the bar market is divergence between 0:12:22.440 --> 0:12:24.480 the ECB and the freend. I think that that's going 0:12:24.520 --> 0:12:30.080 to keep rates between the US and Europe diverging as well, 0:12:30.200 --> 0:12:32.080 because the Fed's going to stay on hold for the 0:12:32.120 --> 0:12:33.640 remainder of the year and the ECB is going to 0:12:33.679 --> 0:12:35.280 still be biased towards cutting rates. 0:12:35.480 --> 0:12:37.000 We came into this week saying it was going. 0:12:37.000 --> 0:12:38.760 To kind of be a sleepy week. You can make 0:12:38.800 --> 0:12:40.880 your argument about whether it was or wasn't for next week. 0:12:40.880 --> 0:12:43.440 It's going to be actually massive when it comes to 0:12:43.559 --> 0:12:46.040 both the Jolts data the payrolls we've got. Of course, 0:12:46.480 --> 0:12:50.160 the ECB excise about I'm excited. 0:12:49.880 --> 0:12:50.800 Yeah, yeh, I'm excited. 0:12:50.840 --> 0:12:52.400 So I just want to know what you're most excited 0:12:52.440 --> 0:12:55.319 about of all these potential data points, the ISM data 0:12:55.440 --> 0:12:57.600 we get, manufacturing and services. 0:12:58.480 --> 0:13:00.000 So i'd start with JOLTS. 0:13:00.320 --> 0:13:03.240 I mean, if you look at the job openings, we 0:13:03.280 --> 0:13:06.640 really want to see that head towards that pre pandemic 0:13:07.559 --> 0:13:10.880 level relative to the number of unemployed. So that's a 0:13:11.000 --> 0:13:15.200 very important first metric on jobs. Beyond that, i'd be 0:13:15.240 --> 0:13:17.480 looking to hear from the ECB and what they're thinking 0:13:17.520 --> 0:13:22.040 about policy, not just for June but beyond for the 0:13:22.040 --> 0:13:25.559 remainder of the year, and then payrolls PAEROLS is very 0:13:25.640 --> 0:13:30.040 very important, and whether we keep that momentum that we've 0:13:30.080 --> 0:13:33.640 had throughout this year is going to inform us on 0:13:33.720 --> 0:13:37.320 whether the FED is going to look at perhaps cutting 0:13:37.400 --> 0:13:42.200 rates in July or September, which is not our base case, 0:13:42.240 --> 0:13:45.199 but that's something that we'd be looking towards. The FED 0:13:45.320 --> 0:13:48.480 really wants to see the job market cool off as 0:13:48.520 --> 0:13:51.640 inflation is coming down as a justification to cut rates, 0:13:51.760 --> 0:13:52.960 and they want to see that data. 0:13:53.000 --> 0:13:55.120 So often we are hitting the grand running in the 0:13:55.120 --> 0:14:08.400 monthitude Sam stowfull of CFRRA writing this, It's been rumored 0:14:08.520 --> 0:14:11.400 the between Memorial Day and Labor Day investors focus more 0:14:11.440 --> 0:14:13.679 on their tands than their portfolios. The S and P 0:14:13.800 --> 0:14:15.840 five hundred gained and average of only one point six 0:14:15.920 --> 0:14:19.240 percent in price between these two holidays since nineteen forty five. 0:14:19.600 --> 0:14:23.680 Instead of experiencing these summertime blues, it frequently enjoys a 0:14:23.800 --> 0:14:26.960 summertime snooze. Sam joins us now for more and hopefully 0:14:26.920 --> 0:14:29.360 Samue'll wake us up a little bit more than that, Sam, 0:14:29.360 --> 0:14:30.280 what do you rafflicating for? 0:14:30.480 --> 0:14:30.600 Then? 0:14:30.640 --> 0:14:32.800 For clients through the rest of this summer to sit back, 0:14:32.880 --> 0:14:34.440 chill and ignore everything. 0:14:35.400 --> 0:14:36.600 Well, good morning, Jonathan. 0:14:36.920 --> 0:14:40.280 I think certainly there's a lot of reasons why one 0:14:40.360 --> 0:14:44.080 might say that this Memorial Day through Labor Day period 0:14:44.200 --> 0:14:47.320 might be quite different from other election years since World 0:14:47.360 --> 0:14:51.720 War Two. Certainly, now we know that AI has been 0:14:51.840 --> 0:14:56.320 driving tech and semiconductors, but EI has really been driving 0:14:56.320 --> 0:14:59.880 the rest of the market. EI being earnings and inflation 0:15:00.600 --> 0:15:03.040 and now with the worry once again that the FED 0:15:03.120 --> 0:15:06.760 could be raising interest rates, possibly staying higher for longer, 0:15:06.840 --> 0:15:10.440 causing a recession. I think that's what's in a sense, 0:15:10.520 --> 0:15:14.640 causing cracks to form underneath the confidence of investors today. 0:15:15.000 --> 0:15:16.600 So does that mean that Sam, you think that people 0:15:16.640 --> 0:15:18.480 shouldn't go try to ten and they should actually be 0:15:18.480 --> 0:15:20.880 in the office actually trading, because otherwise they could lose 0:15:20.920 --> 0:15:21.280 their shirt. 0:15:23.040 --> 0:15:24.640 Very good, Lisa, I like that one. 0:15:25.200 --> 0:15:28.520 No. I think that what we typically find is that 0:15:29.240 --> 0:15:33.160 many of the groups, while they do tend to tread water, investors, 0:15:33.200 --> 0:15:35.800 do tend to gravitate towards the more defensive areas of 0:15:35.800 --> 0:15:38.440 the market. I always say that you are much better 0:15:38.520 --> 0:15:45.240 off rotating than you are retreating in this traditionally sustayed 0:15:45.360 --> 0:15:51.960 period of the year, and it's usually those areas like staples, healthcare, utilities, etc. 0:15:52.280 --> 0:15:56.400 That have done well. But I guess this time around, 0:15:56.520 --> 0:15:59.880 what we're seeing is that since the Dow hit for 0:16:00.000 --> 0:16:03.000 twenty thousand, really there's been no place to hide. The 0:16:03.040 --> 0:16:06.080 market really has been selling off quite a bit, with 0:16:06.280 --> 0:16:10.280 technology being the only group that's still in positive territory. 0:16:09.800 --> 0:16:12.120 And it seems like any kind of miss or even 0:16:12.480 --> 0:16:15.080 in line that isn't necessarily off the charts. For some 0:16:15.120 --> 0:16:18.520 of the biggest winners this year have been punished severely 0:16:18.600 --> 0:16:21.520 in terms of market reaction. I wonder if there's a 0:16:21.560 --> 0:16:23.640 larger takeaway though, when we were exploring this yesterday with 0:16:23.640 --> 0:16:26.840 Peter Oppenheimer of Goldman Sachs that at this point, at 0:16:26.840 --> 0:16:29.760 this level, based on how much yields have moved up, 0:16:30.040 --> 0:16:32.120 that is going to be the tail wagging the dog 0:16:32.200 --> 0:16:34.040 when it comes to the equity markets. It's the further 0:16:34.120 --> 0:16:37.120 that yields go up, the more punitive it becomes for 0:16:37.200 --> 0:16:37.960 the stock market. 0:16:37.960 --> 0:16:40.880 Do you believe that, Oh, yes. 0:16:40.680 --> 0:16:44.640 Because I think that's the real factor that is causing concern. 0:16:44.760 --> 0:16:47.640 I mean, our expectations had been that we would see 0:16:47.640 --> 0:16:50.360 a gradual decline in the ten year yield as the 0:16:50.400 --> 0:16:53.280 year progresses, and so obviously with it going in the 0:16:53.280 --> 0:16:57.120 opposite direction, that makes us sort of second guess our 0:16:57.160 --> 0:16:59.680 own opinions, and I think the same as being done 0:16:59.720 --> 0:17:03.800 by other investors. So our belief still is that the 0:17:03.800 --> 0:17:07.760 Fed will be cutting twice this year, September and December, 0:17:08.080 --> 0:17:12.399 obviously knowing that now September is more like a coin toss. 0:17:12.240 --> 0:17:13.719 As to whether that will happen. 0:17:14.160 --> 0:17:17.800 We also remind investors that every election year since nineteen 0:17:17.880 --> 0:17:22.040 ninety two except twenty twelve had the FED either raise 0:17:22.240 --> 0:17:25.680 or lower eight rates prior to the election, many times 0:17:25.800 --> 0:17:29.520 occurring in September. So I think the FED would love 0:17:29.560 --> 0:17:33.119 the opportunity to show that they are a political Should 0:17:33.160 --> 0:17:34.440 the data allow for that? 0:17:34.800 --> 0:17:35.080 Sam? 0:17:35.080 --> 0:17:37.320 If September is a toin cost, what does the FED 0:17:37.400 --> 0:17:39.840 need to see in the data before September to have 0:17:39.840 --> 0:17:43.480 that confidence to cut just before an election, Well, I. 0:17:43.400 --> 0:17:46.760 Think they're going to have to see today's PCE and 0:17:47.119 --> 0:17:52.840 successive PCE indicators show continued downward trend. I think we're 0:17:53.000 --> 0:17:56.600 likely to see unemployment rate maybe tick up a couple 0:17:56.680 --> 0:18:01.320 of basis points, and also just that maybe a third 0:18:01.560 --> 0:18:05.199 the second quarter GDP does not come in as the 0:18:05.240 --> 0:18:08.639 Atlanta Fed is anticipating at this point well above the 0:18:08.680 --> 0:18:09.720 three percent level. 0:18:09.800 --> 0:18:10.800 So I think the. 0:18:10.760 --> 0:18:14.160 Fed is basically going to be sticking to its mandate 0:18:14.200 --> 0:18:17.639 by saying, can we see inflation come down while not 0:18:17.800 --> 0:18:20.320 having a material impact unemployment? 0:18:20.480 --> 0:18:22.840 Sam, I just want to take the conversation. Finish this 0:18:22.920 --> 0:18:25.800 conversation somewhere where Lisa has been leaning, and I think 0:18:25.800 --> 0:18:29.320 it's an important conversation. What's happened with Salesforce in the 0:18:29.359 --> 0:18:32.879 last twenty four hours, down by about twenty percent. What 0:18:33.040 --> 0:18:36.919 happened with say doll Dow down by about fifteen percent 0:18:37.280 --> 0:18:40.040 in pre market? The down numbers, to Lisa's point earlier 0:18:40.080 --> 0:18:42.800 this morning, they weren't terrible. In fact, they were a beat. 0:18:43.040 --> 0:18:45.080 It just wasn't a big enough beat. And you're seeing 0:18:45.160 --> 0:18:48.159 a monthster move in quite a sizable company, Sam, And 0:18:48.200 --> 0:18:50.399 I'm wondering for you and the team at CFIRA the 0:18:50.480 --> 0:18:52.520 kind of signal that you're taken away from this kind 0:18:52.560 --> 0:18:53.200 of price action. 0:18:54.800 --> 0:18:57.760 Well, I think, as Lisa was saying before, that companies 0:18:57.800 --> 0:19:01.040 are being punished if they don't meet the published numbers 0:19:01.160 --> 0:19:05.080 or even the whisper numbers. Technology for this first quarter 0:19:05.920 --> 0:19:10.280 is showing a twenty five percent gain in earnings versus 0:19:10.320 --> 0:19:14.239 the earlier anticipated twenty percent rise. Also, we've seen an 0:19:14.280 --> 0:19:18.119 improvement in not only twenty twenty four but also twenty 0:19:18.200 --> 0:19:22.680 five estimates now twenty percent for the sector in twenty 0:19:22.760 --> 0:19:26.040 twenty five, but it continues to bump up against the 0:19:26.240 --> 0:19:30.360 thirty pe for the sector itself on forward twelve month earnings, 0:19:30.560 --> 0:19:34.680 which has resulted in pretty much a locked ceiling, if 0:19:34.720 --> 0:19:39.520 you will. And so with these numbers really at stretched valuations, 0:19:39.760 --> 0:19:41.600 I think there is the need for the resetting of 0:19:41.640 --> 0:19:43.320 the dials at least in the near term. 0:19:43.520 --> 0:19:45.600 Sadly saying that has some single names. That's for show. 0:19:45.720 --> 0:19:58.480