Speaker 1: We begin with our top story, coming off the back
Speaker 1: of a cell off in both stocks and bombs, traders
Speaker 1: pushing back FED rate cup bets following a hot CPI report.
Speaker 1: Rouss COASTERO of Black Rock holding on to June, saying
Speaker 1: this the CPI print illustrates while inflation is desalarrating, it
Speaker 1: will not be a straight path. We continue to believe
Speaker 1: that June is the most likely month for the FED
Speaker 1: to begin cutting. We expect three rather than four to
Speaker 1: five cuts this year. Russell pleased to say, join us now,
Speaker 1: so us, let's talk about the data. Let's build on
Speaker 1: yesterday this morning. It's not enough to derail the goldilocks
Speaker 1: soft landing hopes and dreams of twenty twenty four.
Speaker 2: Again, more on Jonathan, I don't think so.
Speaker 3: You know, the number was a bit hardh just you know,
Speaker 3: to remind everybody we were expecting point three on core.
Speaker 2: We got point three nine, clearly the wrong direction.
Speaker 3: But you know, there is some estimation there around this,
Speaker 3: And I think the broader issue is inflation is hitting lower,
Speaker 3: but there are parts of it on the service side.
Speaker 2: That are sticky.
Speaker 3: We saw that again on owner equivalent equivalent rent.
Speaker 2: And while it is going to go down.
Speaker 3: It's not sliding as fast as the market had expected
Speaker 3: or as quickly as you.
Speaker 2: Needed to.
Speaker 3: Validate that narrative from late twenty twenty three when the
Speaker 3: Fed was going to start cutting in March and they
Speaker 3: were going to cut seven or eight times. We still
Speaker 3: think the Fed will begin cutting late this spring or
Speaker 3: in the summer.
Speaker 2: We still think.
Speaker 3: Three maybe forecasts are likely. But again, it's just not
Speaker 3: going to be a straight line. There are going to
Speaker 3: be months where you get a little bit of a backup,
Speaker 3: So I don't think the narrative changes, but again taking
Speaker 3: some air out of that sort of high expectation we
Speaker 3: had back in late twenty twenty three.
Speaker 1: Russ, let's take stocks of where the economic mix is
Speaker 1: at the moment. Output data, the economy a little bit
Speaker 1: hotter than we thought it would be, maybe shouter, inflation
Speaker 1: a little bit stickier as well. When you look at
Speaker 1: that as a mix for the time being, is that
Speaker 1: bad for both stocks and bonds or better for one
Speaker 1: versus the other?
Speaker 3: Well, I think it's better for stocks. As the short answer.
Speaker 3: We obviously yesterday was a tough number for the bond
Speaker 3: market to reacted as you'd expect it to.
Speaker 2: Stocks took their queue from bonds. But the flip side
Speaker 2: of this is economy that let's say.
Speaker 3: We get two and a half percent inflation in twenty
Speaker 3: twenty four, and we get another two percent growth, which
Speaker 3: might even be on the low side.
Speaker 2: If you've got four and a.
Speaker 3: Half percent nominal GDP, there's a decent shot that Ernie's
Speaker 3: estimates up are probably a bit too low.
Speaker 2: We're actually going to beat that.
Speaker 3: So I think that despite yesterday's action of the stock market,
Speaker 3: it's probably.
Speaker 2: Going to be a decent year for US equities.
Speaker 3: We can probably put another six seven eight percent of
Speaker 3: what we've already done year to date, and there's reason
Speaker 3: to stay long equities.
Speaker 4: Well, this really raises a question of which equities in particular,
Speaker 4: because some of the more cyclically exposed stocks, and I'm
Speaker 4: thinking particularly small caps, have gotten more and more beaten
Speaker 4: up the more people push back their expectations for rate cuts.
Speaker 4: When does that stop.
Speaker 2: Well, I think it's why small caps are getting beat up.
Speaker 3: You know, last year you had this beta driven rally
Speaker 3: in November December after a tough late summer and fall,
Speaker 3: and small caps benefited. I think the problem for small
Speaker 3: caps right now it's an odd point in the side
Speaker 3: to get long small caps.
Speaker 2: The quality is much lower than the larger the.
Speaker 3: Mega caps, and as we saw again yesterday, they are
Speaker 3: rate sensitive. So if we have an environment where rates
Speaker 3: are not following as quickly as the market believed small
Speaker 3: caps early growth, you know, these parts of the market
Speaker 3: are sensitive.
Speaker 2: So I think the short answered question is what we're doing.
Speaker 2: We're barbelling the portfolio.
Speaker 3: We're still long many of the megacap tech names that
Speaker 3: are high in quality we think benefit from long term
Speaker 3: secular themes, and we're also long higher quality cyclcicles. There's
Speaker 3: still a lot of parts of the market in airlines,
Speaker 3: in autos, and parts of the consumer sector and healthcare
Speaker 3: that are actually pretty cheap despite the premium that the
Speaker 3: market trades at large, parts of the market were left
Speaker 3: behind last year, and there are some value there.
Speaker 4: How underweight bonds are you, because you do see that
Speaker 4: as sort of the underperforming sector in a scenario that
Speaker 4: you just put out there.
Speaker 3: Yes, we are still a little bit underweight bonds, you
Speaker 3: know our main fund, you know, call it maybe half
Speaker 3: a year relatived or our benchmark. So we have been cautious.
Speaker 3: We do think that spread assets still look good. You
Speaker 3: can carry in the portfolio well, something we probably have
Speaker 3: not been able to say for fifteen years. But the
Speaker 3: long end of the curve in particular, we've remained cautious.
Speaker 3: Part of it is, you know, the over optimism about
Speaker 3: when the FED is going to cut and how much.
Speaker 2: Another part of that is supply. We're still in an.
Speaker 3: Environment where you've got a significant amount of supply with
Speaker 3: some of the actors backing away in terms of who's
Speaker 3: buying MA so still a bit underweight bonds again, with
Speaker 3: most of them underweight, concentrated on the long end of
Speaker 3: the treasury curve.
Speaker 1: Thanks the question, Russ, when do you start getting interested
Speaker 1: for fifty for seventy five you went in for five
Speaker 1: percent again.
Speaker 3: You know, I think it's a good question. I don't
Speaker 3: think you know four fifty. I mean, you get it's
Speaker 3: always dependent upon the context. And obviously if you're printing
Speaker 3: hot on inflation, you know that that number goes up,
Speaker 3: but you know it's a rough estimate.
Speaker 2: Yah.
Speaker 3: I think if you got to four fifty, it starts
Speaker 3: to get a more a bit more interesting because we
Speaker 3: do think inflation is heading down.
Speaker 2: We do think you're going.
Speaker 3: To see cornflation probably in the two to two and
Speaker 3: a half percent range by the end of the year.
Speaker 3: So if the market gives you an opportunity and you're
Speaker 3: seeing four point fifty, then I do think it becomes
Speaker 3: a bit.
Speaker 2: More interesting relative to where we were a couple of
Speaker 2: months ago.
Speaker 4: Russ, what do you do on a daylight today or
Speaker 4: at daylight yesterday? I should say, are you the kind
Speaker 4: of person that says, Okay, sell off, this is a dip,
Speaker 4: it's viable. Or are you the kind of person that says,
Speaker 4: you know what, we have our allocations, just stay steady
Speaker 4: and see how things go.
Speaker 3: Look, I think the market did give you some opportunities yesterday.
Speaker 3: I mean, particularly in the morning of the late afternoon.
Speaker 3: You know, that's a pretty dramatic sell off. There were
Speaker 3: parts of the market that, you know, you may want
Speaker 3: to go back and then take a look at.
Speaker 2: But I do think that the narrative did not change yesterday.
Speaker 3: It reminded us that the path down in inflation is
Speaker 3: going to be bumpy.
Speaker 2: It's not a straight line.
Speaker 3: But we still believe the economy is a good shape
Speaker 3: and inflation's heading lower. So I think the short answer
Speaker 3: is you mostly stick to your plan.
Speaker 1: Let's talk about your plan with regards to equities and
Speaker 1: finish on that over white and equities that you would
Speaker 1: talk to Lisa A. Bantu. Is the US still the
Speaker 1: only game in town?
Speaker 3: It don't is the only game in town, and we
Speaker 3: actually also have an overweighted Japanese equities, which you've been
Speaker 3: addressing for the first time.
Speaker 2: And you know, take your pick years decades.
Speaker 3: But I do think the US is the best game
Speaker 3: in town, and there are a couple of reasons for that.
Speaker 2: The US is still the most resilient economy.
Speaker 3: We're seeing that every day with the economic data generally
Speaker 3: coming in strong.
Speaker 2: But beyond that, you know, we still like this theme
Speaker 2: of quality.
Speaker 3: We like consistency, we like profitability, and we looked throughout
Speaker 3: the world we look for companies that have those characteristics.
Speaker 2: We still find more of them in the United States.
Speaker 3: And tech and healthcare and consumer discretionary than anywhere else
Speaker 3: in the world.
Speaker 1: I've Russ got to catch out, Russ constrict that of
Speaker 1: Black Rock