1 00:00:01,840 --> 00:00:05,480 Speaker 1: Merry Christmas and happy holidays everyone. I'm Nathan Hager, welcoming 2 00:00:05,519 --> 00:00:09,320 Speaker 1: you to a special edition of Bloomberg Daybreak. Markets are 3 00:00:09,360 --> 00:00:12,160 Speaker 1: closed for the Christmas Day holiday, but we've got a 4 00:00:12,160 --> 00:00:15,400 Speaker 1: lot coming up for you this hour, including holiday cheer 5 00:00:15,640 --> 00:00:17,959 Speaker 1: at a premium. Don't you know if you noticed, but 6 00:00:18,079 --> 00:00:20,799 Speaker 1: this year the twelve Days of Christmas got just a 7 00:00:20,800 --> 00:00:23,239 Speaker 1: bit more expensive. We're going to break it down with 8 00:00:23,239 --> 00:00:27,639 Speaker 1: Amanda Agatti, chief investment officer at PNC. But first we 9 00:00:27,680 --> 00:00:29,720 Speaker 1: want to take a look at the stock market because 10 00:00:29,960 --> 00:00:32,920 Speaker 1: by some estimations, that got a little bit expensive as well, 11 00:00:32,960 --> 00:00:36,320 Speaker 1: with twenty twenty five certainly turning profits for the bulls, 12 00:00:36,400 --> 00:00:39,160 Speaker 1: but not without a little bit of pain along the way. 13 00:00:39,240 --> 00:00:41,920 Speaker 1: So for more on what to expect in twenty twenty six, 14 00:00:41,960 --> 00:00:45,120 Speaker 1: we're very pleased to bring you a special holiday roundtable 15 00:00:45,200 --> 00:00:48,760 Speaker 1: on equities. Cameron Dawson is with us on this holiday program, 16 00:00:48,840 --> 00:00:52,000 Speaker 1: chief investment officer at New Edge Wealth. And joining us 17 00:00:52,000 --> 00:00:55,520 Speaker 1: as well is Brian Levitt, global market strategist at Investco. 18 00:00:55,600 --> 00:00:57,560 Speaker 1: Really appreciate both of you taking the time out of 19 00:00:57,600 --> 00:01:00,000 Speaker 1: your holiday to join us. But before we look at 20 00:01:00,120 --> 00:01:03,080 Speaker 1: head to stocks for twenty six, let's just quickly assess 21 00:01:03,120 --> 00:01:06,120 Speaker 1: the year gone by. What did you make of the 22 00:01:06,760 --> 00:01:10,400 Speaker 1: downs and ups of twenty twenty five camera, Does it 23 00:01:10,440 --> 00:01:13,240 Speaker 1: feel like that April low if the back of the 24 00:01:13,440 --> 00:01:16,200 Speaker 1: tariff announcement is way back in the rearview mirror now? 25 00:01:17,000 --> 00:01:20,480 Speaker 2: Well, Mary Christmas Nathan, certainly it does seem that way. 26 00:01:20,520 --> 00:01:22,759 Speaker 2: And I think one of the most important things about 27 00:01:22,760 --> 00:01:26,800 Speaker 2: that April low is just how bearish most investors got 28 00:01:26,920 --> 00:01:31,520 Speaker 2: during that Liberation Day period. We saw impositioning indicators that 29 00:01:31,560 --> 00:01:34,520 Speaker 2: we got all the way down to the first percentile, 30 00:01:34,640 --> 00:01:37,520 Speaker 2: meaning only one percent percent of the time in the 31 00:01:37,600 --> 00:01:41,360 Speaker 2: last fifteen years have investors been more underweight the market 32 00:01:41,360 --> 00:01:44,280 Speaker 2: than they were in early April. So that created an 33 00:01:44,319 --> 00:01:47,560 Speaker 2: incredible wall of money that could be pulled into this 34 00:01:47,680 --> 00:01:50,800 Speaker 2: market over the course of the last eight months. That 35 00:01:50,920 --> 00:01:53,800 Speaker 2: just meant that all dips got bought rather quickly. We 36 00:01:53,880 --> 00:01:57,720 Speaker 2: saw very little volatility, and that allowed us to levitate, 37 00:01:57,880 --> 00:02:01,160 Speaker 2: as as you mentioned, at these very high valuations. But 38 00:02:01,240 --> 00:02:04,360 Speaker 2: it's important to note we started the year at high valuations, 39 00:02:04,440 --> 00:02:07,640 Speaker 2: we're ending the year at high valuations. But the real 40 00:02:07,720 --> 00:02:10,919 Speaker 2: source of returns all came from earnings growth. You had 41 00:02:10,919 --> 00:02:13,960 Speaker 2: a really solid ten eleven percent earning growth for twenty 42 00:02:14,000 --> 00:02:17,200 Speaker 2: twenty five, and it's also important to note that consensus 43 00:02:17,200 --> 00:02:20,120 Speaker 2: expects that to continue with thirteen percent earnings growth for 44 00:02:20,200 --> 00:02:23,360 Speaker 2: twenty twenty six. So it certainly seems that investors are 45 00:02:23,440 --> 00:02:25,720 Speaker 2: expecting the good times to keep on rolling. 46 00:02:26,560 --> 00:02:28,920 Speaker 1: Let's turn to you now, Brian, what did you make 47 00:02:29,120 --> 00:02:32,200 Speaker 1: of the market moves this year and where do you 48 00:02:32,360 --> 00:02:34,240 Speaker 1: see things going into twenty six? 49 00:02:35,960 --> 00:02:40,000 Speaker 3: The markets were volatile around periods of policy uncertainty, and 50 00:02:40,040 --> 00:02:43,360 Speaker 3: that's almost always the case, So I often get asked, 51 00:02:43,520 --> 00:02:44,919 Speaker 3: you know, when it's too good to be true, or 52 00:02:45,000 --> 00:02:46,760 Speaker 3: people think it's too good to be true, When does 53 00:02:46,840 --> 00:02:50,000 Speaker 3: volatility come? When do market drawdowns come? Well, they almost 54 00:02:50,000 --> 00:02:54,040 Speaker 3: always come during periods of policy uncertainty. And as we 55 00:02:54,240 --> 00:03:00,000 Speaker 3: got towards that peak policy uncertainty, historically in this time 56 00:03:00,120 --> 00:03:02,960 Speaker 3: as well, you tend to do, markets tend to perform 57 00:03:03,000 --> 00:03:05,320 Speaker 3: well in the aftermath of that. Again, this time was 58 00:03:05,400 --> 00:03:09,680 Speaker 3: no different. So as we came through that, it was 59 00:03:09,919 --> 00:03:13,320 Speaker 3: important that the administration start to provide greater clarity on 60 00:03:13,360 --> 00:03:18,119 Speaker 3: where the tariffrights were going, and as inflation expectations stay contained, 61 00:03:18,200 --> 00:03:20,600 Speaker 3: we started to get better clarity on where the Federal 62 00:03:20,639 --> 00:03:24,880 Speaker 3: Reserve might be going and so that created the recipe 63 00:03:24,880 --> 00:03:28,919 Speaker 3: for a bottom and an improving advance. Now, the reality 64 00:03:29,040 --> 00:03:35,000 Speaker 3: is this was the year where the markets did broaden out, 65 00:03:35,160 --> 00:03:38,680 Speaker 3: not to the extent that we may have hoped for 66 00:03:38,760 --> 00:03:40,840 Speaker 3: at the beginning of the year, and I think tariffs 67 00:03:40,880 --> 00:03:43,560 Speaker 3: and policy uncertainty had something to do with that, but 68 00:03:43,600 --> 00:03:47,240 Speaker 3: nonetheless a year in which most parts of the market 69 00:03:47,320 --> 00:03:52,360 Speaker 3: did well. Expectation as we head into twenty twenty six 70 00:03:52,480 --> 00:03:56,640 Speaker 3: is lower interest rates from the FED. An emergence out 71 00:03:56,640 --> 00:04:01,120 Speaker 3: of this global mid cycle slowdown could help to continue 72 00:04:01,200 --> 00:04:04,080 Speaker 3: to support other parts of the market, which may not 73 00:04:04,240 --> 00:04:08,920 Speaker 3: be as disconcerting from evaluation perspective as some people fear. 74 00:04:09,640 --> 00:04:12,960 Speaker 1: And to Brian's point, Cameron, we are starting to see 75 00:04:12,960 --> 00:04:16,240 Speaker 1: a little bit of that rotation happening out of big 76 00:04:16,279 --> 00:04:19,040 Speaker 1: tech as we head into twenty twenty six. But thinking 77 00:04:19,080 --> 00:04:22,400 Speaker 1: about the idea of policy certainty now, is there still 78 00:04:22,400 --> 00:04:27,800 Speaker 1: a risk of policy uncertainty around what the tariff regime 79 00:04:27,880 --> 00:04:31,920 Speaker 1: could be after the Supreme Court rules sometime next year. 80 00:04:32,600 --> 00:04:35,159 Speaker 2: Oh, this is very important as we think about not 81 00:04:35,279 --> 00:04:38,000 Speaker 2: just in the context of what it means for American 82 00:04:38,080 --> 00:04:42,120 Speaker 2: businesses with certainty about how trade will be treated, but 83 00:04:42,200 --> 00:04:45,400 Speaker 2: really how the bond market digests this, because what we've 84 00:04:45,440 --> 00:04:49,400 Speaker 2: seen is that the collection of tariffs have eased some 85 00:04:49,480 --> 00:04:52,720 Speaker 2: pressure on Treasury to issue more debt to fund these big, 86 00:04:52,839 --> 00:04:55,640 Speaker 2: huge deficits that we know that we have. And so 87 00:04:55,720 --> 00:04:58,200 Speaker 2: the question would be is that if there is pushback 88 00:04:58,240 --> 00:05:01,360 Speaker 2: by the Supreme Court where it looks as if those 89 00:05:01,400 --> 00:05:04,680 Speaker 2: tariffs cannot be collected going forward, you start to have 90 00:05:04,800 --> 00:05:07,440 Speaker 2: bigger holes in the budget that will need to be 91 00:05:07,480 --> 00:05:10,800 Speaker 2: filled by more treasury issuance. So it could be one 92 00:05:10,839 --> 00:05:13,320 Speaker 2: of the reasons why we're seeing a little bit of 93 00:05:13,400 --> 00:05:16,520 Speaker 2: perkiness in the long end of the yield curve. Tenures 94 00:05:16,520 --> 00:05:19,239 Speaker 2: are still very well contained, but the thirty year bond 95 00:05:19,240 --> 00:05:23,080 Speaker 2: has been able to break above resistance, potentially starting to 96 00:05:23,160 --> 00:05:26,920 Speaker 2: price in some of these fears about fiscal doant dominance 97 00:05:27,000 --> 00:05:29,800 Speaker 2: and the need for more treasury supply. But I would 98 00:05:29,960 --> 00:05:32,760 Speaker 2: note that this is much more of a global phenomenon. 99 00:05:32,800 --> 00:05:36,080 Speaker 2: You're seeing a lot of movement hiring yields as we move, 100 00:05:36,520 --> 00:05:39,880 Speaker 2: as we look at places like Japan and Germany and France, 101 00:05:40,279 --> 00:05:43,160 Speaker 2: all just suggesting that even though there might be policy 102 00:05:43,279 --> 00:05:47,799 Speaker 2: certainty about expectations for more FED cuts, so we look globally, 103 00:05:47,960 --> 00:05:49,640 Speaker 2: it's not necessarily that certain. 104 00:05:50,120 --> 00:05:53,920 Speaker 1: What do you think, Brian, about the possibility of some 105 00:05:54,120 --> 00:05:56,960 Speaker 1: policy uncertainty around tariffs in the new year. Is that 106 00:05:57,040 --> 00:05:59,320 Speaker 1: something that investors need to keep in mind? Could there 107 00:05:59,360 --> 00:06:02,080 Speaker 1: be something of a push pull between the Treasury and 108 00:06:02,080 --> 00:06:03,000 Speaker 1: the equity markets? 109 00:06:03,800 --> 00:06:06,279 Speaker 3: No, I don't think investors need to be concerned about it. 110 00:06:06,320 --> 00:06:10,640 Speaker 3: Regardless of what the Supreme Court rules. The Trump administration 111 00:06:10,839 --> 00:06:14,800 Speaker 3: has steps that they can take to continue to impose tariffs, 112 00:06:14,800 --> 00:06:17,360 Speaker 3: whether that's Section one twenty two of the Trade Act 113 00:06:17,360 --> 00:06:21,000 Speaker 3: of nineteen seventy four, they can use Section two thirty 114 00:06:21,040 --> 00:06:24,320 Speaker 3: two of the Trade Expansion Act of sixty two, section 115 00:06:24,400 --> 00:06:27,039 Speaker 3: three oh one of the Trade Act of nineteen seventy four. 116 00:06:27,240 --> 00:06:30,479 Speaker 3: So they're going to figure out a way to continue 117 00:06:31,240 --> 00:06:35,080 Speaker 3: to collect tariff for revenue, whether that's for better or 118 00:06:35,080 --> 00:06:38,400 Speaker 3: for worse. So I wouldn't put that as the big 119 00:06:38,440 --> 00:06:42,760 Speaker 3: policy uncertainty as we head into the year. I think 120 00:06:42,839 --> 00:06:47,440 Speaker 3: that one of the risks you have is what will 121 00:06:47,520 --> 00:06:50,800 Speaker 3: ultimately happen with the FED in terms of FED independence. 122 00:06:50,839 --> 00:06:53,160 Speaker 3: To me, that would be a bigger tail risk, And 123 00:06:53,600 --> 00:06:55,840 Speaker 3: I want to be clear, Nathan, I categorize it as 124 00:06:55,880 --> 00:06:59,080 Speaker 3: a tail risk because I continue to believe that this 125 00:06:59,240 --> 00:07:03,000 Speaker 3: is a FED that is going to maintain its autonomy 126 00:07:03,040 --> 00:07:06,120 Speaker 3: and independence. I do believe it's important to this FOMC. 127 00:07:06,760 --> 00:07:11,160 Speaker 3: If you start to get whiffs of that changing, then 128 00:07:11,280 --> 00:07:14,200 Speaker 3: you may have some challenges at the long end of 129 00:07:14,320 --> 00:07:17,560 Speaker 3: the yeal curve, and that would be a very different 130 00:07:17,640 --> 00:07:21,679 Speaker 3: environment where if the US Treasury starts US Treasury bond 131 00:07:21,720 --> 00:07:25,200 Speaker 3: start to trade more like a credit, that's a very 132 00:07:25,240 --> 00:07:30,080 Speaker 3: different outcome than we've dealt with for years. Short of that, 133 00:07:30,280 --> 00:07:34,200 Speaker 3: I continue to expect US Treasury bond to trade like 134 00:07:34,240 --> 00:07:36,560 Speaker 3: a US Treasury bond, and what I mean by that 135 00:07:36,720 --> 00:07:41,640 Speaker 3: is not based on its corporate it's credit fundamentals, but 136 00:07:41,760 --> 00:07:45,560 Speaker 3: more based on the growth and inflation potential of the 137 00:07:45,720 --> 00:07:50,560 Speaker 3: US and I expect it to be a pretty reasonable 138 00:07:50,640 --> 00:07:55,360 Speaker 3: year from a growth and inflation perspective without substantial treasury 139 00:07:55,440 --> 00:07:56,320 Speaker 3: rate volatility. 140 00:07:56,800 --> 00:08:00,640 Speaker 1: We're speaking with Brian Levity's Global market strategistic and investco 141 00:08:00,760 --> 00:08:05,200 Speaker 1: along with New Edge Wealth Chief investment Officer Cameron Dawson. Cameron, 142 00:08:05,240 --> 00:08:07,920 Speaker 1: I want to take the conversation more specifically to the 143 00:08:08,000 --> 00:08:11,000 Speaker 1: stock market now, because you know, looking ahead at twenty 144 00:08:11,040 --> 00:08:14,520 Speaker 1: twenty six, a lot of the twelve month forward targets 145 00:08:14,520 --> 00:08:17,320 Speaker 1: for the S and P five hundred are pretty bullish. 146 00:08:17,360 --> 00:08:20,880 Speaker 1: There seems like a lot of optimism baked into this 147 00:08:20,960 --> 00:08:24,000 Speaker 1: market about where stocks are going to go in the 148 00:08:24,040 --> 00:08:26,320 Speaker 1: new year. What do you think, is this going to 149 00:08:26,320 --> 00:08:27,920 Speaker 1: be the year we see something like an S and 150 00:08:28,000 --> 00:08:31,679 Speaker 1: P eight thousand As we hover close to seven thousand 151 00:08:31,760 --> 00:08:32,560 Speaker 1: right now. 152 00:08:32,800 --> 00:08:35,160 Speaker 2: Yeah, there's certainly some estimates out there that we get 153 00:08:35,200 --> 00:08:37,679 Speaker 2: to S and P eight thousand. I think what's interesting 154 00:08:37,800 --> 00:08:40,600 Speaker 2: is that if you look at the collection of strategists, 155 00:08:40,640 --> 00:08:44,520 Speaker 2: there's not one single strategist who is expecting a down 156 00:08:44,640 --> 00:08:47,600 Speaker 2: year in twenty twenty six. And of course that makes 157 00:08:47,640 --> 00:08:49,720 Speaker 2: sense when you start thinking about some of the things 158 00:08:49,760 --> 00:08:53,160 Speaker 2: that Brian mentioned earlier. You talk about a supportive FED, 159 00:08:53,280 --> 00:08:57,560 Speaker 2: you talk about supportive fiscal policy, continued earnings growth driven 160 00:08:57,600 --> 00:09:00,800 Speaker 2: by things like the AI infrastructure build out. It is 161 00:09:00,920 --> 00:09:03,760 Speaker 2: hard to be bearish, and so thus there aren't any 162 00:09:03,800 --> 00:09:07,559 Speaker 2: bearish estimates in those strategists forecasts. One of the things 163 00:09:07,559 --> 00:09:10,200 Speaker 2: we'd know is that because you are starting the year 164 00:09:10,360 --> 00:09:12,880 Speaker 2: at twenty two and a half times forward earnings on 165 00:09:13,000 --> 00:09:15,560 Speaker 2: a valuation basis for the S and P five hundred 166 00:09:16,040 --> 00:09:19,000 Speaker 2: and thirteen percent earnings growth that a lot of this 167 00:09:19,120 --> 00:09:23,200 Speaker 2: bullishness is already well contemplated in the price, so we 168 00:09:23,240 --> 00:09:26,959 Speaker 2: wouldn't expect a lot of further multiple expansion going into 169 00:09:26,960 --> 00:09:30,200 Speaker 2: twenty twenty six, and likely that the returns that we 170 00:09:30,360 --> 00:09:32,719 Speaker 2: get are closer to what we get as far as 171 00:09:32,760 --> 00:09:35,160 Speaker 2: earnings growth. That would actually be very similar to what 172 00:09:35,280 --> 00:09:38,480 Speaker 2: happened this year in twenty twenty five, where the majority 173 00:09:38,480 --> 00:09:41,360 Speaker 2: of returns did come from earnings growth. So a lot 174 00:09:41,360 --> 00:09:44,079 Speaker 2: of bullish is out there. Very tough to find bears 175 00:09:44,080 --> 00:09:47,120 Speaker 2: simply because the narrative doesn't support it, But that doesn't 176 00:09:47,200 --> 00:09:49,960 Speaker 2: mean that we won't experience volatility along the way. 177 00:09:50,160 --> 00:09:50,319 Speaker 3: Yeah. 178 00:09:50,400 --> 00:09:52,599 Speaker 1: To Cameron's point, Brian, you look at the an R 179 00:09:52,720 --> 00:09:56,160 Speaker 1: function on the SMB five hundred, is really tough to 180 00:09:56,280 --> 00:09:59,520 Speaker 1: find anybody who's looking very bearish on this market. Given 181 00:09:59,600 --> 00:10:03,520 Speaker 1: that with so much bollishness bake, then could that be 182 00:10:03,880 --> 00:10:05,040 Speaker 1: a bearish indicator? 183 00:10:05,400 --> 00:10:08,240 Speaker 3: I don't think so. I think in most years you 184 00:10:08,480 --> 00:10:14,560 Speaker 3: tend to see most analyst expectations being positive. You don't 185 00:10:14,880 --> 00:10:20,400 Speaker 3: last in this industry very long putting out bearish outlooks 186 00:10:20,440 --> 00:10:22,120 Speaker 3: on the S and P five hundred each year. I 187 00:10:22,679 --> 00:10:25,160 Speaker 3: guess there's a couple of prominent perma bears. But for 188 00:10:25,200 --> 00:10:28,320 Speaker 3: the most part, markets tend to go up far more 189 00:10:28,360 --> 00:10:31,360 Speaker 3: often than they tend to go down. And that's because 190 00:10:31,400 --> 00:10:34,960 Speaker 3: in most years things get better rather than get worse. 191 00:10:35,000 --> 00:10:36,920 Speaker 3: I mean, twenty twenty two, if you want to think 192 00:10:36,960 --> 00:10:39,400 Speaker 3: about it, was a year in which things got worse 193 00:10:39,480 --> 00:10:43,200 Speaker 3: relative to expectations. That's a down year. Inflation when higher, 194 00:10:43,240 --> 00:10:45,960 Speaker 3: the Fed had to raise rates more. In most years, 195 00:10:46,000 --> 00:10:50,040 Speaker 3: things get better, And when you look at twenty twenty six, 196 00:10:50,160 --> 00:10:54,400 Speaker 3: the setup is for things to get better. As Cameron 197 00:10:54,480 --> 00:10:59,160 Speaker 3: also mentioned, so by better a lower discount rate, there's 198 00:10:59,240 --> 00:11:02,880 Speaker 3: an opportunity unity for improving global growth. Investors shure, remember 199 00:11:02,960 --> 00:11:05,960 Speaker 3: we've been in a little bit of a soft patch here. 200 00:11:06,080 --> 00:11:09,439 Speaker 3: That's what trade wars will do, or that's what you 201 00:11:09,480 --> 00:11:12,480 Speaker 3: know trade conflict will do. So what you have now 202 00:11:12,559 --> 00:11:16,440 Speaker 3: European Central Bank has already lowered rates significantly, and the 203 00:11:16,480 --> 00:11:20,800 Speaker 3: Europeans are committed to fiscal investment. China needs to combat 204 00:11:20,880 --> 00:11:25,280 Speaker 3: deflationary impulses. The US is probably a little bit too 205 00:11:25,320 --> 00:11:29,600 Speaker 3: restrictive on policies. So all of that creates a backdrop 206 00:11:29,960 --> 00:11:34,760 Speaker 3: of what should be an improving economic activity. And on 207 00:11:34,920 --> 00:11:37,600 Speaker 3: top of all of that, it should start to be 208 00:11:37,760 --> 00:11:43,160 Speaker 3: a year where more of the gains and efficiencies of 209 00:11:43,280 --> 00:11:47,240 Speaker 3: artificial intelligence start to approve to other parts of the market. 210 00:11:47,440 --> 00:11:52,240 Speaker 3: And so you know that all creates a reasonably good backdrop. 211 00:11:52,240 --> 00:11:58,000 Speaker 3: If you're expecting a bad year for markets, what you 212 00:11:58,160 --> 00:12:02,000 Speaker 3: really would have to assume, Boom, is that something's going 213 00:12:02,040 --> 00:12:05,480 Speaker 3: to happen to cause the US economy to roll over meaningfully, 214 00:12:05,720 --> 00:12:08,440 Speaker 3: or the Chinese economy for that matter, or the FED 215 00:12:08,520 --> 00:12:12,080 Speaker 3: to have to reverse course. And it's difficult right now 216 00:12:13,040 --> 00:12:14,520 Speaker 3: to see what that could be. 217 00:12:15,600 --> 00:12:18,840 Speaker 1: We're going to continue this special conversation on the stock 218 00:12:18,880 --> 00:12:22,280 Speaker 1: market looking ahead to twenty twenty six, the backdrop for 219 00:12:22,440 --> 00:12:25,960 Speaker 1: equities in the new year, along with the central bank 220 00:12:26,000 --> 00:12:30,680 Speaker 1: policy possibilities, as we continue this special market roundtable with 221 00:12:30,760 --> 00:12:35,040 Speaker 1: Invesco's Brian Levitt and Cameron Dawson of New Edge Wealth 222 00:12:35,120 --> 00:12:40,120 Speaker 1: on the special edition of Bloomberg Daybreak for Christmas. I'm 223 00:12:40,200 --> 00:12:54,040 Speaker 1: Nathan Hager, and this is Bloomert. Thanks for being here 224 00:12:54,080 --> 00:12:57,559 Speaker 1: on this special festive edition of Bloomberg day Break. Markets 225 00:12:57,559 --> 00:13:00,880 Speaker 1: are closed for the Christmas holiday, Ethan Hager, and we 226 00:13:00,880 --> 00:13:03,720 Speaker 1: want to continue our special holiday roundtable on the stock 227 00:13:03,800 --> 00:13:07,120 Speaker 1: market with Cameron Dawson, chief investment officer at new Edge Wealth, 228 00:13:07,360 --> 00:13:10,960 Speaker 1: and Brian Levitt, global market strategist at Investco. And I 229 00:13:11,000 --> 00:13:13,760 Speaker 1: want to pick up on some points you both made 230 00:13:14,200 --> 00:13:17,199 Speaker 1: at the beginning of this program focused on the FED, 231 00:13:17,360 --> 00:13:20,679 Speaker 1: because investors, it's safe to say, are betting on at 232 00:13:20,720 --> 00:13:23,320 Speaker 1: least a couple more rate cuts in the new year 233 00:13:23,360 --> 00:13:26,480 Speaker 1: after J. Powell Company ended twenty twenty five with three 234 00:13:26,559 --> 00:13:29,840 Speaker 1: in a row. This is how Powell explained the latest 235 00:13:29,840 --> 00:13:32,120 Speaker 1: cut just a couple of weeks ago at the December meeting. 236 00:13:32,440 --> 00:13:34,440 Speaker 4: Why did we move today? You know, I would say 237 00:13:34,559 --> 00:13:36,760 Speaker 4: point to a couple things. First of all, gradual cooling 238 00:13:36,800 --> 00:13:40,000 Speaker 4: in the labor market has continued. Unemployment is now up 239 00:13:40,040 --> 00:13:45,760 Speaker 4: three tenths from June through September, payroll jobs averaging forty 240 00:13:45,840 --> 00:13:50,280 Speaker 4: thousand per month since April. We think there's an overstatement 241 00:13:50,400 --> 00:13:53,160 Speaker 4: in these numbers by about sixty thousand, so that would 242 00:13:53,200 --> 00:13:55,839 Speaker 4: be negative twenty thousand per month. 243 00:13:56,840 --> 00:14:00,480 Speaker 1: So still clearly a lot of focus on vulnerability in 244 00:14:00,520 --> 00:14:03,040 Speaker 1: the labor market. Cameron, I'll start with you. Does this 245 00:14:03,120 --> 00:14:06,160 Speaker 1: make the case for cuts sooner maybe than the market 246 00:14:06,240 --> 00:14:07,040 Speaker 1: might be expecting. 247 00:14:08,160 --> 00:14:10,520 Speaker 2: We do think it does, simply because if you look 248 00:14:10,520 --> 00:14:13,640 Speaker 2: at what market expectations are baking in right now. It's 249 00:14:13,640 --> 00:14:16,240 Speaker 2: about two point four cuts through the end of the year, 250 00:14:16,679 --> 00:14:19,600 Speaker 2: which would get us just to neutral based on the 251 00:14:19,600 --> 00:14:22,680 Speaker 2: FED funds median doot in their dot plot for the 252 00:14:22,760 --> 00:14:25,720 Speaker 2: long run neutral rate. So that just suggests that the 253 00:14:25,760 --> 00:14:29,840 Speaker 2: market isn't expecting a lot of incremental weakness within labor 254 00:14:29,880 --> 00:14:33,560 Speaker 2: market data. But as we saw in the recent payrolls 255 00:14:33,600 --> 00:14:36,720 Speaker 2: print from November that we now already have an employment 256 00:14:36,800 --> 00:14:39,640 Speaker 2: rate at four point six percent, so we think that 257 00:14:39,720 --> 00:14:43,160 Speaker 2: there is room for unemployment to move higher that could 258 00:14:43,200 --> 00:14:46,880 Speaker 2: potentially pull those FED cuts sooner. And that raises a 259 00:14:46,920 --> 00:14:51,120 Speaker 2: really important question for risk assets like credit and equity markets, 260 00:14:51,160 --> 00:14:53,800 Speaker 2: which is that the last one hundred and seventy five 261 00:14:53,840 --> 00:14:56,160 Speaker 2: basis points of cuts that we got for the FED 262 00:14:56,600 --> 00:15:00,600 Speaker 2: came with a backdrop where forecasters were actually raising their 263 00:15:00,720 --> 00:15:04,640 Speaker 2: estimates for both EPs and GDP growth, which just meant 264 00:15:04,640 --> 00:15:07,080 Speaker 2: that even though we were getting FED cuts, people were 265 00:15:07,120 --> 00:15:10,920 Speaker 2: becoming more optimistic about the growth backdrop. That is a 266 00:15:11,000 --> 00:15:15,040 Speaker 2: fantastic backdrop for risk assets to continue to rally. So 267 00:15:15,160 --> 00:15:17,920 Speaker 2: if we continue to see weakness within the labor market, 268 00:15:18,080 --> 00:15:21,880 Speaker 2: could it potentially challenge growth forecast consensus? Has two percent 269 00:15:21,960 --> 00:15:25,160 Speaker 2: growth expected for twenty twenty six, and could that be 270 00:15:25,200 --> 00:15:28,360 Speaker 2: an environment where instead of celebrating rate cuts as they 271 00:15:28,360 --> 00:15:31,160 Speaker 2: have the last two years, we see markets take it 272 00:15:31,200 --> 00:15:33,880 Speaker 2: as more of a negative sign that this economy needs 273 00:15:33,880 --> 00:15:36,800 Speaker 2: FED support. So it definitely will be a data dependent 274 00:15:36,840 --> 00:15:38,680 Speaker 2: FED and a data dependent market. 275 00:15:39,040 --> 00:15:41,560 Speaker 1: Brian, let's turn to you. What's your view on where 276 00:15:41,600 --> 00:15:45,720 Speaker 1: the FED goes in the first half of twenty twenty six. 277 00:15:45,840 --> 00:15:48,040 Speaker 1: Could we see those cuts sooner than later and what 278 00:15:48,080 --> 00:15:49,760 Speaker 1: could that mean for the equity market? 279 00:15:50,760 --> 00:15:54,040 Speaker 3: I think we could. And the things I watch, you know, 280 00:15:54,560 --> 00:15:57,680 Speaker 3: just like the fedhair is looking at payrolls and yes 281 00:15:57,760 --> 00:16:02,320 Speaker 3: they've weakened substantially, unemployment rate up a bit. The other 282 00:16:02,440 --> 00:16:04,800 Speaker 3: thing that I've been so laser focused on is the 283 00:16:04,840 --> 00:16:08,520 Speaker 3: inflation expectations in the bond market. And if you look 284 00:16:08,560 --> 00:16:11,520 Speaker 3: at a three year break even, it has really rolled 285 00:16:11,560 --> 00:16:15,760 Speaker 3: over in the last days. So you're looking at a 286 00:16:15,880 --> 00:16:19,320 Speaker 3: bond market that's expecting about two and a quarter inflation 287 00:16:19,720 --> 00:16:22,320 Speaker 3: over the next three years. Now, a lot of people 288 00:16:22,800 --> 00:16:25,440 Speaker 3: may look at that and say, what's wrong with that? 289 00:16:25,440 --> 00:16:30,000 Speaker 3: That's right in the fed's comfort zone, but it's starting 290 00:16:30,640 --> 00:16:33,960 Speaker 3: to move down fairly rapidly. So I would watch it closely. 291 00:16:34,000 --> 00:16:38,600 Speaker 3: From from my perspective, We're sitting here or have been 292 00:16:38,640 --> 00:16:41,520 Speaker 3: sitting here with a relatively flat yel curve. That feels 293 00:16:41,640 --> 00:16:46,239 Speaker 3: too restrictive to me in an environment where the economy's 294 00:16:46,400 --> 00:16:50,200 Speaker 3: just not going gangbusters from a job's perspective. So if 295 00:16:50,200 --> 00:16:52,240 Speaker 3: it were me, if I were running the FED, yeah, 296 00:16:52,280 --> 00:16:56,040 Speaker 3: I would want to have the short rate down closer 297 00:16:56,080 --> 00:17:00,000 Speaker 3: to three percent. That all else being equal, gives you 298 00:17:00,120 --> 00:17:03,000 Speaker 3: of one hundred to one hundred and twenty five basis 299 00:17:03,040 --> 00:17:06,200 Speaker 3: points spread between short rates and the ten year treasury. 300 00:17:06,880 --> 00:17:12,240 Speaker 3: That's historical average. To me, that seems far more appropriate 301 00:17:12,280 --> 00:17:16,400 Speaker 3: for the environment that were in in terms of what 302 00:17:16,520 --> 00:17:20,400 Speaker 3: that means. Typically, that's a good backdrop for risk assets, 303 00:17:20,960 --> 00:17:26,160 Speaker 3: particularly smaller capitalization stocks, but also as the ill curve steepens, 304 00:17:26,200 --> 00:17:29,000 Speaker 3: more value oriented parts of the market, and so for 305 00:17:29,119 --> 00:17:34,439 Speaker 3: investors that may have some concerns about valuations in the 306 00:17:34,480 --> 00:17:37,879 Speaker 3: top heavy part of the market, FED cuts and a 307 00:17:37,960 --> 00:17:41,800 Speaker 3: pick up an activity from that could give you the 308 00:17:41,840 --> 00:17:45,560 Speaker 3: backdrop where more value oriented parts of the market perform well. 309 00:17:45,600 --> 00:17:49,040 Speaker 3: And quite frankly, some of the biggest value markets were 310 00:17:49,080 --> 00:17:52,959 Speaker 3: outside of the United States, and you saw some of 311 00:17:53,000 --> 00:17:54,880 Speaker 3: that performance already this year. 312 00:17:55,280 --> 00:17:58,080 Speaker 1: That does raise the question cam about whether the market 313 00:17:58,119 --> 00:18:02,240 Speaker 1: is possibly depending on rate cuts from the Federal Reserve 314 00:18:02,320 --> 00:18:06,280 Speaker 1: to keep that rotation or broadening away from big tech 315 00:18:06,400 --> 00:18:09,680 Speaker 1: going into small and medium cap stocks. 316 00:18:10,640 --> 00:18:14,160 Speaker 2: Certainly it is dependent the rally in smaller meeting cap 317 00:18:14,160 --> 00:18:18,680 Speaker 2: stocks on the FED remaining supportive, because smaller cap stocks 318 00:18:19,080 --> 00:18:22,440 Speaker 2: need two key things. They need a resilient economy in 319 00:18:22,520 --> 00:18:25,840 Speaker 2: order to drive earnings growth, and they also need lower 320 00:18:25,880 --> 00:18:29,160 Speaker 2: interest rates in order to ease some pressure on balance sheets. 321 00:18:29,200 --> 00:18:31,840 Speaker 2: Small cap stocks tend to have a lot more debt 322 00:18:31,880 --> 00:18:34,000 Speaker 2: and a lot more floating rate debt, So if there's 323 00:18:34,080 --> 00:18:38,479 Speaker 2: any cohort that celebrates FED rate cuts more than others, 324 00:18:38,560 --> 00:18:41,320 Speaker 2: it would be those small cap stocks. Now it should 325 00:18:41,359 --> 00:18:44,120 Speaker 2: be noted, though, is that if we look at consensus 326 00:18:44,119 --> 00:18:47,600 Speaker 2: for the Russell two thousand, there is a very industrious 327 00:18:47,760 --> 00:18:52,119 Speaker 2: sixty percent earnings growth that is forecasted for twenty twenty six. 328 00:18:52,720 --> 00:18:55,720 Speaker 2: And that might look encouraging to investors because it's well 329 00:18:55,800 --> 00:18:58,160 Speaker 2: higher than what we see in the large cap portion 330 00:18:58,240 --> 00:19:00,520 Speaker 2: of the market, but it should be taken with a 331 00:19:00,560 --> 00:19:02,600 Speaker 2: grain of salt. If we look at the beginning of 332 00:19:02,640 --> 00:19:06,520 Speaker 2: twenty twenty five, there was an estimated fifty percent earnings 333 00:19:06,520 --> 00:19:10,080 Speaker 2: growth coming into this year, but the actual returns on 334 00:19:10,160 --> 00:19:14,680 Speaker 2: earnings growth ended up being just three percent. So those estimates, 335 00:19:14,760 --> 00:19:18,040 Speaker 2: just because they are expected by consensus, does not guarantee 336 00:19:18,040 --> 00:19:21,199 Speaker 2: that they will be delivered. But certainly more rate cuts 337 00:19:21,200 --> 00:19:24,960 Speaker 2: of resilient economy a cyclical uplift could help those those 338 00:19:25,000 --> 00:19:28,080 Speaker 2: smaller capsized stocks. But just note the bar is already 339 00:19:28,119 --> 00:19:29,120 Speaker 2: pretty darn high. 340 00:19:29,280 --> 00:19:31,280 Speaker 1: Yeah, it seems to be the case, And I'll turn 341 00:19:31,320 --> 00:19:34,960 Speaker 1: back to you, Brian, thinking about your role as a 342 00:19:35,000 --> 00:19:39,800 Speaker 1: global market strategist. With the FED considering further rate cuts 343 00:19:39,800 --> 00:19:43,080 Speaker 1: into twenty twenty six, we've got a European central bank 344 00:19:43,320 --> 00:19:46,240 Speaker 1: that seems to be on pause, a Bank of Japan 345 00:19:46,440 --> 00:19:49,359 Speaker 1: that's starting to hike interest rates for the first time 346 00:19:49,400 --> 00:19:51,720 Speaker 1: in years. Talk to me a little bit more about 347 00:19:51,760 --> 00:19:54,560 Speaker 1: the global central bank dynamics and what that could mean 348 00:19:54,640 --> 00:19:56,120 Speaker 1: for equities more broadly. 349 00:19:57,080 --> 00:20:01,000 Speaker 3: Yeah, the US is expected to lower rates more than 350 00:20:01,080 --> 00:20:04,200 Speaker 3: any other developed central bank, and I think that that 351 00:20:04,520 --> 00:20:09,560 Speaker 3: is critical. Typically, as the FED lowers rates and those 352 00:20:09,640 --> 00:20:12,560 Speaker 3: rates converge towards the rest of the world, you tend 353 00:20:12,600 --> 00:20:15,879 Speaker 3: not to see a very strong dollar environment. Investors aren't 354 00:20:16,040 --> 00:20:20,000 Speaker 3: used to that we haven't seen a gradual easing cycle 355 00:20:20,040 --> 00:20:23,840 Speaker 3: in the US in decades because we ran into crises 356 00:20:23,920 --> 00:20:26,960 Speaker 3: and then the US stimulated the economy better than the 357 00:20:26,960 --> 00:20:29,280 Speaker 3: rest of the world did in eight and twenty twenty. 358 00:20:29,359 --> 00:20:34,000 Speaker 3: So this is the first gradual rate easing cycle that 359 00:20:34,160 --> 00:20:37,760 Speaker 3: most investors in the United States have seen, at least 360 00:20:37,800 --> 00:20:41,080 Speaker 3: for a very long while. So what that usually means 361 00:20:41,160 --> 00:20:43,720 Speaker 3: is you don't have a strong dollar, may even mean 362 00:20:44,200 --> 00:20:48,280 Speaker 3: that the dollar goes sideways or moderates, and in that 363 00:20:48,359 --> 00:20:51,600 Speaker 3: type of a backdrop, that's when capital can start to 364 00:20:51,680 --> 00:20:54,600 Speaker 3: look to other parts of the world where valuations are 365 00:20:54,600 --> 00:20:58,440 Speaker 3: more compelling. You saw a lot of that this year. 366 00:20:58,480 --> 00:21:02,399 Speaker 3: If you look at the MSCI AQUIXUS total return, it 367 00:21:02,840 --> 00:21:08,440 Speaker 3: significantly outperformed the S and P five hundred. So that's 368 00:21:08,480 --> 00:21:12,520 Speaker 3: something that can continue, particularly when you think to the 369 00:21:12,600 --> 00:21:17,000 Speaker 3: emerging markets. If you look at emerging economies, they tend 370 00:21:17,040 --> 00:21:22,280 Speaker 3: to perform best when the dollar is either going sideways 371 00:21:22,520 --> 00:21:27,040 Speaker 3: or weakening, and as the US lowers rates, that gives 372 00:21:27,040 --> 00:21:29,960 Speaker 3: some more flexibility to central banks in the emerging world. 373 00:21:30,080 --> 00:21:34,600 Speaker 3: So that's a place that investors could look if they're 374 00:21:34,640 --> 00:21:38,000 Speaker 3: trying to diversify out of the US. Take advantage of 375 00:21:39,480 --> 00:21:42,600 Speaker 3: better valuations and take advantage of what could be a 376 00:21:42,640 --> 00:21:44,919 Speaker 3: better global macro backdrop. 377 00:21:45,520 --> 00:21:48,959 Speaker 1: We're speaking with Brian Levitt, Global Market Strategistic Investco and 378 00:21:49,080 --> 00:21:52,960 Speaker 1: New Edge Wealth Chief investment Officer Cameron Dawson. In the 379 00:21:52,960 --> 00:21:56,840 Speaker 1: minutes we have left, let's talk about the US markets 380 00:21:56,920 --> 00:22:00,000 Speaker 1: more specifically in twenty twenty six. A lot of quests 381 00:22:00,400 --> 00:22:04,760 Speaker 1: about whether the tech trade can continue with the valuations 382 00:22:04,880 --> 00:22:09,000 Speaker 1: it's at right now. Cameron, What sectors are you looking 383 00:22:09,040 --> 00:22:12,000 Speaker 1: at that could provide a little bit more return in 384 00:22:12,040 --> 00:22:12,960 Speaker 1: twenty twenty six. 385 00:22:13,680 --> 00:22:16,040 Speaker 2: Well, one of the things that we're watching really closely 386 00:22:16,160 --> 00:22:18,359 Speaker 2: is that over the last couple of months you have 387 00:22:18,480 --> 00:22:22,720 Speaker 2: seen a big rotation into some left behind sectors over 388 00:22:22,720 --> 00:22:25,919 Speaker 2: the last few years. If you look at places like healthcare, 389 00:22:25,960 --> 00:22:30,080 Speaker 2: for example, going from being a laggard into now a 390 00:22:30,280 --> 00:22:33,040 Speaker 2: leading sector in the market, which is really more of 391 00:22:33,119 --> 00:22:37,879 Speaker 2: a valuation story and somewhat of an earning's recovery story 392 00:22:37,960 --> 00:22:40,680 Speaker 2: because of depressed earnings over the course of the last 393 00:22:40,680 --> 00:22:43,360 Speaker 2: couple of years. The other thing that we're watching closely 394 00:22:43,800 --> 00:22:46,720 Speaker 2: is you're starting to see some signs that very cyclical 395 00:22:46,760 --> 00:22:51,199 Speaker 2: sectors are turning up. In addition to industrial commodities, So 396 00:22:51,400 --> 00:22:54,639 Speaker 2: look at copper soaring, and all of this suggests that 397 00:22:54,760 --> 00:22:59,040 Speaker 2: maybe the market is starting to bacon expectations of that 398 00:22:59,200 --> 00:23:02,920 Speaker 2: cyclical uft after we've had this mid cycle slow down. 399 00:23:03,240 --> 00:23:06,720 Speaker 2: The question, of course, is that optimism warranted. Will we 400 00:23:06,880 --> 00:23:10,439 Speaker 2: see some of that cyclicality actually deliver. It should be 401 00:23:10,520 --> 00:23:14,880 Speaker 2: noted that November through May are typically really strong times 402 00:23:14,920 --> 00:23:18,359 Speaker 2: for cyclicality, and that those trades tend to fade as 403 00:23:18,400 --> 00:23:20,720 Speaker 2: we get towards the middle of the year. So for now, 404 00:23:20,840 --> 00:23:22,679 Speaker 2: it seems like a good time as we start to 405 00:23:22,680 --> 00:23:25,320 Speaker 2: see some of that cyclicality come back into markets. 406 00:23:25,600 --> 00:23:28,239 Speaker 1: Brian, you're looking at cyclicals, what kind of sectors are 407 00:23:28,280 --> 00:23:30,280 Speaker 1: you considering into the new year. 408 00:23:31,040 --> 00:23:34,000 Speaker 3: I couldn't agree more And Cameron is spot on with this. 409 00:23:34,040 --> 00:23:37,159 Speaker 3: When we look at our leading indicators of the economy, 410 00:23:37,480 --> 00:23:40,240 Speaker 3: it's giving us a three to six month view of 411 00:23:40,320 --> 00:23:44,240 Speaker 3: the global economy returning more to a trend like environment. 412 00:23:44,359 --> 00:23:47,920 Speaker 3: It had been globally below trend, and so what that 413 00:23:48,160 --> 00:23:55,600 Speaker 3: means is a more environment that favors more cyclical assets. 414 00:23:55,640 --> 00:23:58,359 Speaker 3: Now that's generally a three to six month view, so 415 00:23:58,400 --> 00:24:00,960 Speaker 3: we'll have to see the carry through from that. Do 416 00:24:01,000 --> 00:24:03,240 Speaker 3: we come from a do we go from a recovery 417 00:24:03,560 --> 00:24:06,919 Speaker 3: to more of an expansion. I agree with Cameron's timing 418 00:24:06,960 --> 00:24:11,000 Speaker 3: a lot. We will reassess monthly, certainly six months from 419 00:24:11,040 --> 00:24:12,920 Speaker 3: now see where we are with it. But when you're 420 00:24:12,920 --> 00:24:19,720 Speaker 3: thinking about cyclical sectors, yeah, financials, industrial, commodities, energy, those 421 00:24:19,800 --> 00:24:23,639 Speaker 3: tend to be materials, those tend to be the our performers. 422 00:24:23,680 --> 00:24:25,840 Speaker 3: And what I also like what Cameron mentioned. 423 00:24:25,480 --> 00:24:31,679 Speaker 5: Is this idea of perhaps even rotating within growthier parts 424 00:24:31,720 --> 00:24:35,119 Speaker 5: of the market, and you know, perhaps biotech is an 425 00:24:35,160 --> 00:24:36,000 Speaker 5: example of that. 426 00:24:36,520 --> 00:24:39,600 Speaker 1: In our last minute, Cameron, what are some potential risks 427 00:24:39,760 --> 00:24:43,280 Speaker 1: that investors should keep in mind into the new year. 428 00:24:44,200 --> 00:24:47,240 Speaker 2: The big wild card for US is oil prices. We 429 00:24:47,320 --> 00:24:52,040 Speaker 2: should not underestimate or underappreciate just how powerful falling oil 430 00:24:52,080 --> 00:24:55,960 Speaker 2: prices have been for the disinflation move of lower headline inflation, 431 00:24:56,480 --> 00:24:59,960 Speaker 2: as well as helping consumers effectively acting as a tax cut. 432 00:25:00,359 --> 00:25:03,359 Speaker 2: Oil prices are very low, Gasoline prices are very low, 433 00:25:03,480 --> 00:25:05,959 Speaker 2: but a turn in that trend towards more of an 434 00:25:06,040 --> 00:25:08,920 Speaker 2: uptrend could certainly be a shock. It's not our base case, 435 00:25:08,960 --> 00:25:11,640 Speaker 2: but something we're watching closely as it is very important. 436 00:25:12,080 --> 00:25:13,840 Speaker 1: Thanks to both of you for being with us on 437 00:25:13,880 --> 00:25:17,520 Speaker 1: this Christmas holiday. That's Brian Levitt, global market strategist at 438 00:25:17,520 --> 00:25:21,600 Speaker 1: Invesco and New Edge Wealth Chief investment Officer Cameron Dawson. 439 00:25:21,760 --> 00:25:24,840 Speaker 1: And up next, the twelve Days of Christmas got a 440 00:25:24,840 --> 00:25:27,439 Speaker 1: little pricier this year. We'll break it down with Amanda 441 00:25:27,440 --> 00:25:40,720 Speaker 1: Agatti of PNC. I'm Nathan Hagar, and this is Bloombern. 442 00:25:44,800 --> 00:25:48,000 Speaker 3: On the first day of Christmas. My true love sent 443 00:25:48,080 --> 00:25:50,960 Speaker 3: to me a park hygeen, a pear tree. 444 00:25:52,080 --> 00:25:55,600 Speaker 1: Welcome back to this special edition of Bloomberg Daybreak. The 445 00:25:55,600 --> 00:25:59,199 Speaker 1: markets are closed for the Christmas holiday. I'm Nathan Hager. 446 00:25:59,320 --> 00:26:01,919 Speaker 1: But if you're talent up the cost of Christmas, it 447 00:26:02,119 --> 00:26:05,080 Speaker 1: might not be music to everybody's ears, especially if you 448 00:26:05,160 --> 00:26:08,879 Speaker 1: go that full twelve days. So how much will a 449 00:26:09,000 --> 00:26:11,639 Speaker 1: partridge in a partree and all those turtle doves and 450 00:26:11,800 --> 00:26:15,480 Speaker 1: gold rings set you back this Christmas season? Joining us 451 00:26:15,640 --> 00:26:19,399 Speaker 1: is someone who knows. Every year PNC Chief Investment Officer 452 00:26:19,440 --> 00:26:24,520 Speaker 1: Amanda Agatti publishes PNC's Christmas Price Index, a festive indicator 453 00:26:24,520 --> 00:26:27,200 Speaker 1: that turns the twelve days of Christmas into a holly 454 00:26:27,280 --> 00:26:30,320 Speaker 1: jolly reid on the US economy. And Amanda is here 455 00:26:30,359 --> 00:26:33,560 Speaker 1: with us to break it down, Amanda. So great to 456 00:26:33,640 --> 00:26:37,720 Speaker 1: have you on this Christmas holiday. So let's get the 457 00:26:37,760 --> 00:26:40,760 Speaker 1: top line number. What's the twelve days of Christmas cost 458 00:26:40,840 --> 00:26:42,760 Speaker 1: and Christmas twenty twenty five. 459 00:26:43,600 --> 00:26:47,440 Speaker 6: Well, Merry Christmas, Nathan, I'm so thrilled to be with 460 00:26:47,520 --> 00:26:51,400 Speaker 6: you celebrating the holiday here. Believe it or not, True 461 00:26:51,480 --> 00:26:55,160 Speaker 6: Love's gifts wrap up at a tree topping fifty one thousand, 462 00:26:55,359 --> 00:26:58,680 Speaker 6: four hundred and seventy six dollars. It's up about four 463 00:26:58,680 --> 00:27:01,439 Speaker 6: and a half percent year over year. So the cost 464 00:27:01,480 --> 00:27:04,040 Speaker 6: of Christmas continues to be on the rise. 465 00:27:04,119 --> 00:27:08,960 Speaker 1: Out pacing the FEDS two percent target more than doubles. 466 00:27:10,280 --> 00:27:13,600 Speaker 1: Should we go day by day, how do you think 467 00:27:13,640 --> 00:27:16,520 Speaker 1: about the cost of a partridge in a pear tree 468 00:27:16,640 --> 00:27:17,320 Speaker 1: on the first day? 469 00:27:17,400 --> 00:27:21,560 Speaker 6: Well, yeah, I mean we could spend all day talking 470 00:27:21,600 --> 00:27:24,440 Speaker 6: about you know how we're trying to tie the analysis 471 00:27:24,480 --> 00:27:28,879 Speaker 6: to what's happening in the real world. I think what's 472 00:27:29,000 --> 00:27:32,480 Speaker 6: notable about the partridge in a pear tree is not 473 00:27:32,600 --> 00:27:36,040 Speaker 6: so much the partridge. The cost of the partridge itself 474 00:27:36,359 --> 00:27:38,480 Speaker 6: didn't move on a year over yr basis. I can't 475 00:27:38,520 --> 00:27:42,760 Speaker 6: imagine why True Love doesn't want a partridge, but the 476 00:27:42,800 --> 00:27:47,080 Speaker 6: pear tree is really the driver for that combo gift, 477 00:27:47,119 --> 00:27:51,480 Speaker 6: and so we always tie the pear tree to sort 478 00:27:51,520 --> 00:27:55,760 Speaker 6: of a proxy for housing costs, which continue to increase 479 00:27:56,400 --> 00:27:59,320 Speaker 6: year after year. There's a lot of sort of interesting 480 00:27:59,320 --> 00:28:03,360 Speaker 6: supplying dynamics as it relates to housing in this country. 481 00:28:03,400 --> 00:28:06,240 Speaker 6: But I think what's interesting this year is even though 482 00:28:06,840 --> 00:28:10,000 Speaker 6: mortgage rates have sort of fallen off the rooftop, as 483 00:28:10,040 --> 00:28:13,280 Speaker 6: they say, by more than one hundred bases points, as 484 00:28:13,280 --> 00:28:16,080 Speaker 6: the Fed's been lowering rates, it really hasn't made much 485 00:28:16,080 --> 00:28:19,960 Speaker 6: of a difference in terms of affordability. So I don't 486 00:28:19,960 --> 00:28:22,880 Speaker 6: know if the partridge needs to rent that pear tree 487 00:28:22,960 --> 00:28:24,720 Speaker 6: or what, but it's going to cost true love a 488 00:28:24,720 --> 00:28:25,800 Speaker 6: lot this holiday season. 489 00:28:26,080 --> 00:28:26,359 Speaker 2: Wow. 490 00:28:26,480 --> 00:28:29,680 Speaker 1: Okay, so we're not thinking about the pairs necessarily either, 491 00:28:30,200 --> 00:28:33,800 Speaker 1: looping in fruit prices maybe, But we do have a 492 00:28:33,840 --> 00:28:37,399 Speaker 1: lot of birds in the next few days of the 493 00:28:37,800 --> 00:28:41,920 Speaker 1: twelve days, turtle doves, calling birds, French hens. Are we 494 00:28:41,920 --> 00:28:43,320 Speaker 1: thinking about chicken and eggs here? 495 00:28:45,120 --> 00:28:48,200 Speaker 6: We certainly can be. We can think of a lot 496 00:28:48,200 --> 00:28:52,400 Speaker 6: of fun bird puns and references, there's no question. But 497 00:28:52,520 --> 00:28:55,040 Speaker 6: I just I think it's I think it's notable that 498 00:28:55,080 --> 00:28:57,480 Speaker 6: the two turtle doves, the three French hens, and the 499 00:28:57,480 --> 00:29:01,000 Speaker 6: four calling birds are all flat year over year basis. 500 00:29:01,040 --> 00:29:05,320 Speaker 6: It's that recurring theme with that darn partridge. I can't 501 00:29:05,360 --> 00:29:10,040 Speaker 6: imagine why people don't want birds as pets this holiday season, 502 00:29:10,160 --> 00:29:12,480 Speaker 6: So there hasn't been a whole lot of demand on 503 00:29:12,520 --> 00:29:14,520 Speaker 6: a year over year basis for the birds. Let's call 504 00:29:14,560 --> 00:29:17,760 Speaker 6: it a silent night of okay for those birds. 505 00:29:17,960 --> 00:29:20,720 Speaker 1: Well, maybe a new year's resolution to get back to 506 00:29:20,760 --> 00:29:24,160 Speaker 1: the pet store. But in the meantime, I got to 507 00:29:24,200 --> 00:29:28,400 Speaker 1: think that the most eye popping sector in this analysis 508 00:29:28,480 --> 00:29:31,160 Speaker 1: has to be the five gold rings. When we think 509 00:29:31,200 --> 00:29:35,880 Speaker 1: about the record levels that gold has been hitting in 510 00:29:36,000 --> 00:29:37,040 Speaker 1: just the last couple of months. 511 00:29:37,080 --> 00:29:41,240 Speaker 6: Here, yeah, single largest increase by far on a year 512 00:29:41,240 --> 00:29:44,240 Speaker 6: over year basis a heartbreaker for me as it's my 513 00:29:44,320 --> 00:29:46,600 Speaker 6: all time favorite gift. My true love is going to 514 00:29:46,680 --> 00:29:50,080 Speaker 6: have a tough time this holiday season shopping for me. 515 00:29:50,200 --> 00:29:53,080 Speaker 6: There's no question, but the five Golden rings are up 516 00:29:53,120 --> 00:29:56,520 Speaker 6: about thirty two and a half percent year over year. 517 00:29:56,640 --> 00:30:00,000 Speaker 6: It's a little bit of a bargain. This is small, constantly, 518 00:30:00,280 --> 00:30:02,120 Speaker 6: but a little bit of a bargain compared to the 519 00:30:02,200 --> 00:30:06,000 Speaker 6: move in gold commodity prices, which are up forty five 520 00:30:06,080 --> 00:30:10,520 Speaker 6: plus percent over the same time period, So you know 521 00:30:10,600 --> 00:30:13,720 Speaker 6: what's going on here. I mean, it's certainly a function 522 00:30:13,920 --> 00:30:18,440 Speaker 6: of concern and the macro backdrop investors have been flocking. 523 00:30:18,960 --> 00:30:23,240 Speaker 6: There's a bird pun for you two precious metals this 524 00:30:23,400 --> 00:30:28,000 Speaker 6: year with some of the macro uncertainty, the geopolitical concerns, 525 00:30:28,040 --> 00:30:31,520 Speaker 6: we've had some inflationary pressures that have been sort of 526 00:30:32,120 --> 00:30:36,200 Speaker 6: consistent throughout the year, and even more recently fed rate 527 00:30:36,280 --> 00:30:39,560 Speaker 6: cuts one would think would be helpful, but it's effectively 528 00:30:39,640 --> 00:30:43,640 Speaker 6: lowering the opportunity cost of holding gold, so on a 529 00:30:43,840 --> 00:30:48,400 Speaker 6: relative basis, it's a bit more attractive than yield bearing assets. 530 00:30:48,800 --> 00:30:52,200 Speaker 1: Yeah, you certainly have to wonder where those five gold 531 00:30:52,280 --> 00:30:55,840 Speaker 1: rings are going to go next Christmas, given the crazy 532 00:30:56,000 --> 00:30:59,080 Speaker 1: track that gold has taken in just the last few months. 533 00:31:00,200 --> 00:31:03,000 Speaker 1: Moving further along into the next couple of verses, here, 534 00:31:03,520 --> 00:31:06,680 Speaker 1: six geese laying, seven swans of swimming. I think we're 535 00:31:06,680 --> 00:31:09,760 Speaker 1: back into birds that we find maybe a little bit 536 00:31:10,320 --> 00:31:11,400 Speaker 1: in the grocery aisle. 537 00:31:12,560 --> 00:31:15,760 Speaker 6: Well, let's just be relieved that the six geese did 538 00:31:15,800 --> 00:31:21,440 Speaker 6: not lay golden eggs this holiday season. There increases there's 539 00:31:21,480 --> 00:31:23,040 Speaker 6: a little bit of a move on a year of 540 00:31:23,160 --> 00:31:26,320 Speaker 6: your basis up about three point three percent, so a 541 00:31:26,360 --> 00:31:31,080 Speaker 6: little bit closer to broader inflationary trends. So let's just 542 00:31:31,120 --> 00:31:34,280 Speaker 6: say true love doesn't have to sweat it out buying 543 00:31:34,320 --> 00:31:37,480 Speaker 6: the six geese a laying this year. It's not too 544 00:31:37,560 --> 00:31:40,760 Speaker 6: bad relatively teame on a year over year basis. Those 545 00:31:40,800 --> 00:31:44,600 Speaker 6: seven Swans, though, I think that one's really interesting. It's 546 00:31:44,680 --> 00:31:48,960 Speaker 6: one of the biggest dollar values in the entire index, 547 00:31:49,360 --> 00:31:51,800 Speaker 6: but it didn't move on a year over year basis, 548 00:31:51,840 --> 00:31:54,920 Speaker 6: And so what's great about that, I think for investors 549 00:31:55,600 --> 00:31:58,920 Speaker 6: is you know, black no black swan sightings over the 550 00:31:59,000 --> 00:32:03,000 Speaker 6: course of Yeah, so that's how we think about that 551 00:32:03,040 --> 00:32:06,080 Speaker 6: one and sort of a key to perhaps the market 552 00:32:06,200 --> 00:32:07,960 Speaker 6: rally continuing in the new year. 553 00:32:08,320 --> 00:32:13,200 Speaker 1: Okay, yeah, I'll hope springs eternal, especially this time of year. 554 00:32:14,480 --> 00:32:19,280 Speaker 1: Here we go into eight Maids of Milking? Where do 555 00:32:19,440 --> 00:32:20,960 Speaker 1: where do they fit? In Amanda? 556 00:32:22,000 --> 00:32:25,000 Speaker 6: The Eight Maids of Milking are sort of a frustrating 557 00:32:25,280 --> 00:32:29,440 Speaker 6: line item for many because the analysis is always tied 558 00:32:29,520 --> 00:32:33,480 Speaker 6: to the minimum wage in this country, and so it's 559 00:32:33,600 --> 00:32:37,360 Speaker 6: always flat on a year over year basis unless we 560 00:32:37,480 --> 00:32:42,280 Speaker 6: see Washington take steps to adjust the minimum wage. And 561 00:32:42,320 --> 00:32:45,640 Speaker 6: it's been a very very long time since we've seen that, 562 00:32:45,800 --> 00:32:48,480 Speaker 6: So I don't know whether you know Washington wants to 563 00:32:48,520 --> 00:32:51,360 Speaker 6: take that up in twenty twenty six from a policy 564 00:32:51,440 --> 00:32:54,320 Speaker 6: stance or not. But it's been also a silent night 565 00:32:54,800 --> 00:32:56,880 Speaker 6: on a year of your basis for those eight maids. 566 00:32:57,240 --> 00:33:01,320 Speaker 1: Okay, well maybe another new years as depending on where 567 00:33:01,360 --> 00:33:06,360 Speaker 1: you stand on that going to nine Ladies Dancing, ten 568 00:33:06,440 --> 00:33:09,640 Speaker 1: Lords of Leaping. Things start to get a little bit 569 00:33:09,640 --> 00:33:11,440 Speaker 1: more interesting in this part of the index. 570 00:33:12,440 --> 00:33:16,760 Speaker 6: Yeah, The performers, or let's just call it the services 571 00:33:16,840 --> 00:33:21,360 Speaker 6: components of the index are always kind of an interesting 572 00:33:21,520 --> 00:33:24,040 Speaker 6: driver on a year of ear basis. There's a little 573 00:33:24,080 --> 00:33:27,520 Speaker 6: bit of a distinction between the different types of performers 574 00:33:27,560 --> 00:33:31,920 Speaker 6: this year, whereas in past years we've seen it running 575 00:33:31,960 --> 00:33:34,840 Speaker 6: really red hot Rudolph's red nose hot on a year 576 00:33:34,880 --> 00:33:38,640 Speaker 6: of your basis, And it lines up very I think 577 00:33:38,760 --> 00:33:42,760 Speaker 6: nicely with how consumer behavior and consumer spending has shifted 578 00:33:42,840 --> 00:33:47,840 Speaker 6: from goods and things and stuff to services and experiences. 579 00:33:47,920 --> 00:33:51,120 Speaker 6: So we're definitely seeing the services side of the index 580 00:33:51,280 --> 00:33:54,160 Speaker 6: kind of transform over time to be a bigger driver 581 00:33:55,040 --> 00:33:58,520 Speaker 6: in alignment with how the economy is evolving. I think 582 00:33:58,520 --> 00:34:00,840 Speaker 6: the one that's the standout for me is the ten 583 00:34:00,920 --> 00:34:05,680 Speaker 6: Lords a Leaping. It's the single biggest services or performer 584 00:34:06,240 --> 00:34:09,120 Speaker 6: increase on a year over year basis. And I have 585 00:34:09,200 --> 00:34:11,480 Speaker 6: to say, though this is not part of the analysis, 586 00:34:11,520 --> 00:34:15,760 Speaker 6: that it's got to be a reflection of Oasis concert tickets. 587 00:34:15,800 --> 00:34:19,279 Speaker 6: It's the hottest ticket in town all year. Maybe you 588 00:34:19,320 --> 00:34:22,520 Speaker 6: could refer to them as the ten Lords of Rock 589 00:34:22,640 --> 00:34:25,960 Speaker 6: as opposed to Lord's a Leaping, but I think that's 590 00:34:26,160 --> 00:34:29,879 Speaker 6: that's probably the closest comparison we could make to ten 591 00:34:29,960 --> 00:34:32,960 Speaker 6: Lords a Leaping. Concert tickets still very, very hot this 592 00:34:33,040 --> 00:34:34,120 Speaker 6: holiday season. 593 00:34:33,880 --> 00:34:37,400 Speaker 1: And we certainly saw Powerhouse Lady dancing this year with 594 00:34:37,480 --> 00:34:40,960 Speaker 1: the Taylor Swift effect as well. Were talking about that 595 00:34:41,480 --> 00:34:44,200 Speaker 1: pretty much throughout twenty twenty five long. 596 00:34:44,440 --> 00:34:45,479 Speaker 6: That's exactly right. 597 00:34:46,440 --> 00:34:49,000 Speaker 1: I think we're probably keeping it in the entertainment realm 598 00:34:49,040 --> 00:34:52,400 Speaker 1: as well, with the eleven pipers piping and twelve drummers drumming. 599 00:34:52,440 --> 00:34:55,240 Speaker 1: All those Lords of Leaping, I guess need backup bands 600 00:34:55,239 --> 00:34:55,600 Speaker 1: as well. 601 00:34:55,680 --> 00:35:00,239 Speaker 6: Huh, Yes, I think you know, there isn't something in 602 00:35:00,280 --> 00:35:05,480 Speaker 6: particular that's notable relative to the ten Lords. For eleven 603 00:35:05,520 --> 00:35:08,280 Speaker 6: and twelve, they're all sort of sitting in that same 604 00:35:08,920 --> 00:35:12,360 Speaker 6: category of consumers are just willing to pay up for 605 00:35:12,480 --> 00:35:16,000 Speaker 6: services and experiences. The translation is there's a lot of 606 00:35:16,000 --> 00:35:19,360 Speaker 6: pricing power in the services and the experiences and the 607 00:35:19,520 --> 00:35:22,440 Speaker 6: entertainment side of the equation, Whereas I would say, for 608 00:35:22,960 --> 00:35:26,719 Speaker 6: sadly the five Golden Rings jewelers are losing on a 609 00:35:26,760 --> 00:35:29,560 Speaker 6: relative basis. They're feeling the margin squeeze. There's not that 610 00:35:29,680 --> 00:35:33,920 Speaker 6: much pricing power to push through higher input costs, so 611 00:35:34,400 --> 00:35:36,920 Speaker 6: the services are still running red hot, There's no question 612 00:35:36,960 --> 00:35:37,319 Speaker 6: about it. 613 00:35:37,680 --> 00:35:39,279 Speaker 1: So I guess if we were to put this all 614 00:35:39,320 --> 00:35:42,520 Speaker 1: together with that price tag we mentioned at the beginning, 615 00:35:42,560 --> 00:35:45,800 Speaker 1: north of fifty five thousand, if I'm remembering right, that 616 00:35:46,040 --> 00:35:49,520 Speaker 1: tells us I think a lot about maybe how consumers 617 00:35:49,600 --> 00:35:53,040 Speaker 1: might be feeling squeezed is certainly at the lower end 618 00:35:53,080 --> 00:35:56,640 Speaker 1: of the income spectrum around this holiday sees. Is that 619 00:35:56,760 --> 00:35:59,280 Speaker 1: something that you're seeing reflected in this report? 620 00:36:00,040 --> 00:36:03,000 Speaker 6: Absolutely? You know this is with this is a very 621 00:36:03,040 --> 00:36:07,439 Speaker 6: whimsical fun analysis that we do every year to try 622 00:36:07,480 --> 00:36:11,080 Speaker 6: and make sense of, you know, broader inflationary and economic trends. 623 00:36:11,160 --> 00:36:13,960 Speaker 6: But the reality is that this is such a specialty 624 00:36:14,160 --> 00:36:18,320 Speaker 6: gift basket of goods and services that it skews higher 625 00:36:18,440 --> 00:36:22,000 Speaker 6: end in terms of gauging what the higher end consumer 626 00:36:22,120 --> 00:36:25,400 Speaker 6: might be facing. In terms of trends, we know without 627 00:36:25,600 --> 00:36:27,920 Speaker 6: a shadow of a doubt that the lower end consumer 628 00:36:28,320 --> 00:36:32,359 Speaker 6: has been feeling the squeeze really all year and really 629 00:36:32,440 --> 00:36:35,520 Speaker 6: over the last few years. We don't see a lot 630 00:36:35,520 --> 00:36:38,000 Speaker 6: of relief on that front at all. I think the 631 00:36:38,640 --> 00:36:42,000 Speaker 6: challenge in twenty twenty six will be how does the 632 00:36:42,040 --> 00:36:45,040 Speaker 6: consumer on balance? How does the US consumer hang in 633 00:36:45,080 --> 00:36:48,960 Speaker 6: there on a relative basis. We've seen retail sales trends 634 00:36:49,160 --> 00:36:52,280 Speaker 6: hang in there. I think back to school shopping season 635 00:36:52,360 --> 00:36:56,840 Speaker 6: was pretty strong. Black Friday trends looked really good. Twenty 636 00:36:56,880 --> 00:37:00,160 Speaker 6: twenty five holiday shopping season, it's again it's early, but 637 00:37:00,800 --> 00:37:05,400 Speaker 6: indications are that consumers continue to spend, which is the 638 00:37:05,400 --> 00:37:08,760 Speaker 6: good news. But at what point does the consumer exhaust itself. 639 00:37:09,320 --> 00:37:11,359 Speaker 6: We've been worrying about it for the last few years. 640 00:37:11,400 --> 00:37:14,279 Speaker 6: It hasn't materialized. So I think a key question for 641 00:37:14,320 --> 00:37:18,240 Speaker 6: twenty twenty six is does the consumer start to fade 642 00:37:18,280 --> 00:37:20,480 Speaker 6: a bit and what does that do to the trajectory 643 00:37:20,600 --> 00:37:23,040 Speaker 6: for growth, which all for all intents and purposes, look 644 00:37:23,120 --> 00:37:26,560 Speaker 6: still quite solid as we round out twenty twenty five. 645 00:37:26,640 --> 00:37:28,520 Speaker 1: And I think as we mentioned at the top here. 646 00:37:28,560 --> 00:37:31,399 Speaker 1: This index is something that P and C has been 647 00:37:31,440 --> 00:37:34,279 Speaker 1: doing for quite a few years now. In the time 648 00:37:34,280 --> 00:37:37,160 Speaker 1: that you've been putting out this twelve days analysis, what 649 00:37:37,480 --> 00:37:41,160 Speaker 1: do you feel like you've learned about the trajectory of 650 00:37:41,200 --> 00:37:42,239 Speaker 1: the US economy. 651 00:37:43,000 --> 00:37:45,560 Speaker 6: Well, it's a great question, and believe it or not, 652 00:37:45,800 --> 00:37:50,920 Speaker 6: we've been at this analysis for forty two years, so 653 00:37:51,280 --> 00:37:56,000 Speaker 6: the evolution of the US economy has really seen a 654 00:37:56,040 --> 00:37:59,000 Speaker 6: lot of change over the decades, for sure, and I 655 00:37:59,000 --> 00:38:03,319 Speaker 6: think the big notable shift is that even though this 656 00:38:03,480 --> 00:38:07,120 Speaker 6: is a specialty gift basket of goods and services, again 657 00:38:07,320 --> 00:38:09,480 Speaker 6: very whimsical and lighthearted. 658 00:38:09,719 --> 00:38:12,359 Speaker 1: Thank you, Amanda, This is great. Really appreciate you coming 659 00:38:12,400 --> 00:38:15,200 Speaker 1: on with us. Amanda Gotti with us there, chief investment 660 00:38:15,239 --> 00:38:19,560 Speaker 1: officer at PNC. Thanks as well to Investo Global market 661 00:38:19,640 --> 00:38:23,560 Speaker 1: Strategist Brian Levitch and New Edgewelth Chief investment Officer Cameron 662 00:38:23,600 --> 00:38:26,120 Speaker 1: Dawson for being here. Thanks to you as well for 663 00:38:26,160 --> 00:38:29,239 Speaker 1: spending a little bit of your holiday with us. Merry Christmas. 664 00:38:29,600 --> 00:38:30,480 Speaker 1: I'm Nathan Hager. 665 00:38:30,640 --> 00:38:31,200 Speaker 3: Stay with US. 666 00:38:31,400 --> 00:38:34,920 Speaker 1: Top stories and global business headlines are coming up right now.