WEBVTT - Asian Markets React to Central Bank Rate Decisions 0:00:02.480 --> 0:00:06.800 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.640 --> 0:00:12.880 This is the Bloomberg Daybreak Aisia podcast. I'm Doug Prisner. 0:00:12.920 --> 0:00:15.400 You can join Brian Curtis and myself for the stories, 0:00:15.440 --> 0:00:18.520 making news and moving markets in the APAC region. You 0:00:18.600 --> 0:00:21.439 can subscribe to the show anywhere you get your podcast 0:00:21.520 --> 0:00:24.919 and always on Bloomberg Radio, the Bloomberg Terminal, and the 0:00:24.920 --> 0:00:26.080 Bloomberg Business App. 0:00:27.360 --> 0:00:31.000 Joining us now is Nadia Level, senior US equity strategist 0:00:31.040 --> 0:00:33.159 at UBS Global Wealth Management. 0:00:33.720 --> 0:00:34.640 Nadi, we heard. 0:00:34.440 --> 0:00:36.120 There that we've got a lot of speakers this week, 0:00:36.159 --> 0:00:40.040 not only Governors Bowman, Coogler, and Cook, but then Presidents Rafield, 0:00:40.040 --> 0:00:43.320 Bostik and Austin Goolsby. How do you see the FED 0:00:43.520 --> 0:00:45.320 message evolving this week? 0:00:46.720 --> 0:00:48.479 You know, it would be interesting to see what the 0:00:48.560 --> 0:00:53.000 message is because our sense was this fifty basis points 0:00:53.479 --> 0:00:57.000 cut was something that Paul really wanted to get through. 0:00:57.720 --> 0:01:00.920 Could not afford to see any potential for the weakness 0:01:00.920 --> 0:01:05.399 in the labor market, especially given that monetary policy acts 0:01:05.440 --> 0:01:07.560 with a lag. I mean, we saw from the updated 0:01:07.600 --> 0:01:10.480 dots that it suggests that maybe some participants wanted a 0:01:10.480 --> 0:01:12.800 smaller cut. The medium dot didn't move up to one 0:01:12.840 --> 0:01:15.200 hundred basis points, but you had nine participants that are 0:01:15.240 --> 0:01:17.800 at seventy five basis points or less for the rest 0:01:17.800 --> 0:01:20.160 of the year. But we know that you know, self 0:01:20.240 --> 0:01:23.679 landed are hard and to navigate, and Powell wanted to 0:01:23.680 --> 0:01:26.080 get ahead of this. This is also about his legacy, 0:01:26.120 --> 0:01:28.119 and so he wanted to cut from a position of strength. 0:01:28.400 --> 0:01:32.000 Our core view has been since the week July payrolls 0:01:32.040 --> 0:01:34.319 that we would get one hundred basis points have cut 0:01:34.520 --> 0:01:36.680 this year, and that remains our stand. We continue to 0:01:36.720 --> 0:01:39.319 think that the disinflation is happening faster than the FED 0:01:39.440 --> 0:01:42.400 was expected. We saw them reduce those numbers, and so 0:01:42.720 --> 0:01:44.960 we do think that the commentary this week probably will 0:01:45.000 --> 0:01:46.920 skew a little bit hawk is just given where the 0:01:46.959 --> 0:01:50.760 dots are and there's obviously dispersion on the committee. 0:01:50.920 --> 0:01:53.440 Yeah, Chris Waller was saying Friday, I think in an 0:01:53.520 --> 0:01:57.000 interview with CNBC that it was the favorable inflation data, 0:01:57.080 --> 0:02:00.400 not worries about the labor market, that convinced him to 0:02:00.440 --> 0:02:03.600 support that fifty bases point rate cut. So again, good 0:02:03.640 --> 0:02:08.000 news on inflation, not so much concern about the US 0:02:08.040 --> 0:02:11.240 moving into recession. But with everything that we've been talking about, Noddy, 0:02:11.320 --> 0:02:14.919 I'm curious as to how it's affected the house strategy 0:02:15.200 --> 0:02:18.480 at UBS on putting money to work in the equity market. 0:02:19.800 --> 0:02:22.080 You know, I think last week was somewhat of a 0:02:22.280 --> 0:02:27.000 Goldilock scenario for the markets. You got that sizeable recalibration 0:02:27.080 --> 0:02:30.200 of cut, but also the macro data was pretty decent, 0:02:30.240 --> 0:02:32.680 and it feels like the bar for cuts going forward, 0:02:33.680 --> 0:02:36.560 you know, is lower, and that boosts the probability of 0:02:36.880 --> 0:02:40.600 soft landing. So we think that that's overall supportive forwards assets. 0:02:40.600 --> 0:02:42.320 You know, we're sort of in the environment again where 0:02:42.400 --> 0:02:44.520 market is probably back to good news is good news 0:02:44.560 --> 0:02:47.799 and bad news is good is good news, and so 0:02:47.840 --> 0:02:50.280 we think that that, along with the fact that you 0:02:50.360 --> 0:02:53.359 still have a corporate earnings environment that's brought it in out, 0:02:53.360 --> 0:02:55.079 we think that it will continue to broad it out. 0:02:55.120 --> 0:02:57.840 That should be supportive for the equity markets. 0:02:57.840 --> 0:02:59.640 So we think the ecre markets can reach you know, 0:02:59.720 --> 0:03:01.919 six two hundred by the middle of next year, and 0:03:01.960 --> 0:03:04.880 so we've been advising clients to continue to put money 0:03:04.880 --> 0:03:07.160 to work, particularly in high quality stocks. 0:03:08.120 --> 0:03:10.200 Yeah, I think probably what you meant was good news 0:03:10.240 --> 0:03:12.720 is good news and bad news would be bad news. 0:03:13.000 --> 0:03:14.440 The economy is growing. 0:03:14.440 --> 0:03:16.919 Bad news good news as well. 0:03:17.360 --> 0:03:18.440 You think that good news? 0:03:18.520 --> 0:03:22.240 Okay, well, yeah, I'm sort of when I look at earnings, 0:03:22.360 --> 0:03:26.800 earnings are growing again after being stunted. The economy is 0:03:26.840 --> 0:03:30.560 growing moderately. It seems like if we judge the economy now, 0:03:30.639 --> 0:03:32.640 we can say, well, we're in a kind of soft 0:03:32.720 --> 0:03:36.400 landing position. So it does beg the question, I suppose 0:03:36.480 --> 0:03:39.160 what comes next? Do we get better from here or 0:03:39.160 --> 0:03:40.120 do we get worse from here? 0:03:41.600 --> 0:03:43.360 I think that, you know, I think that we do 0:03:43.680 --> 0:03:47.080 continue to chug along here. Don't think that we do 0:03:47.160 --> 0:03:49.320 expect the economy to slow down from here. I mean, 0:03:49.360 --> 0:03:51.720 we're running at two point nine percent if you look 0:03:51.720 --> 0:03:54.400 at Atlanta fed GDP now for the third quarter, So 0:03:54.440 --> 0:03:57.480 we're looking for a pace to slow down to somewhere 0:03:57.560 --> 0:03:59.920 closer to two percent, closer to trend line. 0:03:59.720 --> 0:04:01.280 Over the next six months. 0:04:01.400 --> 0:04:04.840 But at the same time, corporate earnings is accelerated, and 0:04:04.840 --> 0:04:07.080 that's because we're having that brought it out. We know 0:04:07.240 --> 0:04:09.680 that you know, much of the late last year into 0:04:09.720 --> 0:04:11.640 the first half of this year, that a lot of 0:04:11.680 --> 0:04:14.600 the growth was driven by tech tech companies, those megacap 0:04:14.640 --> 0:04:17.040 tech companies, and now you're seeing some other parts of 0:04:17.080 --> 0:04:20.520 the economy of the S and B, the more cyclical 0:04:20.600 --> 0:04:23.240 areas are starting to see earnings grow again, and so 0:04:23.279 --> 0:04:24.799 that's going to help earns accelerate. 0:04:25.040 --> 0:04:25.720 You know, we're. 0:04:25.520 --> 0:04:29.800 Expecting you know, low double digit earnings growth for the 0:04:29.839 --> 0:04:32.279 next twelve months, and that would be supportive to the 0:04:32.320 --> 0:04:33.040 overall market. 0:04:33.160 --> 0:04:36.200 So are you advising clients to take a little out 0:04:36.240 --> 0:04:39.039 of some of that megacap tech trade that you just 0:04:39.520 --> 0:04:43.080 identified there and maybe moving in into something that's a 0:04:43.120 --> 0:04:47.120 lower valuation and maybe more exposed to the economy. 0:04:48.279 --> 0:04:51.200 So we have a balance set to outlook. 0:04:51.360 --> 0:04:54.440 Continue to like tech for those secular tail words, particularly 0:04:54.440 --> 0:04:59.880 around AI, also like financials as well for that cyclical exposure, 0:05:00.000 --> 0:05:03.640 also the benefit of rates, and then on the defensive side, 0:05:03.839 --> 0:05:06.880 like utilities for the secular part of the story as well, particularly. 0:05:06.600 --> 0:05:09.520 Empowering up AI. So not necessarily. 0:05:09.000 --> 0:05:11.000 Saying that you have to sell your tap to move 0:05:11.000 --> 0:05:13.440 into the cicle careeras MAANDMA, there's a lot of cash 0:05:13.480 --> 0:05:16.320 sitting on the sidelines. We're seeing it among our own 0:05:16.360 --> 0:05:19.560 client space, so we're encouraging clients to put that move 0:05:19.640 --> 0:05:21.600 some of that cash off of the sala and into 0:05:21.640 --> 0:05:24.640 the market, particularly in those higher quality areas of the market. 0:05:25.600 --> 0:05:28.680 Yeah, so you mentioned housing recovery. You see that as well. 0:05:28.800 --> 0:05:33.119 I'm curious if the current positioning of the of the tenure, 0:05:33.160 --> 0:05:35.680 I mean, it's it actually edged higher since the FED 0:05:35.800 --> 0:05:38.479 rate cut, whether or not if that continues. 0:05:38.520 --> 0:05:40.800 We're at the three seventy four on the tenure. 0:05:40.839 --> 0:05:43.520 Now, how high does that go where you start to 0:05:43.520 --> 0:05:46.880 get nervous because you know thirty your mortgages are generally 0:05:46.920 --> 0:05:48.440 priced off the tenure, right. 0:05:49.120 --> 0:05:53.320 Absolutely, I mean we have expected tenures to sort of 0:05:53.320 --> 0:05:55.760 come into three point eight five by the end of 0:05:55.760 --> 0:05:59.200 the years. As you said, it is thirty year mortgages 0:05:59.279 --> 0:06:02.799 more tied in year you're seeing. So we don't expect 0:06:02.880 --> 0:06:04.599 to any of to move much higher from here. 0:06:04.680 --> 0:06:05.920 We do expect. 0:06:05.560 --> 0:06:09.159 Mortgage rates to sort of continue to come down as well, 0:06:09.200 --> 0:06:10.960 and that should be supported for the house and market. 0:06:10.960 --> 0:06:13.200 We know that the housing market hasn't been a demand issue. 0:06:13.200 --> 0:06:15.320 It's going to supply issue. A lot of people are 0:06:15.360 --> 0:06:17.880 locked into very low mortgage rates and so we think 0:06:17.880 --> 0:06:20.880 that that should help also some housing turnover, which should 0:06:20.920 --> 0:06:23.640 be supportive to all of those companies that are in 0:06:23.680 --> 0:06:25.039 the house and ecosystem. 0:06:25.160 --> 0:06:27.320 So when you sit down and you listen to what 0:06:27.480 --> 0:06:31.040 some of the other strategists over at UBS are saying 0:06:31.040 --> 0:06:33.679 about the degree to which the election in the fall 0:06:33.760 --> 0:06:35.720 is going to have an impact on markets. What are 0:06:35.720 --> 0:06:36.159 they saying. 0:06:37.600 --> 0:06:40.640 So, we we think that it's a very close call. 0:06:40.720 --> 0:06:43.280 I mean, we give a probability of a Harris win 0:06:43.480 --> 0:06:47.719 fifty five percent and a Trump fixery forty five percent. 0:06:48.040 --> 0:06:50.159 What we've been advising clients to do is to not 0:06:50.240 --> 0:06:52.599 make any mandor changes to their asset. 0:06:52.320 --> 0:06:53.960 Allocation or an account of the election. 0:06:54.240 --> 0:06:55.960 But at the same time, of course, there are some 0:06:56.000 --> 0:06:58.279 clients who are concerned about a pick of involatility that 0:06:58.320 --> 0:07:01.039 we've been advising hedge and strat A, particularly clients that 0:07:01.080 --> 0:07:03.640 have exposure to stocks that might be more sensitive to 0:07:03.680 --> 0:07:06.280 the election. So think about those stocks that might be 0:07:06.320 --> 0:07:10.480 exposed to tariffs should president former president Trump wins, or 0:07:11.000 --> 0:07:14.280 some of the stocks that are financials could benefit from 0:07:14.320 --> 0:07:15.320 a Trump victory. 0:07:15.520 --> 0:07:16.800 And then on the other side and the. 0:07:16.760 --> 0:07:19.320 Harris sort of victory, then you have those green energy 0:07:19.320 --> 0:07:22.280 stocks that could benefit. So we've been advising clients to 0:07:22.320 --> 0:07:24.840 do things on the margins and not make any major changes. 0:07:25.760 --> 0:07:26.120 Nadia. 0:07:26.240 --> 0:07:30.080 If Harris wins, so will likely see changes to corporate taxes, 0:07:30.160 --> 0:07:34.640 they'll eventually be higher than now. Is it simply mathematics 0:07:34.680 --> 0:07:38.000 that that will cut into profits absolutely? 0:07:38.040 --> 0:07:42.640 I mean Harris has proposed twenty eight percent to corporate 0:07:42.680 --> 0:07:45.400 tax rate versus twenty one percent today, and also even 0:07:45.440 --> 0:07:48.480 the buybacks, lifting the buybacks from one percent rate to 0:07:48.680 --> 0:07:51.920 four percent tax rate. And so when you think about that, 0:07:51.920 --> 0:07:54.160 that could be like a mid single digit hit to 0:07:54.360 --> 0:07:57.440 corporate profits, and so that will probably have a drag 0:07:57.800 --> 0:07:59.080 on the market as well. 0:07:59.160 --> 0:08:00.000 So something to watch. 0:08:00.920 --> 0:08:03.560 Nadia, thank you for joining us. Nadia level their senior 0:08:03.640 --> 0:08:14.200 US equity strategist over at UBS Global Wealth Management. Bill Adams, 0:08:14.280 --> 0:08:17.200 chief economist for a Comerica Bank, joins us now to 0:08:17.400 --> 0:08:21.320 discuss conditions underlying in the US economy. Bill, thank you 0:08:21.680 --> 0:08:24.000 for being with us. One of the trends that we've 0:08:24.040 --> 0:08:26.480 seen since the Fed made that big rate cut is 0:08:26.480 --> 0:08:29.720 a steepening of the yield curve. Does the action by 0:08:29.760 --> 0:08:32.719 the Fed almost guarantee that will continue to see this 0:08:33.640 --> 0:08:35.480 play out over the coming weeks? And what are the 0:08:35.520 --> 0:08:36.360 implications of. 0:08:36.320 --> 0:08:37.360 A steeper yield curve? 0:08:38.720 --> 0:08:40.960 I think the steeper yield curve is a sign that 0:08:41.320 --> 0:08:45.160 the monetary stance in the United States is getting back 0:08:45.200 --> 0:08:51.400 towards normal after a very restrictive period. So economists, market strategists, 0:08:51.440 --> 0:08:53.959 we've been talking at nauseum over the last couple of 0:08:54.080 --> 0:08:57.160 years about the inverted yield curve as a recession signal, 0:08:58.040 --> 0:09:01.160 and the uninversion of the ill curve often is seen 0:09:01.200 --> 0:09:06.360 as a warning sign for equities because in cycles, when 0:09:06.520 --> 0:09:09.120 the inverted yield curve is followed by a recession, you know, 0:09:09.200 --> 0:09:11.640 this is the point where the FED is cutting that 0:09:11.720 --> 0:09:13.680 uninverted the yield curve, and that's the sign that the 0:09:13.720 --> 0:09:17.000 recession is beginning this time, knock on wood, I feel 0:09:17.200 --> 0:09:17.959 looks different. 0:09:18.040 --> 0:09:18.480 So far. 0:09:19.080 --> 0:09:23.000 It looks like the FED is cutting largely because inflation 0:09:23.120 --> 0:09:25.080 is coming back to the Fed's target, and that's quite 0:09:25.160 --> 0:09:28.360 good news for the economy and good news for risk 0:09:28.400 --> 0:09:29.600 acids as well as well. 0:09:29.920 --> 0:09:32.720 So do you think the FED in cutting by fifty 0:09:32.760 --> 0:09:35.400 basis points last week was declaring victory. 0:09:37.160 --> 0:09:40.880 I think the fifty basis point cut was in part 0:09:40.920 --> 0:09:44.960 a reaction to expectations for lower inflation over the next 0:09:45.000 --> 0:09:47.360 couple of months. Reading so, we've seen a move lower 0:09:47.360 --> 0:09:52.160 and energy prices, and in part due to the solid 0:09:52.200 --> 0:09:57.200 supply and weak demand globally, especially Europe, and Asia, and 0:09:57.360 --> 0:10:00.640 that's going to translate into lower headline inflation in the 0:10:00.679 --> 0:10:04.720 next couple of months, and the FED doesn't want inflation 0:10:04.800 --> 0:10:07.520 adjusted interest rates to be rising at this point because 0:10:07.559 --> 0:10:10.600 the unemployment rates already a little higher, there's a marginist 0:10:10.679 --> 0:10:14.920 lack in the job market, and inflation is closer to 0:10:14.600 --> 0:10:18.400 their target, so there's not as much of a case 0:10:18.480 --> 0:10:23.160 for tight monetary policy. So I think there's an element 0:10:24.679 --> 0:10:28.560 of moving because of the inflation outlook. I think also 0:10:28.960 --> 0:10:31.679 the big downward revisions to the jobs data released over 0:10:31.720 --> 0:10:34.480 the month of August and into the beginning of September 0:10:34.679 --> 0:10:37.000 really changed the picture about the labor market. The labor 0:10:37.000 --> 0:10:40.280 market had looked really solid when the FED last met 0:10:40.320 --> 0:10:44.360 in July. The twelve month moving average of payrolls growth 0:10:44.400 --> 0:10:46.920 was two hundred and eighteen thousand with the data in 0:10:46.920 --> 0:10:50.559 hand on July thirty first. As of the September meeting, 0:10:50.640 --> 0:10:52.920 that twelve month average was down due I think one 0:10:53.000 --> 0:10:55.480 hundred and fifty seven thousand, So a very different picture, 0:10:55.880 --> 0:11:00.000 much cooler labor market, justifying a move away from restrictive 0:11:00.040 --> 0:11:02.679 and back towards neutral monetary policy. 0:11:03.080 --> 0:11:05.840 But Bill, it still feels pretty good with where we're at. 0:11:05.840 --> 0:11:07.040 With the US economy. 0:11:07.120 --> 0:11:11.280 And sometimes, you know, when you see the FED cutting 0:11:11.280 --> 0:11:14.800 interest rates into an economy that's performing pretty well, you 0:11:14.880 --> 0:11:17.760 start to, you know, get nervous about things being too good. 0:11:18.559 --> 0:11:20.840 And so as long as we're feeling nervous and feeling 0:11:20.920 --> 0:11:22.800 a little guilty, what do. 0:11:22.840 --> 0:11:24.440 We worry about the most? So what do you worry 0:11:24.480 --> 0:11:25.079 about the most? 0:11:26.160 --> 0:11:29.200 Well, it's our jobs to worry right So in terms 0:11:29.240 --> 0:11:31.840 of the things I worry about right now, top of 0:11:31.920 --> 0:11:37.000 mind is the global energy supply with wars in the 0:11:37.040 --> 0:11:41.440 Mid East, war in Ukraine. If we saw an interruption 0:11:41.640 --> 0:11:44.400 energy supply see WTI jump to one hundred and fifty 0:11:44.480 --> 0:11:47.319 two hundred dollars a barrel, that would be a major 0:11:47.360 --> 0:11:51.840 blow to the US economy. I think the other downside 0:11:51.880 --> 0:11:54.200 risk to the US economy that we've been talking about 0:11:54.240 --> 0:11:57.600 over the course of the year, you know, some of 0:11:57.600 --> 0:12:01.160 them are these sort of long bubbling issues like the 0:12:01.400 --> 0:12:06.440 commercial real estate in large big city downtowns, think you know, 0:12:06.520 --> 0:12:12.760 San Francisco, Manhattan, Chicago, the but you know, that issue 0:12:12.800 --> 0:12:17.040 also seems like it's it's getting better understood. And also 0:12:18.120 --> 0:12:21.680 with interest rates moving down faster than had seemed likely 0:12:21.720 --> 0:12:23.920 to be the case, a couple of months ago. I 0:12:23.960 --> 0:12:26.240 think that is a bit of going to be a 0:12:26.240 --> 0:12:28.480 bit of a cushion for real estate. So a lot 0:12:28.520 --> 0:12:32.440 of the interest rates sensitive downside risk to the US 0:12:32.520 --> 0:12:36.160 economy look less concerning now given the change in the 0:12:36.160 --> 0:12:37.160 Fed's outlook. 0:12:37.400 --> 0:12:40.560 So, as you know, last week, Powell was talking about 0:12:40.640 --> 0:12:44.080 recalibrating FED policy to a more neutral level. Do you 0:12:44.080 --> 0:12:46.560 have a sense of where neutral is? What's the neutral rate? 0:12:46.760 --> 0:12:47.439 In your work? 0:12:49.040 --> 0:12:50.880 Neutral is lower than where we are today. 0:12:51.000 --> 0:12:54.400 Yeah, okay, so it's it's. 0:12:53.960 --> 0:12:57.800 Not four and three quarters. It's probably not four. It's 0:12:57.800 --> 0:13:01.640 probably not three and a half. Maybe it's three, maybe 0:13:01.679 --> 0:13:04.320 it's two and a half. Maybe it could be somewhere 0:13:04.320 --> 0:13:09.120 in there. I have penciled in lightly a neutral rate of, 0:13:09.760 --> 0:13:11.760 you know, between two and a half and three percent 0:13:11.880 --> 0:13:15.960 in my forecast. But it's a very academic discussion right 0:13:16.000 --> 0:13:18.640 now because it doesn't look like interest rates are headed 0:13:18.679 --> 0:13:21.280 back to neutral in the near term. It's not a 0:13:21.320 --> 0:13:22.520 twenty twenty five story. 0:13:22.840 --> 0:13:23.040 Now. 0:13:23.200 --> 0:13:29.120 If this soft landing dynamic turns into a more serious 0:13:29.160 --> 0:13:33.880 economic downturn, then the Fed could be cutting more aggressively, 0:13:34.400 --> 0:13:38.280 and would they cut down to quote unquote neutral very quickly? 0:13:38.360 --> 0:13:42.720 Would they go past neutral into expansionary territory. I think 0:13:42.800 --> 0:13:47.360 that that's a possibility. It's not my base case, but. 0:13:47.360 --> 0:13:47.880 I think the. 0:13:49.400 --> 0:13:52.520 You know, the question of where is neutral, you know, 0:13:52.600 --> 0:13:54.680 it's not an issue that we have to be able 0:13:54.679 --> 0:13:55.600 to answer right away. 0:13:55.720 --> 0:13:59.160 Well, even if we can't pinpoint it, it seems reasonable 0:13:59.240 --> 0:14:02.800 to say that it's higher than it was before. You're 0:14:02.840 --> 0:14:05.040 talking about, you know, maybe tune out to three percent, 0:14:05.160 --> 0:14:07.920 even maybe a little above three percent. So it does 0:14:08.000 --> 0:14:11.959 mag the question, let's have that academic discussion, why are 0:14:11.960 --> 0:14:14.840 we operating at a higher level. Why is the economy 0:14:15.200 --> 0:14:18.000 on a stronger footing now than it has traditionally been 0:14:18.200 --> 0:14:19.280 over the past many years. 0:14:20.640 --> 0:14:23.359 I think about the neutral interest rate in the context 0:14:23.360 --> 0:14:26.920 of the overall economic policy mix, meaning you have monetary 0:14:26.920 --> 0:14:29.080 policy on the one hand and fiscal policy on the 0:14:29.080 --> 0:14:34.200 other hand. We had type fiscal policy for the many 0:14:34.320 --> 0:14:39.240 years after the Great Recession. Fiscal policy became more expansionary 0:14:39.320 --> 0:14:43.120 towards the end of the long expansion of the twenty tens, 0:14:43.200 --> 0:14:47.120 but still not like we have today. Right now, the US, 0:14:47.360 --> 0:14:50.640 we have a fiscal deficit of about six percent of GDP, 0:14:51.640 --> 0:14:54.800 and we also have pretty expansionary fiscal policy. At the 0:14:54.800 --> 0:14:57.560 state and local government level. State and local governments have 0:14:57.680 --> 0:15:00.760 been pulling in a lot of tax revenue because of 0:15:00.840 --> 0:15:04.680 higher property prices, so higher property tax revenues, and there 0:15:04.760 --> 0:15:08.200 is still that like the long lag of all of 0:15:08.280 --> 0:15:11.280 the money that got to state in local governments during 0:15:11.280 --> 0:15:15.280 the pandemic. So there's a lot of fiscal support, and 0:15:15.320 --> 0:15:19.440 that means that there's less need or less of an 0:15:19.480 --> 0:15:23.720 argument for monetary policy to be supporting the expansion. 0:15:23.880 --> 0:15:25.880 We talked so oh, sorry, go. 0:15:25.880 --> 0:15:28.040 Ahead, No, no, I was just we talked about the PC. 0:15:28.480 --> 0:15:32.400 Other data that we're expecting this week includes personal spending 0:15:32.600 --> 0:15:36.480 and income. What's your sense of the American consumer right 0:15:36.520 --> 0:15:40.200 now and the reaction function that consumers may have to 0:15:41.160 --> 0:15:43.640 lower interest rates this last rate cut. 0:15:45.200 --> 0:15:48.600 I think the average of what drives consumer spending in 0:15:48.600 --> 0:15:52.440 the United States is in pretty good shape. American consumers 0:15:52.480 --> 0:15:57.320 are supported by big increases in household wealth. Many Americans 0:15:57.400 --> 0:16:00.480 locked in low mortgage rates in the kind of pre 0:16:00.600 --> 0:16:03.520 twenty twenty two years, and that's supported a lot of 0:16:03.560 --> 0:16:09.080 consumer spending. You also have half of bachelor's degree workers 0:16:09.680 --> 0:16:12.400 have some remote work, so they spend less on commuting, etc. 0:16:13.320 --> 0:16:16.800 So that is I think the big buffer for consumer spending. Now, 0:16:17.080 --> 0:16:22.200 the typical American think the median is not as well 0:16:22.240 --> 0:16:24.800 off as the average, and so there's more of a 0:16:24.880 --> 0:16:27.120 drag from the cost of living. From the big increase 0:16:27.160 --> 0:16:31.920 in rents, you have more people affected by the expense 0:16:31.960 --> 0:16:35.080 of buying a new home with higher mortgage rates, higher prices, 0:16:35.560 --> 0:16:38.240 and that's I think why you've seen the signs of 0:16:38.280 --> 0:16:43.160 consumer stress like higher credit card delinquency rates and the 0:16:43.160 --> 0:16:45.400 Fed's data in the last couple of quarters. 0:16:45.960 --> 0:16:48.480 Bill, thank you for being with us. Bill Adams, chief 0:16:48.520 --> 0:16:59.160 economist at Comerica Bank. We welcome Chuck Kumelo, President and 0:16:59.280 --> 0:17:04.160 chief executive Officer at Essex Financial. Chuck, us, doocs look 0:17:04.200 --> 0:17:07.080 pretty good here with the S and P five hundred 0:17:07.400 --> 0:17:09.960 up around fifty seven hundred. If you look at the 0:17:09.960 --> 0:17:13.719 two hundred day moving average, it's just below fifty two hundred. 0:17:14.119 --> 0:17:17.000 In other words, you could get a big pullback. The 0:17:17.200 --> 0:17:19.439 uptrend would still be in place, but people would be 0:17:19.440 --> 0:17:20.399 feeling a little nervous. 0:17:20.520 --> 0:17:23.600 How do you feel about current evaluation levels? 0:17:24.640 --> 0:17:28.000 Well, thank you so much for having me listen. I 0:17:28.040 --> 0:17:32.320 think the market valuations certainly are a little bit elevated 0:17:32.680 --> 0:17:35.680 in some cases. To put it mildly, but you know, 0:17:35.840 --> 0:17:39.280 we're anticipating an awful lot of volatility as we enter 0:17:39.320 --> 0:17:43.640 and get closer to this election that essentially I think 0:17:43.640 --> 0:17:47.119 nobody's looking forward to. But listen, we're overall, we are 0:17:47.359 --> 0:17:50.800 bullets on the market. Interest rates coming down tends to 0:17:50.840 --> 0:17:53.080 be a good thing, although that can be a wildcard, 0:17:53.080 --> 0:17:54.480 which we can go into a little bit if you'd like, 0:17:54.840 --> 0:17:59.119 as well as earnings are pretty well. Economy and the 0:17:59.240 --> 0:18:01.720 entire reason that made the move that they did is 0:18:01.800 --> 0:18:05.560 around employment, and employment has been slowing. It's still good, 0:18:05.920 --> 0:18:07.840 it's not as good as it was, so you know, 0:18:07.880 --> 0:18:10.080 again they got themselves a little bit ahead of it. 0:18:10.520 --> 0:18:12.879 So in terms of further easing, how much are you 0:18:12.960 --> 0:18:15.520 expecting between let's say now in the end of the year. 0:18:17.359 --> 0:18:20.080 Probably at least one, maybe two. I mean, I think 0:18:20.119 --> 0:18:24.920 the FED has been quite quite repetitive and quite on 0:18:25.040 --> 0:18:27.639 the record with them being data dependent, and we're going 0:18:27.680 --> 0:18:30.160 to have as you just mentioned in the update, we're 0:18:30.160 --> 0:18:32.680 going to have the PCE coming out later this week. 0:18:32.720 --> 0:18:35.520 We'll have another employment report or two before these next 0:18:35.520 --> 0:18:38.280 two FED meetings in November and December. So certainly I 0:18:38.280 --> 0:18:41.720 think probably one, possibly two, depending upon how employment looks 0:18:41.760 --> 0:18:42.720 and obviously inflation. 0:18:44.560 --> 0:18:47.879 So when you look at the high pe companies, the 0:18:47.920 --> 0:18:52.200 biggest tech stock, so they generally perform well when rates 0:18:52.200 --> 0:18:55.320 come down because there are long duration assets and it's 0:18:55.359 --> 0:18:58.199 just a better environment. And that's kind of on a 0:18:58.280 --> 0:19:01.240 technical level, but on a real level, for the other 0:19:01.320 --> 0:19:03.720 four to ninety three in the s and P five hundred, 0:19:04.040 --> 0:19:07.520 they benefit from having their costs come down. They don't 0:19:07.520 --> 0:19:11.480 have huge profits and they don't have huge profit margins, 0:19:11.480 --> 0:19:14.040 so when rates come down, it's good. Right, So in 0:19:14.080 --> 0:19:16.359 that sense, things are looking pretty solid. 0:19:17.440 --> 0:19:19.280 Well that's the thing you think about how some of 0:19:19.320 --> 0:19:22.440 those high valuation tech stocks did in a rising interest 0:19:22.480 --> 0:19:25.800 rate environment. Yeah, so you know that, but you're one 0:19:25.840 --> 0:19:28.200 hundred percent right the other four hundred and ninety three companies, 0:19:28.560 --> 0:19:31.400 especially for small caps and obviously a lot of different 0:19:31.440 --> 0:19:34.320 sectors outside of technology, lower interest rates are booing across 0:19:34.560 --> 0:19:38.159 across everywhere from cost inputs to just their cost of 0:19:38.240 --> 0:19:40.280 doing business. And then again driving the economy is the 0:19:40.359 --> 0:19:42.040 US consumer, which drives two thirds of it. So the 0:19:42.080 --> 0:19:45.280 lower interest rate environment is always a better environment than 0:19:45.320 --> 0:19:47.600 when the FIT is hiking rates to slow the economy. 0:19:48.160 --> 0:19:50.880 But you know, these the technology companies, and again they 0:19:50.920 --> 0:19:54.159 have seated leadership, right, I mean they certainly The only 0:19:54.640 --> 0:19:57.399 stock that in the Magnificent seven that has hit a 0:19:57.400 --> 0:20:01.520 new fifty two week high is Meta, Apple, Microsoft, Nvidia, Google, Amazon, Tesla. 0:20:01.600 --> 0:20:03.879 Haven't S and P five hundred has the S and 0:20:03.960 --> 0:20:06.920 P equal weight has as a matter of fact, over 0:20:06.920 --> 0:20:09.960 the past you know, I think it's past ninety days 0:20:10.000 --> 0:20:14.680 give or take the you know, the RSP equal weight 0:20:14.800 --> 0:20:16.800 is up over the past is up eight point two 0:20:16.840 --> 0:20:20.680 one percent, and S and P five hundred up only 0:20:20.800 --> 0:20:23.440 four point four to six percent. So you are starting 0:20:23.480 --> 0:20:26.159 to see this market broaden. And again I think that 0:20:26.200 --> 0:20:28.760 speaks to the point you just that the point that 0:20:28.840 --> 0:20:33.080 you just mentioned around the overall economic environment is more 0:20:33.280 --> 0:20:35.320 conducive to a wider range of companies. 0:20:35.400 --> 0:20:38.000 Chuck, imagine a world where Kamala Harris is the next 0:20:38.119 --> 0:20:41.040 US president and the corporate tax rate goes up to 0:20:41.160 --> 0:20:42.119 twenty eight percent. 0:20:42.200 --> 0:20:42.920 What do you do then? 0:20:44.720 --> 0:20:48.760 Yeah, So that's uh, that's the obvious. While Cardon Wise 0:20:48.800 --> 0:20:51.320 said before, we're we're looking for a lot of volatility now, 0:20:51.640 --> 0:20:55.959 I think part of that is is blocked to tad bit. 0:20:56.119 --> 0:20:58.800