1 00:00:02,759 --> 00:00:07,240 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:07,960 --> 00:00:10,440 Speaker 2: Here's the latest this morning. Trade talks between the US 3 00:00:10,480 --> 00:00:13,520 Speaker 2: and China stretching into a second day as President Trump's 4 00:00:13,520 --> 00:00:16,640 Speaker 2: Friday deadline approaches. The COMMAS Secretary Howard Latinik thing a 5 00:00:16,720 --> 00:00:20,320 Speaker 2: ninety day truce extension, which China is likely. Mike Wilson 6 00:00:20,320 --> 00:00:23,200 Speaker 2: of Malkan Stanley is bullish, writing We're bullish into twenty 7 00:00:23,239 --> 00:00:26,720 Speaker 2: six through the near term setup is not without risks. 8 00:00:26,960 --> 00:00:30,440 Speaker 2: These include tariff related inflation. Mike joins us now for more. Mike, 9 00:00:30,440 --> 00:00:32,639 Speaker 2: good morning, Good to see you. You list a lot 10 00:00:32,640 --> 00:00:34,760 Speaker 2: of reasons to be constructive here, just go through those 11 00:00:34,800 --> 00:00:36,160 Speaker 2: leasons for us this morning. 12 00:00:36,440 --> 00:00:36,599 Speaker 3: Yeah. 13 00:00:36,600 --> 00:00:37,920 Speaker 1: I mean the reasons really haven't changed. 14 00:00:38,000 --> 00:00:40,120 Speaker 4: We've been very constructive since May when we did our 15 00:00:40,159 --> 00:00:42,919 Speaker 4: midyear update. And I think the main thing to take 16 00:00:42,960 --> 00:00:45,360 Speaker 4: away from our outlook that's maybe different than others. I 17 00:00:45,360 --> 00:00:47,239 Speaker 4: think we came into the year feeling the first half 18 00:00:47,280 --> 00:00:50,400 Speaker 4: would be tricky, second half would be better, and that 19 00:00:50,520 --> 00:00:53,040 Speaker 4: was all function of the sequencing of the policy. 20 00:00:53,120 --> 00:00:53,279 Speaker 1: Right. 21 00:00:53,320 --> 00:00:55,800 Speaker 4: So the policy sequencing was what we said is a 22 00:00:55,960 --> 00:00:58,640 Speaker 4: kitchen sink the first quarter. It took to the growth 23 00:00:58,680 --> 00:00:59,880 Speaker 4: negative stuff first and then. 24 00:01:00,000 --> 00:01:01,640 Speaker 1: Flipped very quickly in April. 25 00:01:01,960 --> 00:01:04,399 Speaker 4: So the main reason we're bullish, okay, is that the 26 00:01:04,440 --> 00:01:06,920 Speaker 4: earnings revision breath and we show this every week in 27 00:01:06,920 --> 00:01:09,800 Speaker 4: our note and it goes up every week, has exploded 28 00:01:09,880 --> 00:01:13,040 Speaker 4: higher off of what was a deep cyclical low that 29 00:01:13,080 --> 00:01:15,560 Speaker 4: basically priced in a recession for the most part, So 30 00:01:15,640 --> 00:01:18,760 Speaker 4: that revision breath is guiding us to the performance that 31 00:01:18,800 --> 00:01:19,280 Speaker 4: we've seen. 32 00:01:19,600 --> 00:01:21,360 Speaker 1: This is just to put it in context. 33 00:01:21,400 --> 00:01:24,840 Speaker 4: Okay, this increase or V shaped recovery and arrange re 34 00:01:24,880 --> 00:01:28,319 Speaker 4: vision breath is as significant as we've seen since COVID, 35 00:01:28,360 --> 00:01:31,080 Speaker 4: the COVID recovery, and that was the last time that 36 00:01:31,120 --> 00:01:34,240 Speaker 4: we were this far out of consensus being bullish, and 37 00:01:34,280 --> 00:01:35,360 Speaker 4: it was right because of it. 38 00:01:35,440 --> 00:01:37,840 Speaker 1: It's the data. We're data dependent, So that's the main reason. 39 00:01:37,920 --> 00:01:40,640 Speaker 4: So this is not just me saying, oh, momentum stocks 40 00:01:40,680 --> 00:01:41,920 Speaker 4: and price momentum, etc. 41 00:01:42,360 --> 00:01:44,639 Speaker 1: That's part of it too. So what's driving that earninge 42 00:01:44,680 --> 00:01:45,880 Speaker 1: revision breath? Well, first, it's a. 43 00:01:45,800 --> 00:01:49,040 Speaker 4: Reflexivity just on people getting too bearish on the growth 44 00:01:49,080 --> 00:01:49,640 Speaker 4: negative stuff. 45 00:01:49,640 --> 00:01:52,600 Speaker 1: And let's not forget the AI camp X cycle, which. 46 00:01:52,440 --> 00:01:56,360 Speaker 4: We came into your feeling negative about, also bottomed in April. 47 00:01:56,520 --> 00:01:57,880 Speaker 1: Okay, So those are two big drivers. 48 00:01:57,960 --> 00:02:00,640 Speaker 4: The second one is a weaker dollar dollars, a big 49 00:02:00,680 --> 00:02:03,720 Speaker 4: tail wind for multinational companies, okay. And the third one 50 00:02:03,760 --> 00:02:07,040 Speaker 4: now is we're starting to see operating leverage in more 51 00:02:07,040 --> 00:02:09,040 Speaker 4: companies across the S and P five hundred. And this 52 00:02:09,080 --> 00:02:10,840 Speaker 4: is a very unique view that we've had. So, you know, 53 00:02:10,880 --> 00:02:14,320 Speaker 4: the rolling recession call that we've kind of been talking about, well, 54 00:02:14,360 --> 00:02:17,160 Speaker 4: now it looks to us like we're having a rolling recovery, okay, 55 00:02:17,520 --> 00:02:20,400 Speaker 4: And that will be further spurred by the FED cutting 56 00:02:20,480 --> 00:02:21,959 Speaker 4: rates at some point in the next year. And we 57 00:02:21,960 --> 00:02:23,639 Speaker 4: don't know exactly when they're going to start, but I 58 00:02:23,680 --> 00:02:24,840 Speaker 4: think it's fair to say that they're not going to 59 00:02:24,880 --> 00:02:27,800 Speaker 4: be raising rates. So this three year what I would 60 00:02:27,840 --> 00:02:30,720 Speaker 4: call soft recession that we've been living through, now we're 61 00:02:30,760 --> 00:02:33,520 Speaker 4: sort of coming through that and we're getting more visibility 62 00:02:33,520 --> 00:02:35,800 Speaker 4: and that that's why we're more constructive on the next year. Now, 63 00:02:35,960 --> 00:02:38,360 Speaker 4: in the next three months, I do think that some 64 00:02:38,400 --> 00:02:40,040 Speaker 4: of the things that people have been worried about could 65 00:02:40,080 --> 00:02:41,200 Speaker 4: start to play through earnings. 66 00:02:41,200 --> 00:02:42,800 Speaker 1: For example, we. 67 00:02:42,680 --> 00:02:45,320 Speaker 4: Can see cost of goods sold increase because of the tariff. 68 00:02:45,560 --> 00:02:47,200 Speaker 4: You know, the inventory now is flowing through, the cost 69 00:02:47,200 --> 00:02:47,720 Speaker 4: of goods sold. 70 00:02:47,840 --> 00:02:48,720 Speaker 1: We could see the back. 71 00:02:48,639 --> 00:02:50,480 Speaker 4: End of the treasury markets start to back up again 72 00:02:50,520 --> 00:02:52,560 Speaker 4: because of the supply that we know is coming. And 73 00:02:52,600 --> 00:02:54,440 Speaker 4: then of course we still have to deal with just 74 00:02:55,160 --> 00:02:57,160 Speaker 4: this sort of concern around inflation and how does that 75 00:02:57,160 --> 00:02:57,840 Speaker 4: play through, how. 76 00:02:57,760 --> 00:03:00,200 Speaker 1: Does the Fed respond to that? So there are risks there. 77 00:03:00,240 --> 00:03:02,600 Speaker 4: We're not saying there's no risks. And remember the market 78 00:03:02,680 --> 00:03:05,679 Speaker 4: trade six months in advance. So that's what's happened. The 79 00:03:05,720 --> 00:03:07,920 Speaker 4: market has figured this out, it's gotten ahead of it, 80 00:03:08,120 --> 00:03:09,360 Speaker 4: and we've priced a lot of good news. 81 00:03:09,480 --> 00:03:12,400 Speaker 3: How much is this entirely tech driven versus a broad 82 00:03:12,480 --> 00:03:15,600 Speaker 3: based kind of revisions increase and recovery. Given some of 83 00:03:15,600 --> 00:03:17,359 Speaker 3: the mixed guidance that we're getting this morning from a 84 00:03:17,440 --> 00:03:20,600 Speaker 3: number of companies, particularly those that are consumer facing. 85 00:03:20,400 --> 00:03:20,720 Speaker 1: That's right. 86 00:03:20,760 --> 00:03:22,920 Speaker 4: Well, it still remains mixed because we're still in this 87 00:03:23,120 --> 00:03:25,880 Speaker 4: rolling recovery, right, So it's not everything at once. Tech 88 00:03:26,000 --> 00:03:28,240 Speaker 4: and the MAG seven are leading, but we're seeing also 89 00:03:28,320 --> 00:03:32,160 Speaker 4: other groups, industrials, financials, Okay Software, which has been in 90 00:03:32,200 --> 00:03:34,040 Speaker 4: a software session for the last couple of years, we're 91 00:03:34,040 --> 00:03:35,520 Speaker 4: seeing we are seeing a. 92 00:03:35,440 --> 00:03:38,120 Speaker 1: Broadening out for the Max seven. So it's not. 93 00:03:38,080 --> 00:03:40,280 Speaker 4: Where we need to be to see say, oh, we're 94 00:03:40,280 --> 00:03:42,320 Speaker 4: going to move into small cap stocks, We're going to 95 00:03:42,320 --> 00:03:44,120 Speaker 4: move into the low quality parts of the market. We're 96 00:03:44,120 --> 00:03:47,480 Speaker 4: still staying up that curve, however, it's starting to progress. 97 00:03:47,520 --> 00:03:51,120 Speaker 4: Just like the rolling recession saw degradation that was not 98 00:03:51,240 --> 00:03:53,040 Speaker 4: all at once, but kind of more piecemeal. 99 00:03:53,320 --> 00:03:55,680 Speaker 3: So during the rolling recession, we saw gains of about 100 00:03:55,680 --> 00:03:57,560 Speaker 3: twenty percent on the S and P five hundred first 101 00:03:57,640 --> 00:03:58,800 Speaker 3: couple of consecutive years. 102 00:03:59,080 --> 00:03:59,800 Speaker 2: Could you see. 103 00:03:59,640 --> 00:04:02,720 Speaker 3: Gains twenty percent or more during rolling recovery? Does it 104 00:04:02,760 --> 00:04:05,119 Speaker 3: matter if you're in a rolling reception or really recovery 105 00:04:05,360 --> 00:04:06,280 Speaker 3: in terms of the returns. 106 00:04:06,440 --> 00:04:08,640 Speaker 4: What I would hope is that we would see areas 107 00:04:08,640 --> 00:04:11,360 Speaker 4: that have been lagging start to participate more. And that's 108 00:04:11,480 --> 00:04:13,360 Speaker 4: that's sort of our view on twenty six right, and 109 00:04:13,360 --> 00:04:15,480 Speaker 4: that's sort of starting to happen now. Industrials has been 110 00:04:15,480 --> 00:04:17,720 Speaker 4: the best performing sector here today. It's been our top 111 00:04:17,760 --> 00:04:19,760 Speaker 4: pick for the right reasons, for the reasons that we've 112 00:04:19,760 --> 00:04:21,839 Speaker 4: been citing, which is earnings there starting to look better. 113 00:04:22,120 --> 00:04:23,960 Speaker 4: Let's not forget the tax bill, which I didn't even 114 00:04:23,960 --> 00:04:24,720 Speaker 4: mentioned earlier. 115 00:04:24,839 --> 00:04:27,080 Speaker 1: This is a massive, okay. 116 00:04:26,760 --> 00:04:30,440 Speaker 4: Tailwind for cash earnings for US companies. I mean to 117 00:04:30,480 --> 00:04:33,000 Speaker 4: the tune of five to ten percent increase. 118 00:04:33,040 --> 00:04:35,400 Speaker 1: So that's real money going into the pockets of companies. 119 00:04:35,800 --> 00:04:38,840 Speaker 4: They're now allocating capital, not the government, and I think 120 00:04:38,839 --> 00:04:40,520 Speaker 4: everybody would agree that's probably a better outcome. 121 00:04:40,640 --> 00:04:43,800 Speaker 2: Do you think US exceptionalism is back? Is everyone else 122 00:04:43,839 --> 00:04:44,520 Speaker 2: signing up to that? 123 00:04:44,839 --> 00:04:45,240 Speaker 1: Well, what I. 124 00:04:45,240 --> 00:04:48,760 Speaker 4: Would say is that maybe US exceptionalism has been missing. Okay, 125 00:04:49,080 --> 00:04:50,960 Speaker 4: So now, I mean, no one wants to admit this, 126 00:04:51,080 --> 00:04:53,680 Speaker 4: but the direction we're going in now, it looks like 127 00:04:53,760 --> 00:04:54,560 Speaker 4: we are going. 128 00:04:54,360 --> 00:04:57,080 Speaker 1: To see better participation. 129 00:04:56,600 --> 00:04:59,400 Speaker 4: Across the economy. We've been waiting for this. We've been 130 00:04:59,400 --> 00:05:01,080 Speaker 4: waiting for this for two or three years. You know, 131 00:05:00,800 --> 00:05:03,599 Speaker 4: We've bend kind of back and forth, sometimes bullets, sometimes 132 00:05:03,640 --> 00:05:05,880 Speaker 4: bears trying to pick stocks. And this is the first 133 00:05:05,880 --> 00:05:08,400 Speaker 4: time I can say that I can now see the 134 00:05:08,440 --> 00:05:12,240 Speaker 4: path of this transition. We're actually starting to rotate into 135 00:05:12,279 --> 00:05:13,520 Speaker 4: more of an early cycle recovery. 136 00:05:13,560 --> 00:05:14,839 Speaker 2: Let me give you some more space to do this, 137 00:05:14,920 --> 00:05:17,880 Speaker 2: because it's important the strategy of the White House and 138 00:05:17,920 --> 00:05:21,720 Speaker 2: the rebalancing that you envision a year out, two years out, 139 00:05:21,760 --> 00:05:23,520 Speaker 2: three years out. What is it you see? 140 00:05:23,800 --> 00:05:26,479 Speaker 4: Well, the rebalancing is both global and domestic. So the 141 00:05:26,520 --> 00:05:29,880 Speaker 4: global rebalancing is obvious. Are trying to reduce our current 142 00:05:29,880 --> 00:05:33,440 Speaker 4: account deficit, you know, get the trade negotiations are along 143 00:05:33,440 --> 00:05:34,160 Speaker 4: those lines. 144 00:05:33,960 --> 00:05:34,799 Speaker 1: And I think that's rising. 145 00:05:34,839 --> 00:05:38,440 Speaker 4: That's a good strategy, getting more manufacturing, potentially in house 146 00:05:38,720 --> 00:05:42,680 Speaker 4: or domestically. In the domestic rebalancing, it's really instead of 147 00:05:42,720 --> 00:05:45,000 Speaker 4: just having the one percent right, it's you know, Main 148 00:05:45,040 --> 00:05:46,960 Speaker 4: Street over Wall Street. I mean, people say, well, that 149 00:05:47,000 --> 00:05:49,400 Speaker 4: doesn't sound like that's working right now. But the idea 150 00:05:49,440 --> 00:05:52,960 Speaker 4: here is you get lending through the regional banking sector, 151 00:05:53,000 --> 00:05:57,360 Speaker 4: you get lending smaller banks, lending to small businesses, to individuals, 152 00:05:57,520 --> 00:05:58,920 Speaker 4: get rates down at the back end. 153 00:05:59,279 --> 00:06:00,640 Speaker 1: Okay, that is that. 154 00:06:00,640 --> 00:06:04,599 Speaker 4: Will liberate actually the domestic the sort of the middle 155 00:06:04,600 --> 00:06:05,560 Speaker 4: part of the economy. 156 00:06:05,839 --> 00:06:08,839 Speaker 3: Where do you then place this idea that tariffs are 157 00:06:09,040 --> 00:06:12,680 Speaker 3: pretty regressive, this idea that lower income individuals bear the 158 00:06:12,680 --> 00:06:15,200 Speaker 3: brunt of it. BECs is essentially a sales tax on them. 159 00:06:15,279 --> 00:06:18,200 Speaker 3: And you're already seeing companies really grapple with what that 160 00:06:18,240 --> 00:06:20,880 Speaker 3: means for demand, particularly in the travel and leisure space. 161 00:06:21,279 --> 00:06:23,440 Speaker 3: How do you square that with a sort of broad 162 00:06:23,480 --> 00:06:25,120 Speaker 3: based dynamism that you're talking about. 163 00:06:25,200 --> 00:06:27,080 Speaker 4: So I think it's very simple in the sense that 164 00:06:27,160 --> 00:06:28,240 Speaker 4: you have to think, Okay, what do you have to 165 00:06:28,279 --> 00:06:31,039 Speaker 4: think about? What are the terrors trying to achieve? My 166 00:06:31,200 --> 00:06:32,920 Speaker 4: view has always been that this is going to end 167 00:06:32,960 --> 00:06:35,240 Speaker 4: up being an import tax. Now I would have said, 168 00:06:35,440 --> 00:06:37,080 Speaker 4: you know, two weeks ago, this is a ten percent 169 00:06:37,120 --> 00:06:39,159 Speaker 4: it's going to end up a ten percent import tax 170 00:06:39,480 --> 00:06:43,640 Speaker 4: that's going to be shared between exporter, importer, and consumer, 171 00:06:44,000 --> 00:06:48,520 Speaker 4: and the market will determine, okay, who can absorb those terrors. 172 00:06:48,920 --> 00:06:50,920 Speaker 4: Exporter will decide, hey, we got a discount because we're 173 00:06:50,920 --> 00:06:53,000 Speaker 4: going to lose volume. Importer will say we can't pass 174 00:06:53,000 --> 00:06:54,400 Speaker 4: it on. We're going to eat some of that, and 175 00:06:54,480 --> 00:06:57,520 Speaker 4: the companies that have pricing power will pass it through. Okay, Now, 176 00:06:57,560 --> 00:07:02,000 Speaker 4: we believe that the consumer areas have less pricing power, 177 00:07:02,440 --> 00:07:04,640 Speaker 4: so I would argue that the pricing power is going 178 00:07:04,720 --> 00:07:07,000 Speaker 4: to be more, probably in the industrial space, probably more 179 00:07:07,040 --> 00:07:10,280 Speaker 4: in the you know, sort of the value added supply chain. 180 00:07:10,400 --> 00:07:11,960 Speaker 4: So then what do they do on the other side, Oh, 181 00:07:12,040 --> 00:07:15,200 Speaker 4: they do a tax cut for the companies. So it's 182 00:07:15,480 --> 00:07:18,440 Speaker 4: it's just basically saying we're going to tax this chain here, 183 00:07:18,600 --> 00:07:20,480 Speaker 4: which is going to be a shared tax, but then 184 00:07:20,480 --> 00:07:23,120 Speaker 4: we're going to actually give that away to corporations who 185 00:07:23,120 --> 00:07:25,640 Speaker 4: could then reinvest and actually get. 186 00:07:25,520 --> 00:07:26,560 Speaker 1: The economy moving. 187 00:07:26,640 --> 00:07:30,480 Speaker 4: It's I mean, it is a capitalist type of approach. Now, 188 00:07:30,640 --> 00:07:32,080 Speaker 4: I don't know if it's going to work perfectly, but 189 00:07:32,120 --> 00:07:34,120 Speaker 4: I like the direction of it from a from an 190 00:07:34,120 --> 00:07:35,240 Speaker 4: investors standpoint. 191 00:07:35,360 --> 00:07:36,280 Speaker 1: I love this. Okay. 192 00:07:36,440 --> 00:07:38,800 Speaker 4: Now, I'm not here to make judgments about who gets 193 00:07:38,840 --> 00:07:40,880 Speaker 4: herot the most or whatever, and I don't really know, 194 00:07:41,200 --> 00:07:44,840 Speaker 4: but I can see the path and why we're more constructive, 195 00:07:44,880 --> 00:07:46,800 Speaker 4: why we've been more constructive on the twelve month you. 196 00:07:46,800 --> 00:07:48,480 Speaker 4: I think remember last year you said, you know, Mike, 197 00:07:48,560 --> 00:07:50,320 Speaker 4: this first time i've heard you sound a little more 198 00:07:50,320 --> 00:07:51,960 Speaker 4: constructive because I had that vision. 199 00:07:52,080 --> 00:07:54,120 Speaker 2: Is overwhelming this morning, Mike, I've got to get to 200 00:07:54,120 --> 00:07:56,680 Speaker 2: a brank We all need to PreK my Wolston and 201 00:07:56,680 --> 00:07:58,600 Speaker 2: walk and standing. Mike, appreciate it. Thank you, sir. It's 202 00:07:58,600 --> 00:07:59,120 Speaker 2: going to see you