Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Here's the latest this morning. Trade talks between the US
Speaker 2: and China stretching into a second day as President Trump's
Speaker 2: Friday deadline approaches. The COMMAS Secretary Howard Latinik thing a
Speaker 2: ninety day truce extension, which China is likely. Mike Wilson
Speaker 2: of Malkan Stanley is bullish, writing We're bullish into twenty
Speaker 2: six through the near term setup is not without risks.
Speaker 2: These include tariff related inflation. Mike joins us now for more. Mike,
Speaker 2: good morning, Good to see you. You list a lot
Speaker 2: of reasons to be constructive here, just go through those
Speaker 2: leasons for us this morning.
Speaker 3: Yeah.
Speaker 1: I mean the reasons really haven't changed.
Speaker 4: We've been very constructive since May when we did our
Speaker 4: midyear update. And I think the main thing to take
Speaker 4: away from our outlook that's maybe different than others. I
Speaker 4: think we came into the year feeling the first half
Speaker 4: would be tricky, second half would be better, and that
Speaker 4: was all function of the sequencing of the policy.
Speaker 1: Right.
Speaker 4: So the policy sequencing was what we said is a
Speaker 4: kitchen sink the first quarter. It took to the growth
Speaker 4: negative stuff first and then.
Speaker 1: Flipped very quickly in April.
Speaker 4: So the main reason we're bullish, okay, is that the
Speaker 4: earnings revision breath and we show this every week in
Speaker 4: our note and it goes up every week, has exploded
Speaker 4: higher off of what was a deep cyclical low that
Speaker 4: basically priced in a recession for the most part, So
Speaker 4: that revision breath is guiding us to the performance that
Speaker 4: we've seen.
Speaker 1: This is just to put it in context.
Speaker 4: Okay, this increase or V shaped recovery and arrange re
Speaker 4: vision breath is as significant as we've seen since COVID,
Speaker 4: the COVID recovery, and that was the last time that
Speaker 4: we were this far out of consensus being bullish, and
Speaker 4: it was right because of it.
Speaker 1: It's the data. We're data dependent, So that's the main reason.
Speaker 4: So this is not just me saying, oh, momentum stocks
Speaker 4: and price momentum, etc.
Speaker 1: That's part of it too. So what's driving that earninge
Speaker 1: revision breath? Well, first, it's a.
Speaker 4: Reflexivity just on people getting too bearish on the growth
Speaker 4: negative stuff.
Speaker 1: And let's not forget the AI camp X cycle, which.
Speaker 4: We came into your feeling negative about, also bottomed in April.
Speaker 1: Okay, So those are two big drivers.
Speaker 4: The second one is a weaker dollar dollars, a big
Speaker 4: tail wind for multinational companies, okay. And the third one
Speaker 4: now is we're starting to see operating leverage in more
Speaker 4: companies across the S and P five hundred. And this
Speaker 4: is a very unique view that we've had. So, you know,
Speaker 4: the rolling recession call that we've kind of been talking about, well,
Speaker 4: now it looks to us like we're having a rolling recovery, okay,
Speaker 4: And that will be further spurred by the FED cutting
Speaker 4: rates at some point in the next year. And we
Speaker 4: don't know exactly when they're going to start, but I
Speaker 4: think it's fair to say that they're not going to
Speaker 4: be raising rates. So this three year what I would
Speaker 4: call soft recession that we've been living through, now we're
Speaker 4: sort of coming through that and we're getting more visibility
Speaker 4: and that that's why we're more constructive on the next year. Now,
Speaker 4: in the next three months, I do think that some
Speaker 4: of the things that people have been worried about could
Speaker 4: start to play through earnings.
Speaker 1: For example, we.
Speaker 4: Can see cost of goods sold increase because of the tariff.
Speaker 4: You know, the inventory now is flowing through, the cost
Speaker 4: of goods sold.
Speaker 1: We could see the back.
Speaker 4: End of the treasury markets start to back up again
Speaker 4: because of the supply that we know is coming. And
Speaker 4: then of course we still have to deal with just
Speaker 4: this sort of concern around inflation and how does that
Speaker 4: play through, how.
Speaker 1: Does the Fed respond to that? So there are risks there.
Speaker 4: We're not saying there's no risks. And remember the market
Speaker 4: trade six months in advance. So that's what's happened. The
Speaker 4: market has figured this out, it's gotten ahead of it,
Speaker 4: and we've priced a lot of good news.
Speaker 3: How much is this entirely tech driven versus a broad
Speaker 3: based kind of revisions increase and recovery. Given some of
Speaker 3: the mixed guidance that we're getting this morning from a
Speaker 3: number of companies, particularly those that are consumer facing.
Speaker 1: That's right.
Speaker 4: Well, it still remains mixed because we're still in this
Speaker 4: rolling recovery, right, So it's not everything at once. Tech
Speaker 4: and the MAG seven are leading, but we're seeing also
Speaker 4: other groups, industrials, financials, Okay Software, which has been in
Speaker 4: a software session for the last couple of years, we're
Speaker 4: seeing we are seeing a.
Speaker 1: Broadening out for the Max seven. So it's not.
Speaker 4: Where we need to be to see say, oh, we're
Speaker 4: going to move into small cap stocks, We're going to
Speaker 4: move into the low quality parts of the market. We're
Speaker 4: still staying up that curve, however, it's starting to progress.
Speaker 4: Just like the rolling recession saw degradation that was not
Speaker 4: all at once, but kind of more piecemeal.
Speaker 3: So during the rolling recession, we saw gains of about
Speaker 3: twenty percent on the S and P five hundred first
Speaker 3: couple of consecutive years.
Speaker 2: Could you see.
Speaker 3: Gains twenty percent or more during rolling recovery? Does it
Speaker 3: matter if you're in a rolling reception or really recovery
Speaker 3: in terms of the returns.
Speaker 4: What I would hope is that we would see areas
Speaker 4: that have been lagging start to participate more. And that's
Speaker 4: that's sort of our view on twenty six right, and
Speaker 4: that's sort of starting to happen now. Industrials has been
Speaker 4: the best performing sector here today. It's been our top
Speaker 4: pick for the right reasons, for the reasons that we've
Speaker 4: been citing, which is earnings there starting to look better.
Speaker 4: Let's not forget the tax bill, which I didn't even
Speaker 4: mentioned earlier.
Speaker 1: This is a massive, okay.
Speaker 4: Tailwind for cash earnings for US companies. I mean to
Speaker 4: the tune of five to ten percent increase.
Speaker 1: So that's real money going into the pockets of companies.
Speaker 4: They're now allocating capital, not the government, and I think
Speaker 4: everybody would agree that's probably a better outcome.
Speaker 2: Do you think US exceptionalism is back? Is everyone else
Speaker 2: signing up to that?
Speaker 1: Well, what I.
Speaker 4: Would say is that maybe US exceptionalism has been missing. Okay,
Speaker 4: So now, I mean, no one wants to admit this,
Speaker 4: but the direction we're going in now, it looks like
Speaker 4: we are going.
Speaker 1: To see better participation.
Speaker 4: Across the economy. We've been waiting for this. We've been
Speaker 4: waiting for this for two or three years. You know,
Speaker 4: We've bend kind of back and forth, sometimes bullets, sometimes
Speaker 4: bears trying to pick stocks. And this is the first
Speaker 4: time I can say that I can now see the
Speaker 4: path of this transition. We're actually starting to rotate into
Speaker 4: more of an early cycle recovery.
Speaker 2: Let me give you some more space to do this,
Speaker 2: because it's important the strategy of the White House and
Speaker 2: the rebalancing that you envision a year out, two years out,
Speaker 2: three years out. What is it you see?
Speaker 4: Well, the rebalancing is both global and domestic. So the
Speaker 4: global rebalancing is obvious. Are trying to reduce our current
Speaker 4: account deficit, you know, get the trade negotiations are along
Speaker 4: those lines.
Speaker 1: And I think that's rising.
Speaker 4: That's a good strategy, getting more manufacturing, potentially in house
Speaker 4: or domestically. In the domestic rebalancing, it's really instead of
Speaker 4: just having the one percent right, it's you know, Main
Speaker 4: Street over Wall Street. I mean, people say, well, that
Speaker 4: doesn't sound like that's working right now. But the idea
Speaker 4: here is you get lending through the regional banking sector,
Speaker 4: you get lending smaller banks, lending to small businesses, to individuals,
Speaker 4: get rates down at the back end.
Speaker 1: Okay, that is that.
Speaker 4: Will liberate actually the domestic the sort of the middle
Speaker 4: part of the economy.
Speaker 3: Where do you then place this idea that tariffs are
Speaker 3: pretty regressive, this idea that lower income individuals bear the
Speaker 3: brunt of it. BECs is essentially a sales tax on them.
Speaker 3: And you're already seeing companies really grapple with what that
Speaker 3: means for demand, particularly in the travel and leisure space.
Speaker 3: How do you square that with a sort of broad
Speaker 3: based dynamism that you're talking about.
Speaker 4: So I think it's very simple in the sense that
Speaker 4: you have to think, Okay, what do you have to
Speaker 4: think about? What are the terrors trying to achieve? My
Speaker 4: view has always been that this is going to end
Speaker 4: up being an import tax. Now I would have said,
Speaker 4: you know, two weeks ago, this is a ten percent
Speaker 4: it's going to end up a ten percent import tax
Speaker 4: that's going to be shared between exporter, importer, and consumer,
Speaker 4: and the market will determine, okay, who can absorb those terrors.
Speaker 4: Exporter will decide, hey, we got a discount because we're
Speaker 4: going to lose volume. Importer will say we can't pass
Speaker 4: it on. We're going to eat some of that, and
Speaker 4: the companies that have pricing power will pass it through. Okay, Now,
Speaker 4: we believe that the consumer areas have less pricing power,
Speaker 4: so I would argue that the pricing power is going
Speaker 4: to be more, probably in the industrial space, probably more
Speaker 4: in the you know, sort of the value added supply chain.
Speaker 4: So then what do they do on the other side, Oh,
Speaker 4: they do a tax cut for the companies. So it's
Speaker 4: it's just basically saying we're going to tax this chain here,
Speaker 4: which is going to be a shared tax, but then
Speaker 4: we're going to actually give that away to corporations who
Speaker 4: could then reinvest and actually get.
Speaker 1: The economy moving.
Speaker 4: It's I mean, it is a capitalist type of approach. Now,
Speaker 4: I don't know if it's going to work perfectly, but
Speaker 4: I like the direction of it from a from an
Speaker 4: investors standpoint.
Speaker 1: I love this. Okay.
Speaker 4: Now, I'm not here to make judgments about who gets
Speaker 4: herot the most or whatever, and I don't really know,
Speaker 4: but I can see the path and why we're more constructive,
Speaker 4: why we've been more constructive on the twelve month you.
Speaker 4: I think remember last year you said, you know, Mike,
Speaker 4: this first time i've heard you sound a little more
Speaker 4: constructive because I had that vision.
Speaker 2: Is overwhelming this morning, Mike, I've got to get to
Speaker 2: a brank We all need to PreK my Wolston and
Speaker 2: walk and standing. Mike, appreciate it. Thank you, sir. It's
Speaker 2: going to see you