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Speaker 1: Welcome to the Bloomberg Markets Podcast. I'm Paul Sweeney alongside

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Speaker 1: my co host Matt Miller.

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Speaker 2: Every business day we bring you interviews from CEOs, market pros,

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Speaker 2: and Bloomberg experts, along with essential market moven news.

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Speaker 1: Find the Bloomberg Markets podcast called Apple Podcasts or wherever

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Speaker 1: you listen to podcasts, and at Bloomberg dot com slash podcast.

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Speaker 3: We're about to speak with Angela Harrel. She's Chief Diversity

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Speaker 3: and Corporate Impact Officer at Voya Financial and she's here

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Speaker 3: to talk about corporate diversity initiatives and challenge to these

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Speaker 3: goals in recent years. So Angela, can you just start

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Speaker 3: us off by talking a little bit about what is

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Speaker 3: Voya Financial and what are the DEI initiatives that you're

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Speaker 3: working on now?

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Speaker 4: Absolutely, hello, I'm so happy to join you.

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Speaker 5: So, Voya Financial, we are an organization that is focused

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Speaker 5: on the health and financial wellbeing of our clients. So

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Speaker 5: think retirement plans, think employee benefits, think pension funds. We

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Speaker 5: also have an asset management management business. From a diversity,

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Speaker 5: equity and inclusion perspective, what we seek to do is

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Speaker 5: to look both inside and outside to ensure that we

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Speaker 5: are reflecting who we serve, providing a workplace where folks

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Speaker 5: can show up and be themselves, be valued, embraced for

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Speaker 5: all the differences that they have, and serve our clients

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Speaker 5: because they reflect our clients, so they can better understand

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Speaker 5: the diverse needs in the marketplace because they look like

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Speaker 5: the marketplace.

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Speaker 3: You know, it's a very interesting time for DEI initiatives

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Speaker 3: in the wake of last year's Supreme Court ruling ending

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Speaker 3: affirmative action, and I wondered if you could talk a

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Speaker 3: little bit about how you're coping with this. You know,

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Speaker 3: what kinds of legal advice in particular are you getting

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Speaker 3: on maintaining DEI programs.

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Speaker 4: Well, you know, the good thing, Jim, is we're all diverse.

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Speaker 5: That's one of the things that I always talk to

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Speaker 5: people about diversity is and about those people there everything

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Speaker 5: about us, our background, where we're from, our economic status.

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Speaker 5: It's not just gender, it's not just race. Of course,

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Speaker 5: those things are part of it as well, and so

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Speaker 5: we really have always thought about diversity in terms of

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Speaker 5: the differences that we're born with and those.

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Speaker 4: That we acquire throughout our lifetimes.

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Speaker 5: And so for that very reason, that's all of us

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Speaker 5: now we do look at who's not around the table,

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Speaker 5: who's not being represented. And we have been very clear

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Speaker 5: about continuing to make sure that we have all voices

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Speaker 5: around the table and that the voices are actually heard,

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Speaker 5: because that actually makes for better business, It makes for

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Speaker 5: better business decisions, and it means that we can actually

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Speaker 5: address the divers needs of the market. And so, although

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Speaker 5: there have been headwinds in terms of you know, there

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Speaker 5: being perhaps more of a political focus, this is about people,

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Speaker 5: is what I always say, and this is about how

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Speaker 5: we serve well.

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Speaker 6: Let's talk about challenges ahead for a diversity we had.

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Speaker 6: The results of the Iowa Caucus is clearly Donald Trump

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Speaker 6: is the front runner in his party. What would a

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Speaker 6: Trump presidency another Trump presidency mean on the diversity front.

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Speaker 5: You know, I have always believed in the understanding of

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Speaker 5: all of the very special dynamic the diversity brings. I

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Speaker 5: often joke with with colleagues and say, you know, although

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Speaker 5: you're an amazing individual, we don't want to have six

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Speaker 5: or seven of you around the table, because how then

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Speaker 5: do we challenge each other? How then do we force

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Speaker 5: each other to think differently and to solve complex issues

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Speaker 5: and problems. And so, for me, regardless of you know

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Speaker 5: who might be in off. I think that that understanding

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Speaker 5: of the value of bringing diverse perspectives and thoughts into

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Speaker 5: the room to solve some of the world's most critical

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Speaker 5: issues will prevail.

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Speaker 3: Can you talk a little bit about the programs that

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Speaker 3: you're working on at Voya. You've got you've got a

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Speaker 3: lot of focus on personal finance and financial education. Can

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Speaker 3: you talk a little little bit about how those are

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Speaker 3: playing out. You do a lot of work across a

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Speaker 3: range of diverse communities.

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Speaker 4: Absolutely so, we very much focus. In addition to.

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Speaker 5: My corporate hat, I also run our foundation and so

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Speaker 5: financial resilience is what we focus on there.

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Speaker 4: Boya's purpose is to fight for.

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Speaker 5: Everyone's opportunity for a better financial future. That comes through

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Speaker 5: in terms of many of the programs.

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Speaker 7: That we have.

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Speaker 5: One that is near and dear to my heart is

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Speaker 5: called the National Personal Finance Challenge. I think National.

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Speaker 4: Spelling Bee, but for financial services.

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Speaker 5: We have a fifteen thousand students that participate in this

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Speaker 5: program run by a nonprofit partner called Council for Economic Education.

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Speaker 5: These kids compete locally and then regionally and then nationally

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Speaker 5: putting together a financial plan for.

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Speaker 4: A fictitious family.

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Speaker 5: So Imagine being in a room with two hundred kids.

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Speaker 5: This was the finals at the Federal Reserve Bank in

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Speaker 5: Cleveland last year. Two hundred kids talking about HSA's health

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Speaker 5: savings accounts, talking about four old, one case, talking about

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Speaker 5: cole versus term life. They've got to put together a

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Speaker 5: plan in two hours for a family. They're talking about

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Speaker 5: things they understand things through the curricula that they've learned

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Speaker 5: that adults don't know. The grown people don't have any

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Speaker 5: idea about And so how do we get to young

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Speaker 5: people early, How do we make financial literacy fun? And

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Speaker 5: how do we give them the skills to actually make

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Speaker 5: sound financial decisions that will lead them to job security.

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Speaker 5: We infuse diversity into this program because when we first started,

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Speaker 5: we were first asked to become the title sponsor five

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Speaker 5: years ago, we noticed that there wasn't as much representation

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Speaker 5: in terms of the US population in the room. So

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Speaker 5: we specifically now make sure to recruit a Title I

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Speaker 5: schools where you know, the majority of kids are on

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Speaker 5: free or reduced lunches.

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Speaker 4: We have all.

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Speaker 5: Girls teams, which has amplified the number of women, young

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Speaker 5: ladies that are in the program.

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Speaker 4: We went from you know, thirty.

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Speaker 5: Percent people of color five years ago to fifty one percent,

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Speaker 5: thirty five percent.

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Speaker 4: Girls to now forty six percent girls. Competing is making

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Speaker 4: a meaningful difference in their lives and in their communities

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Speaker 4: and in their families.

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Speaker 3: Do you know we just have a minute left. There's

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Speaker 3: something I would love to talk to you a bit

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Speaker 3: more about this, but unfortunately there was one other question

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Speaker 3: I was very interested in asking you. Could you tell

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Speaker 3: us quickly going back to what you were discussing earlier

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Speaker 3: about the landscape now that we're looking at, how do

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Speaker 3: you think about hiring and how do you give advice

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Speaker 3: about what kind of hiring people can kind of hiring

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Speaker 3: practices are best for people in this environment?

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Speaker 8: Only about thirty seconds there best hiring practice always hire

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Speaker 8: the most qualified candidate, and always think about how diverse

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Speaker 8: and wide you can make that pool.

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Speaker 6: Angela a pleasure, It was great to talk to you.

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Speaker 6: Appreciate it. Angela Herrel, the Chief Diversity and Corporate Impact

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Speaker 6: Officer at Voya Financial Corporate Diversity. I guess we're making

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Speaker 6: progress but still have a ways to go.

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Speaker 3: It's certainly a very big focus for a lot of companies,

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Speaker 3: and I'm on the equality team as an editor at Bloomberg,

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Speaker 3: and I can tell you like there's a lot of

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Speaker 3: interest in our stories.

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Speaker 9: You're listening to the team can't live program Bloomberg Markets

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Speaker 9: weekdays at ten am Eastern on Bloomberg dot com, the

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Speaker 9: iHeartRadio app and the Bloomberg Business App, or listen on

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Speaker 9: demand wherever you get your podcasts.

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Speaker 6: Let's talk financials now Goldman, Sachs, Morgan, Stanley posting earning

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Speaker 6: jen that beat analyst estimates in some of the key

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Speaker 6: business areas. So let's take a deeper dive now with

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Speaker 6: Chris Whalen. He's the chairman at Whalen Global Advice.

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Speaker 10: Is good to see again, Chris Hey, John Y Jennifer.

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Speaker 6: First impressions of the earning so far from the big banks.

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Speaker 10: I think Bork and Stanley is the best of it

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Speaker 10: so far, both in terms of burnings and revenue. Most

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Speaker 10: of the other banks showed a lot of weakness going

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Speaker 10: into the fourth quarter. Jamie Diamond, for example, record year

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Speaker 10: went past the record earnings in twenty one, but fourth

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Speaker 10: quarter was single digits. And what that means is, I

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Speaker 10: think the industry is going to have another down quarter.

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Speaker 10: This is five quarters in a row of down earnings,

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Speaker 10: so you know, it's just part of working our way

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Speaker 10: through the last few years of the FED and everything else.

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Speaker 10: I think you're going to see the FED end portfolio

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Speaker 10: shrinkage soon, and that means they're going to want to

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Speaker 10: push reserves up and push bank to as it's up, so,

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Speaker 10: you know, not bad.

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Speaker 6: How much equity capital do they Is that a concern

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Speaker 6: at this point?

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Speaker 10: No, they're facing market risk. John. It has nothing to

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Speaker 10: do with equity capital unless you're going to sell these

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Speaker 10: securities and right off the loss. You know, think about

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Speaker 10: it this way. Jimmy May Three's are around ninety today,

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Speaker 10: so if a bank wants to get rid of them

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Speaker 10: and go buy something with twice the yield, they still

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Speaker 10: have to lose ten points on the sale. And I

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Speaker 10: think that's still the problem facing a lot of banks.

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Speaker 10: They have assets from twenty to twenty one that are

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Speaker 10: you know, yielding down in threes and they should be

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Speaker 10: selling and getting out. Jamie Diamond has done that very astutely.

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Speaker 10: He's taken losses every quarter because he can. He makes

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Speaker 10: a lot of money, but other banks not so much.

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Speaker 10: And I think you're going to see commercial losses this

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Speaker 10: year which are going to probably be the headline for banks,

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Speaker 10: not consumer. Really, consumer is still very quiet.

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Speaker 3: I guess one thing I wonder though, is if we

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Speaker 3: do indeed get FED rate cuts coming as soon as March,

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Speaker 3: how will that help the picture for banks.

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Speaker 10: On commercial real estate? Not at all, because these are

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Speaker 10: very idiosyncratic situations. They're all different. It's not going to

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Speaker 10: help if you've got an office building in downtown Chicago

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Speaker 10: that's not cash flowing. I don't think you're going to

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Speaker 10: see rate cuts in March, to be honest. I think

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Speaker 10: the FED will stop shrinkage of the portfolio. They'll start

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Speaker 10: reinvesting the runoff from the portfolio. We may not get

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Speaker 10: an actual FED funds cut until later in here. So

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Speaker 10: I think that's why financials are selling off today after

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Speaker 10: Waller's comments and some other bits and pieces.

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Speaker 6: Due to the margins. Then what's the expectation here?

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Speaker 10: Well, yields have been rising very briskly along with funding

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Speaker 10: costs in the past year, but now they've slowed. So

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Speaker 10: what I'm thinking is that we may not see that

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Speaker 10: much headroom. You see all the bond issuance that you

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Speaker 10: guys have been reporting at Bloomberg, investors are taking that

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Speaker 10: paper as fast as they can get it, because I

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Speaker 10: think they realized that rates may be going down now.

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Speaker 10: I still think that the Treasury is refunding and the

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Speaker 10: huge cash needs that they have this year is going

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Speaker 10: to pull a long end up eventually. John, that's going

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Speaker 10: to be the surprise the normal yield curve that we

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Speaker 10: haven't seen a long time, and I think that is

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Speaker 10: the big question mark in my mind going forward. Short

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Speaker 10: term rates will probably go down. I think that's a

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Speaker 10: fair bet. But it may go down initially because a

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Speaker 10: bet is just changing their policy on the balanceet. They're

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Speaker 10: going to be reinvesting those tea bills back in the

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Speaker 10: more tea bills and it'll pull rates down.

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Speaker 3: So I guess what do you think from a business

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Speaker 3: perspective is going to be the bright spot for banks

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Speaker 3: going forward. We saw in the Goldman Sachson and the

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Speaker 3: Morgan Stanley er earnings reports this morning a focus on

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Speaker 3: the wealth divisions.

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Speaker 10: Yeah, wealth is definitely one of the better things to own. Obviously,

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Speaker 10: if you can compair of City with Morgan Stanley, Morgan

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Speaker 10: Stanley was the winner there. City does not have that

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Speaker 10: component at all, so that's one of their problems. I

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Speaker 10: think the transactional banks Goldman. They did pretty well on

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Speaker 10: the trading side. This quarter will be okay. Credit is

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Speaker 10: the issue for big commercial banks, both in terms of

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Speaker 10: commercial real estate related business exposures and then thirdly consumers.

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Speaker 10: We're all waiting for consumers. But you know, like I say,

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Speaker 10: credit cards are prime auto by banks is still not

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Speaker 10: that bad. If you look at subprime auto, if you

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Speaker 10: look at lower FIICO borrowers in the FAHA market, the

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Speaker 10: delinquencies are much higher. And I think that's what people

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Speaker 10: are worried about. They look at that bottom third, bottom

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Speaker 10: quarter of the credit stack, which is definitely seeing stressed,

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Speaker 10: but the rest of it not so much.

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Speaker 6: So it's a division.

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Speaker 10: It's a weird picture.

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Speaker 6: You mentioned consumers, and I think i'm safe ian saying

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Speaker 6: that overall pretty healthy at this point. Yes, when you

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Speaker 6: look at the there is stress on the lower level.

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Speaker 6: I'll call it the deposit balance. Is do they have

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Speaker 6: less of a cushion.

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Speaker 10: Well, if you're a commercial bank, a smaller bank, and

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Speaker 10: you've got big losses on your commercial real estate loans

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Speaker 10: and just commercial in general, you know you're missing deposits

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Speaker 10: right now because if you had to sell those loans,

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Speaker 10: you would take a loss. I think that's what's worrying about.

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Speaker 10: They almost want to force deposits into the system to

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Speaker 10: try and forestall some bank failures this here, and I

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Speaker 10: do think you will see more bank failures as here

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Speaker 10: related to commercial real estate.

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Speaker 3: But just to go back to the consumer point, I mean,

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Speaker 3: one point that's seems to me to be pretty positive

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Speaker 3: is the employment levels are still really really strong, and

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Speaker 3: I would have thought, you know, from the bank perspective,

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Speaker 3: that could have given them some confidence. But I feel

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Speaker 3: like you're a bit more negative on that.

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Speaker 10: Well, consumers are not a pain point for banks right

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Speaker 10: now at all. I mean, if you look at residential mortgages,

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Speaker 10: default rates net default rates are still negative. In other words,

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Speaker 10: they can't lose money on one of four family loans.

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Speaker 10: So if you're looking for problems for banks, it's not

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Speaker 10: where it was last time in two thousand and eight.

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Speaker 10: It's in commercial. It's much more like the seventies, the

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Speaker 10: oil patch in Texas. That's what we're facing. You have

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Speaker 10: a whole class of office buildings out there that people

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Speaker 10: don't want any more. This is a huge problem. We

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Speaker 10: have to redevelop parts of New York City. Look at

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Speaker 10: third Avenue. Nobody wants those buildings from thirty fourth Street

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Speaker 10: up to the fifty.

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Speaker 6: I can't get up Third Avenue in my car. No

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Speaker 6: I took out the bus lanes. It's fregetting triple.

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Speaker 10: You're not supposed to strive in New York. You're supposed

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Speaker 10: to be healthy walking.

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Speaker 6: Before I let you go. JP Morgan will get back

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Speaker 6: to that. Do they manage now to sort of a

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Speaker 6: different standard because they're so darn big at this point?

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Speaker 6: Are they too big?

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Speaker 10: Well, they have enormous mass. You're right, And Jamie could

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Speaker 10: run that bank on non interest income. In other words,

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Speaker 10: if you had a horrible recession, he could literally run

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Speaker 10: the bank on the income and devote all of his

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Speaker 10: interest earnings to loss mitigation. Why does this man need

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Speaker 10: more capital? Obviously he doesn't, but the regulators, you know.

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Speaker 10: The way I look at Jamie is he's a small country.

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Speaker 10: He has so much liquidity inside that bank, and they

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Speaker 10: also are a various student managing market risk and duration,

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Speaker 10: unlike some of the other banks. Compare them with Bank America,

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Speaker 10: which has retained everything from twenty twenty and twenty one,

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Speaker 10: huge mistake. So I think Jamie's just he runs a

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Speaker 10: better bank. They're very nimble, and they have all of

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Speaker 10: that interest earning non interest side from the investment business

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Speaker 10: and mutual funds everything else. It's like a small country.

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Speaker 6: Then switch over to Jane Frazier if you could City Chark.

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Speaker 6: Is that a completely different instant? Now got about a

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Speaker 6: minute left?

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Speaker 10: No, I think Jane frankly in a falling requirement. She

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Speaker 10: should break the bank up and sell it. I just

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Speaker 10: don't see any way for her to fix the business

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Speaker 10: model deficiencies, which basically is Smith Barney. They sold Smith

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Speaker 10: Barney to Gorman. He paid for it. Everybody criticized him

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Speaker 10: at the time, but Gorman was right. So Jane has

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Speaker 10: a two legged stool. And unless she can merge that

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Speaker 10: business with somebody who's got a big investment book and

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Speaker 10: give her some more stability than I don't know why

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Speaker 10: they're here. I wrote a piece about this on the

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Speaker 10: blog over the weekend.

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Speaker 6: And we'll leave it there. Good luck getting up the

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Speaker 6: I'm still driving. I'm not walking up Third Aven. I

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Speaker 6: forget that. Chris always a pleasure. Good to see a

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Speaker 6: chairman at a wheeling Global Advisors breaking down some of

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Speaker 6: the bank earnings that we got today.

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Speaker 9: You're listening to the tape. Catch a live program Bloomberg

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Speaker 9: Markets weekdays at ten am Eastern on Bloomberg Radio, the

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Speaker 9: tune in app, Bloomberg dot Com, and the Bloomberg Business App.

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00:17:01,960 --> 00:17:05,720
Speaker 9: our flagship New York station. Just say Alexa play Bloomberg

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Speaker 9: eleven thirty.

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Speaker 6: Let's get the big picture of view of markets now.

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Speaker 6: Brad Bernstein, Managing director at UBS Private Wealth Management, joins us,

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Speaker 6: good to see you, Thanks for being with us, appreciate it, Bred,

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Speaker 6: thanks you so much for having me. Is the FED

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Speaker 6: still pretty much in the driver's seat for markets and

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Speaker 6: risk assets in particular?

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Speaker 11: Oh, I agree with you. Yeah, I think so. I

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Speaker 11: think you know right now what we're seeing is some

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Speaker 11: walking back a little bit from the FED. But where

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Speaker 11: we are, we're strongly in the soft landing camp.

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Speaker 7: This year.

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Speaker 11: We just changed our projections for FED cuts this year.

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Speaker 11: We see four not three. We were at three recently

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Speaker 11: starting in May. Four quarters this year, you know, and

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Speaker 11: we think markets look pretty good this year with the

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Speaker 11: backing of the FED changing from last year.

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Speaker 3: So what's the advice for investors at this point?

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Speaker 11: Right now? We're advising our clients to add to their

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Speaker 11: two diversified balanced portfolios. We really like the bond market

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Speaker 11: here and we like the stock market. We just upped

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Speaker 11: our target also on the SMP for the year at

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Speaker 11: about five thousand, so we see modest, you know, appreciation

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Speaker 11: from these levels. Keep in mind, we were up ten

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Speaker 11: out of the last eleven weeks, so we probably pulled

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Speaker 11: forward a lot of the year's returns in the last

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Speaker 11: couple of months. Coming into the new.

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Speaker 6: Year in a deflationary or disinflationary environment, is that necessarily

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Speaker 6: good for company earnings, especially with the respect of the

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Speaker 6: top line and margins.

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Speaker 11: So we're actually thinking earnings are going to pick up

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Speaker 11: this year. So for the quarter that just began to

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Speaker 11: the fourth quarter, we're seeing four to five percent year

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Speaker 11: of a year earnings growth and for the year, we

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Speaker 11: still see eight percent earnings growth, about two hundred and

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Speaker 11: forty dollars per share on the SMP this year. Why

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Speaker 11: you know, we're in that soft planting campus I mentioned.

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Speaker 11: We think growth will come down slightly below trend. We

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Speaker 11: think inflation will get to central banks targets to two

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Speaker 11: and a half percent second half, and earnings will be

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Speaker 11: better than than I think a lot of people think,

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Speaker 11: and that's why we're saying five thousand s and p

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Speaker 11: year ed two hundred and forty this year, you know,

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Speaker 11: and and and you know, markets look pretty pretty decent

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Speaker 11: at these levels. But you know, we think we think

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Speaker 11: the by market looks extremely good at these levels.

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Speaker 3: Can I can you dig a little bit into your

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Speaker 3: sector calls for equities and in particular, can you talk

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Speaker 3: about tech? Where do you see that headed this year?

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Speaker 11: So tech is our preferred sector for twenty four coming

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Speaker 11: into the year, we see the best earnings growth of

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Speaker 11: all the sectors globally is in tech. Why AI AI

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Speaker 11: beneficiaries are going to benefit the most from from growth

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Speaker 11: specifically within tech, We like semis and we like software. Also,

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Speaker 11: we're adding in modest overweight right now to small cap.

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Speaker 6: Why why small cap.

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Speaker 11: Multiple reasons number one For the first time in a

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Speaker 11: few years, we think it can now perform large. Why

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Speaker 11: because they are going to be one of the better

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Speaker 11: beneficiaries of declining rates. They're more levered to borrowing than

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Speaker 11: large companies. Clearly, also, the valuation compared to large hasn't

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Speaker 11: been this compelling in a long time, and they the

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Speaker 11: small cap acid class was really impacted by the regional

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Speaker 11: banking crisis we had in the spring and these you

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Speaker 11: know that that has hurt the index and it's still

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Speaker 11: off ten to fifteen percent since March of last year.

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Speaker 11: So we think there's a lot of reasons why small

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Speaker 11: cap could actually outperform large cap this year.

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Speaker 6: You also mentioned bonds. What the ten year four point

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Speaker 6: zero three percent? I mean, I Jenn and I missed

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Speaker 6: the boat at five percent, just over four percent of

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Speaker 6: this that's still a screaming buy.

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Speaker 7: Yeah.

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Speaker 11: Yes, November was the best month for bonds since the

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Speaker 11: nineteen eighties, right after bonds being terrible for a year

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Speaker 11: and a half. We see the ten you're getting a

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Speaker 11: three and a half by the end of the year.

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Speaker 11: So we really like the bond market. We think the

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Speaker 11: risk reward looks outstanding. The conversations we're having right now

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Speaker 11: with clients are you know, everyone has too much in

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Speaker 11: cash these days. Cash shields are going to decline as

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Speaker 11: the Fed cuts. We see four cuts, as I said,

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Speaker 11: so that five something money market will be for something

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Speaker 11: by the end of the year, maybe three something next year.

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Speaker 11: And yet there's opportunity to lock in duration. So for

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Speaker 11: the ask for the liquid cash that's sitting in money

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Speaker 11: markets that shouldn't be is it is still time to

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Speaker 11: get in and they're still upside in the bond market,

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Speaker 11: not to mention locking in yields that won't be available

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Speaker 11: six to twelve months from now.

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Speaker 6: He sounds like a sixty to forty guy. Are you

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Speaker 6: what's your allocation? What's the ideal allocation? If I'm your.

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Speaker 11: Client, it depends on you, the client, right, So we're

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Speaker 11: agnostic when it comes to the strategic allocation of a portfolio.

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Speaker 11: It's always about the client's goals an objective. It's always

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Speaker 11: about what the goals are for the portfolio that dictates

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Speaker 11: what the allocation will look like. But yeah, we believe

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Speaker 11: at a high level in diversification and owning, you know,

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Speaker 11: broad diversity within a portfolio such as small, mid large caps,

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Speaker 11: and then overweighting areas within those areas, and then within

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Speaker 11: fixed income. We like duration here specifically, to get into

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Speaker 11: more detail, municipals, high quality, investment grade and CNBS is here.

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Speaker 3: What's the biggest risk to your outlook? Is it geeopolitical risks?

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Speaker 3: Is it the FED not proceeding as you expect?

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Speaker 11: I think number one would be the Fed disappointing and

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Speaker 11: not delivering what the markets really help now. Obviously, right

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Speaker 11: now the Fed, I think the market's ahead of the

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Speaker 11: Fed a little bit. I think we're not going to

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Speaker 11: get six cuts. We'll probably get four. That's what we're projecting,

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Speaker 11: and I think the markets will be fine in that scenario.

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Speaker 11: But if we get two or less cuts, I think

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Speaker 11: the markets would not be happy about that. And then

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Speaker 11: obviously overnight we saw you know, some escalation globally with

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Speaker 11: some geopolitical risks. Hopefully those don't get worse. As long

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Speaker 11: as as I think, you know, geopolitical risks don't get

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Speaker 11: much worse with the United States, you know, our military

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Speaker 11: and oil being impacted, I think we'll be fine as well.

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Speaker 11: And that's our base case that that won't happen.

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Speaker 6: Oh, he's a pleasure of Brad Bernstein, Managing director at

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Speaker 6: UBS Private Wealth Management. Just to recap so year in

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Speaker 6: five thousand s and P five hundred four rate cuts

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Speaker 6: from the Federal Reserve in May and earnings growth of

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Speaker 6: something like what four to five percent. It's good to

439
00:23:44,240 --> 00:23:46,040
Speaker 6: talk to you, Brad, Thanks very much, you appreciate it.

440
00:23:46,440 --> 00:23:49,560
Speaker 9: You're listening to the tape. Cat's are live program Bloomberg

441
00:23:49,640 --> 00:23:53,520
Speaker 9: Markets weekdays at ten am Eastern on Bloomberg Radio, tune

442
00:23:53,560 --> 00:23:56,520
Speaker 9: in app, Bloomberg dot Com, and the Bloomberg Business App.

443
00:23:56,560 --> 00:23:59,359
Speaker 9: You can also listen live on Amazon Alexa from our

444
00:23:59,359 --> 00:24:04,400
Speaker 9: flagship New York station, Jo Say Alexa play Bloomberg eleven thirty.

445
00:24:05,680 --> 00:24:08,440
Speaker 6: Let's bring in our next guest to look at the markets,

446
00:24:08,600 --> 00:24:12,800
Speaker 6: Mike Mulaney, as director of Global Markets Research for Boston Partners.

447
00:24:13,000 --> 00:24:14,880
Speaker 6: He's got the shades close behind him, so I don't

448
00:24:14,880 --> 00:24:17,520
Speaker 6: know where he is. I'm guessing Boston. Right, did you

449
00:24:17,520 --> 00:24:18,080
Speaker 6: get snow backed?

450
00:24:18,200 --> 00:24:19,760
Speaker 7: And it's snowing outside still here?

451
00:24:19,840 --> 00:24:22,320
Speaker 6: So all right, well it's let up, so maybe you'll

452
00:24:22,320 --> 00:24:25,399
Speaker 6: get some relief in a couple of hours. Are you

453
00:24:25,440 --> 00:24:28,280
Speaker 6: a sixty forty guy at this point?

454
00:24:29,520 --> 00:24:30,800
Speaker 7: Yeah, we would be definitely.

455
00:24:30,840 --> 00:24:35,520
Speaker 12: Actually, we have still a smattering of bench balanced accounts

456
00:24:35,560 --> 00:24:39,399
Speaker 12: here at Boston Partners, and the balanced neutral ratio is

457
00:24:39,400 --> 00:24:43,000
Speaker 12: fifty to fifty and currently we're at fifty five forty

458
00:24:43,040 --> 00:24:45,600
Speaker 12: five stocks to bond, so we are still leaning towards

459
00:24:46,480 --> 00:24:49,080
Speaker 12: overweight stocks versus bonds and our portfolios.

460
00:24:49,520 --> 00:24:52,119
Speaker 3: So tell me what's your take on what the Fed's

461
00:24:52,200 --> 00:24:54,720
Speaker 3: next move is? And more importantly, when it's going to come.

462
00:24:56,880 --> 00:25:00,000
Speaker 12: Well, I thought, you know, Waller today was less dubbish

463
00:25:00,200 --> 00:25:02,840
Speaker 12: then obviously the market anticipated and I think that's why

464
00:25:02,840 --> 00:25:04,680
Speaker 12: we see in the negative action of the treasure market

465
00:25:04,760 --> 00:25:07,640
Speaker 12: which is spilling over now to the equity market. And

466
00:25:08,160 --> 00:25:09,800
Speaker 12: we're not in the camp that it's going to be

467
00:25:09,800 --> 00:25:12,880
Speaker 12: a March cut. We just think that's too early because

468
00:25:13,560 --> 00:25:16,399
Speaker 12: haven't seen I guess you can say sustained improvement on

469
00:25:16,480 --> 00:25:20,120
Speaker 12: the core PCE that would be necessary to be more

470
00:25:20,119 --> 00:25:23,080
Speaker 12: aggressive on cuts. Doesn't mean they don't cut, you know,

471
00:25:23,119 --> 00:25:26,320
Speaker 12: three times or perhaps four times in twenty twenty four,

472
00:25:26,359 --> 00:25:28,800
Speaker 12: but we think it's later in the year as compared

473
00:25:28,840 --> 00:25:30,000
Speaker 12: to starting in March.

474
00:25:30,280 --> 00:25:35,200
Speaker 6: All right, but still the trajectory is a disinflationary path

475
00:25:35,359 --> 00:25:39,120
Speaker 6: or outright deflation in some sectors. I would imagine how

476
00:25:39,119 --> 00:25:41,920
Speaker 6: does that add up for earnings.

477
00:25:43,800 --> 00:25:46,680
Speaker 12: I go back actually to a macro standpoint on earnings

478
00:25:46,680 --> 00:25:48,760
Speaker 12: and earnings I do based upon if you do a

479
00:25:48,760 --> 00:25:51,919
Speaker 12: trickle down effect, you start with nominal GDP, then you

480
00:25:52,000 --> 00:25:55,040
Speaker 12: look at revenues of the S and P five hundred,

481
00:25:55,080 --> 00:25:58,199
Speaker 12: and you wind up with earnings. And the quandary that

482
00:25:58,240 --> 00:26:01,680
Speaker 12: we have for twenty twenty four nominal GDP is supposed

483
00:26:01,720 --> 00:26:04,919
Speaker 12: to drop from six point five percent in twenty twenty

484
00:26:04,920 --> 00:26:08,880
Speaker 12: three to about three point five percent in twenty twenty four.

485
00:26:09,520 --> 00:26:11,360
Speaker 7: Yet revenue growth is supposed.

486
00:26:11,040 --> 00:26:14,200
Speaker 12: To be in the mid to mid teens going forward

487
00:26:14,280 --> 00:26:17,520
Speaker 12: for twenty twenty four, and there's a ninety nine percent

488
00:26:17,560 --> 00:26:20,840
Speaker 12: correlation between nominal GDP and revenues of the S and

489
00:26:20,880 --> 00:26:23,400
Speaker 12: P five hundred, So you got two things going potentially

490
00:26:23,440 --> 00:26:26,720
Speaker 12: in the opposite direction, which is somewhat confounding to us.

491
00:26:27,240 --> 00:26:27,680
Speaker 7: And if you.

492
00:26:27,640 --> 00:26:32,520
Speaker 12: Continue that, earnings are very much linked towards revenue, about

493
00:26:32,560 --> 00:26:35,520
Speaker 12: a ninety seven percent between S and P five hundred

494
00:26:35,560 --> 00:26:38,600
Speaker 12: earnings and SMP five hundred revenue. So if revenue is

495
00:26:38,640 --> 00:26:40,600
Speaker 12: going to slow, which is what we think the case

496
00:26:40,680 --> 00:26:42,119
Speaker 12: is going to be, we don't think it's going to

497
00:26:42,119 --> 00:26:45,320
Speaker 12: be as high as probably what the analyst of forecasting

498
00:26:45,359 --> 00:26:48,240
Speaker 12: or the strategist of forecasting right now. Then we do

499
00:26:48,280 --> 00:26:50,320
Speaker 12: think there's probably going to be some pressure in earnings

500
00:26:50,640 --> 00:26:54,600
Speaker 12: not to attain that eleven point eight percent growth for

501
00:26:54,640 --> 00:26:58,040
Speaker 12: twenty twenty four, which is the current consensus forecast for

502
00:26:58,080 --> 00:26:59,119
Speaker 12: the S and P five hundred.

503
00:26:59,200 --> 00:27:01,080
Speaker 7: We think it's going to be something less than.

504
00:27:00,920 --> 00:27:04,520
Speaker 3: That, So do companies have the wherewithal to weather that

505
00:27:04,640 --> 00:27:08,560
Speaker 3: kind of slow down, you know, without taking measures such

506
00:27:08,640 --> 00:27:10,199
Speaker 3: as shutting some jobs.

507
00:27:11,440 --> 00:27:14,159
Speaker 12: We're beginning to see jobs being shed, especially in the

508
00:27:14,240 --> 00:27:16,919
Speaker 12: larger corporations. You know, the announced layoffs now that are

509
00:27:16,960 --> 00:27:21,960
Speaker 12: coming in more in a fevered pace. That wouldn't surprise

510
00:27:22,040 --> 00:27:24,600
Speaker 12: us to see that continuing in twenty twenty four.

511
00:27:25,080 --> 00:27:25,240
Speaker 7: You know.

512
00:27:25,359 --> 00:27:27,959
Speaker 12: Obviously, City Group last week, you know, stating they're going

513
00:27:27,960 --> 00:27:30,280
Speaker 12: to cut you know, twenty thousand employees during the course

514
00:27:30,320 --> 00:27:31,480
Speaker 12: of this year the next.

515
00:27:31,359 --> 00:27:32,000
Speaker 7: Couple of years.

516
00:27:32,920 --> 00:27:34,600
Speaker 12: We think that's probably going to be more of the

517
00:27:34,680 --> 00:27:37,480
Speaker 12: norm because I think first and foremost what's going to

518
00:27:37,480 --> 00:27:39,480
Speaker 12: happen is that companies are going to try to protect

519
00:27:39,480 --> 00:27:42,679
Speaker 12: their profit margins, which are very high right now, but

520
00:27:42,720 --> 00:27:46,439
Speaker 12: they now getting pressure from wages. Wages have remained sticky

521
00:27:46,480 --> 00:27:49,680
Speaker 12: at a high level, and that is beginning to erode

522
00:27:49,680 --> 00:27:52,520
Speaker 12: some of the prospects for profit margin expansion obviously in

523
00:27:52,520 --> 00:27:56,080
Speaker 12: twenty twenty four, and maybe cost some contraction in twenty

524
00:27:56,119 --> 00:27:59,440
Speaker 12: twenty four, which ultimately will impact will impact earnings.

525
00:28:00,080 --> 00:28:03,960
Speaker 6: You can't talk individual stocks. What about sectors? What do

526
00:28:04,000 --> 00:28:04,280
Speaker 6: you like?

527
00:28:06,680 --> 00:28:08,399
Speaker 7: You know, you have to still like tech.

528
00:28:09,080 --> 00:28:11,200
Speaker 12: If you look at where the earnings growth is supposed

529
00:28:11,240 --> 00:28:14,359
Speaker 12: to be in twenty twenty four. Tech is still coming

530
00:28:14,400 --> 00:28:17,400
Speaker 12: in in second place, and you know, you don't want

531
00:28:17,440 --> 00:28:20,119
Speaker 12: to change chase the you know, necessarily some of the

532
00:28:20,160 --> 00:28:24,280
Speaker 12: multiples of the Magnificent seven, but you know, other companies

533
00:28:24,280 --> 00:28:26,720
Speaker 12: in that sector are still a price at reasonable levels.

534
00:28:26,840 --> 00:28:28,520
Speaker 12: So I think tech is still a place to be

535
00:28:29,080 --> 00:28:30,600
Speaker 12: and you may want to try to bar bel it

536
00:28:31,240 --> 00:28:34,840
Speaker 12: if you do see kind of a no landing scenario

537
00:28:35,000 --> 00:28:37,560
Speaker 12: for the economy, and we think it's almost a jump

538
00:28:37,680 --> 00:28:40,800
Speaker 12: call between recession and no landing quite frankly, but if

539
00:28:40,800 --> 00:28:42,480
Speaker 12: you do see a no landing, then some of the

540
00:28:42,480 --> 00:28:45,840
Speaker 12: cyclical sectors probably do better earnings.

541
00:28:45,920 --> 00:28:46,480
Speaker 7: I mean, excuse me.

542
00:28:46,600 --> 00:28:50,080
Speaker 12: Energy has been beaten down badly and deservedly so based

543
00:28:50,160 --> 00:28:53,280
Speaker 12: upon the weakness and energy prices, but they have once

544
00:28:53,280 --> 00:28:55,800
Speaker 12: again a negative prospect for earnings per share growth for

545
00:28:55,920 --> 00:28:58,880
Speaker 12: twenty twenty four. And based upon what you just said,

546
00:28:58,920 --> 00:29:00,800
Speaker 12: given what's going on in the in the Middle East

547
00:29:00,880 --> 00:29:03,240
Speaker 12: right now, you might see some firming advantage prices just

548
00:29:03,320 --> 00:29:05,800
Speaker 12: on geopolitical risk, and if that's the case, you'll see

549
00:29:06,240 --> 00:29:09,640
Speaker 12: the earnings come through better for energy companies in twenty

550
00:29:09,680 --> 00:29:11,560
Speaker 12: twenty four. So that would be a typical kind of

551
00:29:11,560 --> 00:29:16,160
Speaker 12: Barbell chech and energy and play and play both sides

552
00:29:16,160 --> 00:29:16,600
Speaker 12: of the card.

553
00:29:17,480 --> 00:29:20,520
Speaker 3: What is your take on how the US election will

554
00:29:20,560 --> 00:29:22,760
Speaker 3: play into things in the second half of the year.

555
00:29:24,760 --> 00:29:26,920
Speaker 7: You know, that's a really good question.

556
00:29:27,000 --> 00:29:31,000
Speaker 12: So generally the market's pretty choppy in the first half

557
00:29:31,000 --> 00:29:33,480
Speaker 12: of the year space, particularly in the first quarter in

558
00:29:33,520 --> 00:29:36,720
Speaker 12: an election year, and you see that until you get

559
00:29:36,800 --> 00:29:40,480
Speaker 12: more definitive, you know, kind of vision as to who

560
00:29:40,520 --> 00:29:42,920
Speaker 12: the candidates are going to be and what their their

561
00:29:42,960 --> 00:29:47,680
Speaker 12: platforms are into the election. My guess is right now,

562
00:29:47,800 --> 00:29:49,880
Speaker 12: you know, you've got to think that once again, Donald

563
00:29:49,920 --> 00:29:52,000
Speaker 12: Trump would be the favorite right now based upon either

564
00:29:52,040 --> 00:29:55,280
Speaker 12: polls or the betting markets. Right now, you know, Trump

565
00:29:55,320 --> 00:29:58,240
Speaker 12: is a head of is ahead of Biden. We see

566
00:29:58,280 --> 00:30:02,200
Speaker 12: probably the market doing well if that's the case, because

567
00:30:02,240 --> 00:30:05,560
Speaker 12: the market seems to like obviously reduction in taxes, which

568
00:30:05,600 --> 00:30:09,040
Speaker 12: is what you know. Trump is obviously a champion in

569
00:30:09,040 --> 00:30:12,160
Speaker 12: the past, but I'm not so sure after the election

570
00:30:12,640 --> 00:30:14,320
Speaker 12: with some of the things that he's put forth as

571
00:30:14,320 --> 00:30:16,680
Speaker 12: far as his next administration what he intends to do

572
00:30:17,000 --> 00:30:18,640
Speaker 12: are going to play all that well in the market

573
00:30:18,640 --> 00:30:21,440
Speaker 12: continuing into twenty twenty five. But I would guessed that

574
00:30:21,440 --> 00:30:24,120
Speaker 12: the mark would be relatively firm going into the election

575
00:30:24,720 --> 00:30:26,280
Speaker 12: and just out of the election as well.

576
00:30:26,440 --> 00:30:30,600
Speaker 6: All Right, conventional wisdom dictates the FED stays away from politics,

577
00:30:30,600 --> 00:30:34,960
Speaker 6: so stays away from any sort of decision around election time.

578
00:30:35,040 --> 00:30:37,680
Speaker 6: I think you said, what, March is too early, So

579
00:30:38,160 --> 00:30:40,240
Speaker 6: when do they act?

580
00:30:41,000 --> 00:30:42,920
Speaker 12: Well, you know, I would imagine that you're going to

581
00:30:42,920 --> 00:30:46,760
Speaker 12: try to do it around when they're releasing statements formal

582
00:30:46,800 --> 00:30:49,600
Speaker 12: statements in the Summary of Economic projections.

583
00:30:49,600 --> 00:30:51,960
Speaker 7: So I would put it probably out there. We'd have

584
00:30:52,040 --> 00:30:54,440
Speaker 7: it at the June meeting. It starts with June.

585
00:30:54,360 --> 00:30:56,920
Speaker 12: And they could go every meeting after that if they

586
00:30:56,960 --> 00:30:59,960
Speaker 12: continue to get the kind of progress on core piece

587
00:31:00,720 --> 00:31:03,719
Speaker 12: that they've seen so far. The six mic annualized rate

588
00:31:03,840 --> 00:31:06,400
Speaker 12: right now is basically pretty close to what their target is.

589
00:31:07,400 --> 00:31:09,280
Speaker 12: So if they continue to see that kind of progress,

590
00:31:09,360 --> 00:31:11,560
Speaker 12: I think you could see them go every meeting once

591
00:31:11,600 --> 00:31:13,360
Speaker 12: they start in June.

592
00:31:13,720 --> 00:31:15,680
Speaker 7: Albeit unless we don't get if we don't get.

593
00:31:15,560 --> 00:31:18,120
Speaker 12: A reacceleration inflation, which is still a little bit of

594
00:31:18,120 --> 00:31:21,840
Speaker 12: a wild card because quite frankly, if you look at

595
00:31:21,960 --> 00:31:25,200
Speaker 12: supercore PCE, which is one of you know, Chairman Poll's

596
00:31:25,240 --> 00:31:28,560
Speaker 12: favorite indicators, that's still very sticky to a high level,

597
00:31:28,560 --> 00:31:31,080
Speaker 12: and it's very much influenced by wages, and wages is

598
00:31:31,120 --> 00:31:35,080
Speaker 12: showing no sign right now basically of collapsing at this juncture.

599
00:31:36,040 --> 00:31:39,040
Speaker 3: Wages are not collapsing, and the labor market's quite strong.

600
00:31:39,200 --> 00:31:41,560
Speaker 3: So where does that leave us with the outlook for

601
00:31:41,600 --> 00:31:45,720
Speaker 3: consumer spending? You know, I wonder how rich consumers are feeling.

602
00:31:46,000 --> 00:31:48,800
Speaker 3: They're just coming off the holidays and a massive spending binge,

603
00:31:48,840 --> 00:31:51,880
Speaker 3: which looking at my gift hall, was not what I expected.

604
00:31:52,240 --> 00:31:55,520
Speaker 3: But still, you know, I know, I know, but you know,

605
00:31:55,560 --> 00:31:57,800
Speaker 3: you could think that, you know, they're going to be

606
00:31:57,880 --> 00:31:58,880
Speaker 3: pulling back a little bit.

607
00:32:00,080 --> 00:32:01,600
Speaker 7: I think it's very bifurcated.

608
00:32:02,400 --> 00:32:05,000
Speaker 12: I think that, you know, the upper echelons, whether it

609
00:32:05,040 --> 00:32:07,560
Speaker 12: be the top quintile or the top forty percent of

610
00:32:07,560 --> 00:32:10,640
Speaker 12: way journers, are going to be perfectly fine. But the

611
00:32:10,640 --> 00:32:14,520
Speaker 12: bottom twenty percent, the bottom quintile definitely beginning to struggle

612
00:32:14,560 --> 00:32:14,840
Speaker 12: right now.

613
00:32:14,880 --> 00:32:17,520
Speaker 7: If you look at delinquencies.

614
00:32:16,840 --> 00:32:20,640
Speaker 12: And defaults and the increase in credit card balances, it

615
00:32:20,720 --> 00:32:23,800
Speaker 12: seems to me that they're beginning to borrow to maintain lifestyle.

616
00:32:23,920 --> 00:32:26,560
Speaker 12: So I would think that the lower quintile is going

617
00:32:26,600 --> 00:32:29,640
Speaker 12: to be basically in somewhat of a struggling situation that's

618
00:32:29,720 --> 00:32:33,160
Speaker 12: more goods related than it is service services related. The

619
00:32:33,320 --> 00:32:36,520
Speaker 12: EP two quintiles obviously are going to continue to spend

620
00:32:36,520 --> 00:32:38,680
Speaker 12: on services. I think they're going to continue to spend

621
00:32:38,720 --> 00:32:42,240
Speaker 12: on experiences in twenty twenty four, much like they did

622
00:32:42,320 --> 00:32:45,120
Speaker 12: in the mid to latter part of twenty twenty three.

623
00:32:45,440 --> 00:32:49,120
Speaker 6: All right, Mike, thanks appreciate it. Michael O'Laney from Boston,

624
00:32:49,120 --> 00:32:53,600
Speaker 6: Director of Global Markets for Boston Research Global Markets Research,

625
00:32:53,920 --> 00:32:54,920
Speaker 6: I should say.

626
00:32:55,160 --> 00:32:58,239
Speaker 2: Thanks for listening to the Bloomberg Markets podcast. You can

627
00:32:58,280 --> 00:33:02,640
Speaker 2: subscribe and listen to interviews, Apple Podcasts, or whatever podcast

628
00:33:02,680 --> 00:33:06,240
Speaker 2: platform you prefer. I'm Matt Miller. I'm on Twitter at

629
00:33:06,280 --> 00:33:08,000
Speaker 2: Matt Miller nineteen seventy three.

630
00:33:08,440 --> 00:33:10,800
Speaker 1: And I'm Faull Sweeney. I'm on Twitter at pt Sweeney.

631
00:33:10,960 --> 00:33:13,600
Speaker 1: Before the podcast, you can always catch us worldwide at

632
00:33:13,600 --> 00:33:15,400
Speaker 1: Bloomberg Radio