WEBVTT - Central Banks and IPOs 0:00:02.400 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio News. 0:00:11.800 --> 0:00:14.880 This is the Bloomberg Surveillance Podcast. I'm Paul Sweeney along 0:00:14.880 --> 0:00:17.240 with Tom Keene. Join us each day for insight from 0:00:17.239 --> 0:00:20.760 the best in economics, geopolitics, finance, and investment. You can 0:00:20.800 --> 0:00:24.440 also watch the show live on YouTube. Visit the Bloomberg 0:00:24.480 --> 0:00:27.760 Podcast channel on YouTube to see the show weekday mornings 0:00:27.760 --> 0:00:30.400 from seven to ten Eastern Remark Global Headquarters in New 0:00:30.480 --> 0:00:33.720 York City. Subscribe to the podcast on Apple, Spotify, or 0:00:33.760 --> 0:00:36.800 anywhere else you listen, and as always on Bloomberg Radio, 0:00:36.880 --> 0:00:39.599 the Bloomberg Terminal, and the Bloomberg Business App. Let's check 0:00:39.600 --> 0:00:43.800 in with a professional here Seema Shaw, global investment strategist 0:00:43.800 --> 0:00:46.680 at Principal Global Investors. Sema, thanks so much for joining 0:00:46.760 --> 0:00:50.159 us this morning. Love to get your take from what 0:00:50.280 --> 0:00:52.559 we heard from FED Chairman j Powell yesterday. 0:00:53.680 --> 0:00:55.760 Thanks for having me on. Well, I think the big thing. 0:00:55.840 --> 0:00:57.720 The big takeaway was really that the Fed wants to 0:00:57.720 --> 0:01:01.400 coverte It's not a case of, you know, going through 0:01:01.400 --> 0:01:03.520 the inflation data. There may be a little bit of 0:01:03.520 --> 0:01:06.960 a hesitancy, but certainly Powell seem to be somewhat dismissive 0:01:07.120 --> 0:01:11.000 of those upside inflation surprises. He put it down to seasonality. 0:01:11.319 --> 0:01:13.480 So I think the big takeaway is is that if 0:01:13.480 --> 0:01:15.400 BED wants to cut rates, they need a really good 0:01:15.400 --> 0:01:18.840 reason not to cut rates. So from that perspective of sudden, 0:01:18.840 --> 0:01:20.399 it looks like three cuts are on their way for 0:01:20.480 --> 0:01:20.840 this year. 0:01:21.440 --> 0:01:23.679 And where are you penciling in those cuts? Are we 0:01:23.720 --> 0:01:26.840 seeing those in June, July as soon as May? 0:01:27.480 --> 0:01:28.400 So we have been. 0:01:28.760 --> 0:01:30.839 We've had a forecast for a while for the first 0:01:30.880 --> 0:01:34.720 cut to come in June, followed by September and December. 0:01:35.280 --> 0:01:37.679 So this is fairly in line I think with where 0:01:37.720 --> 0:01:39.920 the market is pricing today, although I think the market 0:01:39.959 --> 0:01:44.400 is maybe starting to price even more cuts than before, 0:01:44.480 --> 0:01:47.160 so maybe some expectation that they could be there. But 0:01:47.240 --> 0:01:50.639 certainly for us, I think even though Powell was quite dubbish, 0:01:50.680 --> 0:01:52.160 I would actually goes for us to call HI dubbish 0:01:52.240 --> 0:01:56.920 rather than hawkish. You still need to have some clear 0:01:56.920 --> 0:02:00.120 evidence that inflation has abated and that those two months 0:02:00.120 --> 0:02:02.960 of jat and fedure anomalies rather than a new rising trend. 0:02:04.520 --> 0:02:06.040 Guess a little bit less than now we're going to 0:02:06.080 --> 0:02:07.440 hear from the Bank of England. What do you expect 0:02:07.720 --> 0:02:09.440 to hear from the BOE. 0:02:10.800 --> 0:02:13.440 Well, that's an interesting one because so of course very 0:02:13.520 --> 0:02:15.520 unlikely to have any kind of change to policy. I 0:02:15.520 --> 0:02:18.600 think that that is certainly the full expectation for the market. 0:02:19.320 --> 0:02:21.959 The narrative is interesting at the moment because it's quite 0:02:21.960 --> 0:02:25.000 different to the US, where the UK is really struggling. 0:02:25.520 --> 0:02:27.760 The economy has been much much weaker than the US, 0:02:27.760 --> 0:02:30.760 and the inflation number is the latest one coming in a. 0:02:30.760 --> 0:02:32.120 Little bit lower than expected. 0:02:32.440 --> 0:02:35.720 So they have a clear path to cuts now, and 0:02:35.840 --> 0:02:38.120 certainly from our perspective, there is a rising chance that 0:02:38.320 --> 0:02:41.520 you get sooner rather than later, potentially as soon as June, 0:02:42.440 --> 0:02:44.720 which you know, if you do have a number of 0:02:44.760 --> 0:02:47.120 central banks moving at the same time, that will make 0:02:47.360 --> 0:02:51.800 things life easier for each other and certainly for the 0:02:51.840 --> 0:02:52.640 currency markets. 0:02:53.160 --> 0:02:55.440 So should we still expect the FED to be leading 0:02:55.520 --> 0:02:57.480 the way in terms of central banks, at least in 0:02:57.520 --> 0:02:59.960 development markets making those decisions to cut rate. 0:03:02.240 --> 0:03:04.440 So I think it will be coincidental, to be honest. 0:03:04.639 --> 0:03:06.440 I think for the ECB and the Bank of England, 0:03:06.480 --> 0:03:09.720 they're fundamentals of their economies really are calling. 0:03:09.440 --> 0:03:12.280 For rate cards in the very near future. 0:03:12.320 --> 0:03:14.119 So if the FED didn't come in June, I don't 0:03:14.120 --> 0:03:17.400 think that's a reason to stop for the ECB in 0:03:17.440 --> 0:03:20.720 the Bank of England to put off their rate cuts, certainly, 0:03:20.760 --> 0:03:22.799 but it just so happens. I think in a way 0:03:22.800 --> 0:03:24.760 that the FED is probably going to be cutting around 0:03:24.760 --> 0:03:27.480 the same time, and I think their meeting does come first, 0:03:27.480 --> 0:03:31.000 so they will be leading the way generally speaking, though, 0:03:31.120 --> 0:03:33.080 you know, the US does have a very very different 0:03:33.080 --> 0:03:36.000 picture to what you're seeing from Europe and the UK, 0:03:36.080 --> 0:03:39.560 which is why. But yesterday's meeting that was somewhat dubbish. 0:03:39.600 --> 0:03:42.280 I mean, you have a strong growth picture, I mean stronger. 0:03:42.360 --> 0:03:46.040 They raised their forecast quite considerably for this year. You've 0:03:46.040 --> 0:03:48.839 got a higher inflation forecast, and yet you've still got 0:03:48.880 --> 0:03:52.600 rate cuts coming at the same time as other countries 0:03:52.680 --> 0:03:55.040 or the economies around the world, which are pretty much 0:03:55.040 --> 0:03:56.960 in stagnation, if not already in recession. 0:03:57.840 --> 0:04:00.240 All right, Sema, So for the US market here, if 0:04:00.240 --> 0:04:03.080 we are in fact in a reasonably doublish situation from 0:04:03.080 --> 0:04:05.640 the Fed's perspective, what are you telling your clients to 0:04:05.720 --> 0:04:06.520 do here. 0:04:06.240 --> 0:04:08.600 In the US in terms of maybe asset allocation. 0:04:10.040 --> 0:04:12.200 Yeah, look, this is a risk on time. 0:04:13.560 --> 0:04:17.480 We have been overweighting equities in credit for the last 0:04:17.520 --> 0:04:21.080 couple of months in the expectation that the economy we 0:04:21.160 --> 0:04:23.479 expect it to slow a little bit but suddenly to 0:04:23.560 --> 0:04:26.359 avoid recession. But we've also been anticipating the rate carts, 0:04:26.360 --> 0:04:28.880 and together that soft landing with rate cards is a 0:04:29.120 --> 0:04:32.159 perfect situation for equities and credit. 0:04:32.600 --> 0:04:34.599 Now importantly for Ecuitis, this is. 0:04:34.600 --> 0:04:36.360 Also going to be a time where you can start 0:04:36.360 --> 0:04:38.480 to really look at the very unloved parts of the market, 0:04:38.480 --> 0:04:41.320 the bits where the valuations are still quite attractive, of 0:04:41.360 --> 0:04:43.880 which there are many. So within the US, although we 0:04:43.960 --> 0:04:48.480 do still like that large cap tech space, we are 0:04:48.760 --> 0:04:50.400 edging into that small cap space. 0:04:50.720 --> 0:04:51.840 We think that that should do well. 0:04:51.880 --> 0:04:54.240 The valuation gap is fairly significant and we think it 0:04:54.279 --> 0:04:57.080 could close up a little bit over the coming months. 0:04:57.279 --> 0:04:59.280 And then there's other parts of the world. If you 0:04:59.320 --> 0:05:01.960 look across the LA in American valuations there are very interesting. 0:05:01.960 --> 0:05:05.640 Their fundamentals are pretty strong. The political scene is a 0:05:05.680 --> 0:05:08.800 little bit less volatile than it was previously, So there 0:05:08.839 --> 0:05:12.560 are pockets around the world, But actually our favorite region 0:05:12.600 --> 0:05:13.400 is still the US. 0:05:13.560 --> 0:05:15.040 And as I said, we're looking a little bit more 0:05:15.080 --> 0:05:15.640 at small cap. 0:05:16.120 --> 0:05:18.000 Yeah, I was going to say the Russell two thousand 0:05:18.160 --> 0:05:21.080 still down fifteen percent from that twenty twenty one high. 0:05:21.600 --> 0:05:23.960 Is that, to your point, an opportunity or is there 0:05:23.960 --> 0:05:26.400 any type of concern that the market is still being 0:05:26.560 --> 0:05:29.239 very much driven by those megacap technology companies. 0:05:30.960 --> 0:05:32.440 I would say that both those things that you just 0:05:32.440 --> 0:05:34.680 said are opportunities. You know, the valuate, the fact that 0:05:34.720 --> 0:05:38.359 the small cap space hasn't performed as well. There's a 0:05:38.360 --> 0:05:40.960 bit of a catch up trade within there, and although 0:05:41.000 --> 0:05:43.920 the big cap have done very well, as I said, 0:05:43.960 --> 0:05:48.760 we're not really pulling back our exposure there. It's driving 0:05:48.800 --> 0:05:50.800 the market, but there is a movement that if you 0:05:50.839 --> 0:05:52.960 can really get this cyclical upton, which is certainly what 0:05:53.000 --> 0:05:57.560 Power's pointing to, that should be very good news. Historically, 0:05:57.960 --> 0:06:00.880 when the FEAD has been cutting and it's been in 0:06:01.200 --> 0:06:03.640 even if it's a very very gentle expansion, that has 0:06:03.680 --> 0:06:05.919 typically been when small caps have outperformed. 0:06:06.320 --> 0:06:08.600 So there are of course risks. 0:06:09.240 --> 0:06:10.640 You know, if the FED is good it ends up 0:06:10.640 --> 0:06:12.720 delaying it's rat cats till later in the year, then 0:06:12.760 --> 0:06:14.800 small caps would struggle at least in the near term. 0:06:15.520 --> 0:06:17.200 So we have to go into it with a slightly 0:06:17.240 --> 0:06:20.200 longer term perspective, knowing that in the next three months 0:06:20.400 --> 0:06:23.240 you could see some significant volatility, but if you're looking 0:06:23.240 --> 0:06:25.320 out over a nine one year horizon, nine month one 0:06:25.400 --> 0:06:28.359 year horizon, then it looks fairly attractive. 0:06:29.040 --> 0:06:31.520 In a fixed income space. Do I just stay with 0:06:31.560 --> 0:06:33.800 the US treasury market or going to try to take 0:06:33.839 --> 0:06:36.480 on some credit risk here? What are you suggesting, Oh. 0:06:36.320 --> 0:06:38.559 We should be taking on credit risk. We have actually 0:06:38.560 --> 0:06:40.960 gone overweight to the high yield space. It has done 0:06:40.960 --> 0:06:43.760 incredibly well. And if you're just looking at CARA, if 0:06:43.760 --> 0:06:46.760 you just compare it even to acty risk premiums, high 0:06:46.839 --> 0:06:51.360 yield and IG are really presenting a fairly attractive proposition. 0:06:51.600 --> 0:06:53.800 Now there have been concerns, of course about the maturity 0:06:53.839 --> 0:06:56.279 will we know that that is building up. It's going 0:06:56.360 --> 0:06:59.440 to be probably one of the most significant maturity walls 0:06:59.440 --> 0:07:02.120 that we've seen in recent history. But the important thing 0:07:02.200 --> 0:07:04.520 is there is that as long as the economic backdrop 0:07:04.560 --> 0:07:08.080 is still very constructive, then really we're not expecting any 0:07:08.120 --> 0:07:11.320 kind of major liquidity issues. We're not expecting managers to struggle. 0:07:11.320 --> 0:07:13.880 They will have to refinance at higher rates, but their 0:07:13.920 --> 0:07:17.440 balance sheets are pretty strong. And importantly as well, that 0:07:17.480 --> 0:07:20.160 maturity will even within the high yield space, it's biased 0:07:20.160 --> 0:07:23.560 towards higher quality. So we're still saying high quality within 0:07:23.560 --> 0:07:25.360 the high yield. We're not really looking at the triple 0:07:25.400 --> 0:07:28.520 c's of that space. But there are still a lot 0:07:28.520 --> 0:07:31.080 of opportunities within that credit as long as you agree 0:07:31.120 --> 0:07:33.640 with us that there is an economic expansion in play 0:07:34.000 --> 0:07:35.600 and the FED is going to be cutting rates. 0:07:35.400 --> 0:07:36.240 Over the coming months. 0:07:36.440 --> 0:07:37.920 All right, Simma, thank you so much for your time. 0:07:37.960 --> 0:07:39.640 Really appreciate getting some of your thoughts here today. 0:07:39.640 --> 0:07:40.240 Sima Shah. 0:07:40.480 --> 0:07:43.160 She is a senior at Global investment strategist at Principle 0:07:43.440 --> 0:07:44.880 Global Investors. 0:07:55.040 --> 0:07:55.360 BHILLY. 0:07:55.400 --> 0:07:56.920 Back in the day when I was on the cell side, 0:07:57.040 --> 0:07:58.600 I'd hop on the train at the drop of a 0:07:58.760 --> 0:08:01.280 hat to go down the ball more because. 0:08:01.080 --> 0:08:02.960 You had to go see t Rope Price. That was 0:08:03.000 --> 0:08:05.760 a huge I I vote, which I'll have you know. 0:08:05.960 --> 0:08:08.440 I got the twenty years straight out of those clowns 0:08:08.440 --> 0:08:11.080 down there, love the t Rope Price. Some super smart 0:08:11.120 --> 0:08:13.560 people down there, man, All my clients down there were 0:08:13.640 --> 0:08:15.360 very smart. You had to bring your a game. Sebastian 0:08:15.400 --> 0:08:18.600 Page joints us here. He's head of Global Multi Asset 0:08:18.800 --> 0:08:20.920 and he's the CIO at our good friends at Trope 0:08:20.920 --> 0:08:22.520 Price down in Baltimore, Sebastian. 0:08:22.560 --> 0:08:23.800 We heard from the FED yesterday. 0:08:24.960 --> 0:08:26.840 Looks like they were a little bit more maybe dubbish 0:08:27.120 --> 0:08:29.679 then some people had been thinking going into that meeting. 0:08:29.920 --> 0:08:32.000 We heard from the Bank of England just moments ago, 0:08:32.160 --> 0:08:34.960 again perhaps a little bit more dubbish than they had been. 0:08:35.360 --> 0:08:40.040 So it feels like global central banks are becoming more accommodative. 0:08:40.240 --> 0:08:41.720 How does that fit in with your world? 0:08:42.600 --> 0:08:45.160 Yeah, that's a great question. And first, this is my 0:08:45.200 --> 0:08:47.680 first time in this studio. Super exciting. Thank you for 0:08:47.720 --> 0:08:51.120 the interest for coming into Baltimore. It we are nice 0:08:51.160 --> 0:08:53.640 with the sales side. Sometimes people refer to us as 0:08:53.679 --> 0:08:57.000 trow nice and just for the record, I want to 0:08:57.040 --> 0:09:02.400 say we're not clowns. Were serious. It's interesting that you 0:09:02.440 --> 0:09:04.960 ask about both the FED and the Bank of England, 0:09:05.080 --> 0:09:07.800 and we just had a decision on the Bank of England. 0:09:08.120 --> 0:09:10.400 I look at the policy rates, they're about the same, 0:09:10.600 --> 0:09:12.800 you know, five and a quarter five and a half percent. 0:09:13.600 --> 0:09:18.080 Then I compare wage growth, so Atlanta Fed tracker for 0:09:18.200 --> 0:09:22.400 wage growth in the US is at five percent. I 0:09:22.440 --> 0:09:28.200 go to England, it's at six percent. Service inflation services 0:09:28.280 --> 0:09:32.439 in England is that six percent. So we're looking at 0:09:32.600 --> 0:09:36.000 I think greater inflation pressures in England than in the US, 0:09:36.120 --> 0:09:40.959 even though the policy rates are the same. And I 0:09:41.000 --> 0:09:44.160 was just talking to our European economists and he's also 0:09:44.320 --> 0:09:49.440 worried about impending further inflation on the goods side for 0:09:49.559 --> 0:09:53.240 England because you know, it's it's an important country and 0:09:53.440 --> 0:09:56.040 the Red Sea is shut down in terms of a 0:09:56.120 --> 0:10:01.040 shipping link, so costs for shipping are increasing. So you know, 0:10:01.760 --> 0:10:06.080 I don't know everyone's bringing rates down. I'm worried about inflation. 0:10:06.720 --> 0:10:08.680 We're worried about upside risks to inflation. 0:10:09.120 --> 0:10:12.920 And so if inflation stays hot, the FED in theory 0:10:13.040 --> 0:10:16.160 drags their feet. We see cuts either extend out longer. 0:10:16.520 --> 0:10:19.240 Where are you putting money to work if that plays out? 0:10:19.280 --> 0:10:20.880 And that is the case, because right now I'm looking 0:10:20.880 --> 0:10:23.719 at Nasdaq one hundred mini futures are up almost one 0:10:23.720 --> 0:10:24.839 percent today. 0:10:25.000 --> 0:10:27.200 Yeah, let me give you three trades if you want 0:10:27.240 --> 0:10:31.559 to think about upside risk and inflation. Number One, in bonds, 0:10:32.200 --> 0:10:37.160 you know, go short duration. We're short duration. We have 0:10:37.320 --> 0:10:41.320 a cash overweight and a credit overweight. It's not a 0:10:41.320 --> 0:10:45.280 massive position for us, but we're short duration. Number two, 0:10:45.800 --> 0:10:50.640 in stocks, you have value versus growth in the value universe. 0:10:50.880 --> 0:10:54.160 You have energy stocks that are sensitive to inflation, and 0:10:54.240 --> 0:10:59.040 I think that overall values poised to upperform growth, especially 0:10:59.040 --> 0:11:02.280 because growth is rally read so much. If we get 0:11:02.360 --> 0:11:06.640 upside surprises and inflation going forward. And I'm not talking 0:11:06.640 --> 0:11:09.160 about going back to nine percent that we had, I'm 0:11:09.200 --> 0:11:14.240 just talking about inflation above expectations the consensus that it's 0:11:14.320 --> 0:11:18.600 really coming down smoothly, which is not. And the third 0:11:18.640 --> 0:11:22.600 trade we have in our portfolios is real asset equities. 0:11:22.880 --> 0:11:28.040 That's a diversified portfolio of stocks, including energy stocks, metals 0:11:28.080 --> 0:11:33.160 and mining metals and reats. So you get a position 0:11:33.240 --> 0:11:36.400 there that gives you, over time some equity exposure as 0:11:36.440 --> 0:11:39.920 opposed to just going into tips, and that responds to 0:11:40.000 --> 0:11:43.160 inflation in a kind of like four or five x 0:11:43.559 --> 0:11:46.960 response to the surprise, whereas tips would be more one 0:11:47.000 --> 0:11:51.160 to one. So it's a higher optane kind of inflation hedge. 0:11:50.800 --> 0:11:52.640 On a global scullcus, I know, you're head of global 0:11:52.720 --> 0:11:56.000 multi asset at trow price, where globally do you see 0:11:56.000 --> 0:11:58.040 some of the best opportunities Because I think I've been 0:11:58.080 --> 0:12:01.440 hearing more and more people talk about emerging markets, and 0:12:01.440 --> 0:12:03.920 I'm always a little concerned about that because isn't China 0:12:04.040 --> 0:12:06.720 like a third of the MSCI and why even invest 0:12:06.760 --> 0:12:07.080 in China? 0:12:07.080 --> 0:12:08.560 So how do you think about global allocation? 0:12:08.920 --> 0:12:13.600 So globally we're neutral between stocks outside the US and 0:12:13.640 --> 0:12:16.840 the US. The US is clearly the strongest economy, but 0:12:16.960 --> 0:12:20.520 a lot of this is already priced in. Look, we 0:12:20.679 --> 0:12:25.160 have raging debates in ours Allocation Committee about China because 0:12:25.200 --> 0:12:28.600 we've had an overweight emerging markets. We like to lean 0:12:28.679 --> 0:12:31.720 against the wind. We like to be long asset classes 0:12:31.760 --> 0:12:35.280 when they're really stretched, really cheap, and everybody's on the 0:12:35.320 --> 0:12:38.360 other side of the boat. If you do that over time, 0:12:38.440 --> 0:12:41.520 you can do well. But right now it's a huge 0:12:41.520 --> 0:12:45.360 debate about China. And you know, those that are worried 0:12:45.480 --> 0:12:48.760 about China are taught on my committee, are talking about 0:12:49.360 --> 0:12:53.200 structural changes. This is not the same place to invest 0:12:53.240 --> 0:12:57.679 as it was in the past. Nonetheless, you're so stretched there, 0:12:57.679 --> 0:12:59.960 it's like a coiled spring. You could see a rally. 0:13:00.400 --> 0:13:03.320 You could definitely see a rally, So you know, you 0:13:03.360 --> 0:13:05.600 try to stay close to neutral again there. 0:13:06.280 --> 0:13:10.360 Looking at the US market and videos up another two 0:13:10.360 --> 0:13:12.520 percent today, it's up eighty two percent year to date. 0:13:12.760 --> 0:13:15.160 Super Micros up two hundred and fifteen percent met as 0:13:15.200 --> 0:13:19.120 up forty three percent. Two questions, One, what are you 0:13:19.160 --> 0:13:21.680 doing with this whole momentum trade and how far? How 0:13:21.760 --> 0:13:25.200 much further can we extend? And secondly, I look at 0:13:25.240 --> 0:13:27.640 the Micron earnings. They're going to have their best day 0:13:27.640 --> 0:13:31.040 in thirteen years and they're up to eighteen percent on 0:13:31.120 --> 0:13:34.320 AI growth, So like, can they keep going further with 0:13:34.920 --> 0:13:38.280 the fact that sales are smashing expectations? 0:13:38.640 --> 0:13:41.280 Look, I love that question because I'm working on this 0:13:41.360 --> 0:13:44.600 with the research team this week. I'm writing a note 0:13:44.880 --> 0:13:49.440 for our internal research platform with a cute title that is, 0:13:49.760 --> 0:13:53.319 do you have fomo on the momo because of Yolo? 0:13:53.360 --> 0:13:54.760 Well, that's goin. 0:13:55.760 --> 0:13:57.480 I thought about this for you. I know it's going 0:13:57.559 --> 0:13:59.640 to be on the show you're in the media game 0:14:00.160 --> 0:14:06.760 talking points. Here's the counterintuitive conclusion that we're finding momentum 0:14:06.880 --> 0:14:10.480 is working better than it's ever worked. I have data 0:14:10.520 --> 0:14:13.640 going back to early nineteen nineties, even data going back further. 0:14:14.200 --> 0:14:17.360 It's never worked that well. You can if you look 0:14:17.440 --> 0:14:23.040 back twelve sixteen months, you would Here's here's a dumb strategy. Okay, 0:14:23.120 --> 0:14:25.960 you could just rank the stocks in the S and 0:14:25.960 --> 0:14:29.320 P five hundred by trailing twelve month returns, pick the 0:14:29.360 --> 0:14:33.800 top ten, hold them for a month, repeat. Okay, if 0:14:33.840 --> 0:14:38.080 markets are efficient, finance professors will tell you this should 0:14:38.120 --> 0:14:41.560 not work well in history. It's never worked that well, 0:14:41.640 --> 0:14:44.640 so maybe not so dumb as strategy. Now, when do 0:14:44.680 --> 0:14:47.240 we get worried about momentum And that's why our conclusions 0:14:47.240 --> 0:14:50.440 are counterintuitive. We're not that worried about it, even though 0:14:50.440 --> 0:14:55.320 it's extreme, because it wasn't extreme before the last three 0:14:55.360 --> 0:14:59.480 bear markets. When momentum is in its stop quintile, the 0:14:59.640 --> 0:15:03.200 four return for stocks is an average of fourteen percent. 0:15:04.280 --> 0:15:06.760 Now there's a big there's a big caveat there, which 0:15:06.840 --> 0:15:10.880 is there's a fat tale, which is two thousand when 0:15:10.920 --> 0:15:14.000 we had the mother of all momentum crashes. But the 0:15:14.080 --> 0:15:18.320 difference between that momentum crash and the situation we're in 0:15:18.440 --> 0:15:21.640 right now is that the situation we're in right now, 0:15:21.760 --> 0:15:27.760 momentum stocks are supported by fundamentals. There's huge momentum in 0:15:27.920 --> 0:15:31.480 fundamental so quality and momentum are moving together. They're both 0:15:31.520 --> 0:15:34.400 performing well. If you do an autopsy of the two 0:15:34.480 --> 0:15:39.800 thousand bubble, it was junk stocks, non earners with momentum. 0:15:39.880 --> 0:15:41.960 Yes, that was my belly wick back in the day. 0:15:41.960 --> 0:15:43.720 And I took those companies public, but now we've got 0:15:43.720 --> 0:15:45.960 real companies, real cash flow. Sebastian, thank you so much 0:15:45.960 --> 0:15:48.120 for coming. We really appreciate you being in studio here. 0:15:48.360 --> 0:15:51.600 Sebastian Page, he said of Global Multi Asset and CIO 0:15:51.960 --> 0:15:59.640 at t Rowe Price Bran Lynch duringes she's head of 0:15:59.800 --> 0:16:03.080 mar Get Insighted Equities. In so, Brianna looks like I'm 0:16:03.120 --> 0:16:07.120 just looking at Estero Labs. It's performance yesterday, Reddit today, 0:16:07.480 --> 0:16:09.680 What do you make of this IPO market these days? 0:16:11.400 --> 0:16:13.800 I think that many of the companies that have been 0:16:14.200 --> 0:16:18.720 waiting to IPO hopefully see Asta and say, oh, okay, hey, 0:16:18.720 --> 0:16:20.640 this is a good sign. This is a good sign 0:16:20.640 --> 0:16:24.880 that the market may be right for us. Obviously, Esteria Labs, 0:16:24.960 --> 0:16:27.920 given that it's in the semiconductor space and they're catering 0:16:28.360 --> 0:16:32.480 to cloud computing and AI technologies, they're able to kind of, 0:16:32.840 --> 0:16:37.080 you know, capitalize on the investor demand there. And I 0:16:37.120 --> 0:16:38.840 think it kind of brings back to what a lot 0:16:38.880 --> 0:16:41.640 of companies will be thinking, how do I make AI 0:16:41.920 --> 0:16:43.880 a part of my story? And we've seen that with 0:16:43.960 --> 0:16:47.800 Reddit to talking about how data licensing to language learning 0:16:47.800 --> 0:16:51.520 models will be a big part of their future revenue opportunity. 0:16:52.160 --> 0:16:55.360 So certainly a very different company than is Sarah Labs, 0:16:55.400 --> 0:16:57.600 but an interesting one that I think will be a 0:16:57.600 --> 0:16:59.000 little volatile to watch today. 0:16:59.120 --> 0:17:02.320 Yeah, that'll help ask respective Reddit that Bailey's been reporting 0:17:02.360 --> 0:17:05.800 on about this data aspect to it and getting some 0:17:05.880 --> 0:17:09.120 kind of AI play into that story. I'm not sure 0:17:09.160 --> 0:17:10.959 I buy it. What do you think, Brian? Is that 0:17:11.040 --> 0:17:14.240 is that a reasonable pitch? Is that a reasonable reason 0:17:14.280 --> 0:17:15.439 to take a look at this company? 0:17:15.800 --> 0:17:16.159 Reddit? 0:17:17.760 --> 0:17:22.040 It's not a guaranteed revenue driver. We saw, you know, 0:17:22.160 --> 0:17:26.200 even this past week that FTC is investigating what data 0:17:26.240 --> 0:17:30.280 they actually share with these partners they have. You know, 0:17:30.840 --> 0:17:32.440 is it okay that they share that? If they were 0:17:32.480 --> 0:17:34.719 to have a cease and a system where they can 0:17:34.800 --> 0:17:37.200 no longer share this data, that would be a big 0:17:37.240 --> 0:17:41.040 problem in terms of their future growth opportunity, because you know, 0:17:41.080 --> 0:17:44.040 they've seen their AD revenue grow twenty percent, not a 0:17:44.119 --> 0:17:46.960 number that's exciting a lot of investors. The real bull 0:17:47.000 --> 0:17:51.320 case is on this data licensing opportunity. So if there's 0:17:51.320 --> 0:17:54.119 something that hinders that, you know, it makes the story 0:17:54.160 --> 0:17:55.359 a little less desirable. 0:17:55.720 --> 0:17:57.680 And Brian, this is a deal that was marketed at 0:17:57.880 --> 0:18:00.560 thirty one to thirty four bucks. Pricing it thirty four 0:18:01.359 --> 0:18:04.320 seemed like there would be some divide when I talked 0:18:04.359 --> 0:18:08.440 to venture capitalists and investors on valuation and valuation expectations. 0:18:08.600 --> 0:18:10.119 What's your read of at pricing at the top of 0:18:10.119 --> 0:18:10.720 the range. 0:18:11.640 --> 0:18:13.520 Yeah, the price at the top of the range, obviously, 0:18:13.680 --> 0:18:17.400 you know, gives some sense that there is strong investor 0:18:17.560 --> 0:18:20.879 demand for this company. We haven't seen a social media 0:18:21.000 --> 0:18:24.880 platform go public since Pinterest back in twenty nineteen, so 0:18:24.960 --> 0:18:28.280 perhaps there's some pentep demand there. But when you look 0:18:28.320 --> 0:18:31.760 at Reddit versus some of its public comps, it's a 0:18:31.840 --> 0:18:36.240 smaller player and it's not profitable, so it doesn't have 0:18:36.320 --> 0:18:39.640 you know, this perfect story for those looking to invest 0:18:39.640 --> 0:18:43.280 in the next you know, emerging social media company. And 0:18:43.480 --> 0:18:45.399 to the fact of emerging, this is a nineteen year 0:18:45.400 --> 0:18:47.600 old company. It's been around for a long time. And 0:18:48.119 --> 0:18:50.119 you know, a question with a lot of these private 0:18:50.160 --> 0:18:53.440 companies is how much growth is left because they've grown 0:18:53.560 --> 0:18:55.120 so much in the private markets. 0:18:55.520 --> 0:18:59.240 Brian, are you surprised that we haven't seen better more 0:18:59.400 --> 0:19:01.840 ipox activity over the past I don't know, six to 0:19:01.960 --> 0:19:04.720 nine to twelve months. I mean, we have stock market 0:19:04.840 --> 0:19:07.160 indexes at or near all time highs. 0:19:07.560 --> 0:19:08.920 What's the what's the problem here? 0:19:10.359 --> 0:19:13.040 Yeah, I think all the macro indicators would suggest that 0:19:13.080 --> 0:19:17.119 the market has been or should have been welcoming into IPOs. 0:19:17.680 --> 0:19:21.880 But we saw with kind of the Clavio instacart ARM 0:19:22.280 --> 0:19:25.640 group that went public this fall, they had lack lost 0:19:25.680 --> 0:19:28.040 their IPOs. That being said, ARM is now trading at 0:19:28.080 --> 0:19:31.639 double its IPO price. So another one that's really you know, 0:19:31.880 --> 0:19:36.760 capitalized on this demand for the AI market, Astera Labs, 0:19:36.840 --> 0:19:39.120 I think will be a good indicator for the market. 0:19:39.920 --> 0:19:42.480 And it's more of a pure tech play than Reddit. 0:19:42.600 --> 0:19:46.000 So if I'm a private tech company considering my options, 0:19:46.160 --> 0:19:48.399 maybe my business looks more like a Stera than it 0:19:48.400 --> 0:19:50.800 looks like Reddit, and that makes me feel good about 0:19:51.160 --> 0:19:54.280 the opportunities in the market. But we're hearing from you know, 0:19:54.320 --> 0:19:56.440 the heads of Naise and Nazac that they had these 0:19:56.600 --> 0:20:00.000 deep pipelines of companies that are preparing to go public 0:20:00.160 --> 0:20:03.720 and really there's a finite period of time that they'll 0:20:03.840 --> 0:20:06.720 likely do that, you know, given the election coming up 0:20:06.760 --> 0:20:09.080 later this year, the volatility that could come with that. 0:20:09.640 --> 0:20:12.960 So I think if Reddit has decent performance, it will 0:20:13.000 --> 0:20:17.440 certainly encourage others to follow if Astera alone doesn't. 0:20:17.119 --> 0:20:19.560 Do that, Brionn, At what point do we see private 0:20:19.560 --> 0:20:22.719 equity back companies going public again? We saw bright Spring 0:20:22.760 --> 0:20:25.600 and Amor with its own kind of different flavors within 0:20:26.359 --> 0:20:29.760 investors in holdings. Are we going to see companies kind 0:20:29.760 --> 0:20:31.800 of or management teams just really ripping off the band 0:20:31.800 --> 0:20:32.639 aid and going public. 0:20:33.960 --> 0:20:36.720 Yeah, I think it depends on kind of you know, 0:20:37.240 --> 0:20:40.160 what the story is, and if it's something that they 0:20:40.160 --> 0:20:44.080 think will appeal to public market investors. You know, Birkenstock, 0:20:44.200 --> 0:20:47.159 you know, as a private equity back company on public 0:20:47.240 --> 0:20:51.040