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Speaker 2: Brent Kenwell joins US here US Investment and Options analysts
Speaker 2: for E.
Speaker 3: Trou Brett.
Speaker 2: You look back on twenty twenty five, heck of a
Speaker 2: performance across the equity markets here.
Speaker 3: What are the key drivers.
Speaker 4: For you for twenty twenty six? What are you looking at?
Speaker 4: What are your expectations are for twenty twenty six?
Speaker 5: Yeah, thanks for having me to start.
Speaker 3: Off the hour.
Speaker 5: You know, when we look at equity markets for twenty
Speaker 5: twenty six, at this point almost actually feels a little
Speaker 5: bit more of a concern that so many people are
Speaker 5: constructive on equities as we look to the next twelve months,
Speaker 5: But we are amongst those who are also constructive on equities.
Speaker 5: We expect US markets to do another have another solid year,
Speaker 5: driven by really multiple catalysts, three of which include a
Speaker 5: continued AI trade, expanding and accelerating earnings growth in the
Speaker 5: S and P five hundred and a fed that is
Speaker 5: not looking to be hawkish or derail equities from a
Speaker 5: monetary perspective.
Speaker 3: So when we look at kind of those I.
Speaker 5: Think bigger drivers of the market, we still see that
Speaker 5: there's room for expansion there and we expect those to
Speaker 5: be positive drivers for next year.
Speaker 6: So given all of that, why does invent investor sentiment
Speaker 6: remain subdued? What do you think could be contributing to
Speaker 6: this cautious approach and how do you anticipate this sentiment
Speaker 6: to evolve throughout the year.
Speaker 5: Yeah, that's such a good question, and I think it
Speaker 5: really speaks to sort of the division we're seeing in
Speaker 5: so many ways between Wall Street and Main Street. You know,
Speaker 5: when we look at you know, and we include ourselves
Speaker 5: in this observation too, but when we look at like
Speaker 5: the streets, the firms on Wall Street, they remained pretty
Speaker 5: optimistic for next year. But when we look at sentiment,
Speaker 5: like various sentiment measures or surveys or gauges, they remain
Speaker 5: fairly subdued. Really, and they they that happened in you know,
Speaker 5: late Q one, early Q two of last year when
Speaker 5: we had you know, the tariff sell off and about
Speaker 5: twenty percent correction the sp we never really saw that
Speaker 5: sentiment come back to life. There's always been this I
Speaker 5: would almost argue a healthy amount of skepticism in the
Speaker 5: market rally, But nevertheless, we haven't seen that confidence really
Speaker 5: come back. And that's consumer confidence, that's investor sentiment. So
Speaker 5: you know, I don't know if that will maybe actually.
Speaker 3: End up being a positive as we pushed through the year.
Speaker 3: I'm hoping it acts as a positive.
Speaker 5: But yeah, you're to your point, we haven't really seen
Speaker 5: sentiment make the types of rebound that we've seen in
Speaker 5: you know, whether it's GDP or the S and P
Speaker 5: hasn't really followed followed those measures higher. So twenty twenty
Speaker 5: six will be interesting in that respect, Brett.
Speaker 2: We have not really seen to any meaningful degree of
Speaker 2: broadening out in participation in this market. It has remained
Speaker 2: fairly concentrated in a handful of technology names, and a
Speaker 2: lot of folks will call that out as a potential headwind.
Speaker 7: For this market or concern. How do you guys think
Speaker 7: about that?
Speaker 5: Yeah, you know, I think, well, I think there was
Speaker 5: a couple of ways of looking at first. To your point,
Speaker 5: I do think we see some broadening in twenty twenty six,
Speaker 5: not only our SMP earnings expected to accelerate next year,
Speaker 5: but all eleven sectors in the SMP are expected.
Speaker 7: To post earnings growth.
Speaker 5: We haven't seen that in five years, you know, twenty
Speaker 5: twenty one being the last time we had. It was
Speaker 5: pretty low bar to a hurdle at that time, coming
Speaker 5: out of you know, the first year out of COVID.
Speaker 5: So we're expected to see fairly broad earnings growth next year.
Speaker 5: That should act as a positive catalyst. But we're also seeing,
Speaker 5: you know, we might finally see small caps come to life.
Speaker 5: You know, I have to put might in there because
Speaker 5: you know, last year I expected the Russell to do
Speaker 5: and it did do better last year, but certainly you know,
Speaker 5: didn't lead need the charge higher necessarily. But you know,
Speaker 5: we do think that small caps could finally have their
Speaker 5: moment in twenty twenty six. Maybe they start to show
Speaker 5: they have the very strong expectations for revenue, cash flow
Speaker 5: and earnings growth next year. So we're hoping to see
Speaker 5: that takeoff. But you know, even within tech, I think
Speaker 5: there's this concern that we're approaching this AI bubble.
Speaker 3: We're in the depths of the bubble.
Speaker 5: And I mean, I think it's reasonable to question are
Speaker 5: we in a bubble or even speculate that we are.
Speaker 5: But it's it's too hard for us at this point
Speaker 5: to say that we're in a late stage bubble, and
Speaker 5: I think we need point to certain observations within the space,
Speaker 5: whether that's analytical, like looking at directly at Nvidia stock trades,
Speaker 5: about twenty five twenty six times forward earnings is expected
Speaker 5: to grow fifty percent on the top and bottom line.
Speaker 5: That's very difficult for us to look at that and
Speaker 5: say that's a bubble like valuation, you know, less analytical.
Speaker 5: You look at something like Meta and Oracle. Investors are
Speaker 5: punishing these names because of the con urns over cash
Speaker 5: flows and their balance sheets.
Speaker 7: So these are not.
Speaker 5: Behaviors that we see in late stage bubbles. Is they're
Speaker 5: not valuations we see in late stage bubbles. So from
Speaker 5: those perspectives, we still think that there's room to go
Speaker 5: in that trade.
Speaker 6: What about downside risks. You've highlighted the labor market as
Speaker 6: one of those. How crucial do you think the stabilization
Speaker 6: of that is to the continuation of really this record
Speaker 6: bill market We've seen double digit gains in the past
Speaker 6: three years.
Speaker 5: Yeah, the jobs, you know, sort of like the mantra
Speaker 5: we've adopted for you know, sort of, the macro environment
Speaker 5: is messy but manageable. We're seeing so many moving parts,
Speaker 5: and whether that's you know, whether that's to do with
Speaker 5: economic policy, or whether it's what's going on at the FED.
Speaker 5: There's a lot of moving parts at the FED right now,
Speaker 5: one of which of course being a new FED share
Speaker 5: coming in twenty twenty six. But even when we just
Speaker 5: broadly look at macro, there's a lot of moving parts.
Speaker 5: You have the labor market is cooling but not collapsing.
Speaker 5: Inflation is taking higher but not you know, you know,
Speaker 5: going out at at a pace that is not controlled
Speaker 5: or well anchored, to put it in FED speak. But
Speaker 5: then you have this consumer that's strained but resilient. And
Speaker 5: same with GDP, it continues to come in above expectations.
Speaker 5: So overall, when we look at the space, I think
Speaker 5: the foundation is constructive for equities to continue hire, for
Speaker 5: the economy to continue along in twenty twenty six. But
Speaker 5: to your point, the labor market is the biggest concern.
Speaker 5: The consumer in the US is responsible for a little
Speaker 5: more than two thirds of GDP. The consumer does not
Speaker 5: have very much spending ability if they lose their jobs.
Speaker 7: So if we.
Speaker 5: See that, you know, the cooling and the labor market
Speaker 5: kind of accelerate or really get to a concerning level
Speaker 5: interior to a concerning level in twenty twenty six, that's
Speaker 5: going to have a really negative impact on equity markets.
Speaker 5: Some investors, you know, might be out there kind of
Speaker 5: rooting for continued cooling in the labor market to push
Speaker 5: the FED along to be a bit more accommodative, but
Speaker 5: you know, we don't think that that's the right approach.
Speaker 5: Labor market is a very healthy thing, and we believe
Speaker 5: a very healthy thing for equities.
Speaker 7: Ratt thanks so much for journeys. Really appreciate it.
Speaker 2: Brent Kenwell joining us a US investment and options analyst
Speaker 2: for e Toro.
Speaker 4: Stay with us. More from Bloomberg Surveillance coming up after this.
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Speaker 2: The Russell Price Joints is here, chief economist at a
Speaker 2: merit prize financial here. Russell I love to get your
Speaker 2: thoughts about kind of how you view this economic backdrop
Speaker 2: for twenty twenty six here. What do you think investors
Speaker 2: should be focusing on here?
Speaker 8: Well, I think we have a pretty good year ahead
Speaker 8: of us from an economic perspective. We come into the
Speaker 8: year with consumers and pretty financial shape and aggregate. We
Speaker 8: also should see some pluses and minuses in the first
Speaker 8: half of the year for investors to watch out for.
Speaker 8: On the plus side, we should get a little bit
Speaker 8: more consumer income from the no tax on tips, the
Speaker 8: no tax on overtime, plus the six thousand dollars senior
Speaker 8: tax credit or deduction excuse me. And also against that
Speaker 8: you'll have some consumers that are negatively affected by the
Speaker 8: ACA subsidy elimination, and also the student loan payments repayments
Speaker 8: been forced for stringently. So but other than that, the
Speaker 8: economy is going into the twenty twenty six with pretty
Speaker 8: good momentum. We should also continue to see pretty good
Speaker 8: business investment spending related to AI and other growth initiatives,
Speaker 8: so we expect the pace to be a little bit
Speaker 8: better this year than it was last year, and last
Speaker 8: year was a pretty decent year.
Speaker 6: So those are the pros you've also highlighted labor market.
Speaker 6: That's a key risk. What improvements are needed to avoid
Speaker 6: a slowdown? Maybe in consumer spending.
Speaker 8: Yeah, we've certainly seen a big decline in overall consumer
Speaker 8: centiment that hasn't really translated yet into lower consumer spending.
Speaker 8: But if we were to continue to see a further
Speaker 8: deceleration or degradation and the job market, those weaker sentiment
Speaker 8: levels likely would translate into reduce spending. So what we
Speaker 8: need to see is for hiring to regain a little
Speaker 8: bit more traction. Recent data suggests that that might be happening,
Speaker 8: but it's still very early and it's not by any
Speaker 8: means conclusive. So we just need to see businesses alleviate
Speaker 8: some of their concerns or lose some of their concerns.
Speaker 8: Is related to how much the terroriffs mighty negatively impact
Speaker 8: the economy, what that might do to company profit margins,
Speaker 8: and from a small business perspective, where much of the
Speaker 8: job hiring has fallen off, we need to see small
Speaker 8: businesses to become more accustomed to dealing with all of
Speaker 8: the added paperwork involved with tariffs and the additional expense
Speaker 8: as well.
Speaker 2: So, Russell, what do you think the fetter reserve should
Speaker 2: do in twenty twenty six. Right now, the market is
Speaker 2: kind of discounting maybe two quarter point rate cuts during
Speaker 2: the year.
Speaker 7: What do you think they should do.
Speaker 8: Well. I think we could see a little bit more
Speaker 8: than that, probably around three primarily because inflation has been
Speaker 8: not been nearly as strong as people have predicted a
Speaker 8: few months ago when the terriffs were first announced. So
Speaker 8: the inflation situation has been a lot better. Of course,
Speaker 8: that is a big caveat that the data is incomplete
Speaker 8: and a little bit suspicious related to the most recent
Speaker 8: Labor Department report because of the government shutdown that we
Speaker 8: had in October in the first half of November, but
Speaker 8: we do expect inflation to peak maybe at three point
Speaker 8: two percent in the first quarter. That might actually be
Speaker 8: a little bit too high. We could see the number
Speaker 8: be a little bit weaker than that, offsetting some of
Speaker 8: the ongoing tier if upside pressures were seeing in inflation,
Speaker 8: is a steady deceleration in shelter costs, and shelters are
Speaker 8: thirty five percent of the total costs of the consumer
Speaker 8: price index, so that's a pretty strong downward pressure. So
Speaker 8: with that backdrop and still some relatively weak hiring activity.
Speaker 8: We expect by the second quarter the Federal Reserve should
Speaker 8: resume their pace of quarter point cuts, So.
Speaker 6: You expect three rate cuts in twenty twenty six. How
Speaker 6: do you see those impacting inflation and economic growth?
Speaker 8: Well, I think the impact on inflation should be relatively benign,
Speaker 8: as I should mention that over the last two and
Speaker 8: a half years, if you strip out just shelter costs,
Speaker 8: which are again our thirty five percent of the index CPI,
Speaker 8: inflation has been at or below two percent for those
Speaker 8: two and a half years. So it's really the cooperation
Speaker 8: of that shelter component that matters much. And those are
Speaker 8: very long term trends based on the way they measure
Speaker 8: it and based on the way rental rates are changed
Speaker 8: over time in the marketplace. So we should see further
Speaker 8: deceleration CPI even without the cuts. The cuts they should
Speaker 8: stabilize economic growth that above trend growth, but still not
Speaker 8: enough to really give corporations a lot of pricing power,
Speaker 8: Nor are we likely to see supply and demand imbalances
Speaker 8: that would continue to push inflation higher.
Speaker 4: Russell.
Speaker 2: In terms of the labor market, we've got it just
Speaker 2: a headline print four point six percent and that's by
Speaker 2: all measures pretty darn good close to full employments you're
Speaker 2: probably going to get. But still people are concerned about
Speaker 2: underlying trends in the labor market.
Speaker 7: How do you view the labor market?
Speaker 8: Yeah, I think the concerns about the underlying labor market
Speaker 8: are certainly justifiable. We've seen weakness in places that were
Speaker 8: typically not all that used to seeing weakness. Not only
Speaker 8: are we seeing weakness, and some of the lower segments
Speaker 8: of the marketplace where AI may be AI implementations may
Speaker 8: be having an influence. Certainly, we've seen most of the
Speaker 8: job decline and hiring, I should say in the small
Speaker 8: business sector in our view that that is primarily the
Speaker 8: reflection of the terror related challenges. But also we've seen
Speaker 8: certainly a considerably weaker environment for recent college graduates, so
Speaker 8: that also may be influenced by artificial intelligence. People's concerns
Speaker 8: about the labor market, at least over the near term,
Speaker 8: I think are legitimate. But now that the terror situation
Speaker 8: is becoming the standard, becoming business as usual to some degree,
Speaker 8: we think that the hiring should recover modest modestly and
Speaker 8: we should see the unemployment rate this year decline a
Speaker 8: little bit from that four point six percent rate that
Speaker 8: we've seen most recently. So with that a little bit
Speaker 8: of decline in the total number of available workers, which
Speaker 8: should put a little bit downward pressure on the rate
Speaker 8: as well.
Speaker 6: Great and with slightly lower mortgage read what's your outlook
Speaker 6: for housing in twenty twenty six, especially regarding existing home sales?
Speaker 6: I asked, because I'm a renter and I always tell
Speaker 6: everyone here asking as a.
Speaker 8: Renter, sure, well, existing home sales we have seen we
Speaker 8: have been seeing over the last several quarters some improvements
Speaker 8: and the bailability of housing available for sale. That reversed
Speaker 8: a little bit late in the second half of twenty
Speaker 8: twenty five, but that's fairly normal as well as far
Speaker 8: as a seasonality basis. So as we go into twenty
Speaker 8: four and twenty five, twenty twenty four to twenty twenty
Speaker 8: five were very weak years for existing home sales. Twenty
Speaker 8: twenty four was as weak as it's been since nineteen
Speaker 8: ninety five. We expect to see a little bit better performance,
Speaker 8: maybe about five to eight percent improvement and transactions, but
Speaker 8: we should finally actually see some weakness and housing prices
Speaker 8: around flat all.
Speaker 7: Right, Russell, thanks so much for joining us.
Speaker 2: Really appreciate getting your thoughts here as we start off
Speaker 2: twenty twenty six. Russell Price, chief economist at Americ Price Financial.
Speaker 4: Stay with us. More from Bloomberg Surveillance coming up after this.
Speaker 1: You're listening to the Bloomberg Surveillance podcast. Catch us Lie
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Speaker 2: Adam Turnquist Joints is here cheap technical strategies for LPL Financial. Adam,
Speaker 2: thanks for joining us here. I'd love to get your
Speaker 2: thoughts from a technical perspective. Where do you see real
Speaker 2: opportunities here in the beginning of twenty twenty six.
Speaker 3: Hey, good morning and happy new year. Thanks for having
Speaker 3: me on.
Speaker 9: So as we look ahead to twenty twenty six, we're
Speaker 9: pretty constructive on the market when you look at things
Speaker 9: technically right now, the SMP just kind of stuck in
Speaker 9: this consolidation range it's really been in since October, and
Speaker 9: no surprise, we're consolidating here after this big recovery rally off.
Speaker 3: Those liberation Day lows.
Speaker 9: But when you have an uptrend in a bowl market,
Speaker 9: the most likely scenario as you break out to the
Speaker 9: upside of that consolidation range for the S and P
Speaker 9: five hundred, we're watching kind of the sixty nine hundred area,
Speaker 9: so not far from current.
Speaker 3: Levels for a breakout.
Speaker 9: If we see that, the measured technical move would be
Speaker 9: around seventy two in terms of a price target. So
Speaker 9: we think the bull market will continue. And I think
Speaker 9: most importantly what we've seen over the last couple months
Speaker 9: is a shift from more defensive leadership with healthcare utilities
Speaker 9: outperforming in November, to more cyclical leadership. That to us
Speaker 9: suggests more of a durable, sustainable bull market here.
Speaker 6: And you also emphasize the versification. What alternative assets or
Speaker 6: sectors are you bullish on? Especially this year.
Speaker 9: Our favorite sector, and it has been for almost two
Speaker 9: years now, has been communication services. Is the best performing
Speaker 9: sector last year, and I think in the previous year.
Speaker 9: It's got very good fundamental story. When you look at
Speaker 9: Earning's growth double digits, margins double digits, and I think
Speaker 9: even revenues are expected to grow double digits next year,
Speaker 9: so a solid backdrop. You get some hyperscalers in there
Speaker 9: with meta and alphabet, but then you also get some
Speaker 9: telecom names some more defensive areas, so we think of
Speaker 9: it as more of a bar Bell type strategy which
Speaker 9: could serve well.
Speaker 3: In twenty twenty six.
Speaker 9: We do think volatility is going to come back here
Speaker 9: from really low levels in the vicks. I think it's
Speaker 9: going to be more of a policy driven market, and
Speaker 9: when you have that type of backdrop, we expect volatility
Speaker 9: to remain at least a little bit higher than we
Speaker 9: are right now.
Speaker 2: Adam, I'm looking at the Relative Strength Index the RSI
Speaker 2: on the S and P five hundred and sitting right
Speaker 2: at fifty one, and typically at a reading of thirty,
Speaker 2: the markets tend to be over sold. At a reading
Speaker 2: of seventy tends to be a little overbought. We're sitting
Speaker 2: right smack in the middle. What do I do with that?
Speaker 9: We call that the midline, and that's a good spot
Speaker 9: for the SMP. We've reset from some of these overbought conditions.
Speaker 9: When you flash back to earlier in the year and
Speaker 9: earlier in the fall, when the market was getting a
Speaker 9: little bit overbought.
Speaker 3: We've since corrected.
Speaker 9: There's been some consolidation here really to get to the
Speaker 9: overbought levels as well.
Speaker 3: In a bull market.
Speaker 9: You want to see that go through against seventy, as
Speaker 9: you mentioned, and I think getting overbought in a bull market,
Speaker 9: we view that as a bullish sign.
Speaker 3: That's what you want to see.
Speaker 9: You don't want to see divergences with price making higher
Speaker 9: highs and then that RSI indicator may making lower highs.
Speaker 9: That suggests maybe some buyer enthusiasm fading a little bit.
Speaker 9: We haven't quite seen that yet, but look for that
Speaker 9: to expand it to overbought levels if we do get
Speaker 9: a breakout.
Speaker 6: You're also constructive in commodities, especially precious metals. How do
Speaker 6: you see geopolitical tensions and maybe trade policy affecting your
Speaker 6: outlook for twenty twenty six.
Speaker 9: I think it's going to complicate the story for precious
Speaker 9: metals as it did in twenty twenty five, and it
Speaker 9: wasn't necessarily a bearish catalyst when you look at price
Speaker 9: action and some of the commodities that you were talking
Speaker 9: about earlier, Silver up one hundred and fifty plus percent,
Speaker 9: gold up significantly as well. But we do think it's
Speaker 9: going to lead to volatility when you look at just
Speaker 9: what's happened in copper markets, for example, over the last
Speaker 9: several months, there's been a surge in copper moving to
Speaker 9: the US from London. Same thing in silver because the
Speaker 9: critical Minerals list in the US continues to grow. I
Speaker 9: think there's over sixty different metals on that list, so
Speaker 9: that brings the potential threat of tariffs. I know the
Speaker 9: administration is going to view some of those tariffs in
Speaker 9: June and July, so we'll maybe get an announcement there.
Speaker 9: But traders are wasting no time in investing and moving
Speaker 9: some of that metal back to the US just in
Speaker 9: case we get any type of tariffs. So we do
Speaker 9: think the demand side as well for a commodity like
Speaker 9: silver or copper, remains strong.
Speaker 3: Like the macro backdrop.
Speaker 9: It's it's an AI play as well, but also in
Speaker 9: the green energy transition some of the infrastructure buildouts. We
Speaker 9: think copper and silver are going to be important metals
Speaker 9: to watch in twenty twenty six, and we think the
Speaker 9: trend will continue higher for both.
Speaker 2: Adam, what does the technical trend or what does the
Speaker 2: technical marketing look like for the US dollar. We saw
Speaker 2: a sell off earlier in the year on some of
Speaker 2: the concerns about the implementation of tariffs. It's since stabilized,
Speaker 2: but still you know, eight nine percent lower than where
Speaker 2: it started the year.
Speaker 7: How do you view the dollar here?
Speaker 9: This is going to be a big one for this year,
Speaker 9: and this is the trend we've been watching carefully. As
Speaker 9: Paul you mentioned, this may be a bottom developing. That's
Speaker 9: what we view this as. If you zoom back on
Speaker 9: the dollar index kind of to the nine lows and
Speaker 9: you draw a trend line, that's we call it a
Speaker 9: secular uptrend that's been in place.
Speaker 3: The dollar has not broke that uptrend.
Speaker 9: So the level that we're watching technically is ninety six
Speaker 9: on the US Dollar index.
Speaker 3: We start breaking.
Speaker 9: Below that on a sustainable way, that would suggest the
Speaker 9: resumption of this downtrend that's been in place for the
Speaker 9: dollars since early last year. Will resume that to us
Speaker 9: would suggest start to kick the tires international, especially emerging markets.
Speaker 9: But for now we're giving that secular uptrend the benefit
Speaker 9: of the doubt. Maybe we'll see a bounce here, need
Speaker 9: a clear kind of one hundred, just over one hundred
Speaker 9: to get through some resistance and actually have a breakout
Speaker 9: from the bottom.
Speaker 3: But certainly an important chart to watch as we move
Speaker 3: into the new year.
Speaker 6: Technically speaking, bitcoin has traded in an hour range between
Speaker 6: eighty five thousand to ninety thousand in recent weeks. What
Speaker 6: is a price action you were seeing it? It looks like
Speaker 6: there's a build up in some latent volatility, but who
Speaker 6: knows because such squeezes happened historically preceded sharp direction on the.
Speaker 3: It's been a tough one for bitcoin bowls.
Speaker 9: It started to break its up trend back below the
Speaker 9: tun or day moving average. It's kind of consolidating another
Speaker 9: one that maybe is a short term bottom here. I
Speaker 9: think there is risk you get back down to the
Speaker 9: April lows. When you look at just the overall trend,
Speaker 9: the story, at least on the chart has been broken.
Speaker 9: You're seeing that momentum start to roll over a little bit.
Speaker 9: Maybe you get some relief rallies off these oversold levels,
Speaker 9: but certainly I think there's still downside risk for the
Speaker 9: bitcoin market.
Speaker 7: Adam.
Speaker 2: How about the precious metals, Boy, we saw gold and
Speaker 2: then really silver, you know, more than double last year,
Speaker 2: some really big moves and precious metals here, Now what
Speaker 2: do we do?
Speaker 9: I think you by the dip to keep it simple,
Speaker 9: right when we're certainly getting some dips over the last
Speaker 9: few days, very volatile, especially in silver markets. With the
Speaker 9: CME Group raising margins, there were some restrictions on pure
Speaker 9: place silver funds in China, and I think, look, the
Speaker 9: market was just simply overbought, so we had some profit
Speaker 9: making pressure.
Speaker 3: That's normal. Even when you see these big moves, when.
Speaker 9: You have one hundred and sixty hundred and fifty percent move,
Speaker 9: as silver did, you should expect pullbacks, and maybe they're
Speaker 9: double digits. That comes with the territory of these parabolic trends.
Speaker 9: When they end, you tend to get a pretty big retracement.
Speaker 9: Maybe we'll see that in the first first part of
Speaker 9: twenty twenty six with silver. But I do think it
Speaker 9: is more of a buy theedit market the fundamentals and
Speaker 9: the macro story, especially for gold, with central bank buying
Speaker 9: being such a big factor in that trade. I think
Speaker 9: that's going to continue. I think that's starting to broaden
Speaker 9: out to silver as maybe the central banks get a
Speaker 9: little bit of sticker shock with these higher gold prices
Speaker 9: in twenty twenty five, so we're seeing maybe a diversification there,
Speaker 9: but certainly a supportive trend. I think the geopolitical environment
Speaker 9: is another one that supports sports of the market. And
Speaker 9: then we have the Fed continuing to reduce interest rates
Speaker 9: another one that should help gold as well.
Speaker 3: All right, Adam, thanks so much.
Speaker 2: Appreciate it as always, Adam Turnquist, chief technical strategist for
Speaker 2: LPL Financial.
Speaker 4: Stay with us. More from Bloomberg Surveillance coming up after this.
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Speaker 2: Looking at the work function WRP on the Bloomberg terminal,
Speaker 2: suggest that the market's discounting maybe two more rate cuts
Speaker 2: by the Federal Reserve in a twenty twenty six. What
Speaker 2: does that mean for the bond market, which experienced a
Speaker 2: very strong twenty twenty five in terms of high single
Speaker 2: digit returns.
Speaker 4: Let's talk about development markets.
Speaker 7: And emerging markets.
Speaker 2: We can do that with Jack McIntyre, portfolio manager at
Speaker 2: brand New Heine Global.
Speaker 7: Jack, thanks so much for joining us here.
Speaker 2: Solid solid returns in the bond market in twenty twenty five.
Speaker 2: How do you frame out your outlook for twenty twenty six?
Speaker 10: So you know, my starting point is that I actually
Speaker 10: think it's going to be sort of this year of hey,
Speaker 10: earning the coupon. Don't have huge expectations. You know, last
Speaker 10: year was unique in the sense that the economy did
Speaker 10: well from a growth standpoint, yet the labor market showed
Speaker 10: signs of weakness, and this is a little bit of
Speaker 10: a quandary, and then you know it's gonna I don't
Speaker 10: think that's going to be the case for this year.
Speaker 10: We're going to see either hey, the labor market do
Speaker 10: better because we've got to see more hiring pickup, or
Speaker 10: the economy is going to slow. So given that sort
Speaker 10: of backdrop, my mindset is a little bit earned a coupond.
Speaker 10: And having said that, I don't want to have one
Speaker 10: view for the entire year, because I actually think coming
Speaker 10: into the year, maybe the first half, first third, we
Speaker 10: could see an upward bias and yield. So obviously from
Speaker 10: a return standpoint, that's going to eat into that coupon return.
Speaker 10: But once we move, you know, the second half of
Speaker 10: the year, I actually think you're going to get a
Speaker 10: little bit of price appreciation along with that coupon and treasuries.
Speaker 10: But Rangebout is kind of my mindset coming into this year.
Speaker 6: So you like emerging markets, particularly Latin America, What specific
Speaker 6: factors there make bonds stand out in twenty twenty six.
Speaker 10: So a couple of things. One, if you think fundamentally,
Speaker 10: I like their balance sheets. You know, if we have
Speaker 10: kind of a budget crisis somewhere in the world is
Speaker 10: going to come out of the developing market. It's not
Speaker 10: going to come out of the developing the emerging sort
Speaker 10: of markets. I've got inflation expectations embedded in the price
Speaker 10: of lat Ham bonds still elevated, although actual inflation is
Speaker 10: continues to decline. I like that that means real yields
Speaker 10: or positive so that's a good backdrop. And then away
Speaker 10: from that, I still think that that theme for the
Speaker 10: entire year, US dollar is going to weakend my mindset
Speaker 10: is that this American exceptionalism, which is dominated for a
Speaker 10: decade plus, it's going to just that the margins continue
Speaker 10: to leak. Foreigners own a huge amount of US assets.
Speaker 10: I think you're going to start to see a reversal
Speaker 10: of that in latam which in a world that still
Speaker 10: has very attractive yields, is going to attract some of
Speaker 10: that capital.
Speaker 2: How do you think about evaluation stocks versus bonds this year, Jack,
Speaker 2: I mean.
Speaker 7: Both performed well in twenty twenty five.
Speaker 10: Yeah, yeah, I think so, you know, a little bit
Speaker 10: of a Goldilocks' type environment, you know, meaning that, hey,
Speaker 10: the economy has done well from a gross standpoint, inflation
Speaker 10: you know, sticky, but it you know, it's not really
Speaker 10: surging higher.
Speaker 7: And I don't think that will be the case.
Speaker 10: You know again coming in this year, I do think
Speaker 10: bonds from evaluation standpoint look more attractive. But to be honest,
Speaker 10: I could have said that last year and probably the
Speaker 10: year before that. So at some point, you know, we're
Speaker 10: going to start to see bonds do well.
Speaker 7: You know, it's interesting.
Speaker 10: I mean we're going into a mid term election year
Speaker 10: and historically volatility starts to uptick, you know, particularly in
Speaker 10: the in the equity space. You know, you've got to
Speaker 10: be open to a draw down. And then coming into
Speaker 10: this year or since I mentioned volatility, I mean you've
Speaker 10: got when you look at implied volatility, so kind of
Speaker 10: what option traders expect across asset classes, across bonds, currencies, equities,
Speaker 10: it's low. You know, I kind of view that as
Speaker 10: sort of being a sign of complacency, and I suspect,
Speaker 10: you know, it's we're at the end of the when
Speaker 10: we have this conversation this time next year, that you know,
Speaker 10: maybe complacency isn't going to be the primary theme in
Speaker 10: the markets in twenty twenty six. So again I like bonds.
Speaker 10: Having said that, you know, it depends on what kind
Speaker 10: of bonds. So I do like that em in Latam.
Speaker 10: But maybe at some point, you know, you have a
Speaker 10: little bit more defensive allocation into some higher quality of treasuries,
Speaker 10: but again not overweight, just you know, the idea being
Speaker 10: is that, hey, if we do get enough pick in volatility,
Speaker 10: there might be a little bit of a flight to
Speaker 10: quality and some of the developed markets.
Speaker 3: What about the FED?
Speaker 6: That also remains to be essential focus because of the
Speaker 6: uncertainty around it, especially with the new FED chair and
Speaker 6: the ongoing debate about cut. So what do you believe
Speaker 6: will be the most important factor in determining whether the
Speaker 6: Fed's actions will support either equities or bonds or create
Speaker 6: more volatility.
Speaker 7: So this is a little bit in lined with that
Speaker 7: kind of idea.
Speaker 10: I think volatility is under price because you do have
Speaker 10: a point out of the FED, and this is not
Speaker 10: your normal cycle for the FED looking at just strictly
Speaker 10: labor market and inflation. We've got the political influences a
Speaker 10: new chair that we should find out this month. I suspect,
Speaker 10: you know, again I struggle a little bit. And part
Speaker 10: of being a little more cautious on the long end
Speaker 10: of the treasury curve is that the FED has been
Speaker 10: cutting into environment, cutting you know, easing into neutral, but
Speaker 10: doing that in environment where inflation is still running above
Speaker 10: their target. And then you marry that with the idea
Speaker 10: that we're going to have at least six percent budget
Speaker 10: deficits for the foreseeable future. And then we also get
Speaker 10: a little bit more fiscal in impulse impacting the US
Speaker 10: consumer first second quarter of this year.
Speaker 7: So, uh, you know, the pressure is on.
Speaker 10: For the FED to ease. I think, you know, Pale said,
Speaker 10: we're in the range of neutral. So that tells me that,
Speaker 10: you know, maybe they can ease another one more, maybe
Speaker 10: two more, and still be in the range of neutral.
Speaker 7: But beyond that, uh, they're going to have.
Speaker 10: To be, you know, shifting towards running stimulative monetary policy.
Speaker 10: And I'm actually not sure that's good for for equities
Speaker 10: because if they do that, it means something is on
Speaker 10: the cusp of breaking. The labor market is showing signs
Speaker 10: of deteroration that that could be an overall barometer for Hey,
Speaker 10: the consumer retrenching, profit margins getting squeeze, and that might
Speaker 10: not be good for equities right. Conversely, it actually could
Speaker 10: be good for bonds.
Speaker 7: Hey, Jack.
Speaker 2: The AI story has certainly been a dominant theme within
Speaker 2: the equity markets for the last several years, but it's
Speaker 2: really become relevant for the bond market as a lot
Speaker 2: of these tech companies come to the bond market with
Speaker 2: sizable debt offerings to raise capital to fund a lot
Speaker 2: of this stuff.
Speaker 7: How do you how do you view that?
Speaker 10: Yeah's you know, it's an interesting point because it's no
Speaker 10: longer hey, funding out of sort of cash flows, et cetera.
Speaker 10: And that was that's great that you know, the market
Speaker 10: doesn't have an issue with that. But now you know
Speaker 10: you're competing for uh, you know, funds that are already
Speaker 10: you know, allocating or thinking about allocating to this massive
Speaker 10: government bond debt. You know, issuance is not going away.
Speaker 10: It's going to continue to be elevated. And now you've
Speaker 10: got more corporate issuance competing for that, so you know
Speaker 10: a little bit of a kind of a crowding out sort.
Speaker 7: Of impact as well.
Speaker 10: It's just means those yields have to probably move a
Speaker 10: little bit higher, uh, you know, to compete with you know,
Speaker 10: the treasury yields, which is again I mean turned premia
Speaker 10: is going to be elevated this year.
Speaker 9: Uh.
Speaker 7: And the bond vigilantes you know.
Speaker 10: We're on her, you know, kind of trigger fingers because
Speaker 10: again I go back midterm the sitting president. You know,
Speaker 10: they want Republicans to do well, They want growth, and
Speaker 10: do they make a mistake of doing a little too
Speaker 10: much fiscal stimulus and environment where the economy is already
Speaker 10: doing well and inflation is still above the Fed's target.
Speaker 10: So you know, again turn premik could move higher YEP
Speaker 10: this year.
Speaker 4: Jack, thanks so much for giving us some of your time.
Speaker 4: We appreciated.
Speaker 2: Jack McIntyre's portfolio manager, Brandywine Global. Down there in the
Speaker 2: City of Brotherly Love, down there in Philly.
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