WEBVTT - AI Optimism Kicks Off New Year 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.240 on Apple car Play or Android Auto with the Bloomberg 0:00:21.320 --> 0:00:24.880 Business App. Listen on demand wherever you get your podcasts, 0:00:25.280 --> 0:00:27.040 or watch us live on YouTube. 0:00:27.360 --> 0:00:31.080 Brent Kenwell joins US here US Investment and Options analysts 0:00:31.080 --> 0:00:31.240 for E. 0:00:31.440 --> 0:00:32.400 Trou Brett. 0:00:32.640 --> 0:00:34.800 You look back on twenty twenty five, heck of a 0:00:34.920 --> 0:00:37.120 performance across the equity markets here. 0:00:37.560 --> 0:00:39.040 What are the key drivers. 0:00:38.680 --> 0:00:40.680 For you for twenty twenty six? What are you looking at? 0:00:40.720 --> 0:00:43.160 What are your expectations are for twenty twenty six? 0:00:44.400 --> 0:00:47.760 Yeah, thanks for having me to start. 0:00:47.200 --> 0:00:47.720 Off the hour. 0:00:48.360 --> 0:00:50.560 You know, when we look at equity markets for twenty 0:00:50.560 --> 0:00:52.920 twenty six, at this point almost actually feels a little 0:00:52.920 --> 0:00:55.240 bit more of a concern that so many people are 0:00:55.320 --> 0:00:58.480 constructive on equities as we look to the next twelve months, 0:00:58.480 --> 0:01:02.360 But we are amongst those who are also constructive on equities. 0:01:02.400 --> 0:01:06.880 We expect US markets to do another have another solid year, 0:01:06.959 --> 0:01:11.280 driven by really multiple catalysts, three of which include a 0:01:11.360 --> 0:01:15.840 continued AI trade, expanding and accelerating earnings growth in the 0:01:15.880 --> 0:01:17.960 S and P five hundred and a fed that is 0:01:18.000 --> 0:01:22.600 not looking to be hawkish or derail equities from a 0:01:22.640 --> 0:01:23.720 monetary perspective. 0:01:23.800 --> 0:01:26.520 So when we look at kind of those I. 0:01:26.440 --> 0:01:29.800 Think bigger drivers of the market, we still see that 0:01:29.800 --> 0:01:32.560 there's room for expansion there and we expect those to 0:01:32.560 --> 0:01:34.000 be positive drivers for next year. 0:01:34.440 --> 0:01:37.680 So given all of that, why does invent investor sentiment 0:01:37.800 --> 0:01:40.200 remain subdued? What do you think could be contributing to 0:01:40.240 --> 0:01:43.160 this cautious approach and how do you anticipate this sentiment 0:01:43.200 --> 0:01:44.440 to evolve throughout the year. 0:01:45.440 --> 0:01:48.360 Yeah, that's such a good question, and I think it 0:01:48.440 --> 0:01:52.280 really speaks to sort of the division we're seeing in 0:01:52.320 --> 0:01:55.280 so many ways between Wall Street and Main Street. You know, 0:01:55.320 --> 0:01:58.360 when we look at you know, and we include ourselves 0:01:58.360 --> 0:02:00.240 in this observation too, but when we look at like 0:02:00.320 --> 0:02:04.080 the streets, the firms on Wall Street, they remained pretty 0:02:04.080 --> 0:02:06.800 optimistic for next year. But when we look at sentiment, 0:02:06.920 --> 0:02:10.519 like various sentiment measures or surveys or gauges, they remain 0:02:11.000 --> 0:02:15.440 fairly subdued. Really, and they they that happened in you know, 0:02:15.520 --> 0:02:17.600 late Q one, early Q two of last year when 0:02:17.639 --> 0:02:20.200 we had you know, the tariff sell off and about 0:02:20.240 --> 0:02:22.639 twenty percent correction the sp we never really saw that 0:02:22.720 --> 0:02:26.200 sentiment come back to life. There's always been this I 0:02:26.200 --> 0:02:28.720 would almost argue a healthy amount of skepticism in the 0:02:28.720 --> 0:02:33.160 market rally, But nevertheless, we haven't seen that confidence really 0:02:33.200 --> 0:02:36.560 come back. And that's consumer confidence, that's investor sentiment. So 0:02:37.120 --> 0:02:39.800 you know, I don't know if that will maybe actually. 0:02:39.600 --> 0:02:41.720 End up being a positive as we pushed through the year. 0:02:41.880 --> 0:02:43.560 I'm hoping it acts as a positive. 0:02:43.600 --> 0:02:46.079 But yeah, you're to your point, we haven't really seen 0:02:46.280 --> 0:02:49.120 sentiment make the types of rebound that we've seen in 0:02:49.480 --> 0:02:51.160 you know, whether it's GDP or the S and P 0:02:51.840 --> 0:02:55.040 hasn't really followed followed those measures higher. So twenty twenty 0:02:55.040 --> 0:02:57.360 six will be interesting in that respect, Brett. 0:02:57.440 --> 0:03:00.480 We have not really seen to any meaningful degree of 0:03:00.520 --> 0:03:04.200 broadening out in participation in this market. It has remained 0:03:04.840 --> 0:03:08.200 fairly concentrated in a handful of technology names, and a 0:03:08.240 --> 0:03:11.480 lot of folks will call that out as a potential headwind. 0:03:11.040 --> 0:03:12.880 For this market or concern. How do you guys think 0:03:12.880 --> 0:03:13.280 about that? 0:03:14.639 --> 0:03:17.000 Yeah, you know, I think, well, I think there was 0:03:17.000 --> 0:03:19.160 a couple of ways of looking at first. To your point, 0:03:19.800 --> 0:03:22.440 I do think we see some broadening in twenty twenty six, 0:03:23.320 --> 0:03:26.520 not only our SMP earnings expected to accelerate next year, 0:03:27.120 --> 0:03:30.120 but all eleven sectors in the SMP are expected. 0:03:29.760 --> 0:03:30.840 To post earnings growth. 0:03:30.919 --> 0:03:33.520 We haven't seen that in five years, you know, twenty 0:03:33.560 --> 0:03:35.280 twenty one being the last time we had. It was 0:03:35.480 --> 0:03:37.960 pretty low bar to a hurdle at that time, coming 0:03:37.960 --> 0:03:39.680 out of you know, the first year out of COVID. 0:03:39.840 --> 0:03:43.840 So we're expected to see fairly broad earnings growth next year. 0:03:43.880 --> 0:03:47.120 That should act as a positive catalyst. But we're also seeing, 0:03:47.200 --> 0:03:50.240 you know, we might finally see small caps come to life. 0:03:50.280 --> 0:03:52.360 You know, I have to put might in there because 0:03:53.200 --> 0:03:55.440 you know, last year I expected the Russell to do 0:03:55.480 --> 0:03:58.720 and it did do better last year, but certainly you know, 0:03:58.920 --> 0:04:03.440 didn't lead need the charge higher necessarily. But you know, 0:04:03.600 --> 0:04:06.040 we do think that small caps could finally have their 0:04:06.120 --> 0:04:08.280 moment in twenty twenty six. Maybe they start to show 0:04:08.320 --> 0:04:12.040 they have the very strong expectations for revenue, cash flow 0:04:12.080 --> 0:04:13.960 and earnings growth next year. So we're hoping to see 0:04:13.960 --> 0:04:17.360 that takeoff. But you know, even within tech, I think 0:04:17.400 --> 0:04:20.920 there's this concern that we're approaching this AI bubble. 0:04:20.960 --> 0:04:23.080 We're in the depths of the bubble. 0:04:23.080 --> 0:04:26.200 And I mean, I think it's reasonable to question are 0:04:26.200 --> 0:04:28.840 we in a bubble or even speculate that we are. 0:04:28.960 --> 0:04:31.320 But it's it's too hard for us at this point 0:04:31.360 --> 0:04:33.719 to say that we're in a late stage bubble, and 0:04:33.760 --> 0:04:36.480 I think we need point to certain observations within the space, 0:04:36.600 --> 0:04:42.359 whether that's analytical, like looking at directly at Nvidia stock trades, 0:04:42.360 --> 0:04:45.560 about twenty five twenty six times forward earnings is expected 0:04:45.600 --> 0:04:48.159 to grow fifty percent on the top and bottom line. 0:04:48.800 --> 0:04:50.960 That's very difficult for us to look at that and 0:04:50.960 --> 0:04:54.920 say that's a bubble like valuation, you know, less analytical. 0:04:54.960 --> 0:04:57.920 You look at something like Meta and Oracle. Investors are 0:04:57.960 --> 0:05:00.719 punishing these names because of the con urns over cash 0:05:00.760 --> 0:05:02.080 flows and their balance sheets. 0:05:02.120 --> 0:05:03.440 So these are not. 0:05:03.400 --> 0:05:05.760 Behaviors that we see in late stage bubbles. Is they're 0:05:05.800 --> 0:05:08.120 not valuations we see in late stage bubbles. So from 0:05:08.160 --> 0:05:11.120 those perspectives, we still think that there's room to go 0:05:11.160 --> 0:05:11.880 in that trade. 0:05:12.279 --> 0:05:15.200 What about downside risks. You've highlighted the labor market as 0:05:15.240 --> 0:05:17.920 one of those. How crucial do you think the stabilization 0:05:18.000 --> 0:05:21.119 of that is to the continuation of really this record 0:05:21.120 --> 0:05:24.200 bill market We've seen double digit gains in the past 0:05:24.200 --> 0:05:24.760 three years. 0:05:26.640 --> 0:05:29.559 Yeah, the jobs, you know, sort of like the mantra 0:05:29.640 --> 0:05:33.760 we've adopted for you know, sort of, the macro environment 0:05:33.880 --> 0:05:37.080 is messy but manageable. We're seeing so many moving parts, 0:05:37.120 --> 0:05:39.839 and whether that's you know, whether that's to do with 0:05:40.000 --> 0:05:43.400 economic policy, or whether it's what's going on at the FED. 0:05:43.440 --> 0:05:45.400 There's a lot of moving parts at the FED right now, 0:05:45.560 --> 0:05:47.800 one of which of course being a new FED share 0:05:47.800 --> 0:05:50.520 coming in twenty twenty six. But even when we just 0:05:50.640 --> 0:05:53.039 broadly look at macro, there's a lot of moving parts. 0:05:53.080 --> 0:05:56.039 You have the labor market is cooling but not collapsing. 0:05:56.480 --> 0:06:01.159 Inflation is taking higher but not you know, you know, 0:06:01.240 --> 0:06:03.719 going out at at a pace that is not controlled 0:06:03.839 --> 0:06:07.480 or well anchored, to put it in FED speak. But 0:06:07.520 --> 0:06:10.720 then you have this consumer that's strained but resilient. And 0:06:10.800 --> 0:06:13.919 same with GDP, it continues to come in above expectations. 0:06:13.920 --> 0:06:16.560 So overall, when we look at the space, I think 0:06:16.600 --> 0:06:20.640 the foundation is constructive for equities to continue hire, for 0:06:20.680 --> 0:06:23.080 the economy to continue along in twenty twenty six. But 0:06:23.160 --> 0:06:26.640 to your point, the labor market is the biggest concern. 0:06:26.960 --> 0:06:29.680 The consumer in the US is responsible for a little 0:06:29.680 --> 0:06:32.760 more than two thirds of GDP. The consumer does not 0:06:32.880 --> 0:06:35.559 have very much spending ability if they lose their jobs. 0:06:35.600 --> 0:06:36.480 So if we. 0:06:36.480 --> 0:06:39.279 See that, you know, the cooling and the labor market 0:06:39.360 --> 0:06:43.440 kind of accelerate or really get to a concerning level 0:06:43.520 --> 0:06:45.760 interior to a concerning level in twenty twenty six, that's 0:06:45.760 --> 0:06:48.600 going to have a really negative impact on equity markets. 0:06:48.920 --> 0:06:51.400 Some investors, you know, might be out there kind of 0:06:51.480 --> 0:06:54.320 rooting for continued cooling in the labor market to push 0:06:54.400 --> 0:06:56.760 the FED along to be a bit more accommodative, but 0:06:57.279 --> 0:06:59.320 you know, we don't think that that's the right approach. 0:07:00.160 --> 0:07:03.640 Labor market is a very healthy thing, and we believe 0:07:03.640 --> 0:07:05.040 a very healthy thing for equities. 0:07:05.920 --> 0:07:07.680 Ratt thanks so much for journeys. Really appreciate it. 0:07:07.880 --> 0:07:11.800 Brent Kenwell joining us a US investment and options analyst 0:07:11.920 --> 0:07:12.640 for e Toro. 0:07:14.640 --> 0:07:17.800 Stay with us. More from Bloomberg Surveillance coming up after this. 0:07:24.000 --> 0:07:27.600 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:07:27.640 --> 0:07:30.800 weekday afternoons from seven to ten am Eastern Listen on 0:07:30.920 --> 0:07:34.320 Apple Karplay and Android Auto with the Bloomberg Business app, 0:07:34.480 --> 0:07:36.200 or watch US live on YouTube. 0:07:36.360 --> 0:07:38.560 The Russell Price Joints is here, chief economist at a 0:07:38.600 --> 0:07:42.520 merit prize financial here. Russell I love to get your 0:07:42.560 --> 0:07:45.760 thoughts about kind of how you view this economic backdrop 0:07:47.080 --> 0:07:50.520 for twenty twenty six here. What do you think investors 0:07:50.520 --> 0:07:51.600 should be focusing on here? 0:07:53.280 --> 0:07:55.200 Well, I think we have a pretty good year ahead 0:07:55.200 --> 0:07:57.640 of us from an economic perspective. We come into the 0:07:57.720 --> 0:08:02.600 year with consumers and pretty financial shape and aggregate. We 0:08:02.640 --> 0:08:05.440 also should see some pluses and minuses in the first 0:08:05.480 --> 0:08:07.680 half of the year for investors to watch out for. 0:08:08.240 --> 0:08:11.000 On the plus side, we should get a little bit 0:08:11.040 --> 0:08:15.040 more consumer income from the no tax on tips, the 0:08:15.480 --> 0:08:20.040 no tax on overtime, plus the six thousand dollars senior 0:08:20.480 --> 0:08:25.000 tax credit or deduction excuse me. And also against that 0:08:25.480 --> 0:08:28.840 you'll have some consumers that are negatively affected by the 0:08:28.840 --> 0:08:37.400 ACA subsidy elimination, and also the student loan payments repayments 0:08:38.200 --> 0:08:41.960 been forced for stringently. So but other than that, the 0:08:42.000 --> 0:08:44.240 economy is going into the twenty twenty six with pretty 0:08:44.280 --> 0:08:47.200 good momentum. We should also continue to see pretty good 0:08:47.520 --> 0:08:51.760 business investment spending related to AI and other growth initiatives, 0:08:52.320 --> 0:08:54.200 so we expect the pace to be a little bit 0:08:54.240 --> 0:08:56.760 better this year than it was last year, and last 0:08:56.800 --> 0:08:58.440 year was a pretty decent year. 0:08:58.880 --> 0:09:01.560 So those are the pros you've also highlighted labor market. 0:09:01.559 --> 0:09:04.680 That's a key risk. What improvements are needed to avoid 0:09:04.679 --> 0:09:06.520 a slowdown? Maybe in consumer spending. 0:09:08.000 --> 0:09:11.760 Yeah, we've certainly seen a big decline in overall consumer 0:09:11.840 --> 0:09:16.400 centiment that hasn't really translated yet into lower consumer spending. 0:09:16.800 --> 0:09:19.000 But if we were to continue to see a further 0:09:19.400 --> 0:09:26.080 deceleration or degradation and the job market, those weaker sentiment 0:09:26.160 --> 0:09:29.920 levels likely would translate into reduce spending. So what we 0:09:30.000 --> 0:09:32.800 need to see is for hiring to regain a little 0:09:32.840 --> 0:09:37.040 bit more traction. Recent data suggests that that might be happening, 0:09:37.080 --> 0:09:40.520 but it's still very early and it's not by any 0:09:40.559 --> 0:09:46.240 means conclusive. So we just need to see businesses alleviate 0:09:46.320 --> 0:09:48.960 some of their concerns or lose some of their concerns. 0:09:49.040 --> 0:09:52.720 Is related to how much the terroriffs mighty negatively impact 0:09:52.760 --> 0:09:56.920 the economy, what that might do to company profit margins, 0:09:57.240 --> 0:09:59.719 and from a small business perspective, where much of the 0:09:59.800 --> 0:10:03.920 job hiring has fallen off, we need to see small 0:10:03.960 --> 0:10:07.400 businesses to become more accustomed to dealing with all of 0:10:07.440 --> 0:10:11.920 the added paperwork involved with tariffs and the additional expense 0:10:11.960 --> 0:10:12.439 as well. 0:10:13.600 --> 0:10:16.760 So, Russell, what do you think the fetter reserve should 0:10:16.840 --> 0:10:19.319 do in twenty twenty six. Right now, the market is 0:10:19.360 --> 0:10:22.880 kind of discounting maybe two quarter point rate cuts during 0:10:22.880 --> 0:10:23.120 the year. 0:10:23.160 --> 0:10:24.040 What do you think they should do. 0:10:25.720 --> 0:10:28.719 Well. I think we could see a little bit more 0:10:28.760 --> 0:10:34.040 than that, probably around three primarily because inflation has been 0:10:35.440 --> 0:10:39.520 not been nearly as strong as people have predicted a 0:10:39.520 --> 0:10:44.920 few months ago when the terriffs were first announced. So 0:10:45.600 --> 0:10:49.600 the inflation situation has been a lot better. Of course, 0:10:50.480 --> 0:10:53.960 that is a big caveat that the data is incomplete 0:10:54.000 --> 0:10:57.480 and a little bit suspicious related to the most recent 0:10:58.360 --> 0:11:02.280 Labor Department report because of the government shutdown that we 0:11:02.320 --> 0:11:06.160 had in October in the first half of November, but 0:11:06.240 --> 0:11:09.600 we do expect inflation to peak maybe at three point 0:11:09.640 --> 0:11:12.960 two percent in the first quarter. That might actually be 0:11:12.960 --> 0:11:15.400 a little bit too high. We could see the number 0:11:15.760 --> 0:11:18.760 be a little bit weaker than that, offsetting some of 0:11:18.800 --> 0:11:23.240 the ongoing tier if upside pressures were seeing in inflation, 0:11:24.000 --> 0:11:28.080 is a steady deceleration in shelter costs, and shelters are 0:11:28.120 --> 0:11:30.600 thirty five percent of the total costs of the consumer 0:11:30.679 --> 0:11:34.720 price index, so that's a pretty strong downward pressure. So 0:11:34.800 --> 0:11:40.840 with that backdrop and still some relatively weak hiring activity. 0:11:41.320 --> 0:11:44.000 We expect by the second quarter the Federal Reserve should 0:11:44.040 --> 0:11:48.079 resume their pace of quarter point cuts, So. 0:11:48.080 --> 0:11:50.320 You expect three rate cuts in twenty twenty six. How 0:11:50.320 --> 0:11:53.240 do you see those impacting inflation and economic growth? 0:11:54.720 --> 0:11:58.600 Well, I think the impact on inflation should be relatively benign, 0:11:59.400 --> 0:12:01.880 as I should mention that over the last two and 0:12:01.880 --> 0:12:06.640 a half years, if you strip out just shelter costs, 0:12:07.920 --> 0:12:11.200 which are again our thirty five percent of the index CPI, 0:12:11.320 --> 0:12:14.960 inflation has been at or below two percent for those 0:12:15.000 --> 0:12:17.839 two and a half years. So it's really the cooperation 0:12:17.960 --> 0:12:21.319 of that shelter component that matters much. And those are 0:12:21.480 --> 0:12:24.120 very long term trends based on the way they measure 0:12:24.160 --> 0:12:27.440 it and based on the way rental rates are changed 0:12:28.120 --> 0:12:32.679 over time in the marketplace. So we should see further 0:12:32.800 --> 0:12:38.120 deceleration CPI even without the cuts. The cuts they should 0:12:38.160 --> 0:12:42.640 stabilize economic growth that above trend growth, but still not 0:12:42.920 --> 0:12:47.280 enough to really give corporations a lot of pricing power, 0:12:47.920 --> 0:12:52.400 Nor are we likely to see supply and demand imbalances 0:12:52.440 --> 0:12:55.880 that would continue to push inflation higher. 0:12:57.080 --> 0:12:57.480 Russell. 0:12:57.600 --> 0:13:00.200 In terms of the labor market, we've got it just 0:13:00.240 --> 0:13:03.920 a headline print four point six percent and that's by 0:13:03.960 --> 0:13:06.880 all measures pretty darn good close to full employments you're 0:13:06.880 --> 0:13:10.520 probably going to get. But still people are concerned about 0:13:10.600 --> 0:13:12.319 underlying trends in the labor market. 0:13:12.520 --> 0:13:13.600 How do you view the labor market? 0:13:15.559 --> 0:13:18.079 Yeah, I think the concerns about the underlying labor market 0:13:18.120 --> 0:13:22.200 are certainly justifiable. We've seen weakness in places that were 0:13:22.240 --> 0:13:25.760 typically not all that used to seeing weakness. Not only 0:13:25.760 --> 0:13:28.920 are we seeing weakness, and some of the lower segments 0:13:28.960 --> 0:13:33.559 of the marketplace where AI may be AI implementations may 0:13:33.559 --> 0:13:36.760 be having an influence. Certainly, we've seen most of the 0:13:37.000 --> 0:13:41.520 job decline and hiring, I should say in the small 0:13:41.559 --> 0:13:44.880 business sector in our view that that is primarily the 0:13:45.040 --> 0:13:49.000 reflection of the terror related challenges. But also we've seen 0:13:50.400 --> 0:13:55.920 certainly a considerably weaker environment for recent college graduates, so 0:13:56.280 --> 0:14:01.199 that also may be influenced by artificial intelligence. People's concerns 0:14:01.200 --> 0:14:03.360 about the labor market, at least over the near term, 0:14:03.760 --> 0:14:08.559 I think are legitimate. But now that the terror situation 0:14:08.760 --> 0:14:14.559 is becoming the standard, becoming business as usual to some degree, 0:14:14.960 --> 0:14:21.280 we think that the hiring should recover modest modestly and 0:14:21.320 --> 0:14:24.520 we should see the unemployment rate this year decline a 0:14:24.520 --> 0:14:26.760 little bit from that four point six percent rate that 0:14:26.800 --> 0:14:30.480 we've seen most recently. So with that a little bit 0:14:30.520 --> 0:14:34.920 of decline in the total number of available workers, which 0:14:34.920 --> 0:14:37.320 should put a little bit downward pressure on the rate 0:14:37.400 --> 0:14:37.920 as well. 0:14:40.360 --> 0:14:43.440 Great and with slightly lower mortgage read what's your outlook 0:14:43.440 --> 0:14:46.800 for housing in twenty twenty six, especially regarding existing home sales? 0:14:46.920 --> 0:14:49.080 I asked, because I'm a renter and I always tell 0:14:49.080 --> 0:14:50.480 everyone here asking as a. 0:14:50.440 --> 0:14:55.920 Renter, sure, well, existing home sales we have seen we 0:14:56.000 --> 0:14:59.440 have been seeing over the last several quarters some improvements 0:14:59.520 --> 0:15:03.360 and the bailability of housing available for sale. That reversed 0:15:03.400 --> 0:15:06.480 a little bit late in the second half of twenty 0:15:06.480 --> 0:15:09.600 twenty five, but that's fairly normal as well as far 0:15:09.640 --> 0:15:14.280 as a seasonality basis. So as we go into twenty 0:15:14.360 --> 0:15:17.080 four and twenty five, twenty twenty four to twenty twenty 0:15:17.080 --> 0:15:21.760 five were very weak years for existing home sales. Twenty 0:15:21.760 --> 0:15:25.720 twenty four was as weak as it's been since nineteen 0:15:25.760 --> 0:15:29.560 ninety five. We expect to see a little bit better performance, 0:15:29.640 --> 0:15:33.040 maybe about five to eight percent improvement and transactions, but 0:15:33.280 --> 0:15:37.239 we should finally actually see some weakness and housing prices 0:15:37.680 --> 0:15:38.840 around flat all. 0:15:38.800 --> 0:15:40.240 Right, Russell, thanks so much for joining us. 0:15:40.280 --> 0:15:42.120 Really appreciate getting your thoughts here as we start off 0:15:42.400 --> 0:15:45.400 twenty twenty six. Russell Price, chief economist at Americ Price Financial. 0:15:47.080 --> 0:15:50.240 Stay with us. More from Bloomberg Surveillance coming up after this. 0:15:56.440 --> 0:15:59.920 You're listening to the Bloomberg Surveillance podcast. Catch us Lie 0:16:00.120 --> 0:16:03.240 weekday afternoons from seven to ten am Eastern Listen on 0:16:03.320 --> 0:16:06.760 Apple Karplay and Android Auto with the Bloomberg Business app, 0:16:06.920 --> 0:16:08.640 or watch us live on YouTube. 0:16:08.840 --> 0:16:14.000 Adam Turnquist Joints is here cheap technical strategies for LPL Financial. Adam, 0:16:14.000 --> 0:16:16.640 thanks for joining us here. I'd love to get your 0:16:16.680 --> 0:16:19.760 thoughts from a technical perspective. Where do you see real 0:16:19.840 --> 0:16:22.440 opportunities here in the beginning of twenty twenty six. 0:16:23.360 --> 0:16:25.280 Hey, good morning and happy new year. Thanks for having 0:16:25.320 --> 0:16:25.600 me on. 0:16:26.000 --> 0:16:28.280 So as we look ahead to twenty twenty six, we're 0:16:28.320 --> 0:16:30.640 pretty constructive on the market when you look at things 0:16:30.680 --> 0:16:33.480 technically right now, the SMP just kind of stuck in 0:16:33.520 --> 0:16:36.800 this consolidation range it's really been in since October, and 0:16:36.840 --> 0:16:40.920 no surprise, we're consolidating here after this big recovery rally off. 0:16:40.760 --> 0:16:42.200 Those liberation Day lows. 0:16:42.600 --> 0:16:44.920 But when you have an uptrend in a bowl market, 0:16:44.960 --> 0:16:47.440 the most likely scenario as you break out to the 0:16:47.560 --> 0:16:50.360 upside of that consolidation range for the S and P 0:16:50.480 --> 0:16:53.080 five hundred, we're watching kind of the sixty nine hundred area, 0:16:53.200 --> 0:16:54.480 so not far from current. 0:16:54.360 --> 0:16:55.800 Levels for a breakout. 0:16:56.160 --> 0:16:58.800 If we see that, the measured technical move would be 0:16:58.840 --> 0:17:02.280 around seventy two in terms of a price target. So 0:17:02.320 --> 0:17:04.600 we think the bull market will continue. And I think 0:17:04.600 --> 0:17:07.480 most importantly what we've seen over the last couple months 0:17:07.520 --> 0:17:11.440 is a shift from more defensive leadership with healthcare utilities 0:17:11.480 --> 0:17:15.160 outperforming in November, to more cyclical leadership. That to us 0:17:15.240 --> 0:17:18.000 suggests more of a durable, sustainable bull market here. 0:17:18.280 --> 0:17:22.240 And you also emphasize the versification. What alternative assets or 0:17:22.400 --> 0:17:24.760 sectors are you bullish on? Especially this year. 0:17:25.720 --> 0:17:29.400 Our favorite sector, and it has been for almost two 0:17:29.480 --> 0:17:32.440 years now, has been communication services. Is the best performing 0:17:32.560 --> 0:17:35.520 sector last year, and I think in the previous year. 0:17:35.600 --> 0:17:38.160 It's got very good fundamental story. When you look at 0:17:38.320 --> 0:17:41.520 Earning's growth double digits, margins double digits, and I think 0:17:41.560 --> 0:17:44.280 even revenues are expected to grow double digits next year, 0:17:44.560 --> 0:17:47.639 so a solid backdrop. You get some hyperscalers in there 0:17:47.920 --> 0:17:50.359 with meta and alphabet, but then you also get some 0:17:50.400 --> 0:17:52.840 telecom names some more defensive areas, so we think of 0:17:52.880 --> 0:17:55.520 it as more of a bar Bell type strategy which 0:17:55.760 --> 0:17:56.840 could serve well. 0:17:56.640 --> 0:17:57.520 In twenty twenty six. 0:17:57.560 --> 0:17:59.520 We do think volatility is going to come back here 0:17:59.560 --> 0:18:02.560 from really low levels in the vicks. I think it's 0:18:02.600 --> 0:18:04.520 going to be more of a policy driven market, and 0:18:04.520 --> 0:18:07.000 when you have that type of backdrop, we expect volatility 0:18:07.200 --> 0:18:09.439 to remain at least a little bit higher than we 0:18:09.480 --> 0:18:10.120 are right now. 0:18:10.960 --> 0:18:13.880 Adam, I'm looking at the Relative Strength Index the RSI 0:18:14.000 --> 0:18:16.160 on the S and P five hundred and sitting right 0:18:16.160 --> 0:18:19.119 at fifty one, and typically at a reading of thirty, 0:18:19.200 --> 0:18:21.440 the markets tend to be over sold. At a reading 0:18:21.480 --> 0:18:24.159 of seventy tends to be a little overbought. We're sitting 0:18:24.240 --> 0:18:27.960 right smack in the middle. What do I do with that? 0:18:28.080 --> 0:18:30.000 We call that the midline, and that's a good spot 0:18:30.080 --> 0:18:33.640 for the SMP. We've reset from some of these overbought conditions. 0:18:33.640 --> 0:18:36.199 When you flash back to earlier in the year and 0:18:36.240 --> 0:18:39.639 earlier in the fall, when the market was getting a 0:18:39.640 --> 0:18:40.560 little bit overbought. 0:18:41.119 --> 0:18:42.280 We've since corrected. 0:18:42.280 --> 0:18:45.560 There's been some consolidation here really to get to the 0:18:45.680 --> 0:18:46.880 overbought levels as well. 0:18:46.920 --> 0:18:47.600 In a bull market. 0:18:47.600 --> 0:18:50.080 You want to see that go through against seventy, as 0:18:50.080 --> 0:18:52.879 you mentioned, and I think getting overbought in a bull market, 0:18:52.880 --> 0:18:54.040 we view that as a bullish sign. 0:18:54.119 --> 0:18:55.159 That's what you want to see. 0:18:55.320 --> 0:18:58.080 You don't want to see divergences with price making higher 0:18:58.119 --> 0:19:01.000 highs and then that RSI indicator may making lower highs. 0:19:01.320 --> 0:19:04.840 That suggests maybe some buyer enthusiasm fading a little bit. 0:19:04.880 --> 0:19:06.800 We haven't quite seen that yet, but look for that 0:19:06.840 --> 0:19:09.040 to expand it to overbought levels if we do get 0:19:09.040 --> 0:19:09.520 a breakout. 0:19:09.720 --> 0:19:13.119 You're also constructive in commodities, especially precious metals. How do 0:19:13.160 --> 0:19:17.000 you see geopolitical tensions and maybe trade policy affecting your 0:19:17.040 --> 0:19:18.360 outlook for twenty twenty six. 0:19:19.160 --> 0:19:21.560 I think it's going to complicate the story for precious 0:19:21.600 --> 0:19:24.480 metals as it did in twenty twenty five, and it 0:19:24.520 --> 0:19:27.600 wasn't necessarily a bearish catalyst when you look at price 0:19:27.640 --> 0:19:29.360 action and some of the commodities that you were talking 0:19:29.400 --> 0:19:32.640 about earlier, Silver up one hundred and fifty plus percent, 0:19:32.720 --> 0:19:36.640 gold up significantly as well. But we do think it's 0:19:36.680 --> 0:19:38.600 going to lead to volatility when you look at just 0:19:38.640 --> 0:19:41.880 what's happened in copper markets, for example, over the last 0:19:41.920 --> 0:19:45.919 several months, there's been a surge in copper moving to 0:19:45.960 --> 0:19:49.359 the US from London. Same thing in silver because the 0:19:49.880 --> 0:19:52.200 critical Minerals list in the US continues to grow. I 0:19:52.200 --> 0:19:55.639 think there's over sixty different metals on that list, so 0:19:55.680 --> 0:19:58.679 that brings the potential threat of tariffs. I know the 0:19:58.960 --> 0:20:02.239 administration is going to view some of those tariffs in 0:20:02.520 --> 0:20:05.000 June and July, so we'll maybe get an announcement there. 0:20:05.040 --> 0:20:08.240 But traders are wasting no time in investing and moving 0:20:08.280 --> 0:20:11.119 some of that metal back to the US just in 0:20:11.200 --> 0:20:13.520 case we get any type of tariffs. So we do 0:20:13.600 --> 0:20:16.240 think the demand side as well for a commodity like 0:20:16.280 --> 0:20:17.840 silver or copper, remains strong. 0:20:18.320 --> 0:20:20.119 Like the macro backdrop. 0:20:19.640 --> 0:20:22.919 It's it's an AI play as well, but also in 0:20:22.960 --> 0:20:26.199 the green energy transition some of the infrastructure buildouts. We 0:20:26.240 --> 0:20:28.600 think copper and silver are going to be important metals 0:20:28.640 --> 0:20:30.679 to watch in twenty twenty six, and we think the 0:20:30.720 --> 0:20:32.160 trend will continue higher for both. 0:20:32.800 --> 0:20:35.399 Adam, what does the technical trend or what does the 0:20:35.440 --> 0:20:38.240 technical marketing look like for the US dollar. We saw 0:20:38.280 --> 0:20:40.600 a sell off earlier in the year on some of 0:20:40.600 --> 0:20:44.040 the concerns about the implementation of tariffs. It's since stabilized, 0:20:44.040 --> 0:20:46.320 but still you know, eight nine percent lower than where 0:20:46.320 --> 0:20:47.160 it started the year. 0:20:47.800 --> 0:20:49.000 How do you view the dollar here? 0:20:49.680 --> 0:20:52.040 This is going to be a big one for this year, 0:20:52.720 --> 0:20:55.399 and this is the trend we've been watching carefully. As 0:20:55.560 --> 0:20:58.440 Paul you mentioned, this may be a bottom developing. That's 0:20:58.440 --> 0:21:01.480 what we view this as. If you zoom back on 0:21:01.480 --> 0:21:04.520