Speaker 1: Hi.
Speaker 2: I'm Sarah Holder. I'm a new host for The Big Take,
Speaker 2: and I'm thrilled to be in your feed this week
Speaker 2: along with Seleiah Mosen in Washington, d C. And wanh
Speaker 2: in Hong Kong. Each day we'll share one big story
Speaker 2: on money from all around the world. Without further ado,
Speaker 2: here's today's episode. My colleague Sam Potter reports on markets
Speaker 2: for Bloomberg. I called him at home in London and
Speaker 2: he told me that every year around October he gets
Speaker 2: the feeling that something big is coming.
Speaker 1: I always had this moment where I think, can I
Speaker 1: really go through this again this year?
Speaker 3: Can I just palm it off to someone else?
Speaker 2: What Sam has to go through is an exercise in
Speaker 2: predicting the future, or at least the version of the
Speaker 2: future Wall Street is expecting. Sam, you've had a busy
Speaker 2: couple of months reading the investment tea leaves. Tell us
Speaker 2: what you've been up to.
Speaker 1: Yeah, I have been reading just about everything that Wall
Speaker 1: Street has written about about the year ahead. So the
Speaker 1: major banks, the biggest asset manages, major advisors, anyone who
Speaker 1: has put out an outlook for twenty twenty four, and
Speaker 1: either the markets or the economy generally global stuff.
Speaker 2: The tea leaves he realize on are called investment outlooks,
Speaker 2: the reports that Wall Street's best and brightest released late
Speaker 2: every fall, outlining what they expect to happen next year.
Speaker 1: It's an exercise in trying to appear smarter, better prepared,
Speaker 1: better place to manage other people's money. And oftentimes what
Speaker 1: firms will do will try to make it a bit
Speaker 1: more interesting by adding themes. You know, these are the
Speaker 1: big themes that we see, trying to make it thematic.
Speaker 1: But actually sometimes that just makes it much harder to read.
Speaker 2: Sam has had a lot of practice reading and digesting
Speaker 2: these reports over the last months of twenty twenty three.
Speaker 2: Who's gone through more than six hundred and fifty of them?
Speaker 1: I have been pouring through it, and it is amounted
Speaker 1: to dozens and dozens of outlooks and hundreds and hundreds
Speaker 1: and probably thousands of pages.
Speaker 3: So I'm a little bit cross eyed at this point.
Speaker 2: As he reads, Sam looks for the clear takeaways, categorizes
Speaker 2: the responses, and assembles each institution's key predictions in a
Speaker 2: database on Bloomberg dot com.
Speaker 1: So I like the ones that are kind of clear,
Speaker 1: concise and hopefully making firm predictions for the year ahead,
Speaker 1: because a lot of what they do as well is
Speaker 1: say very vague things like the path of inflation is
Speaker 1: going to be important in the year ahead.
Speaker 3: And I mean, anyone on.
Speaker 2: Wall Street knows that the more reports Sam takes in,
Speaker 2: the more he starts to see the big picture, the
Speaker 2: consensus view on just about everything the financial world is
Speaker 2: anticipating in the year to come. And that consensus view
Speaker 2: matters because Sam isn't the only one reading these outlook reports.
Speaker 2: All kinds of financial professionals are taking in the same
Speaker 2: information and investing trillions of dollars based on what they
Speaker 2: see today. On the show, what are the world's top
Speaker 2: financial minds predicting for twenty twenty four? Are we heading
Speaker 2: into a recession? Will be AI bubble burst? And how
Speaker 2: my elections around the world affect the markets. I'm your host,
Speaker 2: Sarah Holder, and this is the big take from Bloomberg News.
Speaker 2: Give it to me straight. What's the general sense? Are
Speaker 2: we doomed or are investors seeing reasons to be hopeful
Speaker 2: in twenty twenty four.
Speaker 3: I've been doing this for about five or six years now.
Speaker 1: The thing that stood out to me this year was
Speaker 1: slightly broader consensus than normal, and it's not a very
Speaker 1: exciting one, I have to.
Speaker 3: Say, nor is it scary.
Speaker 1: Basically, the consensus on Wall Street at the moment is
Speaker 1: that the interest rate hikes that we've seen over the
Speaker 1: last eighteen months to two years, they're finally going to
Speaker 1: start to bite properly, finally going to start to put
Speaker 1: the brakes on the economy. So we're going to see
Speaker 1: some economic slowdown, but it's not going to be expected
Speaker 1: to be extreme. It's going to be mild benign. These
Speaker 1: are the sort of words they're throwing around, a healthy.
Speaker 2: Slowdown, a mild benign or healthy slowdown. In other words,
Speaker 2: Sam says Wall Street is for the most part expecting
Speaker 2: that the US will pull off what's been called a
Speaker 2: soft landing.
Speaker 1: The Fed, policy makers around the world, central bankers, they
Speaker 1: are trying to walk a typewrote. They're trying to increase
Speaker 1: those borrowing costs to cool the economy so it's not
Speaker 1: growing too fast, so prices aren't rising too quick. But
Speaker 1: they want to do it gently and hence the soft
Speaker 1: They want to do it in a way that companies
Speaker 1: can still borrow. It's more expensive, but it doesn't put
Speaker 1: the brakes on their operations. Consumers can still spend and
Speaker 1: have confidence in their jobs. It's a cooling of the
Speaker 1: economy and a slight slow down, but that isn't so
Speaker 1: tough that people feel it too much.
Speaker 2: An important thing to know is those hundreds of Outlook
Speaker 2: reports Sam and others have been reading and also come
Speaker 2: out in November.
Speaker 1: That means that they were all written and published, often
Speaker 1: well before the final FED meeting of twenty twenty three.
Speaker 4: Good afternoon. My colleagues and I remain squarely focused on
Speaker 4: our dual mandate to promote maximum employment and stable prices
Speaker 4: for the American people.
Speaker 1: So we've already seen in that final FED meeting the
Speaker 1: first hints of the FED preparing for a pivot next year.
Speaker 4: Today we decided to leave our policy indust rate unchanged
Speaker 4: and to continue to reduce our securities holdings. Given how
Speaker 4: far we have come, along with the uncertainties and risks
Speaker 4: that we face, the committee is proceeding carefully.
Speaker 1: It's an indication that the rate height cycle is at
Speaker 1: its peak now, that we're not expecting any more increases,
Speaker 1: and that the next move Willbeit it may be a
Speaker 1: long way off, but the next actual move in rates
Speaker 1: might be a cut, so possibly the broad view is
Speaker 1: that the Fed's aggressive hiking, and it was aggressive hiking
Speaker 1: the Fed. It has successfully put the brake on to inflation.
Speaker 1: It's still at at a higher level, still above target.
Speaker 1: But most of these outlooks, the majority certainly are expecting
Speaker 1: disinflation to continue gradually. Inflation will will decline. I would
Speaker 1: say that not a lot of the outlooks are expecting
Speaker 1: inflation to fall to the two percent target, at least
Speaker 1: not next year, but they do generally believe it fall
Speaker 1: enough to take the pressure off the FED and to
Speaker 1: allow some moderate interest rate cuts that would help just
Speaker 1: guard against a steeper economic decline.
Speaker 2: Declining interest rates, the taming of inflation. Those are all
Speaker 2: good things in the eyes of the market, and after
Speaker 2: most of those outlooks were published, the stock market went
Speaker 2: on a tear. You can hear how exciting it was
Speaker 2: for finance journalists at the time.
Speaker 3: Tech acts were certainly in the start of the show.
Speaker 1: For most of twenty twenty three, the so called Magnificent
Speaker 1: seven fuel devices.
Speaker 5: Very strong years, a strong run that is, of course,
Speaker 5: you can chalk that up to the boom of interest
Speaker 5: in AI that has helped lead the charge for the
Speaker 5: so called magnificence Amazing.
Speaker 1: The Nazak one hundred is setting up for its best
Speaker 1: year going back to nineteen ninety nine, the Composite for
Speaker 1: its best year since two thousand and three.
Speaker 2: The Nazaq one hundred went up by fifty percent at
Speaker 2: the end of twenty twenty three. That's the biggest run
Speaker 2: since the dot com boom. A lot of regular people
Speaker 2: who are not writing these investment outlooks feel like the
Speaker 2: economy is worse than it looks on paper or actually is.
Speaker 2: Is there a sense that the national mood in the
Speaker 2: US is going to change in the next year.
Speaker 3: I think.
Speaker 1: You probably have to allow for the fact that Wall
Speaker 1: Street is maybe not well attuned to Main Street always.
Speaker 1: But the thing that surprised Wall Street and that surprised
Speaker 1: everyone really was the strength particular of the Americans.
Speaker 3: Consumer.
Speaker 2: Financial analysts around the world were caught off guard by
Speaker 2: how much money American consumers spent through twenty twenty three.
Speaker 2: A lot of that excess spending was later attributed to
Speaker 2: Americans being able to save extra money during the pandemic
Speaker 2: with help from stimulus checks and pandemic closures. Sam says
Speaker 2: the broad view is that consumers will keep on spending
Speaker 2: through the next year, but not all of the reports
Speaker 2: he read agree with that prediction.
Speaker 1: The bearish guys out there, the outliers, are saying, well,
Speaker 1: I hang on. The consumer is running out of cash,
Speaker 1: the pandemic savings, the pandemic dividend that some called it.
Speaker 1: People don't have that money anymore, and they're starting to
Speaker 1: get nervous, and borrowing has become harder and more expensive.
Speaker 1: And so the question for the year ahead is going
Speaker 1: to be how resilient is the consumer going to stay.
Speaker 3: Can't speak to the people.
Speaker 1: On main street, but certainly the bears are worried that
Speaker 1: consumers are running out of cash, and if they're right,
Speaker 1: then it could be a harder landing than consensus thinks.
Speaker 2: If twenty twenty four unfold like the outlooks say it will,
Speaker 2: how will the year feel for consumers around the world.
Speaker 1: The outlooks pretty gloomy in terms of Europe, in terms
Speaker 1: of the UK, those economies are not expected to be
Speaker 1: firing on all cylinders anytime soon.
Speaker 3: You know, China has been struggling with some own domestic issues.
Speaker 1: It's not coming to rescue the world with sort of
Speaker 1: powerhouse expansion or policies. Everyone's very domestically focused at the moment.
Speaker 1: Europe is still trying to tame inflation. So there'll be
Speaker 1: no great demand surge, is the general view. It's going
Speaker 1: to be a kind of messy picture, and I don't
Speaker 1: think that. I don't think that necessarily bodes brilliantly for
Speaker 1: the consumer, because there's going to be no big boom.
Speaker 2: Sam has been writing these outlooks for years, and he
Speaker 2: says it's important to take these predictions with a grain
Speaker 2: of salt.
Speaker 1: The truth is that probably three out of the last
Speaker 1: four or five years have been very and to how
Speaker 1: Wall Street expected. There seems to be we've been in
Speaker 1: this period where something comes out of the blue to
Speaker 1: disrupt everyone's kind of thesis. So in twenty twenty we
Speaker 1: had the pandemic, which by March was debrailing economies worldwide.
Speaker 1: Changed the picture for everyone. In twenty twenty two, also
Speaker 1: it was late February when Russia invaded Ukraine. Now the
Speaker 1: impact of that was on energy priceis which feeds into
Speaker 1: everything in the economy, so that tore up expectations there.
Speaker 1: And then last year a lot of Wall Street expected
Speaker 1: quite serious recession, or at least the recession to hear
Speaker 1: because the FED was aggressively raising interest rates, making it
Speaker 1: more expensive to borrow. We know from history that that's
Speaker 1: going to hit the economy. So the last few years
Speaker 1: have not been great for Wall Street's track record and
Speaker 1: predicting the few But in their defense, there've been some
Speaker 1: very unexpected things.
Speaker 3: That have gone on.
Speaker 2: Those disruptive forces can also take the form of unexpected growth,
Speaker 2: like the surprising strength of the consumer and the explosive
Speaker 2: rise of AI related stocks. In twenty twenty three, Sam
Speaker 2: says all the uncertainty and wrong predictions of the last
Speaker 2: few years are likely part of what's behind this year's
Speaker 2: middle of the road consensus view.
Speaker 1: Perhaps that's a reaction to what has gone before. No
Speaker 1: one wants to make a really big call right if
Speaker 1: you've improved wrong a.
Speaker 3: Few years in a row.
Speaker 2: There are a lot of unknowns on the horizon in
Speaker 2: twenty twenty four. One of the big ones is whether
Speaker 2: the AI frenzy can be expected to hold. Do experts
Speaker 2: have a sense of whether that bubble will burst?
Speaker 1: The outlook for twenty twenty four is actually pretty good
Speaker 1: regarding AI.
Speaker 3: I think Wall Street doesn't see this as a sort
Speaker 3: of flash in the pan.
Speaker 1: It sees AI as a thematic shift or an evolution.
Speaker 3: That isn't finished yet.
Speaker 1: I mean, I'm sure a lot of people listening to
Speaker 1: this they will have used AI tools, and they'll know
Speaker 1: that the benefits and limitations from what I can tell
Speaker 1: from the outlooks, But a lot of them lay out
Speaker 1: AI as an investment theme, not just for twenty twenty four,
Speaker 1: but for the.
Speaker 3: Next couple of years.
Speaker 2: Elections are another big unknown. In twenty twenty four, voters
Speaker 2: could change the political leadership of nearly half the global economy.
Speaker 2: We've got elections coming up in Taiwan, the UK, India,
Speaker 2: the US. How are investment outlooks grappling with those specific
Speaker 2: political unknowns.
Speaker 1: The biggest issue probably is the US election. The US
Speaker 1: is the biggest economy, it leads the world. Whoever wins
Speaker 1: the election will set the term for foreign policy, economic policy,
Speaker 1: and that feeds into all the other economies and markets
Speaker 1: in the world. And yet there is no clear front
Speaker 1: runner for the election in the US yet, and so
Speaker 1: most of the outlooks they're not ready to make a
Speaker 1: call on that yet.
Speaker 3: Or they'll say something that will h their best assisting.
Speaker 1: Just prepare for volatility, be ready, and it will get
Speaker 1: worse as we get.
Speaker 3: Closer to the addction.
Speaker 2: So much of what will affect markets in twenty twenty
Speaker 2: four is nearly impossible to predict. So what's the value
Speaker 2: of all these outlooks that's coming up? With so many unknowns,
Speaker 2: it is always possible that the consensus view will prove
Speaker 2: to be wrong one outlook, Sam Read called it a
Speaker 2: fairy tale. That means it's also possible one of the
Speaker 2: outliers will be right. So what are they saying on
Speaker 2: the whole? SAMs reporting shows that they're mostly negative. BCA
Speaker 2: Research says the macro picture is more troubling now than
Speaker 2: it was twelve months ago. Deutsche Bank is bracing for
Speaker 2: a hard US landing, But there are also some who
Speaker 2: take a more optimistic view. UBS Asset Management says Global
Speaker 2: ex what he could reach an all time high, and
Speaker 2: Commonwealth Financial Network expects a Goldilocks economy to offer an
Speaker 2: ideal state for financial markets. Given all this, I put
Speaker 2: it to Sam, how much trust are you placing in
Speaker 2: this year's market outlook?
Speaker 1: Well, I've been covering markets and Wall Street long enough
Speaker 1: to know that at the end of the day, nobody
Speaker 1: knows anything because you see the biggest experts humbled by
Speaker 1: unexpected things, and you see people get lucky all the
Speaker 1: time or very unlucky. It is a thankless task for
Speaker 1: these guys doing this every year, knowing because it's like
Speaker 1: an expected thing.
Speaker 3: You tell me what's going to happen next year.
Speaker 1: Everyone knows that the world could be very different in
Speaker 1: a few weeks, never mind a few months.
Speaker 3: So but they show.
Speaker 1: Up, they keep doing it, and I like to look
Speaker 1: at it for ideas and to see who's reasoning it
Speaker 1: out and why they think this, what the rationale is
Speaker 1: in a way to inform some of the reporting that
Speaker 1: we do in the year ahead, you know, because we'll
Speaker 1: be looking in certain areas and looking for certain things.
Speaker 3: So it's just a fascinating project for me.
Speaker 2: Thank you so much, Sam, really appreciate it.
Speaker 3: My pleasure. Thanks for having me.
Speaker 2: Thanks for listening to the Big Take from Bloomberg News.
Speaker 2: I'm Sarah Holder. This episode was produced by David Fox.
Speaker 2: It was edited by Jilda Di Carly and William Selway.
Speaker 2: It was fact checked by Tiffany Choi. It was mixed
Speaker 2: by Alex Sugura. Sage Bauman is our executive producer and
Speaker 2: head of Podcasts. Thanks for tuning in, We'll be back tomorrow.