Speaker 1: Bloomberg Audio Studios, podcasts, radio news traders.
Speaker 2: They are gearing up for another week of geopolitical talks,
Speaker 2: more corporate earnings, and yes, we have all eyes on
Speaker 2: Fedhairja Powell at the end of the week for any
Speaker 2: clues on the pace of interest rates. So what does
Speaker 2: this all mean for the markets? Well, let's go to
Speaker 2: Mike Wilson, he's chief US equity strategist at Morgan Stanley,
Speaker 2: for some insight in all this. All right, Mike, I
Speaker 2: want to start with the Fed's annual retreat in Jackson
Speaker 2: Hole this week. What kind of tone do you think
Speaker 2: Cher J. Powell will take on Friday?
Speaker 1: Yeah, I mean, good morning, I think.
Speaker 3: I mean it's a quiet time of the year, so
Speaker 3: you know, at any event is probably going to.
Speaker 1: Have a little bit more impact on a short term basis.
Speaker 3: I think the expectation going into this particular Jackson Hole
Speaker 3: meeting is that, you know, Chair Powell is going to
Speaker 3: remain somewhat balanced because they want to make sure inflation
Speaker 3: is under control before they start cutting race. Now, the
Speaker 3: market is pricing in somewhere between eighty and ninety percent
Speaker 3: chance of a bed in September.
Speaker 1: So what I'm going to be watching for.
Speaker 3: Is does that change after this meeting, Because if it
Speaker 3: stays at eighty to ninety percent as we approach the
Speaker 3: September meeting, the FED will cut, I mean they will.
Speaker 3: They will not want to disappoint markets. So look, our
Speaker 3: expectation is still for no cuts this year. As a house,
Speaker 3: I think, you know, the evidence is sort of building
Speaker 3: that maybe tariffs aren't going to have as being an
Speaker 3: impact on inflation.
Speaker 1: Is that as a chair is thinking, and.
Speaker 3: That should lead to you know, a greater chance of
Speaker 3: rate cuts in September.
Speaker 1: So so that's what we're set up for right now.
Speaker 3: And I think if that were to come down to
Speaker 3: fifty percent, that would be disappointing for markets. So I
Speaker 3: think this that's that's what we're going to be watching
Speaker 3: kind of on Friday to see after his initial speech
Speaker 3: and then into next week.
Speaker 2: And sind you mentioned those raycuts, So the FED is
Speaker 2: being able to digest some more labor market data. The
Speaker 2: level of unemployment inflation. Is that all playing into your
Speaker 2: FED rate cut bed as well?
Speaker 1: That's right.
Speaker 3: I mean our economists have been looking for slowing growth
Speaker 3: and stickier inflation that's actually played out. I mean it's
Speaker 3: been That's exactly what has happened, which is why the
Speaker 3: FED has been on hold this year. But I think,
Speaker 3: you know, as we look out, the risk of slowing
Speaker 3: labor looks like a bigger concern than say, sticky inflation.
Speaker 3: And we all know that FED funds rates are too
Speaker 3: high for most businesses and most consumers. I mean, that's
Speaker 3: why interest rates sensitive parts in the market have been
Speaker 3: basically stuck in a recession now for the last two
Speaker 3: or three years, So there is appetite to cut rates.
Speaker 1: I think at the FED they just want to make sure.
Speaker 3: I think they still have a little you know, PTSD
Speaker 3: from twenty twenty one. They want to just make sure,
Speaker 3: and that's what that's the balancing act right now. In
Speaker 3: the meantime, however, what's really going on is that earning's
Speaker 3: revisions have been explosive and we've been running with this,
Speaker 3: you know, really since April, and that's what's been driving
Speaker 3: stocks higher. So even in the face of slowing growth,
Speaker 3: earnings revisions have been fantastic, and companies have sort of
Speaker 3: done a good job of mitigating some of these risks
Speaker 3: from the from the terrace.
Speaker 2: Now, since you mention earnings, I mean let's go there.
Speaker 2: We have retail earnings. They're going to be front and
Speaker 2: center this week. We're talking about Walmart home be below's target.
Speaker 2: What are you expecting? Is it all about the tariff impact?
Speaker 1: Well, that's that's a that's a great question.
Speaker 3: So so far terrifts have really not slowed down this
Speaker 3: earnings train, as I mentioned, but this is the one
Speaker 3: area where we do believe tariffs could have a negative impact.
Speaker 3: Is then sort of this consumer discretionary area where these
Speaker 3: companies don't have a ton of pricing power. We're not
Speaker 3: seeing as much discounting there, maybe from the exporters themselves.
Speaker 3: So the question is who's going to eat those terrafts
Speaker 3: And this is probably where you know companies may may
Speaker 3: may see some margin pressure. So this is this is
Speaker 3: this is probably the bigger risk quite frankly, this week
Speaker 3: or over the next couple of weeks for for equities.
Speaker 3: But that's a very narrow part of the equity market,
Speaker 3: you know, and as we've said for a long time,
Speaker 3: you know, my view is that you know, the terriffs
Speaker 3: themselves will be a shared cost between exporters, importers and
Speaker 3: consumers where those terraffs can be passed on and we
Speaker 3: and we were like, out, you know, there are a
Speaker 3: lot of areas where those tariffs can't be passed on.
Speaker 3: So uh, you know, that's that's that's that's the risk.
Speaker 3: It's a margin risk. And this is the part of
Speaker 3: the year, the third quarter and the fourth quarter where
Speaker 3: we'll see some of that margin pressure. But it's very idiosyncratic, right,
Speaker 3: So it's not as big a riskaurantce to the S
Speaker 3: and P five hundred, but it is it is for
Speaker 3: individual companies.
Speaker 2: Now, what about Tech? I mean, and some focus this
Speaker 2: we give a Palo Alto after the close. Have you
Speaker 2: been impressed with with tech earning so far? And how
Speaker 2: is Palo Alto going to line up? Yeah?
Speaker 1: I mean Tech has been been bouncing back.
Speaker 3: Let's not forget one of the big uh you know
Speaker 3: things we've been riunning about for the last year and
Speaker 3: a half is that we've been in a very mixed
Speaker 3: earnings and economic performance overall, meaning we've been going through
Speaker 3: sort of a rolling recession. And one of the recessions
Speaker 3: that have been out there is overall spending on IT campbacks,
Speaker 3: so away from AI campbacks, and then last year we
Speaker 3: got a deceleration in AI campbacks starting in December, which
Speaker 3: is why a lot of those stocks did poorly in
Speaker 3: the first quarter.
Speaker 1: That's an overlooked fact. Everybody thinks it's about you know, terroris, Taris, terrafs.
Speaker 1: It's not about It's not about terrorfs. There's an AI
Speaker 1: campax deceleration and in.
Speaker 4: April all of that bottom and the overall it campack
Speaker 4: cycle also about them in our view, So tech earnings
Speaker 4: have been driven by those two features, and we think
Speaker 4: that continues.
Speaker 1: I think people have been a little too bearish on software.
Speaker 3: People have been concerned that, you know, AI is going
Speaker 3: to eat into some of the software companies, and that
Speaker 3: may be true over time, but let's not forget that
Speaker 3: the overall spinning on software has been slowing or even
Speaker 3: in like I said, a software session for the last
Speaker 3: couple of years, and now we're.
Speaker 1: Coming out of that.
Speaker 3: So I think that continues, and I think on a
Speaker 3: relative basis, tech earnings continue to look pretty good.
Speaker 2: And to play along with what you said, we have
Speaker 2: about a minute left here. Have you you've been bullished lately?
Speaker 2: Are you still bullish?
Speaker 3: I am on a six to twelve month basis. I
Speaker 3: actually feel better today than I have in quite a while.
Speaker 3: On the fundamentals. Now, the stock market is already dis
Speaker 3: koind of a lot of this. This is, you know,
Speaker 3: stocks trade ahead of the of the data, so you
Speaker 3: know we are going to have some sort of consolidation.
Speaker 3: We've been running about that too, probably in the third
Speaker 3: quarter at some point, but we'd be buyers of that.
Speaker 3: That's the main message, is that we think we're sort
Speaker 3: of beginning a new bull market in April. We're not
Speaker 3: going anywhere near those lows, even if we have what
Speaker 3: feels like an overall economic ascension because the market ary
Speaker 3: diskind of that is looking ahead. So consolidation is a
Speaker 3: consolidation if you bought. And what we're really waiting for
Speaker 3: is sort of a broadening out to make the call
Speaker 3: that we're going to see some of the small cap
Speaker 3: stocks work better, some of the consumer discretionary, some of
Speaker 3: the areas that have really been left behind in the
Speaker 3: last couple of years, and that's going to be contingent
Speaker 3: on the FED cutting rates.
Speaker 2: All right, Thank you, Mike that and Mike Wilson, Chief
Speaker 2: US I could be strategist at Morgan Stanley