1 00:00:02,520 --> 00:00:07,080 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:07,240 --> 00:00:09,240 Speaker 2: We're not going to bring in David Cosson. He's Goldmen 3 00:00:09,280 --> 00:00:13,760 Speaker 2: Sacks's chief US equity strategist on the latest price target 4 00:00:13,920 --> 00:00:17,280 Speaker 2: increase for the S and P five hundred, because of course, David, 5 00:00:17,320 --> 00:00:20,560 Speaker 2: really interesting here. This is by far and not the 6 00:00:20,680 --> 00:00:23,360 Speaker 2: first time you've done this this year. At what point 7 00:00:23,480 --> 00:00:25,279 Speaker 2: do tariffs become problematic for you? 8 00:00:26,000 --> 00:00:29,000 Speaker 1: Well, the idea of tariffs are baked into our forecast 9 00:00:29,080 --> 00:00:31,479 Speaker 1: right now. We're looking for earnings growth this year of 10 00:00:31,480 --> 00:00:33,600 Speaker 1: around seven percent, and earn his growth in twenty twenty 11 00:00:33,680 --> 00:00:37,479 Speaker 1: six also around seven percent, and investors are now starting 12 00:00:37,520 --> 00:00:39,720 Speaker 1: to turn their attention into next year's earnings. I know 13 00:00:39,720 --> 00:00:42,480 Speaker 1: we're only early part of July of twenty twenty five, 14 00:00:42,520 --> 00:00:45,479 Speaker 1: but the investment analysis looks into next year and discounts 15 00:00:45,520 --> 00:00:48,600 Speaker 1: that back. So the idea of tariffs, we're assuming somewhere 16 00:00:48,600 --> 00:00:51,080 Speaker 1: in the mid teens likely to be the final level. 17 00:00:51,400 --> 00:00:53,240 Speaker 1: The effective rate for tariffs last year, as you know, 18 00:00:53,320 --> 00:00:55,760 Speaker 1: is around three percent. It's already up in the low 19 00:00:55,800 --> 00:00:59,560 Speaker 1: double digits right now, but the real insight will probably 20 00:00:59,560 --> 00:01:01,280 Speaker 1: be late this year when we'll have sort of a 21 00:01:01,360 --> 00:01:04,240 Speaker 1: run rate level of tariffs. But from our perspective, the 22 00:01:04,280 --> 00:01:06,679 Speaker 1: market investers are soorth thinking about the mid level of 23 00:01:06,680 --> 00:01:09,520 Speaker 1: teens mid teens, and that's probably what's going to support 24 00:01:09,600 --> 00:01:10,720 Speaker 1: an earnest growth of seven percent. 25 00:01:10,800 --> 00:01:11,920 Speaker 3: That's why the market was higher. 26 00:01:12,000 --> 00:01:14,440 Speaker 4: Companies seem to have near cas aar wrote for us 27 00:01:14,480 --> 00:01:17,440 Speaker 4: at Bloomberg Opinion, really fat margins right now, so they 28 00:01:17,480 --> 00:01:19,600 Speaker 4: can absorb to some extent these tariffs. 29 00:01:20,440 --> 00:01:21,600 Speaker 3: One thing about the falling way. 30 00:01:22,280 --> 00:01:24,360 Speaker 1: In the last thirty years, margins have gone from five 31 00:01:24,400 --> 00:01:27,200 Speaker 1: percent to twelve percent, that's net margins, the S and 32 00:01:27,240 --> 00:01:28,800 Speaker 1: P five hundred and five to twelve. What are the 33 00:01:28,880 --> 00:01:31,479 Speaker 1: driving factors of that? What are the building blocks? Lower 34 00:01:31,600 --> 00:01:33,920 Speaker 1: cost of good souls, lower cogs. About half of the 35 00:01:34,319 --> 00:01:37,320 Speaker 1: five percentage points of that improvement in margins comes from there. 36 00:01:37,800 --> 00:01:40,920 Speaker 1: Lower tax rates another reason, lower interest expense. Those are 37 00:01:40,920 --> 00:01:43,080 Speaker 1: the reasons why margins have moved higher. And so we 38 00:01:43,120 --> 00:01:45,200 Speaker 1: look out in the next couple of years. Tariffs are 39 00:01:45,240 --> 00:01:47,560 Speaker 1: a way of increasing the cost of good soul. That's 40 00:01:47,720 --> 00:01:50,920 Speaker 1: a downward pressure likely to be a downward pressure on margins. 41 00:01:51,440 --> 00:01:53,360 Speaker 1: Some of the debt that's rolling over for some companies 42 00:01:53,480 --> 00:01:55,360 Speaker 1: actually rolling over to higher level, and so Matt what 43 00:01:55,440 --> 00:01:57,560 Speaker 1: you want to think about this is the tariffs are 44 00:01:57,760 --> 00:02:00,520 Speaker 1: a downward pressure, and then who is going to pay 45 00:02:00,520 --> 00:02:02,040 Speaker 1: for those tariffs? Is that going to be the supplier? 46 00:02:02,080 --> 00:02:03,440 Speaker 1: Is that going to be the consumer? Who's going to 47 00:02:03,440 --> 00:02:03,800 Speaker 1: pay for that? 48 00:02:04,760 --> 00:02:06,760 Speaker 4: What do you think about the effects of one big, 49 00:02:06,800 --> 00:02:09,480 Speaker 4: beautiful bill now that we have it, and Stephen was 50 00:02:09,520 --> 00:02:15,320 Speaker 4: obviously a huge part of creating that legislation. Now that 51 00:02:15,360 --> 00:02:17,840 Speaker 4: we have that certainty and now that you can investors 52 00:02:17,880 --> 00:02:19,840 Speaker 4: can calculate put it into their. 53 00:02:19,680 --> 00:02:22,160 Speaker 3: Models, is it a good thing? Well? 54 00:02:22,160 --> 00:02:24,519 Speaker 1: I think the clarity, as you just referenced, is really 55 00:02:24,560 --> 00:02:28,040 Speaker 1: the important thing for portfolio managers and for corporations. Corporate 56 00:02:28,080 --> 00:02:31,200 Speaker 1: executives thinking about capital spending decisions given in policies, things 57 00:02:31,240 --> 00:02:34,520 Speaker 1: like that all are enhanced when they have some clarity 58 00:02:34,520 --> 00:02:36,080 Speaker 1: on what the policy is likely to be. 59 00:02:36,120 --> 00:02:38,279 Speaker 3: So in that regard, the fact that it was passed. 60 00:02:38,040 --> 00:02:39,880 Speaker 1: Means you can look forward and see what are some 61 00:02:39,919 --> 00:02:41,880 Speaker 1: of the fundamentals, and the idea of the economy is 62 00:02:42,120 --> 00:02:45,920 Speaker 1: decelerating but still growing is an important backdrop. And the 63 00:02:45,960 --> 00:02:47,880 Speaker 1: idea that the Fed is likely to be cutting interest 64 00:02:47,919 --> 00:02:50,679 Speaker 1: rates three times to the Golden Zachs economics forecasts three 65 00:02:50,680 --> 00:02:53,520 Speaker 1: times starting in September twice next year. That is an 66 00:02:53,560 --> 00:02:55,919 Speaker 1: environment where bond yields are likely to also be lower. 67 00:02:56,080 --> 00:02:59,600 Speaker 1: Tenure treasure yields probably around the four point two percent, 68 00:02:59,800 --> 00:03:03,240 Speaker 1: and that supports our forecast of around twenty two times 69 00:03:03,400 --> 00:03:06,079 Speaker 1: multiple for the SNP five hundred. So that valuation which 70 00:03:06,120 --> 00:03:09,040 Speaker 1: is current today. If we think forward Ernie's growth seven percent, 71 00:03:09,080 --> 00:03:10,960 Speaker 1: that lifts the s and P five hundred and our 72 00:03:11,040 --> 00:03:12,960 Speaker 1: view to six thousand, six hundred by the end of 73 00:03:12,960 --> 00:03:15,800 Speaker 1: this year, sixty nine hundred, six nine hundred by middle 74 00:03:15,800 --> 00:03:18,760 Speaker 1: of twenty twenty six for next twelve months. That's the 75 00:03:19,200 --> 00:03:23,320 Speaker 1: general backdrop. Again, the clarity on policy is important, and 76 00:03:23,360 --> 00:03:26,360 Speaker 1: now investors have moved beyond sort of this year, really 77 00:03:26,360 --> 00:03:28,440 Speaker 1: beyond the tariff discussions. The view is it will be 78 00:03:28,520 --> 00:03:31,680 Speaker 1: eventually resolved, and what's the general thrust of a business. 79 00:03:31,800 --> 00:03:33,880 Speaker 2: You can make an argument that some of the market 80 00:03:33,880 --> 00:03:36,640 Speaker 2: has already been looking beyond some of the current policies, 81 00:03:36,880 --> 00:03:40,880 Speaker 2: trying to feel the impact of deregulation, lighter regulation. KBW 82 00:03:40,880 --> 00:03:43,360 Speaker 2: bank indets now ought more than twelve percent. It's almost 83 00:03:43,400 --> 00:03:46,560 Speaker 2: Super Bowl aka bank earnings next week, and so that'll 84 00:03:46,640 --> 00:03:49,120 Speaker 2: kick off this earning season will be really interesting to 85 00:03:49,120 --> 00:03:53,680 Speaker 2: watch every single bank except one in the KBW Bank 86 00:03:53,680 --> 00:03:57,280 Speaker 2: indexes up on the year. Have we seen the best. 87 00:03:57,080 --> 00:03:59,960 Speaker 3: It's going to get? I think important aspect to think about. 88 00:04:00,160 --> 00:04:03,080 Speaker 1: We've had an incredible twenty five percent rally in the 89 00:04:03,160 --> 00:04:05,240 Speaker 1: last ninety days, a twenty five percent rally in the 90 00:04:05,280 --> 00:04:07,400 Speaker 1: S and P five hundred. It is a really really 91 00:04:07,880 --> 00:04:10,440 Speaker 1: narrow breath market. It's really led by some of the 92 00:04:10,520 --> 00:04:13,560 Speaker 1: largest companies in the market. That's fine, but the idea 93 00:04:13,600 --> 00:04:16,719 Speaker 1: of the median stock, the typical company is down eleven percent, 94 00:04:16,760 --> 00:04:18,239 Speaker 1: eleven percent lower than it's fifty. 95 00:04:18,080 --> 00:04:19,440 Speaker 3: Two week high. 96 00:04:19,560 --> 00:04:20,960 Speaker 1: If you look at the MidCap stocks, look to the 97 00:04:21,040 --> 00:04:23,800 Speaker 1: Rustle two thousand, these stocks are down basically you're ten 98 00:04:23,839 --> 00:04:26,240 Speaker 1: percent or they are trading ten percent lower than their 99 00:04:26,720 --> 00:04:28,720 Speaker 1: then fifty two week high. As a consequence to that, 100 00:04:28,880 --> 00:04:31,640 Speaker 1: the idea of some opportunities in these other sectors are 101 00:04:31,880 --> 00:04:35,560 Speaker 1: where we are focusing our discussions with portfolio managers. The 102 00:04:35,600 --> 00:04:38,719 Speaker 1: alternative within the financial sector, banks have had a terrific rallies. 103 00:04:38,760 --> 00:04:40,760 Speaker 1: You just referenced a lot of dividend increases once the 104 00:04:40,800 --> 00:04:43,400 Speaker 1: CCAR results came out, and so what are some of 105 00:04:43,440 --> 00:04:46,080 Speaker 1: the areas within the financial community that have that have 106 00:04:46,200 --> 00:04:48,720 Speaker 1: lagged on a relative to our model and the alternative 107 00:04:48,720 --> 00:04:51,600 Speaker 1: asset managers, there's certainly one one category that we focus on. 108 00:04:52,080 --> 00:04:53,120 Speaker 4: What do you think about the. 109 00:04:54,600 --> 00:04:55,200 Speaker 3: FED path? 110 00:04:55,240 --> 00:04:57,280 Speaker 4: As you've pointed out, people are already looking to twenty 111 00:04:57,320 --> 00:04:59,960 Speaker 4: twenty six, right, and at that point President Trump is 112 00:05:00,080 --> 00:05:05,279 Speaker 4: going to be able to put very likely a yes man, right, 113 00:05:05,880 --> 00:05:08,960 Speaker 4: someone who wants to cut rates dramatically. 114 00:05:09,760 --> 00:05:10,360 Speaker 3: In the chair. 115 00:05:11,960 --> 00:05:14,440 Speaker 4: Do you expect that to that person to be able 116 00:05:14,440 --> 00:05:16,359 Speaker 4: to push those cuts through? I mean, are you looking 117 00:05:16,400 --> 00:05:19,960 Speaker 4: at three percentage points cut in twenty twenty six? 118 00:05:20,120 --> 00:05:23,000 Speaker 1: Well, what matters more for the stock market is real 119 00:05:23,040 --> 00:05:26,200 Speaker 1: interest rates, real tenured bond yields, So you think amnominal yields, 120 00:05:26,200 --> 00:05:28,080 Speaker 1: we're looking at something in the vicinity of a four 121 00:05:28,200 --> 00:05:32,640 Speaker 1: four quarter percent, which is supportive of a valuation as 122 00:05:33,120 --> 00:05:35,880 Speaker 1: they indicate around twenty two times forward multiple. And that 123 00:05:36,080 --> 00:05:39,240 Speaker 1: is the area that investors in the equity market are 124 00:05:39,279 --> 00:05:42,720 Speaker 1: probably more focused on than specifically the path of the 125 00:05:43,680 --> 00:05:46,320 Speaker 1: FED policy. Now are baseline forecast is you're going to 126 00:05:46,360 --> 00:05:48,839 Speaker 1: get because inflation is going to come lower, the economy 127 00:05:48,920 --> 00:05:50,719 Speaker 1: is gonna still grow, and the FED has that capacity 128 00:05:50,720 --> 00:05:53,000 Speaker 1: to be lower and lowering rates. So that's the general 129 00:05:53,000 --> 00:05:56,440 Speaker 1: path who we're anticipating and that supports the market is 130 00:05:56,480 --> 00:05:59,560 Speaker 1: generally moving in a positive direction at this juncture. 131 00:05:59,760 --> 00:06:02,200 Speaker 2: So I'm going to ask our producers to pull up 132 00:06:02,200 --> 00:06:03,760 Speaker 2: a chart g hashtag. 133 00:06:03,320 --> 00:06:05,160 Speaker 3: BTV four four zero zero. 134 00:06:05,320 --> 00:06:09,440 Speaker 2: This is a Bloomberg Intelligence analysis of the top twenty 135 00:06:09,600 --> 00:06:11,600 Speaker 2: or so firms that have benefited most from tariffs in 136 00:06:11,640 --> 00:06:17,120 Speaker 2: the top or the bottom most impacted, like the worst performers, 137 00:06:17,200 --> 00:06:19,480 Speaker 2: the ones that are most impacted by tariffs. The divergence 138 00:06:19,560 --> 00:06:19,839 Speaker 2: is real. 139 00:06:19,920 --> 00:06:20,480 Speaker 3: There has been a. 140 00:06:20,440 --> 00:06:24,039 Speaker 2: Bounce back from the bottom of April. However, the best 141 00:06:24,040 --> 00:06:26,920 Speaker 2: performers have been up almost twenty percent. The worst formers 142 00:06:26,920 --> 00:06:29,800 Speaker 2: are performers are still down almost five percent. How does 143 00:06:29,800 --> 00:06:33,560 Speaker 2: Goldman think about this? In baskets? What does well? And 144 00:06:33,680 --> 00:06:36,640 Speaker 2: do the ones that have not performed well do they 145 00:06:36,680 --> 00:06:38,400 Speaker 2: continue to lag into next year? 146 00:06:39,200 --> 00:06:42,920 Speaker 1: Well, the idea of margins is at the core of 147 00:06:43,200 --> 00:06:45,600 Speaker 1: investor discussions right now that we have, which is who 148 00:06:45,680 --> 00:06:47,320 Speaker 1: is going to pay for those margins? Is that going 149 00:06:47,400 --> 00:06:49,320 Speaker 1: to be the supplier, Is that going to be the 150 00:06:49,320 --> 00:06:51,360 Speaker 1: corporation absorbing them? Is that going to be the consumer 151 00:06:51,360 --> 00:06:52,800 Speaker 1: at the end of the day of paying for that? 152 00:06:52,839 --> 00:06:55,680 Speaker 1: And in historically speaking, it's the consumer that ends up 153 00:06:55,720 --> 00:06:57,159 Speaker 1: absorbing much of that cost. 154 00:06:57,200 --> 00:06:58,960 Speaker 3: And now a lot of companies. 155 00:06:59,240 --> 00:07:03,360 Speaker 1: Advanced their inventory at the beginning, so they that makes 156 00:07:03,400 --> 00:07:05,880 Speaker 1: the analysis a little bit more complicated. We look at 157 00:07:05,880 --> 00:07:07,719 Speaker 1: the share prices that you just showed in your graph, 158 00:07:07,760 --> 00:07:10,320 Speaker 1: that could be complicated by the idea of this is 159 00:07:10,360 --> 00:07:12,560 Speaker 1: how the share prices are performing, what about the fundamentals? 160 00:07:12,560 --> 00:07:14,240 Speaker 1: And we're going to kick off next week on the 161 00:07:14,240 --> 00:07:16,560 Speaker 1: fifteenth of July with all the bank earnings, and the 162 00:07:16,560 --> 00:07:19,160 Speaker 1: next six six weeks or so, we'll have much more 163 00:07:19,160 --> 00:07:22,160 Speaker 1: clarity in the question of how is it that companies 164 00:07:22,200 --> 00:07:23,520 Speaker 1: are dealing. 165 00:07:23,200 --> 00:07:25,400 Speaker 3: With these tariffs? Who remember the tariffs only. 166 00:07:25,240 --> 00:07:28,400 Speaker 1: Partially were implied were applied during the second quarter, so 167 00:07:28,440 --> 00:07:30,640 Speaker 1: this second quarter still is uncertain. Now it's been pushed 168 00:07:30,640 --> 00:07:33,240 Speaker 1: out in many cases really until maybe perhaps August first, 169 00:07:33,240 --> 00:07:36,400 Speaker 1: so there's still a transition process here. But in terms 170 00:07:36,440 --> 00:07:39,040 Speaker 1: of those stocks, there's only a lot of questions as 171 00:07:39,040 --> 00:07:41,600 Speaker 1: to who's going to pay for the tariffs and our 172 00:07:41,680 --> 00:07:43,640 Speaker 1: view generally as the consumer, it's going to be ultimately 173 00:07:43,640 --> 00:07:44,480 Speaker 1: fast on the consumer. 174 00:07:44,640 --> 00:07:47,840 Speaker 3: You were you were here for an historic event. 175 00:07:48,040 --> 00:07:51,680 Speaker 4: David Nvidia passed four trillion dollars in market cap. We've 176 00:07:51,680 --> 00:07:54,320 Speaker 4: fallen back a little bit below that, but we're there, 177 00:07:55,200 --> 00:07:58,720 Speaker 4: and we've seen this company and this industry power the 178 00:07:58,840 --> 00:08:01,800 Speaker 4: US stock market for three years now in a row. 179 00:08:02,840 --> 00:08:07,120 Speaker 4: How much more room is left for this gold rush 180 00:08:07,280 --> 00:08:09,320 Speaker 4: to continue? I mean, where do you think we are 181 00:08:09,320 --> 00:08:13,960 Speaker 4: if you were to compare AI opportunity to a baseball game, 182 00:08:14,000 --> 00:08:15,600 Speaker 4: and what inning are we right now? 183 00:08:15,720 --> 00:08:18,320 Speaker 1: Well, let's think about that in baseball getting there's sort 184 00:08:18,360 --> 00:08:20,560 Speaker 1: of phases of that. If we think about phase one, two, three, 185 00:08:20,560 --> 00:08:22,960 Speaker 1: and four, in Vidia is absolutely in phase one. 186 00:08:23,000 --> 00:08:24,720 Speaker 3: We'll call that the early innings that. 187 00:08:24,680 --> 00:08:27,240 Speaker 1: Are necessary in order to build out the infrastructure. That's 188 00:08:27,240 --> 00:08:29,280 Speaker 1: the leading edge of the infrastructure. That then you have 189 00:08:29,360 --> 00:08:31,760 Speaker 1: the utility companies, you have other semi conductor companies, you 190 00:08:31,840 --> 00:08:33,840 Speaker 1: have some of the hardware companies. That's sort of the 191 00:08:33,920 --> 00:08:36,760 Speaker 1: second phase and the infrastructure. Now where we are, I 192 00:08:36,760 --> 00:08:39,439 Speaker 1: would say, is where two and a half years November 193 00:08:39,480 --> 00:08:41,760 Speaker 1: of twenty twenty two is when chat GPT was introduced. 194 00:08:42,080 --> 00:08:43,840 Speaker 1: We're two and a half years in. We'll say perhaps 195 00:08:43,840 --> 00:08:47,040 Speaker 1: that whole transition process is maybe five years, so we're 196 00:08:47,120 --> 00:08:49,320 Speaker 1: sort of halfway to first answer your question, maybe we're 197 00:08:49,320 --> 00:08:52,520 Speaker 1: halfway through one scenario and so you've gone from the 198 00:08:52,800 --> 00:08:55,679 Speaker 1: leading edge in the video, you've had the infrastructure, now 199 00:08:55,679 --> 00:08:58,040 Speaker 1: you have the applications. And most companies. When we talk 200 00:08:58,080 --> 00:09:00,200 Speaker 1: to most companies and ask how is it that they're 201 00:09:00,360 --> 00:09:04,400 Speaker 1: using AI, they're still looking for getting their data codified 202 00:09:04,400 --> 00:09:07,360 Speaker 1: in a way that can allow the AI generator of 203 00:09:07,360 --> 00:09:09,720 Speaker 1: AI perhaps to make them more efficient. 204 00:09:09,760 --> 00:09:11,200 Speaker 3: So that's the third phase. 205 00:09:11,400 --> 00:09:14,679 Speaker 1: The fourth phase is what's the long term implications for corporates? 206 00:09:14,720 --> 00:09:17,160 Speaker 1: And so another way of sort of summarizing this is, 207 00:09:17,160 --> 00:09:20,840 Speaker 1: is the transmission mechanism for AI through the margin channel 208 00:09:21,240 --> 00:09:24,200 Speaker 1: better margins, more efficiency, or is it through the revenue channel? 209 00:09:24,320 --> 00:09:27,720 Speaker 1: Is that companies can boost their output and get better sales. 210 00:09:28,160 --> 00:09:30,400 Speaker 1: Those there are different companies that are that are that 211 00:09:30,480 --> 00:09:33,319 Speaker 1: are going to benefit or be different ways in which 212 00:09:33,360 --> 00:09:35,400 Speaker 1: they can benefit in So this is one of the 213 00:09:35,440 --> 00:09:38,840 Speaker 1: things I find most surprising is that only half the 214 00:09:38,920 --> 00:09:41,160 Speaker 1: companies in the S and P five boundary chose to 215 00:09:41,160 --> 00:09:44,040 Speaker 1: discuss AI on their quarterly conference calls. Only half the 216 00:09:44,080 --> 00:09:46,800 Speaker 1: other half chose we're mute on the subject. 217 00:09:46,920 --> 00:09:48,280 Speaker 2: David, we got to leave it there. We're hitting a 218 00:09:48,360 --> 00:09:50,559 Speaker 2: hard break. That is, David Cosson of Goldman Sachs know 219 00:09:50,600 --> 00:09:52,240 Speaker 2: you're on the road a lot, so appreciate you joining 220 00:09:52,280 --> 00:09:53,080 Speaker 2: us here in studio.