Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: We're not going to bring in David Cosson. He's Goldmen
Speaker 2: Sacks's chief US equity strategist on the latest price target
Speaker 2: increase for the S and P five hundred, because of course, David,
Speaker 2: really interesting here. This is by far and not the
Speaker 2: first time you've done this this year. At what point
Speaker 2: do tariffs become problematic for you?
Speaker 1: Well, the idea of tariffs are baked into our forecast
Speaker 1: right now. We're looking for earnings growth this year of
Speaker 1: around seven percent, and earn his growth in twenty twenty
Speaker 1: six also around seven percent, and investors are now starting
Speaker 1: to turn their attention into next year's earnings. I know
Speaker 1: we're only early part of July of twenty twenty five,
Speaker 1: but the investment analysis looks into next year and discounts
Speaker 1: that back. So the idea of tariffs, we're assuming somewhere
Speaker 1: in the mid teens likely to be the final level.
Speaker 1: The effective rate for tariffs last year, as you know,
Speaker 1: is around three percent. It's already up in the low
Speaker 1: double digits right now, but the real insight will probably
Speaker 1: be late this year when we'll have sort of a
Speaker 1: run rate level of tariffs. But from our perspective, the
Speaker 1: market investers are soorth thinking about the mid level of
Speaker 1: teens mid teens, and that's probably what's going to support
Speaker 1: an earnest growth of seven percent.
Speaker 3: That's why the market was higher.
Speaker 4: Companies seem to have near cas aar wrote for us
Speaker 4: at Bloomberg Opinion, really fat margins right now, so they
Speaker 4: can absorb to some extent these tariffs.
Speaker 3: One thing about the falling way.
Speaker 1: In the last thirty years, margins have gone from five
Speaker 1: percent to twelve percent, that's net margins, the S and
Speaker 1: P five hundred and five to twelve. What are the
Speaker 1: driving factors of that? What are the building blocks? Lower
Speaker 1: cost of good souls, lower cogs. About half of the
Speaker 1: five percentage points of that improvement in margins comes from there.
Speaker 1: Lower tax rates another reason, lower interest expense. Those are
Speaker 1: the reasons why margins have moved higher. And so we
Speaker 1: look out in the next couple of years. Tariffs are
Speaker 1: a way of increasing the cost of good soul. That's
Speaker 1: a downward pressure likely to be a downward pressure on margins.
Speaker 1: Some of the debt that's rolling over for some companies
Speaker 1: actually rolling over to higher level, and so Matt what
Speaker 1: you want to think about this is the tariffs are
Speaker 1: a downward pressure, and then who is going to pay
Speaker 1: for those tariffs? Is that going to be the supplier?
Speaker 1: Is that going to be the consumer? Who's going to
Speaker 1: pay for that?
Speaker 4: What do you think about the effects of one big,
Speaker 4: beautiful bill now that we have it, and Stephen was
Speaker 4: obviously a huge part of creating that legislation. Now that
Speaker 4: we have that certainty and now that you can investors
Speaker 4: can calculate put it into their.
Speaker 3: Models, is it a good thing? Well?
Speaker 1: I think the clarity, as you just referenced, is really
Speaker 1: the important thing for portfolio managers and for corporations. Corporate
Speaker 1: executives thinking about capital spending decisions given in policies, things
Speaker 1: like that all are enhanced when they have some clarity
Speaker 1: on what the policy is likely to be.
Speaker 3: So in that regard, the fact that it was passed.
Speaker 1: Means you can look forward and see what are some
Speaker 1: of the fundamentals, and the idea of the economy is
Speaker 1: decelerating but still growing is an important backdrop. And the
Speaker 1: idea that the Fed is likely to be cutting interest
Speaker 1: rates three times to the Golden Zachs economics forecasts three
Speaker 1: times starting in September twice next year. That is an
Speaker 1: environment where bond yields are likely to also be lower.
Speaker 1: Tenure treasure yields probably around the four point two percent,
Speaker 1: and that supports our forecast of around twenty two times
Speaker 1: multiple for the SNP five hundred. So that valuation which
Speaker 1: is current today. If we think forward Ernie's growth seven percent,
Speaker 1: that lifts the s and P five hundred and our
Speaker 1: view to six thousand, six hundred by the end of
Speaker 1: this year, sixty nine hundred, six nine hundred by middle
Speaker 1: of twenty twenty six for next twelve months. That's the
Speaker 1: general backdrop. Again, the clarity on policy is important, and
Speaker 1: now investors have moved beyond sort of this year, really
Speaker 1: beyond the tariff discussions. The view is it will be
Speaker 1: eventually resolved, and what's the general thrust of a business.
Speaker 2: You can make an argument that some of the market
Speaker 2: has already been looking beyond some of the current policies,
Speaker 2: trying to feel the impact of deregulation, lighter regulation. KBW
Speaker 2: bank indets now ought more than twelve percent. It's almost
Speaker 2: Super Bowl aka bank earnings next week, and so that'll
Speaker 2: kick off this earning season will be really interesting to
Speaker 2: watch every single bank except one in the KBW Bank
Speaker 2: indexes up on the year. Have we seen the best.
Speaker 3: It's going to get? I think important aspect to think about.
Speaker 1: We've had an incredible twenty five percent rally in the
Speaker 1: last ninety days, a twenty five percent rally in the
Speaker 1: S and P five hundred. It is a really really
Speaker 1: narrow breath market. It's really led by some of the
Speaker 1: largest companies in the market. That's fine, but the idea
Speaker 1: of the median stock, the typical company is down eleven percent,
Speaker 1: eleven percent lower than it's fifty.
Speaker 3: Two week high.
Speaker 1: If you look at the MidCap stocks, look to the
Speaker 1: Rustle two thousand, these stocks are down basically you're ten
Speaker 1: percent or they are trading ten percent lower than their
Speaker 1: then fifty two week high. As a consequence to that,
Speaker 1: the idea of some opportunities in these other sectors are
Speaker 1: where we are focusing our discussions with portfolio managers. The
Speaker 1: alternative within the financial sector, banks have had a terrific rallies.
Speaker 1: You just referenced a lot of dividend increases once the
Speaker 1: CCAR results came out, and so what are some of
Speaker 1: the areas within the financial community that have that have
Speaker 1: lagged on a relative to our model and the alternative
Speaker 1: asset managers, there's certainly one one category that we focus on.
Speaker 4: What do you think about the.
Speaker 3: FED path?
Speaker 4: As you've pointed out, people are already looking to twenty
Speaker 4: twenty six, right, and at that point President Trump is
Speaker 4: going to be able to put very likely a yes man, right,
Speaker 4: someone who wants to cut rates dramatically.
Speaker 3: In the chair.
Speaker 4: Do you expect that to that person to be able
Speaker 4: to push those cuts through? I mean, are you looking
Speaker 4: at three percentage points cut in twenty twenty six?
Speaker 1: Well, what matters more for the stock market is real
Speaker 1: interest rates, real tenured bond yields, So you think amnominal yields,
Speaker 1: we're looking at something in the vicinity of a four
Speaker 1: four quarter percent, which is supportive of a valuation as
Speaker 1: they indicate around twenty two times forward multiple. And that
Speaker 1: is the area that investors in the equity market are
Speaker 1: probably more focused on than specifically the path of the
Speaker 1: FED policy. Now are baseline forecast is you're going to
Speaker 1: get because inflation is going to come lower, the economy
Speaker 1: is gonna still grow, and the FED has that capacity
Speaker 1: to be lower and lowering rates. So that's the general
Speaker 1: path who we're anticipating and that supports the market is
Speaker 1: generally moving in a positive direction at this juncture.
Speaker 2: So I'm going to ask our producers to pull up
Speaker 2: a chart g hashtag.
Speaker 3: BTV four four zero zero.
Speaker 2: This is a Bloomberg Intelligence analysis of the top twenty
Speaker 2: or so firms that have benefited most from tariffs in
Speaker 2: the top or the bottom most impacted, like the worst performers,
Speaker 2: the ones that are most impacted by tariffs. The divergence
Speaker 2: is real.
Speaker 3: There has been a.
Speaker 2: Bounce back from the bottom of April. However, the best
Speaker 2: performers have been up almost twenty percent. The worst formers
Speaker 2: are performers are still down almost five percent. How does
Speaker 2: Goldman think about this? In baskets? What does well? And
Speaker 2: do the ones that have not performed well do they
Speaker 2: continue to lag into next year?
Speaker 1: Well, the idea of margins is at the core of
Speaker 1: investor discussions right now that we have, which is who
Speaker 1: is going to pay for those margins? Is that going
Speaker 1: to be the supplier, Is that going to be the
Speaker 1: corporation absorbing them? Is that going to be the consumer
Speaker 1: at the end of the day of paying for that?
Speaker 1: And in historically speaking, it's the consumer that ends up
Speaker 1: absorbing much of that cost.
Speaker 3: And now a lot of companies.
Speaker 1: Advanced their inventory at the beginning, so they that makes
Speaker 1: the analysis a little bit more complicated. We look at
Speaker 1: the share prices that you just showed in your graph,
Speaker 1: that could be complicated by the idea of this is
Speaker 1: how the share prices are performing, what about the fundamentals?
Speaker 1: And we're going to kick off next week on the
Speaker 1: fifteenth of July with all the bank earnings, and the
Speaker 1: next six six weeks or so, we'll have much more
Speaker 1: clarity in the question of how is it that companies
Speaker 1: are dealing.
Speaker 3: With these tariffs? Who remember the tariffs only.
Speaker 1: Partially were implied were applied during the second quarter, so
Speaker 1: this second quarter still is uncertain. Now it's been pushed
Speaker 1: out in many cases really until maybe perhaps August first,
Speaker 1: so there's still a transition process here. But in terms
Speaker 1: of those stocks, there's only a lot of questions as
Speaker 1: to who's going to pay for the tariffs and our
Speaker 1: view generally as the consumer, it's going to be ultimately
Speaker 1: fast on the consumer.
Speaker 3: You were you were here for an historic event.
Speaker 4: David Nvidia passed four trillion dollars in market cap. We've
Speaker 4: fallen back a little bit below that, but we're there,
Speaker 4: and we've seen this company and this industry power the
Speaker 4: US stock market for three years now in a row.
Speaker 4: How much more room is left for this gold rush
Speaker 4: to continue? I mean, where do you think we are
Speaker 4: if you were to compare AI opportunity to a baseball game,
Speaker 4: and what inning are we right now?
Speaker 1: Well, let's think about that in baseball getting there's sort
Speaker 1: of phases of that. If we think about phase one, two, three,
Speaker 1: and four, in Vidia is absolutely in phase one.
Speaker 3: We'll call that the early innings that.
Speaker 1: Are necessary in order to build out the infrastructure. That's
Speaker 1: the leading edge of the infrastructure. That then you have
Speaker 1: the utility companies, you have other semi conductor companies, you
Speaker 1: have some of the hardware companies. That's sort of the
Speaker 1: second phase and the infrastructure. Now where we are, I
Speaker 1: would say, is where two and a half years November
Speaker 1: of twenty twenty two is when chat GPT was introduced.
Speaker 1: We're two and a half years in. We'll say perhaps
Speaker 1: that whole transition process is maybe five years, so we're
Speaker 1: sort of halfway to first answer your question, maybe we're
Speaker 1: halfway through one scenario and so you've gone from the
Speaker 1: leading edge in the video, you've had the infrastructure, now
Speaker 1: you have the applications. And most companies. When we talk
Speaker 1: to most companies and ask how is it that they're
Speaker 1: using AI, they're still looking for getting their data codified
Speaker 1: in a way that can allow the AI generator of
Speaker 1: AI perhaps to make them more efficient.
Speaker 3: So that's the third phase.
Speaker 1: The fourth phase is what's the long term implications for corporates?
Speaker 1: And so another way of sort of summarizing this is,
Speaker 1: is the transmission mechanism for AI through the margin channel
Speaker 1: better margins, more efficiency, or is it through the revenue channel?
Speaker 1: Is that companies can boost their output and get better sales.
Speaker 1: Those there are different companies that are that are that
Speaker 1: are going to benefit or be different ways in which
Speaker 1: they can benefit in So this is one of the
Speaker 1: things I find most surprising is that only half the
Speaker 1: companies in the S and P five boundary chose to
Speaker 1: discuss AI on their quarterly conference calls. Only half the
Speaker 1: other half chose we're mute on the subject.
Speaker 2: David, we got to leave it there. We're hitting a
Speaker 2: hard break. That is, David Cosson of Goldman Sachs know
Speaker 2: you're on the road a lot, so appreciate you joining
Speaker 2: us here in studio.