WEBVTT - US-China Trade Talk Optimism Fuels Market Rally 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.880 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:22.000 on Apple CarPlay or Android Auto with the Bloomberg Business app. 0:00:22.360 --> 0:00:25.680 Listen on demand wherever you get your podcasts, or watch 0:00:25.760 --> 0:00:27.240 us live on YouTube. 0:00:27.840 --> 0:00:30.240 Earning seemed to be coming in pretty solid. Is it 0:00:30.360 --> 0:00:33.120 enough to support this market? Lori Cavacina joins us. She's 0:00:33.159 --> 0:00:36.600 had a US equity strategy at RBC Capital Market. 0:00:36.680 --> 0:00:37.960 She's usually on the road. 0:00:38.159 --> 0:00:39.879 When she's back in New York week Reverence see if 0:00:39.920 --> 0:00:42.159 she can come into the studio, and we appreciate that. Y. 0:00:42.200 --> 0:00:44.640 What are the conversations you're having with your clients these 0:00:44.720 --> 0:00:46.560 days as you do travel around to see them. 0:00:46.680 --> 0:00:50.319 Everyone's nervous, everyone's jittery. I wouldn't say that people are 0:00:50.360 --> 0:00:52.760 super bearish, you know. And maybe one good example is 0:00:52.760 --> 0:00:54.720 I was in London a few weeks back, and I'd 0:00:54.760 --> 0:00:57.200 been there in December, and in December everyone was parish. 0:00:57.360 --> 0:01:00.720 This time it was more wary, cautious concern. I got 0:01:00.720 --> 0:01:02.680 back to the States and started running around a whole 0:01:02.680 --> 0:01:04.640 bunch of different cities, same kind of vibe. 0:01:05.200 --> 0:01:08.360 So jittery, of course, there's a lot of uncertainty, so 0:01:08.360 --> 0:01:11.920 I want to dig into why, what's driving this jittery 0:01:12.040 --> 0:01:13.679 ness from them. I mean, of course, we have the 0:01:13.680 --> 0:01:16.920 SP five hundred up about fifteen percent year today, looking 0:01:16.920 --> 0:01:20.320 at the VIS index hanging around the sixteen handle right now, 0:01:21.000 --> 0:01:23.240 Where are people feeling? Why are they feeling this? 0:01:24.040 --> 0:01:26.880 So I think valuations are at the end of the day. 0:01:26.959 --> 0:01:29.319 The one thing I hear in just about every meeting, 0:01:29.400 --> 0:01:31.240 and what we see in our own data, is that 0:01:31.280 --> 0:01:33.400 we're not at tech bubble extreme. So I know there's 0:01:33.440 --> 0:01:35.679 lots of talk of a bubble, but we are. Whether 0:01:35.720 --> 0:01:38.640 you're looking at SMP top ten names, SMP market cap 0:01:38.680 --> 0:01:41.240 weighted NASDAQ one hundred, kind of the workhorses of the 0:01:41.240 --> 0:01:44.400 market from the earnings perspective, they're bumping up against the 0:01:44.440 --> 0:01:46.480 ceilings of kind of the pre and post COVID era 0:01:46.600 --> 0:01:49.280 and they're not breaking through. We haven't seen any expansion 0:01:49.360 --> 0:01:52.080 on the PE multiples if you look broadly across the 0:01:52.120 --> 0:01:55.320 indexes since August. So I think people are feeling that. 0:01:56.000 --> 0:01:58.040 You know, some clients who have been really bullish on 0:01:58.120 --> 0:02:00.720 CAPEX back in the summer, saying like it's just not 0:02:00.800 --> 0:02:01.880 quite as strong as we thought. 0:02:01.880 --> 0:02:02.320 It would be. 0:02:03.600 --> 0:02:06.680 You know, I've had a number of conversations on rate cuts, 0:02:06.760 --> 0:02:08.799 and we were really hearing a lot about that in 0:02:08.880 --> 0:02:11.079 June and July, and now I've had some people say 0:02:11.120 --> 0:02:13.200 to me, well, yeah, rate cuts are bullish, but we 0:02:13.200 --> 0:02:15.480 already pulled all that forward. So I think it's a 0:02:15.560 --> 0:02:18.639 sense of you know, valuation whiplash. And then of course, 0:02:18.720 --> 0:02:21.080 you know, the AI of related stocks are doing well now, 0:02:21.120 --> 0:02:23.880 but they have had some difficult days and there's been 0:02:23.880 --> 0:02:26.240 a lot of jitteriness on those not from people who 0:02:26.280 --> 0:02:28.560 are bearish on the theme, people who have bought into 0:02:28.560 --> 0:02:30.600 the theme but have seen how far it's run and 0:02:30.639 --> 0:02:32.720 now concerned it's hitting some speed bumps. 0:02:33.320 --> 0:02:35.560 Do you think earnings are going to be strong enough 0:02:35.919 --> 0:02:38.160 this quarter? And then the guidance into the to the 0:02:38.240 --> 0:02:39.960 last couple months of the year then into next year, 0:02:40.080 --> 0:02:41.880 are earnings gonna be enough for this market? 0:02:42.120 --> 0:02:44.880 So I think earnings are a solid foundation, but I 0:02:44.880 --> 0:02:47.880 think the sentiment around earnings has also gotten overdone. 0:02:47.960 --> 0:02:49.120 And what I mean by that. 0:02:49.200 --> 0:02:51.119 Is if you look at the rate of upward revisions, 0:02:51.120 --> 0:02:52.920 it hit twenty eight percent for the S and P 0:02:53.000 --> 0:02:56.240 five hundred in late April. That's typical of a trough 0:02:56.280 --> 0:02:59.359 and a decline outside of a big crisis. Fast forward 0:02:59.360 --> 0:03:02.320 to mid August, we had rallied into the mid sixties 0:03:02.320 --> 0:03:04.280 on that stat, and that's about as good as it 0:03:04.320 --> 0:03:06.560 gets if you're not recovering off a big crisis. And 0:03:06.600 --> 0:03:08.799 now that stat has been decelerating, and it was I 0:03:08.800 --> 0:03:11.240 think abound fifty two percent in our update we took 0:03:11.320 --> 0:03:14.520 late last week, so you're not quite a negative revision territory. 0:03:14.639 --> 0:03:17.919 We're seeing basically every sector to clerate except tech, which 0:03:18.000 --> 0:03:20.320 is kind of stalled around all time highs. So the 0:03:20.360 --> 0:03:22.960 big question is is tech going to join the rest 0:03:23.000 --> 0:03:25.000 of the crowd and start to decelerate or is it 0:03:25.040 --> 0:03:27.240 just going to stick around at all time highs. The 0:03:27.280 --> 0:03:30.600 only sort of industry or sector I can really remember 0:03:31.280 --> 0:03:33.640 staying at all time highs for an extended period of 0:03:33.680 --> 0:03:36.360 time was home building pregfc Ah. 0:03:36.440 --> 0:03:39.120 Yeah, I used to cover homebuilders for your Equity scene, 0:03:39.120 --> 0:03:42.280 and it's interesting to watch the rally that we saw there. 0:03:42.320 --> 0:03:44.680 But I want to dig back into tech. 0:03:44.720 --> 0:03:46.520 As we've been spelling out here, We're going to hear 0:03:46.520 --> 0:03:49.040 from a lot of the big names this week. The 0:03:49.080 --> 0:03:52.800 conversation has really been in are we in a tech bubble. 0:03:52.840 --> 0:03:53.600 What do you make of that? 0:03:54.080 --> 0:03:56.800 So, you know, I started in two thousand. 0:03:57.040 --> 0:03:59.400 I literally got my job in March of two thousand 0:03:59.440 --> 0:04:02.120 when they were out they were giving out finance jobs 0:04:02.160 --> 0:04:06.320 to polysym majors. But you know, I saw the implosion. 0:04:06.360 --> 0:04:09.280 I didn't see the build up. But what I see 0:04:09.320 --> 0:04:11.600 in my data today, again, the valuations are not back 0:04:11.640 --> 0:04:14.600 to where they were at that point in time. Yes, 0:04:14.640 --> 0:04:17.400 they're extended. They're also extended for the rest of the market, 0:04:17.600 --> 0:04:19.239 So I don't think it. I think it's a broader 0:04:19.320 --> 0:04:22.360 valuation problem. We have some charts where we look at 0:04:22.400 --> 0:04:25.039 net income share of the top ten market cap names 0:04:25.120 --> 0:04:26.520 against the market. 0:04:26.200 --> 0:04:28.040 Cap share, and there is a gap. But there has 0:04:28.080 --> 0:04:28.400 been a. 0:04:28.360 --> 0:04:30.640 Gap where kind of the market cap share has exceeded 0:04:30.680 --> 0:04:32.680 the net income share, you know, for you know, the 0:04:32.720 --> 0:04:35.919 better part of the past decade. I think there's more 0:04:36.160 --> 0:04:39.080 earning support to this trade than there was in the past. 0:04:39.240 --> 0:04:42.719 Is it maybe a little too exuberant? Probably? 0:04:43.200 --> 0:04:45.920 But is it a bubble? I don't think so. 0:04:45.920 --> 0:04:49.760 So what sectors or factors are screening well for you now? 0:04:49.800 --> 0:04:51.960 I'm guessing it's kind of few and far between, given 0:04:52.000 --> 0:04:52.920 how the lift we had. 0:04:53.120 --> 0:04:55.839 Yeah, I mean, anything AI related looks expensive, so that's 0:04:55.839 --> 0:04:58.599 going to be industrials utilities, you know. 0:04:58.640 --> 0:04:59.960 And also the tech sector. 0:04:59.720 --> 0:05:01.680 Had been looking more neutral on our models, but now 0:05:01.680 --> 0:05:05.480 it's looking elevated again. Consumer discretionary also looks expensive. That's 0:05:05.520 --> 0:05:09.359 our one underweight sector. We're neutral those others I mentioned. 0:05:10.080 --> 0:05:10.919 We're still overweight. 0:05:10.960 --> 0:05:13.160 Financial is definitely more nervous in the in the wake 0:05:13.200 --> 0:05:15.400 of sort of the private credit issues, but our bank's 0:05:15.440 --> 0:05:19.040 analysts have thought that pain was overdone, so we're sticking 0:05:19.040 --> 0:05:19.240 with that. 0:05:19.320 --> 0:05:19.800 Overweight. 0:05:19.839 --> 0:05:24.200 Materials we've liked, and then we haven't upgraded the healthcare sector, 0:05:24.200 --> 0:05:26.480 but we have written in some of our weeklies that 0:05:26.600 --> 0:05:29.520 on a tactical basis, if you're worried about a pullback 0:05:29.520 --> 0:05:31.680 in the market, which we are, it looks like the 0:05:31.680 --> 0:05:34.920 best defensive option. We've generally been market weight the defensive sectors. 0:05:34.920 --> 0:05:38.480 But we've got nice flows, nice valuations, good earnings revision 0:05:38.520 --> 0:05:41.320 trends that are decelerating but are not as decelerating as 0:05:41.360 --> 0:05:44.479 much as say industrials and materials. Got policy risk, but 0:05:44.520 --> 0:05:45.880 maybe the worst of that's behind us. 0:05:46.560 --> 0:05:47.960 So moving and learn into the macro. 0:05:48.120 --> 0:05:50.280 What did you take away from the Ladist CPI report, 0:05:50.360 --> 0:05:52.440 especially given the fact that we have the SPED meeting 0:05:52.480 --> 0:05:54.200 coming up on Wednesday, well get it. 0:05:54.440 --> 0:05:56.800 So you know, what our economists have said was they 0:05:56.800 --> 0:05:58.800 were not so worried about, you know, kind of this 0:05:58.880 --> 0:06:01.440 inflation report right that, you know, they thought this was 0:06:01.480 --> 0:06:03.000 going to be a pretty reliable report. 0:06:03.960 --> 0:06:05.839 They also said that you got a lot of help. 0:06:05.640 --> 0:06:07.840 From owner's equivalent rent and they don't expect that to 0:06:07.880 --> 0:06:11.520 continue that sort of the pressures on goods are you know, 0:06:11.600 --> 0:06:14.720 on goods pricing is persisting. They're seeing some pressure on services. 0:06:14.760 --> 0:06:17.080 So they're still worried about inflation and core terms hitting 0:06:17.080 --> 0:06:18.600 about three and a half percent in the middle of 0:06:18.680 --> 0:06:22.359 next year. Our rates team has said we get the 0:06:22.400 --> 0:06:25.040 cut this week, but they think there's a pause in December. 0:06:25.080 --> 0:06:27.479 They think we get two more cuts next year. But 0:06:27.520 --> 0:06:29.920 I would say as a house view, I think RBC 0:06:30.120 --> 0:06:33.200 has been a little bit more concerned about inflation and 0:06:33.200 --> 0:06:35.760 it's reverberations on the FED than maybe some other shops. 0:06:36.400 --> 0:06:38.719 Laurie, as you know as well as anybody, a good 0:06:38.800 --> 0:06:42.479 solid bull market needs some healthy pullbacks from time to 0:06:42.520 --> 0:06:47.400 time for some sustainable period of time. We haven't really 0:06:47.440 --> 0:06:48.600 had that in this market. 0:06:48.720 --> 0:06:50.280 We haven't I think the worst we got. 0:06:50.320 --> 0:06:52.320 You know, we've had some big rumblings in some of 0:06:52.360 --> 0:06:55.599 the tech names. We've had the momentum trade breakdown, you know, 0:06:55.680 --> 0:06:59.560 briefly in both the Russell and the SMP. You know 0:06:59.600 --> 0:07:03.320 it has been enough damage. You've also seen the gyrations 0:07:03.320 --> 0:07:06.760 and gold retail passive flows are starting to deteriorate. I 0:07:06.800 --> 0:07:08.839 see a lot of signs of fatigues and that things 0:07:08.880 --> 0:07:12.760 are not necessarily completely healthy under the surface. We've been 0:07:12.760 --> 0:07:15.040 looking for a five to ten percent draw down. If 0:07:15.080 --> 0:07:19.120 it gets postponed, we don't think that it's derailed that pullback. 0:07:19.200 --> 0:07:22.200 It's possible it's going to get delayed, but I think 0:07:22.200 --> 0:07:24.200 at these valuation levels it's inevitable. 0:07:25.160 --> 0:07:28.800 So some people have been talking a lot about market froth. 0:07:28.840 --> 0:07:32.440 The you're here, how much further do you see equities rallying? 0:07:32.480 --> 0:07:34.600 I mean, it has been a really relentless year, especially 0:07:34.600 --> 0:07:37.240 if you think about two years previously, we were seeing 0:07:38.200 --> 0:07:40.720 more than twenty percent returns on the S and P 0:07:40.800 --> 0:07:42.520 five hundred, and going into this year, there was a 0:07:42.560 --> 0:07:44.920 conversation about whether or not we might not even reach 0:07:45.080 --> 0:07:47.160 close to that, But here we are sitting at fifteen 0:07:47.200 --> 0:07:48.080 percent gain on the year. 0:07:48.520 --> 0:07:50.080 I think We're going to have to, you know, keep 0:07:50.080 --> 0:07:51.920 a very close eye on the technicals. And here my 0:07:52.040 --> 0:07:54.200 year end target is actually below where we are now. 0:07:54.280 --> 0:07:56.360 We do have a second half of twenty twenty six 0:07:56.400 --> 0:07:59.200 target up around seventy one hundred, and some of our modeling, 0:07:59.200 --> 0:08:01.720 frankly can get you seventy four seventy five hundred. That's 0:08:01.760 --> 0:08:04.120 our sentiment and cross asset work, which were the most 0:08:04.120 --> 0:08:07.040 bullish models for this year. So you know, I think 0:08:07.040 --> 0:08:08.560 that you can only really get there if you have 0:08:08.640 --> 0:08:09.800 the pause that refreshes. 0:08:10.120 --> 0:08:11.320 But we'll see how it goes. 0:08:11.680 --> 0:08:13.440 Laurie, thank you so much for joining us. We always 0:08:13.480 --> 0:08:14.880 appreciate getting a few minutes of your time. 0:08:14.920 --> 0:08:16.360 You know how busy you are. 0:08:16.560 --> 0:08:19.720 Lori Cavacina, she's head of US Equity strategy at RBC 0:08:20.000 --> 0:08:20.880 Capital Markets. 0:08:22.760 --> 0:08:32.360 To stay with us from Bloomberg Surveillance. Coming up after this. 0:08:32.360 --> 0:08:36.240 This is the Bloomberg Surveillance podcast. Listen live each weekday 0:08:36.280 --> 0:08:39.280 starting at seven am Eastern on Apple Cocklay and Android 0:08:39.320 --> 0:08:42.360 Auto with the Bloomberg Business app. You can also listen 0:08:42.440 --> 0:08:45.720 live on Amazon Alexa from our flagship New York station, 0:08:46.240 --> 0:08:49.880 Just Say Alexa, Play Bloomberg eleven thirty with the President 0:08:49.920 --> 0:08:50.840 in Asia. 0:08:51.240 --> 0:08:53.680 It kind of feels like that's where the focus is 0:08:53.920 --> 0:08:57.320 right everyone you know in Washington. And maybe that's a 0:08:57.320 --> 0:08:59.960 good thing because Washington still closed. You're not pretty quiet, 0:09:00.160 --> 0:09:02.559 they're not open for business. And we were down there 0:09:02.559 --> 0:09:04.520 a couple of weeks ago for a remote broadcast and boy, 0:09:04.559 --> 0:09:08.240 you can go to any monument outside you know, you know, 0:09:08.240 --> 0:09:09.720 the Lincoln Memorial my favorite. 0:09:10.640 --> 0:09:12.320 Not a lot of people there, not a lot of tours. 0:09:12.400 --> 0:09:14.440 I mean, it's just and the buses are not going around, 0:09:14.600 --> 0:09:16.679 parking spots available. 0:09:16.240 --> 0:09:16.920 On the street. 0:09:17.040 --> 0:09:18.320 A little different, a little. 0:09:18.080 --> 0:09:18.600 Bit different there. 0:09:18.600 --> 0:09:21.439 Henrietta trust Jads is here, co founder managing partner of 0:09:21.520 --> 0:09:24.640 Veda Partners, Henriette. As we go into week I don't 0:09:24.640 --> 0:09:28.320 know four here coming up for this closure. What's the 0:09:28.360 --> 0:09:32.520 feeling in DC these days? Is this a is this 0:09:32.600 --> 0:09:36.080 good for anybody? Is there lasting damage for anybody? Or 0:09:36.160 --> 0:09:38.240 is just nobody really paying attention here? 0:09:39.440 --> 0:09:43.439 It's really kind of a surreal, suspended animation kind of 0:09:43.480 --> 0:09:47.040 place right now. The House Republican Conference is not even 0:09:47.080 --> 0:09:50.480 in session, so they're not in DC. So the temperature 0:09:50.480 --> 0:09:53.040 on the Republican side, from my perspective, is a lot 0:09:53.080 --> 0:09:53.640 more calm. 0:09:53.720 --> 0:09:54.640 They just are you. 0:09:54.559 --> 0:09:56.760 Know, the president doesn't care about this or voters don't 0:09:56.760 --> 0:09:58.880 care about this, so therefore we don't care about this. 0:09:59.360 --> 0:10:01.160 And then on the Democratic side, there's a little bit 0:10:01.160 --> 0:10:01.560 more action. 0:10:01.640 --> 0:10:04.640 A keem Jeffries is calling the entire Democratic Conference back 0:10:04.679 --> 0:10:06.920 to DC this week, so they will be there, they'll 0:10:06.960 --> 0:10:09.720 be press briefings, they'll be talking about the ACA subsidies, 0:10:10.440 --> 0:10:13.680 and they'll be trying to generate some sort of momentum 0:10:13.720 --> 0:10:16.160 in one direction or another. But as you just pointed out, 0:10:16.320 --> 0:10:18.160 as long as the president is not engaged, there's not 0:10:18.200 --> 0:10:20.000 going to be any forward progress. So the government will 0:10:20.000 --> 0:10:22.439 should be shut down for at least another probably ten 0:10:22.520 --> 0:10:23.680 days at a minimum. 0:10:24.440 --> 0:10:27.640 So are there any sort of long term consequences that 0:10:27.720 --> 0:10:30.000 you should expect coming out of a government shutdown? Of course, 0:10:30.000 --> 0:10:32.839 this is the second longest, the longest government shut down 0:10:32.880 --> 0:10:34.439 being about thirty five days. 0:10:35.240 --> 0:10:39.319 Right, Not even is there a long term impact in 0:10:39.440 --> 0:10:42.200 terms of just what the government can do. They'll all 0:10:42.200 --> 0:10:44.280 get back up and running and the same employees will 0:10:44.280 --> 0:10:47.160 still be there. All these firings that russ Bott has 0:10:47.160 --> 0:10:50.160 done will be overruled by the legal courts, as has 0:10:50.200 --> 0:10:54.120 been the case in Stone Started and we'll get back 0:10:54.160 --> 0:10:56.760 to business. And there's not even really an impact from 0:10:56.760 --> 0:10:59.920 the voter's perspective. When they have shut down in the past, 0:11:00.240 --> 0:11:03.600 Republicans haven't paid a price for it in elections. The 0:11:03.640 --> 0:11:06.400 next cycle, it's it's a full year away from the 0:11:06.480 --> 0:11:09.440 twenty twenty six midterms, so voters are going to forget 0:11:09.440 --> 0:11:11.400 about this. Move on, we'll reopen. The one thing we 0:11:11.440 --> 0:11:14.920 don't want is a rolling stream of shutdowns. So hopefully 0:11:14.960 --> 0:11:17.960 they'll reach a deal to reopen and then they'll keep 0:11:18.000 --> 0:11:20.120 it open for at least a year, for six or 0:11:20.120 --> 0:11:20.679 seven months. 0:11:20.760 --> 0:11:24.000 All right, all right, let's leave that word is. We've 0:11:24.040 --> 0:11:25.800 got I live in the state of New Jersey. We 0:11:25.840 --> 0:11:28.720 have a governor's election there. I did my early voting 0:11:29.040 --> 0:11:35.319 this weekend. There's one also in Virginia. How are the 0:11:35.559 --> 0:11:37.760 How's the Democratic Party, how's the Republican Party? 0:11:37.800 --> 0:11:40.320 Looking at those two states, you know, I think. 0:11:40.200 --> 0:11:43.120 It's interesting to have a conversation about those elections in 0:11:43.160 --> 0:11:46.000 the context of the shutdown, because one party or the 0:11:46.080 --> 0:11:49.840 other could generate some momentum based off of what happens on. 0:11:49.800 --> 0:11:50.920 The Tuesday election. 0:11:51.720 --> 0:11:55.240 So if Democrats pick up both races in Virginia and 0:11:55.280 --> 0:11:57.800 New Jersey, which is what the polling is currently suggesting. 0:11:57.800 --> 0:12:00.400 I think Dems are head by five in Jersey and 0:12:00.440 --> 0:12:04.000 by twelve in Virginia. Then you'll see at least a 0:12:04.040 --> 0:12:06.600 media narrative or you know, a talking point for the 0:12:06.600 --> 0:12:09.160 Democratic Party. The voters are turning away from Trump, they're 0:12:09.160 --> 0:12:11.040 turning towards the Democratic Party, and if it goes to 0:12:11.040 --> 0:12:13.240 the other direction, the reverse and it would probably be 0:12:13.400 --> 0:12:16.199 even more extreme for the Republican since that's not consensus 0:12:16.200 --> 0:12:17.640 and expectations from the polls. 0:12:17.920 --> 0:12:20.040 So I think it could generate some. 0:12:20.040 --> 0:12:23.000 Momentum right when Trump is returning to d C, right 0:12:23.000 --> 0:12:25.120 as we're heading into what should be a Veterans Day 0:12:25.160 --> 0:12:29.160 recess starting on Friday, November seventh, and that could move 0:12:29.200 --> 0:12:31.080 some things around on the shutdown front. 0:12:31.520 --> 0:12:32.960 Where are your eyes most fixed story? 0:12:33.000 --> 0:12:33.120 Now? 0:12:33.160 --> 0:12:37.960 Are any of these races expected to be close? Not really. 0:12:38.520 --> 0:12:41.960 I think that, you know, we constantly see New Jersey 0:12:42.000 --> 0:12:44.240 as the great white whale for the Republican Party, So 0:12:44.240 --> 0:12:47.240 there's a possibility of some sort of movement there. People 0:12:47.240 --> 0:12:50.280 will be looking at margins, but pretty much we're expecting 0:12:50.320 --> 0:12:53.120 a Democratic win in Jersey. In Virginia, it should be. 0:12:53.000 --> 0:12:54.520 A sort of blockbuster year four. 0:12:54.520 --> 0:12:57.520 Democrats as the minority party going into twenty twenty six, 0:12:57.600 --> 0:13:02.960 So there's Supreme court cases and judges elections in Pennsylvania, 0:13:03.240 --> 0:13:05.280 fifty in California. There's a lot of things to watch, 0:13:05.320 --> 0:13:07.960 but it should all generally go in the Democrats' direction, 0:13:08.120 --> 0:13:12.120 as it would in the reverse if Democrats controlled everything 0:13:12.200 --> 0:13:15.199 right now. So not expecting anything major to come out 0:13:15.240 --> 0:13:19.240 except for that potential momentum play and media narrative to 0:13:19.280 --> 0:13:19.720 come out of this. 0:13:20.000 --> 0:13:22.320 Henrietta, I can give you some local color here. 0:13:22.520 --> 0:13:25.559 Being in the Greater New York, New Jersey metro market, 0:13:25.559 --> 0:13:28.760 we were just getting crushed with TV political ads. It's 0:13:28.840 --> 0:13:33.040 just brutal what mister Cindarelli, the Republican candidate for governor, 0:13:33.160 --> 0:13:36.360 is not doing. He is not running on the cotails 0:13:36.360 --> 0:13:40.200 of President Trump. He's not invoking Trump and trump Ism 0:13:40.200 --> 0:13:42.800 and magat at all. Does that surprise you or what 0:13:42.840 --> 0:13:43.520 does that tell you? 0:13:44.320 --> 0:13:46.800 Well, voters tend to vote in sort of a swing. 0:13:46.920 --> 0:13:49.319 They go in one direction one year, and then they 0:13:49.360 --> 0:13:51.360 decide they don't like what they just did and they 0:13:51.400 --> 0:13:55.960 go backwards, Especially when one administration is being really proactive. 0:13:56.000 --> 0:13:59.079 We're really active, passing a lot of legislation very much 0:13:59.080 --> 0:14:00.000 in the news all the time. 0:14:00.120 --> 0:14:01.280 Voter send a not like that. 0:14:01.600 --> 0:14:04.000 So it makes a lot of sense for Republicans, especially 0:14:04.040 --> 0:14:06.640 a state like New Jersey, to run away from MAGA, 0:14:06.720 --> 0:14:09.640 to run away from Trump, because Trump's approve all rating, 0:14:09.840 --> 0:14:13.080 especially on his core issue of the economy and inflation, 0:14:13.600 --> 0:14:16.920 is seriously underwater. I believe the worst he's had in 0:14:17.000 --> 0:14:19.920 both of his terms is standing with voters on the 0:14:19.960 --> 0:14:20.880 economy and inflation. 0:14:21.080 --> 0:14:23.680 And that's, of course due to the tariffs. Voters don't like. 0:14:23.680 --> 0:14:25.560 The one big, beautiful bell, so I'd be running away 0:14:25.560 --> 0:14:26.000 from it too. 0:14:26.480 --> 0:14:29.680 All right, We'll see Henrietta Trees, co founder managing partner 0:14:29.760 --> 0:14:34.760 Vida Partners, to stay with us from Bloomberg Surveillance coming 0:14:34.800 --> 0:14:42.120 up after this. 0:14:42.120 --> 0:14:46.040 This is the Bloomberg Surveillance Podcast. Listen live each weekday 0:14:46.080 --> 0:14:49.120 starting at seven am Eastern on Apple Coarclay, and Android 0:14:49.120 --> 0:14:52.160 Auto with the Bloomberg Business app. You can also listen 0:14:52.240 --> 0:14:55.480 live on Amazon Alexa from our flagship New York station, 0:14:56.040 --> 0:14:58.720 Just say Alexa Play Bloomberg eleven thirty. 0:14:58.960 --> 0:15:02.880 We continue to face a dearth of economic data with 0:15:02.960 --> 0:15:05.080 the government shut down here. We did get some CPI 0:15:05.160 --> 0:15:08.440 data last week you know, a little bit higher than 0:15:08.480 --> 0:15:11.120 I think the Fed wants to see it, stubbornly a 0:15:11.120 --> 0:15:12.880 little bit higher than where they want to see it. 0:15:12.920 --> 0:15:14.560 So what does that mean for our Freder Reserve. 0:15:14.600 --> 0:15:17.240 Let's check in with David Rosenberg, he's founder and president 0:15:17.360 --> 0:15:21.000 Rosenberg Research and Associates. And David, we actually did get 0:15:21.000 --> 0:15:23.520 a piece of government inflation data last week. I love 0:15:23.560 --> 0:15:25.960 to get your thoughts on it here and how you 0:15:26.080 --> 0:15:29.800 think the inflation outlok may influence how our Freder Reserve 0:15:29.840 --> 0:15:31.160 looks at the interest rate scenario. 0:15:33.560 --> 0:15:38.160 Well, as far as the CPR reports concerned that came 0:15:38.200 --> 0:15:42.520 out on Friday, it's really not a case of inflation 0:15:43.440 --> 0:15:47.600 still being above the Fed's target. The Fed can't be 0:15:47.720 --> 0:15:52.240 focused on lagging indicator. It has to before focused on 0:15:52.720 --> 0:15:55.240 where inflation is going to be a year from now 0:15:55.280 --> 0:15:59.000 and two years from now, because it's policy moves influenced 0:15:59.000 --> 0:16:01.840 the economy and with a lag. So when I hear 0:16:02.080 --> 0:16:06.600 well inflation is still well above the Fed's target, my 0:16:06.680 --> 0:16:09.360 eyes just rolled. It's really a meaningless comment. 0:16:09.400 --> 0:16:11.640 It's where instlation is going right. 0:16:13.000 --> 0:16:16.600 Well, if the Fed rolls that way, then they wouldn't 0:16:16.640 --> 0:16:19.800 be nudging the market towards a view that they're going 0:16:19.880 --> 0:16:23.880 to be cutting this week and probably cutting one more 0:16:23.960 --> 0:16:27.360 time between now and the end of the year. So 0:16:27.680 --> 0:16:29.880 I think that the bottom line is that when you 0:16:29.880 --> 0:16:33.120 look at Friday's number standalone, the headline in the core 0:16:33.240 --> 0:16:38.000 came infractionally below expected. And we're finally starting to get 0:16:38.000 --> 0:16:42.240 some help out of the dominant rent and OEER metrics, 0:16:42.440 --> 0:16:46.520 which have lagged well behind the actual deflation that we've 0:16:46.560 --> 0:16:49.480 seen in residential rents in real time. But there are 0:16:50.320 --> 0:16:53.560 inherent lags that are built in. And the other part 0:16:53.600 --> 0:16:55.360 of this is that you know, when you're taking a 0:16:55.360 --> 0:16:58.080 look at the core good CPI, you know it's no 0:16:58.160 --> 0:17:02.560 longer deflating, it's inflating. But the terraff impact so far 0:17:02.600 --> 0:17:05.280 in the good sector has actually been fairly mild. If 0:17:05.320 --> 0:17:07.600 I was it the FED, I'd be encouraged by that. 0:17:09.240 --> 0:17:12.040 So how exactly are you expecting them to interpret this? 0:17:12.119 --> 0:17:14.480 I mean, of course, all eyes are on this upcoming meeting, 0:17:14.600 --> 0:17:16.480 and in the midst of the fact that we do 0:17:16.640 --> 0:17:19.000 have a major absence of data here. 0:17:21.359 --> 0:17:24.760 Well as it comes to, you know, the inflation side, 0:17:24.880 --> 0:17:27.439 you know what the FED should really be consumed with 0:17:27.880 --> 0:17:32.679 is where inflation expectations are, and when you look at 0:17:32.680 --> 0:17:36.080 the broad array of inflation expectation metrics, they're running at 0:17:36.080 --> 0:17:40.440 the oh my lord, two point three percent. We look 0:17:40.480 --> 0:17:43.640 at five year and ten year tips break evens, they're 0:17:43.640 --> 0:17:48.560 not that far ahead of where the feds the facto 0:17:48.680 --> 0:17:51.919 target is. And yet the FED funds rate is at 0:17:52.000 --> 0:17:56.920 least one hundred basis points above neutral. So that's ry 0:17:57.040 --> 0:17:59.200 line up. And of course the Fed's got a duel 0:17:59.240 --> 0:18:02.000 Man date, not a single mandate. And the labor market 0:18:02.720 --> 0:18:06.040 is showing signs of cracking. There's no doubt that the 0:18:06.080 --> 0:18:09.720 firing rate is low, you know, heading into the government shutdown, 0:18:09.800 --> 0:18:12.880 looking at initial job as claims they weren't really doing 0:18:12.880 --> 0:18:16.719 anything more than just stabilizing. So companies are still hoarding labor. 0:18:16.800 --> 0:18:20.320 But the problem is that the hiring rate has you know, 0:18:20.480 --> 0:18:25.560 fallen dramatically and to a point now where employment is contracting. 0:18:26.119 --> 0:18:28.600 We don't have the nonfim pyial numbers, but we have 0:18:28.720 --> 0:18:33.439 the ADP private sector employment numbers, and they've declined in 0:18:33.840 --> 0:18:37.399 two of the past three months, so we're building up 0:18:37.440 --> 0:18:40.760 slacking the labor market. Cracks are emerging. They can't ignore that. 0:18:41.560 --> 0:18:44.440 At the same time, you could argue that inflation has 0:18:44.520 --> 0:18:45.320 been stubborn. 0:18:46.000 --> 0:18:46.920 But you know, there was a. 0:18:46.880 --> 0:18:50.080 Time when inflation was nine percent, you know, back in 0:18:50.200 --> 0:18:54.240 twenty twenty two, and people were saying we'll never see 0:18:54.280 --> 0:18:57.280 three percent again, let alone getting to two percent. Well 0:18:57.320 --> 0:19:00.239