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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: Here's the word on Wall Street. Lisa shamanamlkan Stanley writes

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Speaker 2: in this with equities having round tripped back towards first

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Speaker 2: quarter ending levels, markets are anxious to move on from

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Speaker 2: tariffs and attempts to anticipate FED policy. Lisa johnsis nap

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Speaker 2: for more. Lisa good Mornic, Good morning. How many times

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Speaker 2: have we asked this question? Was, oh, just a bet dream?

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Speaker 2: Can we just move on?

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Speaker 3: So look, I think investors right now are weary and

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Speaker 3: want to move on, They want to look through it.

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Speaker 3: But I do think that things have fundamentally changed from

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Speaker 3: the NASDAC peak back on December sixteenth. I think the

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Speaker 3: first thing that has changed is it's really clear that

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Speaker 3: top line growth among the MAG seven is decelerating, and

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Speaker 3: growth investors typically don't like to see deceleration. The second

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Speaker 3: thing is we're seeing this arms war with regard to

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Speaker 3: capex spending continuing. If we are to st update on.

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Speaker 3: Looking at free cash flow yields shows MAG seven free

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Speaker 3: cash flow years shrinking by about eleven percent. Typically, these

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Speaker 3: stocks don't tend to do particularly well when their free

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Speaker 3: cash flow yield is coming down and look, we can

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Speaker 3: pretend that the deep Seek news doesn't mean anything, but

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Speaker 3: we fundamentally think it was the wake up call around

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Speaker 3: global engineering, global innovation, and the fact that none of

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Speaker 3: us know how the movie ends here on jen Ai,

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Speaker 3: who the winners are going to be, how it's going

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Speaker 3: to evolve, whether or not large language models very quickly

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Speaker 3: become commoditized, and the next you know, phase of the

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Speaker 3: buildout is actually much lower data center intensity, much lower

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Speaker 3: energy intensity because it's very application based. So nobody knows nothing.

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Speaker 3: And I think right now, this is a market where

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Speaker 3: we've had you know, a lot of positioning, technical positioning

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Speaker 3: where people felt, hey, you know, I was caught off guard.

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Speaker 3: This was a massive surprise. You know, the effective China

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Speaker 3: tariff rate is much lower than I penciled. I got

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Speaker 3: to plow back in. You've got you know, some of

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Speaker 3: the private wealth money and retail money coming in from

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Speaker 3: the sidelines. But I think we're going to stall out here.

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Speaker 3: I think it's just hard to justify the numbers. You know,

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Speaker 3: you've round tripped back to January first on market levels,

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Speaker 3: and yet your earnings per share are down six percent, So.

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Speaker 2: You'd fight this move. I'm fading what would you rotate

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Speaker 2: out of and what would you rotate into.

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Speaker 3: Yeah, so you know, we're continuing to you know, recommend

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Speaker 3: that folks take some profits in now the new leaders

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Speaker 3: again in tech and really focus on the beneficiaries of deregulation.

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Speaker 3: And so we see that as you know, financials, we

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Speaker 3: see it as energy, we see it as you know

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Speaker 3: some of the healthcare names. I know for viewers out there,

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Speaker 3: that's going to sound like a big value style bias,

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Speaker 3: but quite frankly, it is. You know, while while we're

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Speaker 3: not saying you've got to be overweight value, we do

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Speaker 3: think you want value in this market because you want

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Speaker 3: some risk premium. I mean, there are risks out there,

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Speaker 3: and you want to get paid to be in this market.

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Speaker 1: What risks do you want a premium to be paid for?

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Speaker 1: And this sounds sort of existential, but it goes to

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Speaker 1: the heart of the question of is it inflation or

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Speaker 1: is it recession or is it both?

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Speaker 2: I think it's a little bit of both.

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Speaker 3: I think we're somewhat less freaked out about inflation than

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Speaker 3: perhaps we would have been if the tariff rates would

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Speaker 3: have held. I think what we're worried about is that

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Speaker 3: we're no longer in a fore castable policy backdrop.

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Speaker 2: Right.

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Speaker 3: As much as we all want to handwring about the FED,

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Speaker 3: you know, for the last fifteen years, FED policy has

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Speaker 3: been reasonably stable and reasonably well telegraphed, and there haven't

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Speaker 3: been massive surprises. I think when we shift to a

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Speaker 3: fiscal policy backdrop with this administration, as we've seen, it's

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Speaker 3: very easy to experience both negative and positive surprises on policy.

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Speaker 3: And that's what I want to get paid for, is

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Speaker 3: that at any point, you know, things can take a

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Speaker 3: u turn based on the headlines.

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Speaker 1: How much do the rest of the universe that you

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Speaker 1: didn't mention big tech that you're selling on the margins,

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Speaker 1: or some of the financials and other value stocks that

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Speaker 1: you're looking at that don't exactly value as you pointed out,

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Speaker 1: how much do you think that it really will require

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Speaker 1: FED cuts to get the rest of the universe involved

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Speaker 1: in some sort of positive momentum.

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Speaker 3: I think the rate cuts are absolutely you know, required

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Speaker 3: for small cap mid cap I think that universe has

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Speaker 3: suffered profoundly, you know, from the higher cost of capital

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Speaker 3: by and large, the S and P five hundred, which

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Speaker 3: is predominantly large in megacap companies have been pretty isolated.

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Speaker 3: They very healthy balance sheets, and for the most part,

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Speaker 3: they haven't been inhibited by rates where they are, which

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Speaker 3: is why we have multiples where they are. Well.

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Speaker 1: It raises this question, especially as the fiscal debate heats

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Speaker 1: up in Washington, DC, and you alluded to this, and

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Speaker 1: there's a question about as we find out how much

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Speaker 1: the deficits is going to increase, how much bond markets

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Speaker 1: are going to freak out. To use your sophisticated harlans,

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Speaker 1: but there is this question of at what level in

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Speaker 1: a thirty y or in a ten year yield, it

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Speaker 1: becomes prohibitive for stocks to really move higher from here

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Speaker 1: and really inject some damage.

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Speaker 3: Yeah, I mean, look, I think for most of the

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Speaker 3: last you know, six to twelve months that you know,

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Speaker 3: four point fifty on the ten year, four point five

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Speaker 3: percent on the ten year, you know, was kind of

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Speaker 3: this stall out threshold. You know, the market seems to

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Speaker 3: be battling with it a little bit this week, but look,

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Speaker 3: I think if we back up, you know, if we

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Speaker 3: get big, big, big deficit numbers coming out of this

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Speaker 3: tax bill, and that ten year moves into that four

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Speaker 3: to seventy five range, I don't see how the markets,

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Speaker 3: how equity value wations hold here. The math just stops

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Speaker 3: making sense.

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Speaker 2: Lisa, it's good to see you as always. Thanks for

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Speaker 2: dropping By Lisa Shalling to moncl Stanley