Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Here's the word on Wall Street. Lisa shamanamlkan Stanley writes
Speaker 2: in this with equities having round tripped back towards first
Speaker 2: quarter ending levels, markets are anxious to move on from
Speaker 2: tariffs and attempts to anticipate FED policy. Lisa johnsis nap
Speaker 2: for more. Lisa good Mornic, Good morning. How many times
Speaker 2: have we asked this question? Was, oh, just a bet dream?
Speaker 2: Can we just move on?
Speaker 3: So look, I think investors right now are weary and
Speaker 3: want to move on, They want to look through it.
Speaker 3: But I do think that things have fundamentally changed from
Speaker 3: the NASDAC peak back on December sixteenth. I think the
Speaker 3: first thing that has changed is it's really clear that
Speaker 3: top line growth among the MAG seven is decelerating, and
Speaker 3: growth investors typically don't like to see deceleration. The second
Speaker 3: thing is we're seeing this arms war with regard to
Speaker 3: capex spending continuing. If we are to st update on.
Speaker 3: Looking at free cash flow yields shows MAG seven free
Speaker 3: cash flow years shrinking by about eleven percent. Typically, these
Speaker 3: stocks don't tend to do particularly well when their free
Speaker 3: cash flow yield is coming down and look, we can
Speaker 3: pretend that the deep Seek news doesn't mean anything, but
Speaker 3: we fundamentally think it was the wake up call around
Speaker 3: global engineering, global innovation, and the fact that none of
Speaker 3: us know how the movie ends here on jen Ai,
Speaker 3: who the winners are going to be, how it's going
Speaker 3: to evolve, whether or not large language models very quickly
Speaker 3: become commoditized, and the next you know, phase of the
Speaker 3: buildout is actually much lower data center intensity, much lower
Speaker 3: energy intensity because it's very application based. So nobody knows nothing.
Speaker 3: And I think right now, this is a market where
Speaker 3: we've had you know, a lot of positioning, technical positioning
Speaker 3: where people felt, hey, you know, I was caught off guard.
Speaker 3: This was a massive surprise. You know, the effective China
Speaker 3: tariff rate is much lower than I penciled. I got
Speaker 3: to plow back in. You've got you know, some of
Speaker 3: the private wealth money and retail money coming in from
Speaker 3: the sidelines. But I think we're going to stall out here.
Speaker 3: I think it's just hard to justify the numbers. You know,
Speaker 3: you've round tripped back to January first on market levels,
Speaker 3: and yet your earnings per share are down six percent, So.
Speaker 2: You'd fight this move. I'm fading what would you rotate
Speaker 2: out of and what would you rotate into.
Speaker 3: Yeah, so you know, we're continuing to you know, recommend
Speaker 3: that folks take some profits in now the new leaders
Speaker 3: again in tech and really focus on the beneficiaries of deregulation.
Speaker 3: And so we see that as you know, financials, we
Speaker 3: see it as energy, we see it as you know
Speaker 3: some of the healthcare names. I know for viewers out there,
Speaker 3: that's going to sound like a big value style bias,
Speaker 3: but quite frankly, it is. You know, while while we're
Speaker 3: not saying you've got to be overweight value, we do
Speaker 3: think you want value in this market because you want
Speaker 3: some risk premium. I mean, there are risks out there,
Speaker 3: and you want to get paid to be in this market.
Speaker 1: What risks do you want a premium to be paid for?
Speaker 1: And this sounds sort of existential, but it goes to
Speaker 1: the heart of the question of is it inflation or
Speaker 1: is it recession or is it both?
Speaker 2: I think it's a little bit of both.
Speaker 3: I think we're somewhat less freaked out about inflation than
Speaker 3: perhaps we would have been if the tariff rates would
Speaker 3: have held. I think what we're worried about is that
Speaker 3: we're no longer in a fore castable policy backdrop.
Speaker 2: Right.
Speaker 3: As much as we all want to handwring about the FED,
Speaker 3: you know, for the last fifteen years, FED policy has
Speaker 3: been reasonably stable and reasonably well telegraphed, and there haven't
Speaker 3: been massive surprises. I think when we shift to a
Speaker 3: fiscal policy backdrop with this administration, as we've seen, it's
Speaker 3: very easy to experience both negative and positive surprises on policy.
Speaker 3: And that's what I want to get paid for, is
Speaker 3: that at any point, you know, things can take a
Speaker 3: u turn based on the headlines.
Speaker 1: How much do the rest of the universe that you
Speaker 1: didn't mention big tech that you're selling on the margins,
Speaker 1: or some of the financials and other value stocks that
Speaker 1: you're looking at that don't exactly value as you pointed out,
Speaker 1: how much do you think that it really will require
Speaker 1: FED cuts to get the rest of the universe involved
Speaker 1: in some sort of positive momentum.
Speaker 3: I think the rate cuts are absolutely you know, required
Speaker 3: for small cap mid cap I think that universe has
Speaker 3: suffered profoundly, you know, from the higher cost of capital
Speaker 3: by and large, the S and P five hundred, which
Speaker 3: is predominantly large in megacap companies have been pretty isolated.
Speaker 3: They very healthy balance sheets, and for the most part,
Speaker 3: they haven't been inhibited by rates where they are, which
Speaker 3: is why we have multiples where they are. Well.
Speaker 1: It raises this question, especially as the fiscal debate heats
Speaker 1: up in Washington, DC, and you alluded to this, and
Speaker 1: there's a question about as we find out how much
Speaker 1: the deficits is going to increase, how much bond markets
Speaker 1: are going to freak out. To use your sophisticated harlans,
Speaker 1: but there is this question of at what level in
Speaker 1: a thirty y or in a ten year yield, it
Speaker 1: becomes prohibitive for stocks to really move higher from here
Speaker 1: and really inject some damage.
Speaker 3: Yeah, I mean, look, I think for most of the
Speaker 3: last you know, six to twelve months that you know,
Speaker 3: four point fifty on the ten year, four point five
Speaker 3: percent on the ten year, you know, was kind of
Speaker 3: this stall out threshold. You know, the market seems to
Speaker 3: be battling with it a little bit this week, but look,
Speaker 3: I think if we back up, you know, if we
Speaker 3: get big, big, big deficit numbers coming out of this
Speaker 3: tax bill, and that ten year moves into that four
Speaker 3: to seventy five range, I don't see how the markets,
Speaker 3: how equity value wations hold here. The math just stops
Speaker 3: making sense.
Speaker 2: Lisa, it's good to see you as always. Thanks for
Speaker 2: dropping By Lisa Shalling to moncl Stanley