WEBVTT - Tech Megacaps Drag US Stocks 0:00:02.520 --> 0:00:13.760 Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg 0:00:13.840 --> 0:00:17.920 Surveillance Podcast. Catch us live weekdays at seven am Eastern 0:00:18.200 --> 0:00:21.240 on Apple car Play or Android Auto with the Bloomberg 0:00:21.320 --> 0:00:24.880 Business App. Listen on demand wherever you get your podcasts, 0:00:25.280 --> 0:00:27.000 or watch us live on YouTube. 0:00:27.320 --> 0:00:28.120 Checking with Jay Hatho. 0:00:28.240 --> 0:00:33.040 He's the CEO CIO Infrastructure Capital Management. 0:00:33.960 --> 0:00:36.040 Jay, how do you think about twenty twenty six year? 0:00:36.080 --> 0:00:39.040 Because we're coming out of twenty twenty five, I mean 0:00:40.040 --> 0:00:43.920 great equity returns, really solid returns in the fix, the 0:00:43.920 --> 0:00:47.440 come space off hearing commodities, gold, silver, platinum plated bore. 0:00:47.479 --> 0:00:50.160 You're looking good there. How do you think about twenty 0:00:50.159 --> 0:00:50.640 twenty six? 0:00:52.680 --> 0:00:56.360 Good morning, Paul Alexis. Hey, I'm happy to hear. Well. 0:00:56.560 --> 0:01:00.480 You know, we remain bullish. We are bullish this year still. 0:01:00.000 --> 0:01:03.800 We have a seven thousand target, which, by the way, 0:01:03.920 --> 0:01:06.800 you should sell targets now just buy them. So it's 0:01:06.840 --> 0:01:09.600 okay if we fade a little bit before seven thousand. 0:01:09.920 --> 0:01:12.640 So we use the same methodology that we did this year, 0:01:13.280 --> 0:01:18.800 twenty three times twenty seven earnings consensus and we get 0:01:18.840 --> 0:01:22.480 to an eight thousand target. So that's almost fifteen percent 0:01:22.520 --> 0:01:26.280 from here. So we're bullish and this is normal the 0:01:26.400 --> 0:01:29.399 rally and metals as well as normal when you come 0:01:29.440 --> 0:01:30.880 out of a FED tidening cycle. 0:01:32.959 --> 0:01:34.559 And I'm going to ask you what I've been asking 0:01:34.600 --> 0:01:36.760 all of our guests today, and that is leadership in 0:01:36.800 --> 0:01:39.080 this market in the new year. We know that we've 0:01:39.120 --> 0:01:42.480 seen a rotation into value. Is that going to continue 0:01:42.520 --> 0:01:45.080 to the extent that it becomes the new leader for 0:01:45.120 --> 0:01:47.760 this market and tech maybe takes a bit of a backseat. 0:01:49.440 --> 0:01:54.560 Ali So we have what we call GARP models of 0:01:54.720 --> 0:01:59.360 the magate, so includes Broadcom and last time when we 0:01:59.360 --> 0:02:03.200 had sixty nine, the upside of those eight companies is 0:02:03.200 --> 0:02:07.000 only two percent, so they're fully valued, even assuming they're 0:02:07.040 --> 0:02:10.040 pretty high growth rates. And if we look, we have 0:02:10.120 --> 0:02:13.200 dividend funds, so we have every sector and a lot 0:02:13.240 --> 0:02:16.080 of those companies are super cheap, pay great dividends, have 0:02:16.160 --> 0:02:19.520 good growth, and trade a really low market pay ratios. 0:02:19.880 --> 0:02:20.800 So that's normal. 0:02:21.000 --> 0:02:24.080 Same thing normal when you have a FED loosening cycle, 0:02:24.160 --> 0:02:28.960 there's rotation into other sectors, including small caps. So we 0:02:29.040 --> 0:02:32.120 do think that'll continue, and we're happy about it. Benefits 0:02:32.120 --> 0:02:34.799 our funds because we have small allocations towards tech and 0:02:34.880 --> 0:02:36.000 our income funds. 0:02:36.680 --> 0:02:39.680 Jay, we came into twenty twenty five with a new 0:02:39.720 --> 0:02:43.320 administration here thinking that financials would be an area that 0:02:43.320 --> 0:02:47.400 would really benefit from, if nothing else, a lighter regulatory 0:02:47.639 --> 0:02:49.799 touch here. Talk to us about financials, how you look 0:02:49.800 --> 0:02:50.720 at that sector. 0:02:52.400 --> 0:02:55.560 We had a little bit different take on it in 0:02:55.600 --> 0:02:58.079 that you know, I used to be an investment. 0:02:57.639 --> 0:03:00.000 Banker, so I can kind of that's too best since when. 0:03:00.280 --> 0:03:03.320 Heat up and so we were super bold up about 0:03:03.360 --> 0:03:07.560 the big investment banks early in the Trump administration, and 0:03:07.680 --> 0:03:11.680 that was a great call. The regular banks have lagged 0:03:11.720 --> 0:03:15.760 because the FED is lagged. So we think this year 0:03:15.880 --> 0:03:18.120 there'll be a rotation. Not the investment banks won't do 0:03:18.160 --> 0:03:20.399 well because they're blowing out their earnings, but they're very 0:03:20.400 --> 0:03:25.600 fully valued. But we're recommending investors rotating into what I 0:03:25.639 --> 0:03:30.320 call boring banks or standard banks like CFG. We hold 0:03:30.320 --> 0:03:35.080 that in my cap our dividend fund. And we're even 0:03:35.120 --> 0:03:38.240 more bulled up about the private equity firms because they've 0:03:38.240 --> 0:03:42.680 been unfairly punished by this irrational fear about private credit. 0:03:43.240 --> 0:03:46.240 So we would recommend rotating from the investment banks into 0:03:47.920 --> 0:03:51.640 standard banks and into private equity. 0:03:51.760 --> 0:03:54.760 And I want to bring up we started this conversation 0:03:54.880 --> 0:04:01.120 talking about commodities, Copper topping thirteen thousand, got silver and 0:04:01.200 --> 0:04:04.600 gold add on near all time highs. What do you 0:04:04.640 --> 0:04:06.640 do with the commodities trade next year? 0:04:08.320 --> 0:04:09.640 Well, I think I have to be a little bit 0:04:09.640 --> 0:04:12.360 costious because if you look at charts, they're pretty far 0:04:12.480 --> 0:04:15.200 away from their moving averages, and gold did break down 0:04:15.200 --> 0:04:18.599 when it blew out well above its moving averages. I 0:04:18.640 --> 0:04:21.520 think a bigger question is really oil. Oil has been horrible, 0:04:22.440 --> 0:04:25.159 which is great for inflation. By the way, you know, 0:04:25.200 --> 0:04:29.200 the seventies inflation was really eighty percent caused by oil, 0:04:29.760 --> 0:04:34.680 So if super bolish for inflation, we're modestly constructive on 0:04:34.760 --> 0:04:38.000 oil fifty five to sixty five this year. We think 0:04:38.279 --> 0:04:41.600 that ope's not going to increase production as much as 0:04:41.640 --> 0:04:46.320 it did last year, so we're more constructive on oil. 0:04:46.520 --> 0:04:49.440 There will continue to be rallied, particularly silver and copper. 0:04:49.920 --> 0:04:53.200 You know, have an AI electricity play, but just be 0:04:53.200 --> 0:04:56.239 a little bit costious because it has a momentum element 0:04:56.320 --> 0:04:58.960 to it as well, whereas oil has negative momentum. 0:04:59.400 --> 0:05:00.680 Jay, you mentioned dividends here. 0:05:00.680 --> 0:05:03.720 We don't talk that much about dividends because it's all 0:05:03.760 --> 0:05:06.440 about big tech and most of the tech players don't 0:05:06.440 --> 0:05:10.840 pay dividends here, what's your dividend strategy? How do you 0:05:10.880 --> 0:05:12.560 think investors should think about dividends. 0:05:14.080 --> 0:05:17.160 Well, I think, particularly for more conservative investors, it's good 0:05:17.160 --> 0:05:21.200 to have a substantial amount of dividends that can cover 0:05:22.440 --> 0:05:27.919 a significant portion of your cash needs, and then the 0:05:27.960 --> 0:05:31.080 rest of it your portfolio can have a higher higher 0:05:31.160 --> 0:05:36.320 volatility companies. So we love preferred stocks pffas our flagship fond, 0:05:36.360 --> 0:05:39.400 has a great yield, has a good total return. We 0:05:39.440 --> 0:05:42.560 do like highyal bonds if we're right about the market 0:05:42.600 --> 0:05:43.960 going to eight thousand, and you want to be in 0:05:44.000 --> 0:05:47.880 the riskier part of bonds. And as I briefly alluded to, 0:05:47.960 --> 0:05:52.520 there's a ton of really high quality companies like Philip Morris, 0:05:52.560 --> 0:05:57.560 next Era. They're not overvalued, have strong dividends, good dividend growth. 0:05:58.080 --> 0:06:00.400 So we do think that you'll actually get paid for that. 0:06:00.400 --> 0:06:03.560 It's usually kind of a thankless proposition that you'll get 0:06:03.560 --> 0:06:05.960 paid for that, because when there is a rotation, those 0:06:05.960 --> 0:06:08.479 stocks tend to do better because when you get money 0:06:08.520 --> 0:06:10.839 flowing in, they're looking for bargains versus just looking for 0:06:10.880 --> 0:06:12.840 the latest AI trade. 0:06:13.080 --> 0:06:16.280 So well, small cap stocks continue to get some love 0:06:16.360 --> 0:06:18.000 next year, because I was looking at the Russell two 0:06:18.040 --> 0:06:21.480 thousand up about thirteen and a half percent year to date. 0:06:22.040 --> 0:06:24.800 There aren't They're sort of not the sexy index, right, 0:06:24.880 --> 0:06:27.719 the Russell two thousand. But do you see there? Do 0:06:27.760 --> 0:06:29.280 you see support for it next year? 0:06:30.279 --> 0:06:30.520 We do. 0:06:30.720 --> 0:06:34.719 We have a small cap fund, Desk Cap, and I 0:06:34.720 --> 0:06:37.640 would urge investors, whether you do yourself or hire people 0:06:37.680 --> 0:06:41.560 like ourselves, focus on the money making companies because that's 0:06:41.560 --> 0:06:45.159 where you stop gambling and you start investing. So if 0:06:45.200 --> 0:06:49.240 you invest in profitable companies, they retain earnings, grow earnings. 0:06:49.960 --> 0:06:52.040 So small caps are. 0:06:51.920 --> 0:06:56.159 Attracted if you if you curate them for being profitable. 0:06:56.680 --> 0:06:59.440 And what's the biggest trade you're making there is it 0:06:59.520 --> 0:07:02.840 is a notch and that's so the value part of 0:07:02.880 --> 0:07:05.720 it's on about ten percent tech, So it's really part 0:07:05.760 --> 0:07:08.880 of that whole trade. It's not that small caps borrow 0:07:08.960 --> 0:07:12.360 way more much more money or have superig amount. 0:07:12.040 --> 0:07:12.680 Of floating rate. 0:07:13.040 --> 0:07:17.600 It's just the normal rotation out of tech into other sectors. 0:07:18.040 --> 0:07:22.320 And although the small cap sectors are do have slightly 0:07:22.400 --> 0:07:26.120 lower valuations and do have upside like Digital Bridge you 0:07:26.160 --> 0:07:28.800 know you mentioned earlier, right, it is smaller cap stock. 0:07:29.080 --> 0:07:31.320 So that you do benefit from M and A as well. 0:07:31.640 --> 0:07:33.960 So we do think it's going to be a good 0:07:34.000 --> 0:07:35.920 place to be next year, you know, and it has 0:07:35.960 --> 0:07:38.239 been since the FED became more dubbish. 0:07:38.280 --> 0:07:39.600 It's worked this year as well. 0:07:39.960 --> 0:07:41.960 Jay, thanks so much for joining us. Always appreciate getting 0:07:41.960 --> 0:07:44.280 a few minutes of your time. Jay Haffield, CEO CIO 0:07:44.840 --> 0:07:49.120 Infrastructure Capital Advisors also reformed investment Banker did substance of 0:07:49.160 --> 0:07:53.280 Morgan Stanley, CIBC, Oppenheimer, all those haunts down there in 0:07:53.680 --> 0:07:54.160 the city. 0:07:56.040 --> 0:07:59.160 Stay with us. More from Bloomberg Surveillance coming up after this. 0:08:05.360 --> 0:08:08.960 You're listening to the Bloomberg Surveillance podcast. Catch us Live 0:08:09.040 --> 0:08:12.200 weekday afternoons from seven to ten am Eastern Listen on 0:08:12.280 --> 0:08:15.920 Applecarplay and Android Otto with the Bloomberg Business app, or 0:08:16.080 --> 0:08:17.600 watch us live on YouTube. 0:08:17.920 --> 0:08:19.679 You know, Paul, when you look at it, we're heading 0:08:19.680 --> 0:08:21.160 into the new year with a lot of the same 0:08:21.200 --> 0:08:25.160 old problems and concerns. Right, We've got Tariff's inflation debt, 0:08:25.320 --> 0:08:28.880 we still have global wars going on. Yep, the vix 0:08:29.480 --> 0:08:31.920 is pretty low compared to all that. So our next 0:08:32.000 --> 0:08:35.160 guest is that might mean the market a little complacent, 0:08:35.280 --> 0:08:37.679 maybe we're ignoring the risks. Joy Yang, head of index 0:08:37.760 --> 0:08:41.600 product management at market Vector Index's, joins us in studio. Joy, 0:08:41.640 --> 0:08:42.680 good morning, Good to have you. 0:08:42.600 --> 0:08:44.240 Here, mining thanks for having me. 0:08:44.440 --> 0:08:46.800 Is this market getting a little too comfortable and are 0:08:46.800 --> 0:08:48.160 we ignoring the risks? 0:08:48.360 --> 0:08:48.600 Yeah? 0:08:48.679 --> 0:08:50.520 I think it's a good time for us to just 0:08:50.640 --> 0:08:53.319 step back and look at what's happening. 0:08:53.480 --> 0:08:53.679 You know. 0:08:53.760 --> 0:08:57.800 So we're looking at another twenty percent year in the markets, 0:08:58.240 --> 0:09:00.840 and I think we've just gotten used to twenty percent 0:09:00.880 --> 0:09:02.439 because we saw it last year, we saw it the 0:09:02.520 --> 0:09:06.520 year before. But we now have over one hundred years 0:09:06.760 --> 0:09:09.840 of data on the markets, and do you know how 0:09:09.880 --> 0:09:13.640 many times that we see the markets deliver over twenty 0:09:13.640 --> 0:09:15.480 percent three years in a row. 0:09:15.600 --> 0:09:16.640 It's got to be pretty low. 0:09:16.880 --> 0:09:20.640 It's very low. We've only seen it twice and the 0:09:20.720 --> 0:09:23.360 last time was the lead up to the dot com bubble, 0:09:23.440 --> 0:09:27.880 So that was three years of positive twenty percent returns 0:09:27.920 --> 0:09:32.360 followed by three years of negative returns. So I think 0:09:32.400 --> 0:09:36.280 we investors have to be careful because on average we 0:09:36.360 --> 0:09:41.280 only see the markets deliver about eleven percent returns per year. 0:09:41.600 --> 0:09:44.280 But we never see eleven. Sometimes we'll see twenty, which 0:09:44.320 --> 0:09:47.120 means next year we'll see maybe negative ten, but on 0:09:47.200 --> 0:09:51.600 average you get eleven, twelve, thirteen percent returns. So what's 0:09:51.679 --> 0:09:57.479 unusual is we've seen twenty percent returns this year, low volatility, 0:09:58.080 --> 0:10:02.520 everything else, rising gold copy, silver, even value, as you 0:10:02.600 --> 0:10:05.800 mentioned before. So this has got to be a little 0:10:05.800 --> 0:10:09.280 bit kind of you know, uncomfortable. And yet you know, 0:10:09.440 --> 0:10:13.840 people are euphoric about AI. And again, where did we 0:10:13.880 --> 0:10:16.199 come off At the beginning of the year. We had 0:10:16.280 --> 0:10:22.160 tariff uncertainty, we had fed policy uncertainty, we had high 0:10:22.240 --> 0:10:25.160 government debt, we had AI is it you know, is 0:10:25.200 --> 0:10:28.360 it a bubb all? And we had geopolitical tensions. We 0:10:28.440 --> 0:10:31.960 have all those things right now exactly nothing has changed. 0:10:32.120 --> 0:10:34.640 And yet you know, the market still seems to be 0:10:34.720 --> 0:10:38.160 going up. You know, you get market returns for taking 0:10:38.200 --> 0:10:41.840 on risk, and the risks are still out there. But 0:10:41.920 --> 0:10:44.079 that said, does that mean people should get out? 0:10:44.640 --> 0:10:45.559 You know? Right? 0:10:45.640 --> 0:10:46.880 You know, time diversifying? 0:10:47.400 --> 0:10:50.000 How about diversifying? Maybe we saw even a little bit 0:10:50.000 --> 0:10:53.120 earlier in twenty twenty five people diversifying outside of the US, 0:10:53.200 --> 0:10:56.760 maybe going to European equities, and we weren't sure whether 0:10:56.800 --> 0:10:58.680 that was is a short term trade maybe a longer 0:10:58.760 --> 0:11:02.559 term rotation. How do you look at diversification outside the US. 0:11:02.640 --> 0:11:06.480 So I think price still matters, and then US earlier, 0:11:06.520 --> 0:11:10.560 you know, everything seems expensive. Well, I say, look outside 0:11:10.600 --> 0:11:12.480 of the US, because I think we tend to think 0:11:12.600 --> 0:11:17.000 of you know, just US markets. You know, markets outside 0:11:17.040 --> 0:11:19.880 of the US still look like they have good valuation. 0:11:20.040 --> 0:11:24.400 So international markets, emerging markets this year, they already had 0:11:24.400 --> 0:11:27.320 a strong rally, but that's on the back of being 0:11:27.559 --> 0:11:32.319 under allocated and undernoticed. You know, in the previous years. 0:11:32.760 --> 0:11:34.920 You mentioned we didn't have a lot of volatility. This 0:11:34.920 --> 0:11:37.520 past year is twenty twenty sixth the year that comes back. 0:11:37.559 --> 0:11:39.800 And why well, something's got to give. 0:11:39.960 --> 0:11:43.479 You can't have high returns low volatility, So either returns 0:11:43.520 --> 0:11:46.280 have to come down or volatility has to go up. 0:11:46.360 --> 0:11:49.240 And I think one thing that's interesting about the VICS 0:11:49.480 --> 0:11:53.400 is because it doesn't seem like it's telling us the 0:11:53.440 --> 0:11:57.160 fear of you know, what investors are really feeling, because 0:11:57.160 --> 0:11:59.520 if you ask anybody, they are thinking about is this 0:11:59.559 --> 0:12:02.720 above all? But it's not reflected in the you know VIX. 0:12:02.840 --> 0:12:05.800 So I think we tend to look at crypto markets 0:12:05.800 --> 0:12:08.200 and bitcoin. We have the crypto heat Index, which is 0:12:08.240 --> 0:12:12.360 telling us fear is high. You know, we saw bitcoin crash, 0:12:12.880 --> 0:12:16.000 and you know, it's still hanging around that fear indicators. 0:12:16.120 --> 0:12:19.240 So it feels like the VIX is just holding its breadth, 0:12:19.760 --> 0:12:23.560 whereas you know, crypto markets are really measuring the pulse 0:12:23.720 --> 0:12:24.679 of investors. 0:12:25.040 --> 0:12:25.240 Yep. 0:12:25.280 --> 0:12:28.480 Looking at bitcoin here for tom Keen, just under eighty 0:12:28.520 --> 0:12:31.720 seven thousand dollars per token. We've been anywhere from seventy 0:12:31.760 --> 0:12:34.240 thousand to one hundred and twenty seven thousand this year 0:12:34.320 --> 0:12:35.240 on topic. 0:12:35.080 --> 0:12:36.360 Volatility exactly right. 0:12:36.440 --> 0:12:39.360 Yeah, but that's also interesting because you know Bitcoin is 0:12:39.400 --> 0:12:44.320 negative this year, but for you know, bitcoin holders and ETFs, 0:12:44.400 --> 0:12:46.920 you know, it started back in January twenty twenty four, 0:12:47.160 --> 0:12:52.000 it's up, it's delivered still one hundred percent returns for investors. 0:12:51.520 --> 0:12:57.000 Absolutely absolutely, Alternatives, private equity, private credit, you know, I 0:12:57.040 --> 0:12:59.320 don't know hedge funds. How do you guys think about 0:12:59.120 --> 0:13:00.000 all these days? 0:13:00.600 --> 0:13:03.000 I think it's interesting because we're seeing this, you know, 0:13:03.120 --> 0:13:06.679 the launch of the number of ETSS indexes that are 0:13:06.720 --> 0:13:11.320 trying to measure this space for kind of daily flows 0:13:11.360 --> 0:13:14.640 into an area that's meant to be a long term 0:13:14.679 --> 0:13:17.480 buy and hold strategy. So what's the right price? You know, 0:13:17.760 --> 0:13:21.480 you can't look at it every single day and it's 0:13:21.559 --> 0:13:25.200 meant to be a diversified holding for investors. So I 0:13:25.200 --> 0:13:28.440 think investors should allocate to alternative. 0:13:27.920 --> 0:13:30.959 What percentage do you think. I've talked to registered investment 0:13:30.960 --> 0:13:34.240 advisors and I would have thought either they're not really 0:13:34.240 --> 0:13:37.440 in all they are, and I would have thought maybe 0:13:37.440 --> 0:13:40.760 the allocation would five percent. They're talking much higher than that. 0:13:40.800 --> 0:13:41.880 How do you guys think about it? 0:13:42.160 --> 0:13:45.200 Well, I think with everything you should really it's really 0:13:45.400 --> 0:13:48.920 based on your own risk allocation. You know, people say 0:13:49.679 --> 0:13:52.640 even twenty percent gold. Now you know, but that seems 0:13:52.679 --> 0:13:55.000 quite a hot and that seems like nobody's up there 0:13:55.040 --> 0:13:57.720 at twenty percent. It should never be a core portion 0:13:58.240 --> 0:14:00.240 of your holdings. And if you have twenty percent cent 0:14:00.240 --> 0:14:03.680 to gold, five percent to private equity, you know, it 0:14:03.720 --> 0:14:06.599 builds up. You know, what does that leave your core holdings? 0:14:06.920 --> 0:14:08.320 I'm going to put you on the spot, Joy and 0:14:08.360 --> 0:14:11.040 ask where are we going to see leadership in twenty 0:14:11.080 --> 0:14:12.800 twenty six? Make place your bat. 0:14:12.920 --> 0:14:15.720 Okay, that is on this spot, and I would say, 0:14:15.800 --> 0:14:20.360 still look at a diversified global allocation to all assets, 0:14:20.600 --> 0:14:24.360 but adjust it to you know, their weight in the markets, 0:14:24.400 --> 0:14:27.400 which is still have a you know, solid portion in 0:14:27.640 --> 0:14:32.400 equities and bonds, but also think about your allocation to 0:14:32.560 --> 0:14:35.920 whether it's gold, bigcoin, private equity, so you know, be 0:14:35.920 --> 0:14:38.920 be strategic and long term about it rather than what's 0:14:39.080 --> 0:14:40.000 driving next year. 0:14:40.480 --> 0:14:42.600 How about just just in terms of leadership in the 0:14:42.640 --> 0:14:44.960 equity markets. Boy, it's been AI has been really the 0:14:45.040 --> 0:14:48.640 story for I don't know three years now, is that 0:14:48.840 --> 0:14:49.400 still me? 0:14:49.480 --> 0:14:51.920 Hang your hat on that big cap tech trade? 0:14:51.920 --> 0:14:52.280 Do you think? 0:14:52.320 --> 0:14:56.840 I think AI is a disruptive innovation, but you know, 0:14:56.920 --> 0:15:00.320 can it come from a five trillion dollar company? You know, 0:15:00.360 --> 0:15:04.320 people have been People haven't noticed the leadership that's building 0:15:04.400 --> 0:15:07.760 up in Asia. You know, China's coming up with really innovative, 0:15:07.800 --> 0:15:12.040 disruptive companies, and I think people should be more diversified 0:15:12.160 --> 0:15:13.560 in their AI holdings. 0:15:13.800 --> 0:15:14.920 Joy, thanks so much for joining us. 0:15:14.960 --> 0:15:15.600 Really appreciated. 0:15:15.640 --> 0:15:16.160 Joey Yang. 0:15:16.440 --> 0:15:20.960 She's a head of index product management at market Vector Indexes. 0:15:22.960 --> 0:15:26.120 Stay with us. More from Bloomberg Surveillance coming up after this. 0:15:32.320 --> 0:15:35.920 You're listening to the Bloomberg Surveillance podcast. Catch us live 0:15:35.960 --> 0:15:39.120 weekday afternoons from seven to ten am Eastern Listen on 0:15:39.200 --> 0:15:42.880 Applecarplay and Android Auto with the Bloomberg Business app, or 0:15:43.040 --> 0:15:44.680 watch us live on YouTube. 0:15:45.000 --> 0:15:46.280 Well you go out to side, you go to over 0:15:46.280 --> 0:15:49.800 to Europe. The eurostock index justin for currencies up thirty 0:15:49.840 --> 0:15:50.360 three percent? 0:15:50.360 --> 0:15:50.960 How about that? 0:15:51.520 --> 0:15:55.960 Asian indexes up, you know, mid twenties returns. Everybody's making 0:15:56.000 --> 0:15:57.520 money in the equity markets here, what do we do 0:15:57.560 --> 0:16:01.200 for twenty twenty six? Chris camp pitsis joins us here. 0:16:01.240 --> 0:16:05.720 He's a managing partner Barnum Financial Group. Chris, you know, 0:16:05.920 --> 0:16:09.520 investors had a really good three year run in equities. 0:16:09.520 --> 0:16:11.040 They made a lot of money in the bond market 0:16:11.040 --> 0:16:14.240 in twenty twenty five. What's the conversations you're having with 0:16:14.280 --> 0:16:17.280 your clients is to expectations for twenty six. 0:16:18.200 --> 0:16:19.280 Yeah, that's a great question. 0:16:19.520 --> 0:16:23.200 And expectations I think as we look to go forward 0:16:23.200 --> 0:16:24.040 into the new year. 0:16:25.240 --> 0:16:25.640 You know, the. 0:16:25.600 --> 0:16:28.120 Reality is if we look at how the last time 0:16:28.160 --> 0:16:31.640 we had four double digit up years in a row, 0:16:32.280 --> 0:16:34.320 that didn't end so well, right, that ended with the 0:16:34.360 --> 0:16:37.720 dot com bubble burst. And so if we're going to 0:16:37.800 --> 0:16:42.200 see another double digit, high momentum, high growth kind of year, 0:16:42.840 --> 0:16:47.000 we're going to need some kind of goldilocks economic and 0:16:47.080 --> 0:16:49.560 stock performance in order to do that. So what has 0:16:49.600 --> 0:16:52.040 to happen for that to be the case. Well, First, 0:16:52.520 --> 0:16:55.560 we need to see those accommodative interest rate cuts from 0:16:55.640 --> 0:17:00.840 the FED to unemployment. Obviously can't get two out of control. 0:17:01.760 --> 0:17:02.760 And third, we. 0:17:02.800 --> 0:17:05.480 Can't have any AI bubble bursts, and that means we 0:17:05.560 --> 0:17:08.879 need technology companies to really show and prove when earning 0:17:08.920 --> 0:17:13.280 season comes along. The market didn't react too positively to 0:17:13.320 --> 0:17:15.960 the last couple earning seasons, even though these big tech 0:17:16.000 --> 0:17:20.159 companies delivered great results, and so that leaves us a 0:17:20.240 --> 0:17:22.040 little cautious headed into the new year. 0:17:22.600 --> 0:17:25.240 So if you're cautious and you talked about tech, Chris, 0:17:25.880 --> 0:17:28.479 if you're widening out, I see in your note you 0:17:28.640 --> 0:17:31.439 like utilities, which makes a lot of sense because in 0:17:31.480 --> 0:17:34.400 an environment of lower rates, but also all the electricity, 0:17:34.480 --> 0:17:37.919 all the data centers right that are being built to support. 0:17:37.560 --> 0:17:40.800 AI exactly right, So we think of that as almost 0:17:40.880 --> 0:17:45.240 an AI adjacent play, if you will, what are the sectors, 0:17:45.240 --> 0:17:47.480 what are the industries? What are the companies that are 0:17:47.520 --> 0:17:51.280 going to benefit from artificial intelligence but aren't necessarily the 0:17:51.320 --> 0:17:57.280 semiconductor of companies themselves and thematically, if we can see 0:17:57.560 --> 0:18:01.320 real companies start to increase their profit margins and their 0:18:01.359 --> 0:18:06.080 earnings as a result of actually implementing artificial intelligence into 0:18:06.119 --> 0:18:09.600 their businesses. Well, that's going to change the conversation from 0:18:09.800 --> 0:18:13.080 is this a bubble? To how high can we go? 0:18:13.640 --> 0:18:16.040 You know, in a positive and healthy manner. 0:18:16.400 --> 0:18:18.720 Chris, talk to us about how you think about investing 0:18:18.720 --> 0:18:22.040 in the US versus non US, and maybe that's developing 0:18:22.080 --> 0:18:23.200 markets and merging markets. 0:18:23.240 --> 0:18:23.920 How do you think about that? 0:18:24.840 --> 0:18:27.959 So, you know, if you look at the typical investors 0:18:28.240 --> 0:18:32.160 US based investors portfolio, it's extremely S and P five 0:18:32.240 --> 0:18:35.679 hundred centric S and P five hundred almost has a 0:18:35.680 --> 0:18:39.880 monopoly on the average investor's portfolio. And twenty twenty five 0:18:40.040 --> 0:18:42.800 was a year in which the international markets, you know, 0:18:42.840 --> 0:18:45.119 waved their hands and said, hey, take a look at me, 0:18:45.280 --> 0:18:51.320 because we're here too. And meanwhile, you have governments who 0:18:51.600 --> 0:18:54.639 are evaluating their trading partners, right. We saw that with 0:18:54.760 --> 0:18:57.840 Liberation Day and the tariffs and the tariff negotiations that 0:18:57.880 --> 0:19:01.399 have taken place since then. So as countries are looking 0:19:01.480 --> 0:19:06.400 to really re establish their trading relationships, and then companies 0:19:06.400 --> 0:19:10.919 are looking to similarly diversify their supply chains. And then 0:19:10.960 --> 0:19:14.560 on top of that you have this weakening dollar. It 0:19:14.720 --> 0:19:18.520 begs investors to start to take a look at other economies. 0:19:18.520 --> 0:19:22.400 And other markets as complements to their US portfolio. 0:19:23.200 --> 0:19:27.120 Where I'm curious where you're looking in the world. I mean, 0:19:27.240 --> 0:19:29.359 I know, we say Europe, we say emerging markets, but 0:19:30.320 --> 0:19:31.920 when you sort of drill down. 0:19:32.040 --> 0:19:36.000 Sure, So one country that we find very attractive right 0:19:36.000 --> 0:19:40.560 now is Japan. In general, companies in Japan have very 0:19:41.160 --> 0:19:44.879 cash rich balance sheets. There's been a renewed focus in 0:19:44.960 --> 0:19:48.800 Japan about delivering shareholder value. You're seeing a big increase 0:19:48.840 --> 0:19:51.800 in buybacks, You're seeing a big increase in dividend hikes, 0:19:52.480 --> 0:19:55.520 and then you have a much more accommodative fiscal policy 0:19:55.600 --> 0:20:00.199 the last couple of years. And what's interesting about Japan is, 0:20:00.680 --> 0:20:02.800 you know, the knock on them for a long time 0:20:02.840 --> 0:20:07.639 has been an aging population. But an aging population also 0:20:07.760 --> 0:20:12.160 lends itself to automation and technology enhancements. So we think 0:20:12.200 --> 0:20:16.119 it's a perfect opportunity for Japanese equities. And then, of course, 0:20:16.160 --> 0:20:20.480 with the strengthening yen weakening dollar for US dollar based returns, 0:20:20.560 --> 0:20:23.720 that's a real positive for the US consumer and investor. 0:20:23.880 --> 0:20:27.280 We haven't talked about Japan for thirty years, but it's 0:20:27.359 --> 0:20:29.480 back in vogue here. I mean, is this something that's 0:20:30.520 --> 0:20:32.639 a longer term trend, and my son's about to do 0:20:32.680 --> 0:20:35.359 a semester brought in Japan, and he's all in on Japan. 0:20:35.440 --> 0:20:37.560 But I'm like, all right, that was in nineteen eighty 0:20:37.600 --> 0:20:38.480 that would have been a good call. 0:20:38.680 --> 0:20:40.159 But maybe it's coming back here. I don't know. 0:20:41.359 --> 0:20:43.919 I think it is because ultimately, well, we have the 0:20:44.000 --> 0:20:47.560 volatility of what's happening with AI and a little bit 0:20:47.560 --> 0:20:51.159 of political uncertainty in the US and of course conflict 0:20:51.240 --> 0:20:55.360 and tensions with China. People are looking for a consistent 0:20:55.440 --> 0:20:59.200 story and Japan looks to deliver that here and they've 0:20:59.240 --> 0:21:01.919 got a lot of characteristics of what could present a 0:21:01.920 --> 0:21:05.080 big opportunity. That started in twenty five, and I think 0:21:05.119 --> 0:21:07.240 the momentum will continue into twenty twenty six. 0:21:08.200 --> 0:21:10.199 Just crossing the tape here in the Bloomberg terminal, red 0:21:10.240 --> 0:21:14.080 headlines SoftBank to buy Digital Bridge for sixteen. 0:21:13.720 --> 0:21:15.399 Dollars per share in cash. 0:21:15.480 --> 0:21:18.760 So they still speaking about Monday Bank h exactly even 0:21:18.800 --> 0:21:21.600 on a holiday weeks. Back to the US for a minute, 0:21:21.640 --> 0:21:24.639 Chris and we talked about we ticked some boxes, talking 0:21:24.640 --> 0:21:28.720 about utilities, talking about tech, what about consumer staples, what's 0:21:28.800 --> 0:21:31.440 the outlook the prognosis for them in twenty twenty six. 0:21:32.520 --> 0:21:36.800 I love that question because what happens is technology has 0:21:36.880 --> 0:21:39.080 been driving the market, both in the short term and 0:21:39.200 --> 0:21:42.280 long term. I think most people would agree AI has 0:21:42.320 --> 0:21:44.520 a tremendous long term. 0:21:44.320 --> 0:21:45.200