WEBVTT - The Fed Holds Steady, Broadcom Beats on AI Demand 0:00:02.480 --> 0:00:06.800 Bloomberg Audio Studios, podcasts, radio news. 0:00:09.640 --> 0:00:12.840 This is the Bloomberg Daybreak Aisia podcast. I'm Doug Krisner. 0:00:12.920 --> 0:00:15.400 You can join Brian Curtis and myself for the stories, 0:00:15.440 --> 0:00:18.520 making news and moving markets in the APAC region. You 0:00:18.600 --> 0:00:21.439 can subscribe to the show anywhere you get your podcast 0:00:21.520 --> 0:00:24.919 and always on Bloomberg Radio, the Bloomberg Terminal, and the 0:00:24.920 --> 0:00:26.080 Bloomberg Business App. 0:00:27.000 --> 0:00:29.400 Joining us now for look at markets in the Asia 0:00:29.400 --> 0:00:33.879 Pacific and globally is Jamie Cox, Managing partner at Harris 0:00:33.880 --> 0:00:37.879 Financial Group. Jamie, thanks very much. So I was characterizing 0:00:37.920 --> 0:00:41.760 the CPI report as offering some positives to the market 0:00:42.360 --> 0:00:44.280 and the FED meeting. Well, I suppose you could take 0:00:44.280 --> 0:00:48.519 that either way. One rate cut penciled in this year 0:00:48.560 --> 0:00:51.080 instead of three and then one more next year still 0:00:51.120 --> 0:00:54.200 means that for the next eighteen months a year and 0:00:54.200 --> 0:00:58.880 a half, FED policymakers are expecting one fewer rate cut 0:00:58.960 --> 0:01:03.080 than what the market is thinking. Yet the markets were buoyant. 0:01:03.240 --> 0:01:06.000 So just your thoughts on the current environment. 0:01:07.080 --> 0:01:09.399 Well, I mean, this is the third consecutive session that 0:01:09.440 --> 0:01:11.400 you've seen, you know, all time highs for the S 0:01:11.480 --> 0:01:15.600 and P five hundred. Markets don't need rate cuts. That's 0:01:15.640 --> 0:01:18.440 the bottom line. I mean, we're sitting at a situation. Yeah, 0:01:18.480 --> 0:01:21.440 I really believe that it's that investors are begging for 0:01:21.480 --> 0:01:23.760 the wrong thing when they're asking for the Fed to 0:01:23.800 --> 0:01:27.560 cut rates. You know, historically, the time between the last 0:01:27.920 --> 0:01:31.720 increase in the FED funds rate and the first decrease 0:01:32.080 --> 0:01:34.760 in the FED funds rate sometime later is when the 0:01:34.800 --> 0:01:38.760 markets are strongest and and the majority of the return 0:01:38.880 --> 0:01:41.720 during that period is front loaded. So investors need to 0:01:41.760 --> 0:01:43.640 be careful what they wish for when they when they're 0:01:43.640 --> 0:01:46.360 talking about rates. If rates are pushed into the future, 0:01:46.760 --> 0:01:49.480 it's actually very very positive for stocks. It's been It's 0:01:49.520 --> 0:01:52.480 actually the Goldilock scenario in markets. So I believe that 0:01:52.560 --> 0:01:55.560 most people will be happy to for the Fed to 0:01:55.600 --> 0:01:57.920 be you know a little bit more sanguine in their 0:01:58.000 --> 0:01:59.160 need to cut rates quickly. 0:01:59.480 --> 0:02:03.320 Soldilocks and no bears looking around the corner. Is that 0:02:03.360 --> 0:02:05.960 the way you see it now, Jamie, Well. 0:02:05.840 --> 0:02:08.000 You know, it's really interesting. I mean, we were sitting 0:02:08.000 --> 0:02:10.679 at a very similar time to the mid nineties, where 0:02:10.720 --> 0:02:14.280 you have this massive productivity wave that is yet to 0:02:14.320 --> 0:02:19.160 be realized. You're seeing you know, massive infrastructure investment, the 0:02:19.320 --> 0:02:22.040 likes we haven't seen in such a long time try to, 0:02:22.160 --> 0:02:25.680 you know, build out the AI infrastructure. We have not 0:02:25.760 --> 0:02:28.120 yet seen the benefits of it. We've only seen the 0:02:28.160 --> 0:02:30.960 beginning of the investment component, and that's going to be 0:02:31.200 --> 0:02:33.799 very negative for inflation in the future. So I think 0:02:33.840 --> 0:02:38.160 markets are looking beyond the temporary factors that have you know, 0:02:38.880 --> 0:02:41.440 you know, kept the last mile of inflation from coming 0:02:41.480 --> 0:02:43.640 down to the target from the Fed, and looking at 0:02:43.720 --> 0:02:46.200 the future and saying, gosh, there's some really positive things 0:02:46.240 --> 0:02:49.680 that are happening in tech and energy and industrials. This 0:02:49.760 --> 0:02:52.880 is a really good time to invest. And you know, 0:02:53.320 --> 0:02:55.600 there's a lot of people who are afraid and that 0:02:55.720 --> 0:02:58.160 is and they think markets aren't good and it's just 0:02:58.280 --> 0:03:00.400 not true. I mean, people aren't paying attention to all 0:03:00.400 --> 0:03:02.480 of the benefits and all the earnings, all the money 0:03:02.520 --> 0:03:05.640 that's being made. And now, what's interesting to me, I 0:03:05.680 --> 0:03:07.880 work with a lot of retired people, and for the 0:03:07.919 --> 0:03:10.079 first time in the long time, people's retirements are a 0:03:10.160 --> 0:03:13.080 lot more secure now because they can actually earn respectable 0:03:13.280 --> 0:03:16.680 face income rates on their investments. It's the irony is 0:03:17.120 --> 0:03:19.040 not lost on me on how much better things are 0:03:19.080 --> 0:03:19.959 when rates are higher. 0:03:20.720 --> 0:03:22.360 Doug, you listen to me every day. This guy's in 0:03:22.400 --> 0:03:24.760 my head. This is what I've been talking about. I mean, 0:03:24.840 --> 0:03:27.160 I couldn't agree more. Who cares what I think? But 0:03:27.200 --> 0:03:29.720 we do care what you think, Jamie, and I know 0:03:29.760 --> 0:03:32.600 that you're sort of big on the broadening theme, and 0:03:32.680 --> 0:03:34.720 I was just having a look a little bit earlier 0:03:34.720 --> 0:03:36.920 this morning. The S and B five hundred is up 0:03:36.960 --> 0:03:40.600 about twenty four percent over the past twelve months, and 0:03:40.720 --> 0:03:43.800 the equal weight S and P is up sixteen percent. 0:03:44.080 --> 0:03:46.400 Now that's not as much, but it's not bad. 0:03:47.880 --> 0:03:49.000 No, it's actually good. 0:03:49.080 --> 0:03:51.400 I'm actually glad because it's been way worse than that 0:03:51.840 --> 0:03:54.240 over the past couple of years. I mean, you've had, 0:03:54.480 --> 0:03:58.280 you know, the top tech stocks which are consistently bringing 0:03:58.360 --> 0:04:00.760 the average hire, but you're so already to see the 0:04:00.800 --> 0:04:03.840 rest of the rest of the field catch up, and 0:04:03.960 --> 0:04:07.640 last year financials were a gigantic drag on the equal 0:04:07.640 --> 0:04:11.360 weight SMP. That seems to be turning around some and 0:04:11.400 --> 0:04:13.720 you're also seeing some of the other the other areas 0:04:13.760 --> 0:04:15.960 of utilities and things like I start to get some 0:04:16.040 --> 0:04:19.520 life behind them. So the broadening out of of the 0:04:19.800 --> 0:04:22.440 of the sector weightings I think is very positive. It's 0:04:22.480 --> 0:04:24.600 been talked about and talked about and talked about that 0:04:24.800 --> 0:04:27.760 never happened, and I believe it's happening in earnest now 0:04:28.360 --> 0:04:31.479 and there's a lot of people who had diversified portfolios 0:04:31.520 --> 0:04:34.320 who have really been kicking themselves for not having it 0:04:34.400 --> 0:04:37.320 all in the Nasdaq or in the queues are finally 0:04:37.360 --> 0:04:40.840 going to benefit from that diversification. So so here here 0:04:40.880 --> 0:04:41.039 to that. 0:04:41.200 --> 0:04:43.680 Yeah, I'm wondering whether we can't make the same statement 0:04:43.760 --> 0:04:47.960 about being overly diverse in geographically when it comes to 0:04:48.040 --> 0:04:51.880 equity markets around the world. Proof it kind of the 0:04:51.960 --> 0:04:54.720 data points that Brian just mentioned that maybe you really 0:04:54.760 --> 0:04:57.760 needed to be overly exposed to the US through this period. 0:04:58.839 --> 0:05:01.560 Yeah, that's that is for sure. There is no question 0:05:01.640 --> 0:05:05.600 that the US markets have dominated everything, and I don't 0:05:05.640 --> 0:05:09.360 think that's going to change. I mean, there are some divergence, 0:05:09.640 --> 0:05:13.040 you know, in central bank policy that may change the 0:05:13.120 --> 0:05:18.560 dynamic a little bit, But when everything is so tech dominant, 0:05:19.080 --> 0:05:21.440 there's really no other part of the world that can compete. 0:05:21.720 --> 0:05:24.320 And that's just the bottom line. And as long as 0:05:24.360 --> 0:05:26.479 that persists, I think that's the way it's going to be. 0:05:26.600 --> 0:05:30.440 Unless there's a major turnover in tech. I think that 0:05:30.600 --> 0:05:34.279 US markets will remain the leader period in the discussion. 0:05:34.720 --> 0:05:39.400 So that said, the tai X in Taiwan is up 0:05:39.720 --> 0:05:42.120 sixteen percent year to date. That's more than the S 0:05:42.160 --> 0:05:47.120 and p's thirteen percent. And also the EK in yen 0:05:47.240 --> 0:05:49.559 terms is up sixteen percent. There's only up four percent 0:05:49.600 --> 0:05:51.479 in dollar terms. But that's kind of the crux of 0:05:51.480 --> 0:05:53.919 the problem, isn't it. The dollar has been so strong 0:05:54.320 --> 0:05:56.360 that it's kind of pummeled a lot of foreign markets. 0:05:57.400 --> 0:05:58.000 Yeah, it's been. 0:05:58.080 --> 0:06:00.760 It's been difficult to be a US US investor and 0:06:01.160 --> 0:06:04.839 devote some of your capital overseas. That is definitely the 0:06:04.839 --> 0:06:08.640 currency translation is in your way, But that doesn't mean 0:06:08.640 --> 0:06:12.480 that there aren't plenty of opportunities. And you know, it 0:06:12.480 --> 0:06:15.680 has been such a long time since international markets dominated. 0:06:16.200 --> 0:06:18.640 At some point the pendulum will switch, but I don't 0:06:18.640 --> 0:06:21.000 think that's any time soon. I think that it's very 0:06:21.040 --> 0:06:25.200 much a sector specific story, perhaps in Taiwan, but I 0:06:25.240 --> 0:06:28.240 don't think that you're going to see much change, not 0:06:28.360 --> 0:06:30.800 for a while. The US is so dominant from a 0:06:30.800 --> 0:06:33.640 consumption point of view, it's really difficult to change the 0:06:33.720 --> 0:06:34.360 narrative there. 0:06:35.240 --> 0:06:37.240 All right, Jamie, thanks very much for joining us here 0:06:37.279 --> 0:06:39.320 live on the program. Enjoyed the chat. We'll get you 0:06:39.360 --> 0:06:43.760 back again, Jamie Cox, managing partner at Harris Financial Group. 0:06:50.960 --> 0:06:53.800 Well after the belt here in the US, Broadcom reported 0:06:53.920 --> 0:06:59.040 quarterly results and gave an annual forecast, both topping estimates. 0:06:59.279 --> 0:07:02.240 This is a reflect reduction of robust demand for artificial 0:07:02.279 --> 0:07:05.800 intelligence products. We have a bit more from Bloomberg's Charlie Pellett. 0:07:06.560 --> 0:07:09.680 Broadcom is a chip supplier to Apple and other big 0:07:09.800 --> 0:07:13.120 tech companies. It said sales in the full fiscal year, 0:07:13.320 --> 0:07:17.160 which runs through October, will be about fifty one billion dollars. 0:07:17.400 --> 0:07:21.200 Analysts had projected about fifty point six billion. The race 0:07:21.280 --> 0:07:26.760 to build artificial intelligence systems has benefited semiconductor companies like Broadcom, 0:07:27.040 --> 0:07:29.920 even though they don't sell the highly prized AI chips 0:07:29.920 --> 0:07:33.400 that are made by Nvidia in New York, Charlie Pellett 0:07:33.440 --> 0:07:35.400 Bloomberg Radio, and. 0:07:35.320 --> 0:07:39.040 The stock jumped almost fifteen percent in late trading. Joining 0:07:39.080 --> 0:07:43.280 us for more on Broadcom is Kunjhon Sobani, senior semiconductor 0:07:43.320 --> 0:07:47.280 analyst for Bloomberg Intelligence. Kunjohn, thanks very much for coming in. 0:07:47.360 --> 0:07:49.640 So we had a revenue beat and a profit beat, 0:07:50.320 --> 0:07:52.960 and then we also had a forecast beat. But these 0:07:52.960 --> 0:07:57.520 were not really massive beats. There is this stock split, 0:07:57.840 --> 0:07:59.880 but it's a little tricky trying to figure out what 0:08:00.240 --> 0:08:03.640 drove the stock up nearly fifteen percent in late trading. 0:08:03.680 --> 0:08:05.760 So I'll put that question to you. What did. 0:08:07.280 --> 0:08:07.520 Yeah? 0:08:07.560 --> 0:08:11.600 So, I mean, the short answer is everything that investors 0:08:11.640 --> 0:08:14.720 and as analysts were looking and hoping for during the 0:08:14.760 --> 0:08:18.240 call sort of came in line. There were three things 0:08:18.320 --> 0:08:20.160 going into Gold. We wanted to see an upside to 0:08:20.200 --> 0:08:24.840 the AI numbers, which did happen, actually significant upside to 0:08:24.880 --> 0:08:27.920 the AI specific numbers, even though on a total revenue 0:08:27.960 --> 0:08:30.640 as you said, it was not a big upside. Second, 0:08:30.680 --> 0:08:33.680 we wanted to look at better or upside to the 0:08:33.800 --> 0:08:37.240 VMware numbers, both for the quarter and the outlook, which 0:08:37.280 --> 0:08:41.360 did happen. VMware numbers came better than what the speed estimated, 0:08:41.440 --> 0:08:44.320 and the outlook looks again better both in terms of 0:08:44.360 --> 0:08:46.960 revenue growth as well as the cost cutting and the 0:08:47.000 --> 0:08:50.160 integration part of it. And Third, we wanted to see 0:08:50.920 --> 0:08:54.640 a sort of a confirmed bottom and a clarity of 0:08:54.679 --> 0:08:58.880 recovery in its non AI sychnical business, which again did happen, 0:08:59.360 --> 0:09:02.839 most of it non AI cyclical business. The company said 0:09:03.000 --> 0:09:05.760 Q two will be the bottom except for broadband, which 0:09:05.920 --> 0:09:07.520 will continue to persist weakness. 0:09:07.640 --> 0:09:10.720 Con John, you know, semiconductor is such a broad category. 0:09:10.760 --> 0:09:14.240 We talk about the AI accelerators, when we talk about 0:09:14.280 --> 0:09:17.000 in Nvidia, we talk about the memory chips companies like 0:09:17.080 --> 0:09:21.920 Micron and Samsung. Sk Heinex help me understand the products 0:09:22.240 --> 0:09:26.400 that Broadcom is involved in manufacturing and how that fits 0:09:26.400 --> 0:09:29.559 into the overall chip ecosystem. 0:09:29.720 --> 0:09:33.920 Yeah, so I'll Broadcom has many semiconductor businesses, but for 0:09:34.040 --> 0:09:35.480 this I'll stick to the AI portion. 0:09:35.880 --> 0:09:36.880 So it has two. 0:09:37.160 --> 0:09:42.240 Major products when it comes to AI. One is the accelerators, 0:09:42.480 --> 0:09:45.520 which is the ACIC accelerators that it only sells to 0:09:46.000 --> 0:09:50.239 these large cloud providers and hyperscalers like Google and Facebook, 0:09:50.720 --> 0:09:54.320 And this is sort of an alternative to the merchant 0:09:54.400 --> 0:09:58.240 GPU Silicon do, Nvidia and AMD Cell. So there's a 0:09:58.280 --> 0:10:01.800 portion of that market where Dotcom is the leader actually 0:10:01.880 --> 0:10:05.200 and the number one and has majority share in that market. 0:10:05.840 --> 0:10:08.439 Other than that, in AI, they sell a lot of 0:10:08.520 --> 0:10:11.880 networking and connectivity chips, so you need to connect all 0:10:11.920 --> 0:10:16.160 of these memories and GPUs on networks and optics. So 0:10:16.200 --> 0:10:19.480 there's a lot of chips and components involved here that 0:10:19.679 --> 0:10:22.559 Broadcom sort of supports the ecosystem. 0:10:22.960 --> 0:10:26.000 Yeah, it's a it's a very complex and big company. 0:10:26.360 --> 0:10:30.080 There's a there's a big software component too. And one 0:10:30.120 --> 0:10:33.199 of the reasons that maybe Broadcom stock had lagged a 0:10:33.240 --> 0:10:35.400 little bit over the past quarter. And I say that 0:10:35.520 --> 0:10:38.880 because a week ago the stock was at about thirteen 0:10:38.920 --> 0:10:42.080 hundred dollars and change, and you know, it had gotten 0:10:42.120 --> 0:10:45.120 to over fourteen hundred way back when it announced earnings 0:10:45.120 --> 0:10:47.680 a quarter ago. Hasn't done all that much. And that 0:10:47.760 --> 0:10:50.600 coincided with a lot of selling and software company, I 0:10:50.600 --> 0:10:53.080 mean software has struggled quite a lot. And if you 0:10:53.080 --> 0:10:57.040 look at Broadcoms mix you talked about the semiconductors, I 0:10:57.040 --> 0:10:59.600 think they run about sixty seventy percent. You've got twenty 0:10:59.600 --> 0:11:03.640 percent VMware another ten or fifteen percent in software. So 0:11:03.720 --> 0:11:06.560 maybe a little bit of relief from investors today that yeah, 0:11:06.559 --> 0:11:07.880 the software portion was okay. 0:11:09.200 --> 0:11:10.840 Yeah, you're definitely on spot. 0:11:10.880 --> 0:11:13.640 And one of the concerns with this VMware deal is 0:11:13.679 --> 0:11:17.719 their largest and a bit different than the typical software 0:11:17.760 --> 0:11:20.840 assets that they've acquired in the past, where they only 0:11:20.840 --> 0:11:24.840 focus on select few large customers. But VMware has hundreds 0:11:24.840 --> 0:11:27.560 of thousands of customers, so exactly put right, you know, 0:11:27.600 --> 0:11:30.600 the coster coming down better than what they had laid out, 0:11:30.840 --> 0:11:34.080 and the revenue growth is not being impacted as some 0:11:34.840 --> 0:11:38.040 had worried. So a relief over there that the software 0:11:38.080 --> 0:11:39.400 per piece is still doing. 0:11:39.200 --> 0:11:40.199 Fine, Kunchan. 0:11:40.280 --> 0:11:42.600 When you look at the overall industry right now, so 0:11:42.679 --> 0:11:45.720 much of this, as we've been discussing, revolves on the 0:11:46.000 --> 0:11:50.559 around the AI trade. Are you seeing signs of any 0:11:50.679 --> 0:11:54.160 type of a slowdown in demand or is thing? Are 0:11:54.200 --> 0:11:57.040 things still firing on all cylinders. 0:11:58.240 --> 0:12:03.000 From our perspective, for the pure play AI chip makers, 0:12:03.280 --> 0:12:06.120 not the ones you know, not the wannabes, but the 0:12:06.120 --> 0:12:10.040 ones who are currently selling, see don't see any slowdown. 0:12:10.760 --> 0:12:13.079 One proof point of that is if you look at 0:12:13.120 --> 0:12:18.280 all the biggest US hyperscalers and cloud service providers, they 0:12:18.320 --> 0:12:21.920 inaggregate have raised their CAPEX spending for twenty twenty four 0:12:22.360 --> 0:12:25.640 by forty percent over twenty three levels, which were already 0:12:25.800 --> 0:12:29.720 at sky high. So as long as those guys don't 0:12:29.760 --> 0:12:33.400 pause or slow down spending, the AI chip pure play 0:12:33.800 --> 0:12:35.880 names should be fine, because those are the ones who 0:12:35.880 --> 0:12:37.720 are they're spending the most money on. 0:12:39.280 --> 0:12:40.920 You know, it's kind of funny. I was just looking 0:12:40.960 --> 0:12:43.600 inside the costp here for some of the gains this morning, 0:12:44.040 --> 0:12:46.720 and you know you can imagine after the broadcon print 0:12:46.760 --> 0:12:50.000 and the reaction to it, information technology is up two 0:12:50.040 --> 0:12:52.720 and a half percent, But it's not the biggest gainer. 0:12:52.760 --> 0:12:56.960 What's the biggest gainer utilities? So you know that's kind 0:12:57.000 --> 0:13:00.760 of tied now utilities and power producers sort of tied 0:13:00.800 --> 0:13:04.000 to the AI trade. A lot of people exposed to this. 0:13:04.040 --> 0:13:08.480 So my question to you, Ken John is what's the 0:13:08.480 --> 0:13:10.920 most important thing to watch for? Is it a warning 0:13:11.000 --> 0:13:14.559 from in video when in Vidia finally does say worn 0:13:14.720 --> 0:13:17.600 on revenue? Is that the time you know, up until 0:13:17.600 --> 0:13:19.840 that time, you're okay, but then look out? 0:13:21.480 --> 0:13:25.000 Yeah, I think Nvidia could be definitely a good bogie. 0:13:25.080 --> 0:13:29.880 So if Nvidia says any concerning comments, that's definitely a 0:13:29.920 --> 0:13:33.480 big signal given that they have about more than ninety 0:13:33.480 --> 0:13:36.840 percent share there. Another good proxy point could be again 0:13:36.920 --> 0:13:41.120 the CAPEX spending from the large four or five cloud 0:13:41.320 --> 0:13:43.960 to the providers and hyperscalers. If they come out and 0:13:44.000 --> 0:13:47.200 say that they're reducing their spend for twenty twenty five, 0:13:47.720 --> 0:13:49.040 that could be to say. 0:13:49.120 --> 0:13:52.640 Another concern you mentioned the wannabes, and I'd like you 0:13:52.679 --> 0:13:55.400 to expand on that the companies that are aspiring to 0:13:55.920 --> 0:13:58.400 rise to the level of Nvidia, maybe they've got a 0:13:58.440 --> 0:14:00.840 heavy lift ahead of them, but the R and D 0:14:01.000 --> 0:14:04.000 spending that would be required to engineer a chip as 0:14:04.040 --> 0:14:09.400 sophisticated as some of the AI accelerators that in Vidia manufacturers. 0:14:10.640 --> 0:14:14.000 Can you imagine a world where a company rivals in 0:14:14.120 --> 0:14:15.040 Vida at some point? 0:14:17.000 --> 0:14:19.000 I mean, you could never say never. 0:14:19.840 --> 0:14:23.640 You know, we have a good precedent from Intel at 0:14:23.640 --> 0:14:27.920 one point the largest semiconductor company by revenue, by unit sales, etc. 0:14:28.200 --> 0:14:30.640 And we used to you know, I've covered this sect. 0:14:30.760 --> 0:14:32.760 I've been in this industry for twenty years. I used 0:14:32.760 --> 0:14:35.440 to think of like, nobody could ever overtake Intel, right, 0:14:35.480 --> 0:14:37.680 but it did happen, So you can. 0:14:37.600 --> 0:14:39.400 Never say never. But yes, you're right. 0:14:39.600 --> 0:14:42.520 I mean, at this point you were talking about tens, 0:14:42.600 --> 0:14:45.240 if not in fifties, you know, billions. 0:14:44.880 --> 0:14:47.960 Of dollars of R and D to catch up to Nvidia. 0:14:48.000 --> 0:14:51.440 So it's really that Nvidia has to misstep itself or 0:14:51.520 --> 0:14:54.320 hit itself in the foot to get someone else ahead 0:14:54.360 --> 0:14:54.640 of them. 0:14:55.320 --> 0:14:57.800 All right, Cunjohn, thanks so much for joining us. Some 0:14:57.840 --> 0:15:03.000 great information there. Kunjohn's Bonnie Senior semiconductor analyst for Bloomberg 0:15:03.200 --> 0:15:15.040 Intelligence looking at Broadcom in its earnings earlier today. Joining 0:15:15.120 --> 0:15:18.720 us here on the program is Sarah Ponzak, financial advisor 0:15:18.800 --> 0:15:22.000 at UBS Private Wealth Management. Well, let's talk about the 0:15:22.040 --> 0:15:25.240 FED here. On the face of it, this was actually 0:15:25.280 --> 0:15:29.160 a hawkish FED meeting, given the one rate cut this 0:15:29.280 --> 0:15:32.400 year down from three in the dot plots, and also 0:15:32.440 --> 0:15:35.520 the raising of the core inflation forecast by the end 0:15:35.560 --> 0:15:38.840 of the year. But the market response was, as we know, 0:15:39.040 --> 0:15:41.080 quite positive, with the S and P five hundred up 0:15:41.120 --> 0:15:44.640 almost one percent. I think many would say that this 0:15:44.800 --> 0:15:49.360 is that the market has confidence in disinflation and confidence 0:15:49.440 --> 0:15:51.960 in the FED. Would you agree, I. 0:15:51.920 --> 0:15:53.280 Would absolutely agree with you. 0:15:53.320 --> 0:15:55.560 I think, especially if you just look at today's market action, 0:15:56.200 --> 0:15:57.440 the market would agree. 0:15:57.240 --> 0:15:59.320 With you as well. Look, when it comes. 0:15:59.120 --> 0:16:02.600 To the FED meeting today, you highlighted it. Really what 0:16:02.720 --> 0:16:05.800 the big news was was that dot plot, the fact 0:16:06.160 --> 0:16:09.040 that the median dot in the dot plot is now 0:16:09.200 --> 0:16:12.520 only pointing to one rate cut in twenty twenty four. 0:16:12.880 --> 0:16:17.280 But if you listen to many market watchers strategists, you. 0:16:17.240 --> 0:16:19.560 Even look at what the market is pricing, what a 0:16:19.560 --> 0:16:22.560 lot of people are thinking is that, well, maybe you 0:16:22.600 --> 0:16:27.600 know these FED officials submitted their dots before this morning's 0:16:27.640 --> 0:16:31.720 inflation data. Because this morning's inflation data, and you laid 0:16:31.760 --> 0:16:33.400 it out right at the top of the show, the 0:16:33.440 --> 0:16:37.120 fact that we saw CPI rise year every year by 0:16:37.160 --> 0:16:40.000 three point four percent in May, that's the slowest pace 0:16:40.000 --> 0:16:41.880 of more than three years. I think the Fed might 0:16:41.880 --> 0:16:44.240 be patting themselves on the back a little bit saying, 0:16:44.240 --> 0:16:44.920 all right. 0:16:44.760 --> 0:16:46.640 We're seeing disinflation now. 0:16:47.000 --> 0:16:50.240 The market really latched onto that and said, okay, well, 0:16:50.360 --> 0:16:53.920 inflation's coming down. Sure, the Fed is saying only one 0:16:53.960 --> 0:16:56.160 cut this year, but you add it all together, what 0:16:56.200 --> 0:16:58.000 do you get. You have a market that's still pricing 0:16:58.040 --> 0:16:59.800 in two cuts this year. So the market is still 0:16:59.840 --> 0:17:01.040 called the fence bloff there. 0:17:01.480 --> 0:17:03.880 So maybe we can agree that the degree of easing 0:17:03.960 --> 0:17:06.639 really hasn't changed much. I mean, Brian talked about the 0:17:06.680 --> 0:17:09.240 fact that now there are more rate cuts forecast in 0:17:09.280 --> 0:17:13.120 twenty twenty five. Timeline has changed a little bit here. 0:17:13.240 --> 0:17:15.040 But in your view, Sarah, what does it mean for 0:17:15.080 --> 0:17:18.840 the market, for the equity market in particular, correct, So. 0:17:18.840 --> 0:17:23.080 I don't think today's events really mean all that much 0:17:23.200 --> 0:17:26.720 as it pertains to change for the equity market. Sure, 0:17:26.840 --> 0:17:29.600 if we get a cut one quarter or one month 0:17:29.680 --> 0:17:33.119 later than expected before, that's not that big of a 0:17:33.119 --> 0:17:36.720 difference as long as the direction of travel remains the same, and. 0:17:36.680 --> 0:17:39.080 The direction of travel for interest rates. 0:17:39.080 --> 0:17:42.240 As of now still remains lower. The expectation is that 0:17:42.240 --> 0:17:44.040 the Fed's going to start cutting. Whether it's at the 0:17:44.119 --> 0:17:46.840 end of twenty four or the beginning of twenty twenty five, 0:17:47.160 --> 0:17:49.520 doesn't really matter, as long as they start cutting interest 0:17:49.600 --> 0:17:51.119 rates and they continue. 0:17:50.760 --> 0:17:51.520 Along that path. 0:17:51.640 --> 0:17:54.720 So when we look at the outlook for the equity market, 0:17:55.040 --> 0:17:58.600 we actually see reason for its stocks to potentially grind 0:17:58.680 --> 0:18:02.320 higher from here. A few fundamental factors there, one of 0:18:02.359 --> 0:18:04.920 course being the expectation that interest rates are going. 0:18:04.760 --> 0:18:05.320 To come down. 0:18:05.760 --> 0:18:08.720 But behind that, really the fact of the matter being 0:18:08.720 --> 0:18:13.000 that the US economy remains solid. But we have seen 0:18:13.119 --> 0:18:17.480 this modest deceleration towards a soft landing. If you look 0:18:17.520 --> 0:18:21.520 at JOLDS data, if you look at housing data, credit 0:18:21.560 --> 0:18:25.800 card spending, ism, manufacturing data, we've seen a softening, but 0:18:25.960 --> 0:18:29.240 not to a point that would warrant a complete falling 0:18:29.280 --> 0:18:31.680 out of the economy, rather to a point in which 0:18:31.720 --> 0:18:34.359 we can say, all right, we're seeing the economy slow. 0:18:34.720 --> 0:18:38.400 We're seeing dissinflation. That's exactly what the Federal Reserve wants, 0:18:38.480 --> 0:18:40.640 and that means that interest rates can come down over 0:18:40.680 --> 0:18:41.399 the next year or so. 0:18:42.040 --> 0:18:45.000 Yeah, it's kind of a quirky world though, Sarah, in 0:18:45.040 --> 0:18:48.600 that if let's say interest rates come down, that will 0:18:48.640 --> 0:18:52.720 actually hurt megacaps to a certain degree. And all of us, 0:18:53.200 --> 0:18:56.280 all of you listening, who have more interest in yield 0:18:56.400 --> 0:18:59.080 income than you have loans. That's a lot of people. 0:18:59.119 --> 0:19:01.320 I mean, not all of us have a whole lot 0:19:01.320 --> 0:19:03.760 of loans, but we're all taking advantage of getting five 0:19:03.800 --> 0:19:07.239 percent yield, you know, in short term treasuries and in 0:19:07.440 --> 0:19:10.359 cash equivalents. So I want to put it to you 0:19:10.400 --> 0:19:12.880 that it might be one reason to hire for longer. 0:19:12.960 --> 0:19:15.280 Is actually a good thing for many in this in 0:19:15.320 --> 0:19:18.120 this economy, for savers. 0:19:17.640 --> 0:19:21.000 And retireies, it is. And we have plenty of clients who. 0:19:21.080 --> 0:19:23.239 Well, not just that, but think of the megacaps. They 0:19:23.280 --> 0:19:26.879 have all this cash and no loans. The megacaps themselves, 0:19:27.840 --> 0:19:28.600 there's a well. 0:19:28.480 --> 0:19:30.920 Within the within the tech space, yes, megacap. 0:19:31.640 --> 0:19:35.000 Now, megacap tech sucks are seen as quality stocks because 0:19:35.000 --> 0:19:35.960 they have extremely. 0:19:35.680 --> 0:19:38.120 Sturdy balance sheets. But if you think of tech as 0:19:38.119 --> 0:19:40.600 a whole and growth. There are a lot of tech 0:19:40.640 --> 0:19:43.040 companies and a lot of growth companies that still are 0:19:43.119 --> 0:19:44.960 hanging on to a lot of debt. 0:19:45.240 --> 0:19:47.320 And look, a lot of these you know, a lot 0:19:47.320 --> 0:19:50.720 of these corporations, a lot of their executives are very smart, 0:19:50.760 --> 0:19:53.639 and they locked in lower interest frees years ago. But 0:19:53.720 --> 0:19:56.359 at some point in time, there is going to be 0:19:56.400 --> 0:19:58.919 this wall of deep that's coming due, and there are 0:19:58.920 --> 0:20:01.600 a lot of corporations out there that are going to 0:20:01.640 --> 0:20:02.920 have to figure out what to do if all of 0:20:02.960 --> 0:20:06.119 a sudden they have fixed debt maturing at higher interest. 0:20:05.920 --> 0:20:08.760 Rates and now they have to work that into. 0:20:08.359 --> 0:20:12.160 Their balance sheet and revenues and profits and whatnot. 0:20:12.359 --> 0:20:15.440 So, yes, you're right. Look, if you're talking about the 0:20:15.480 --> 0:20:16.800 biggest of the big. 0:20:16.640 --> 0:20:20.600 Megacap tech SUCs that have strong balance sheets, and they're 0:20:20.640 --> 0:20:22.399 in a fine place no matter what. 0:20:23.240 --> 0:20:25.600 But at the same time, if you think about the 0:20:25.640 --> 0:20:27.800 majority of the growth space, the majority. 0:20:27.400 --> 0:20:29.440 Of the tech space, a lot of these companies do 0:20:29.520 --> 0:20:32.720 have dit on their balance sheet. And if we see 0:20:32.720 --> 0:20:36.800 interest rates come down, we probably will see that as 0:20:36.840 --> 0:20:39.200 a boon to some growth stocks as well. 0:20:39.359 --> 0:20:42.160 Yeah, and lower rates obviously going to take a lot 0:20:42.200 --> 0:20:44.440 of pressure off of some of the regional banks. We've 0:20:44.440 --> 0:20:49.400 been talking about potential stress in things like commercial real estate. 0:20:49.480 --> 0:20:52.600 Powell kind of pushed back against that notion. Today thought 0:20:52.600 --> 0:20:56.040 the financial system was doing pretty well. Let's talk about 0:20:56.040 --> 0:21:00.560 the AI trade. Brian was mentioning Broadcom earlier. This is 0:21:00.640 --> 0:21:03.000