March 10, 2025 • 34 mins
Watch Carol and Tim LIVE every day on YouTube: http://bit.ly/3vTiACF.
Bloomberg Intelligence Chief Equity Strategist Gina Martin Adams discusses that while the cues from S&P 500 earnings generally support the outlook for stocks this year, the market's tolerance for risk is being dismantled by the combination of high profit expectations (they're the most elevated since 2018), tough comparisons and a year of weakening analyst revisions.
That said, growth is still improving for cyclical sectors and sentiment-driving margin expectations are back on the rise despite problematic cues from inflation. The period of easy earnings beats is likely ending for much of the benchmark, suggesting the fundamental backdrop may become choppier in 2025.
Gwenaelle Huet, Executive Vice President of Europe Operations at Schneider Electric, shares her thoughts on the EU’s economic future around energy policy. Bloomberg News Rates Reporter Michael Mackenzie explains why the bond market's Trump Trade is looking like a recession play. And Drive to the Close with Max Wasserman, Senior Portfolio Manager of Miramar Capital.
Hosts: Carol Massar and Tim Stenovec. Producer: Paul Brennan.
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Episode Transcript
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Speaker 1 (00:02):
Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2 (00:08):
This is Bloomberg Business Week Insight from the reporters and
editors that bring you America's most trusted business magazine, plus.
Speaker 3 (00:17):
Global business, finance and tech news.
Speaker 2 (00:19):
The Bloomberg Business Week Podcast with Carol Masser and Tim
Stenovek on Bloomberg Radio, we.
Speaker 4 (00:27):
Are no doubt about it.
Speaker 5 (00:27):
Starting with the US stock trade, as a course of
Wall Street strategists is warning about higher stock volatility. You
got Morgan Stanley's Mike Wilson saying the latest to sound
the alarma on economic growth worries. Other market forecasters include
over at JP, Morgan Chase, RBC Capital Markets, all tempering
bullish calls for twenty twenty five.
Speaker 4 (00:46):
You know what's really the catalyst here.
Speaker 5 (00:48):
You've had Trump's tariffs really stoking fears of slowing economic growth,
and you also had the President and the administration making
some talks about the US economy not such great ones
over the weekend.
Speaker 1 (00:57):
Well, let's get with it with the Bloomberg Intelligence Chief
Act Strategy Gina Martin Adams. She joins us here in
the studio.
Speaker 3 (01:02):
Gina.
Speaker 1 (01:02):
The plunge in the S and P five hundred's most
influential group big Tech. We got the S and P
five hundred going below it's two hundred day moving average
for the first time since November of twenty twenty three.
It's off at least well more than eight percent from
its high. The Nasdaq one hundred off about twelve percent
from its high. How much is tech weighing on the
overall trade?
Speaker 2 (01:21):
A lot.
Speaker 6 (01:22):
I think it's one of three monstrous issues weighing on stocks.
It has been the case most of the year. If
you look at the MAG seven, for example, they peaked
all the way back in December. They're down sixteen percent
as of yesterday from their.
Speaker 4 (01:34):
Almost bear more weakness.
Speaker 6 (01:36):
Yeah, pretty significant decline in the MAG seven. Of course,
a lot of that is selected stocks Tesla and Navidia
weighing heavily there. But nonetheless that in and of itself
is creating a big drag on the index. But it's
more than that. Clearly, the Doge firings and the concern
about the ultimate consumer outlook as a result of that
have been weighing on consumer stocks. At the same time,
(01:58):
you do have the tariff chatter, which is creating sort
of stalled activity to the with the lack of a
better descriptive term and a lot of uncertainty, and a
lot of that tariff chatter impacts tech as well. I
think this is a little bit underappreciated. If you look
at the companies in the S and P five hundred
with their greatest cost of goods sold, exposure to overseas economies,
(02:21):
its tech and communications stock, so those groups being the
biggest market cap share also really drove so much of
the optimism over the last two years, and that's now unlinding.
Speaker 5 (02:31):
So it's not a case of just repricing, because we've
talked about, right, what a tremendous run up we've seen
over the last couple of years. So at some point
you got to expect some of that to come out
of the markets.
Speaker 4 (02:40):
Is it still just a repricing or we've gone beyond that.
Speaker 3 (02:43):
Yeah.
Speaker 6 (02:43):
I think up until this weekend it really was about
a reset of expectations that were far too robust. I mean,
this is something we started talking about in December. Our
fair value models were detecting that inside the market, the
S and P five hundred was priced for greater than
twenty percent earnings growth to emerge this year, which is
the next two impossible tasks. This just doesn't happen unless
(03:03):
you're bouncing out of her session. So it seemed almost
impossible for the market to satisfy those expector for the
companies to satisfy those expectations embedded in market prices. There
was also, though, this underlying narrative, if you will, in
the market that the president was inordinately going to pay
attention to the market as a guidepost. And he obliterated
(03:24):
that theme. You and the weekend, I think he just
crushed it. And that's what's happening today is he just said,
I don't we are going to have short term pain
for long term gain. I don't actually pay that much
attention to the equity market. He completely just blasted that
whole theme out of the water.
Speaker 4 (03:43):
We got clues, I'm trying to.
Speaker 1 (03:44):
Think the clues last week, but he said I'm not
paying attention to it. But then he also said a
few minutes later, it's the globalists who are causing the
sell off. So that indicated to me that he was
sort of paying attention to it.
Speaker 6 (03:55):
Well, the globalists are causing the sell off because the
globalists recognized that tariffs are coming. Yeah, right, tariffs are coming,
And even though he is saying, ah, they may or
may not come, I'm using these as a negotiating tool. Incrementally,
we have had more and more tariffs implemented so far
this year. Maybe not as much as he originally said,
but we have had more.
Speaker 1 (04:14):
Do you buy it that he's not paying attention to
the market. I know you said it. That idea got
obliterated over the weekend. But look what happened during his
first term. I mean, there were tweets, there were social
media posts every time there was a new record. He
did the same thing in the Biden administration.
Speaker 6 (04:27):
I think we've rewritten history of what happened in his
first term. If you look back at twenty eighteen, it
was one of the most volaile years on record. We
had vall mcgeddon the first part of that year, We
had a twenty percent correction in stocks in the second
half of that year. He didn't jump into the equity
market to save the day by reversing tariffs in the
second half of twenty eighteen. There's only so much that
(04:49):
he pays attention to the market. But we've rewritten that
narrative somehow in our minds Now, Yes, in the first
year of Trump's term, we had magnificent returns to equities
because he put forward tax reform, which is a net
beneficial sort of has a net beneficiary beneficial impact to
earnings growth, and then we didn't get to tariffs until
(05:10):
twenty eighteen.
Speaker 4 (05:11):
It's the reverse today.
Speaker 6 (05:13):
Tariffs have a net downside to economic and earnings growth
that is inescapable. He recognizes this in his commentary. We
hope that we might get to some kind of tax
reform and some kind of domestic programs to substitute for
the loss of earnings momentum from tariffs and some of
the geopolitical risks that have emerged as well. But it's
(05:33):
a hope, and hope is not a strategy. So the
market is saying, Okay, real time things are a lot
worse than we were hoping for.
Speaker 5 (05:40):
If it is the strategy and it comes to fruition,
so tariffs first, then tax cuts later. Is that enough
to juice the markets and have them come back and
provide a floor, or it could be.
Speaker 6 (05:49):
It could be it depends upon what kind of tax
reform we get. Our best guess is based upon the
promises in the campaign. We will get about half as
much a benefit as we did in twenty seventeen, just
doing the math on the numbers. But it depends on
how far earnings expectations have been suppressed with respect to
tariffs and what comes out of those negotiations in the
(06:09):
second half of this year. It's still very much up
in the air.
Speaker 1 (06:12):
So it raises the question about valuations. Do you know,
which Carol was alluding to a little earlier, the idea
that people have said, by many measures, stocks are expensive
right now, they're out of line with historical standards from
a pe perspective. Are we starting to see them come
back to earth?
Speaker 6 (06:29):
That's a great question, something we actually wrote about today
for tomorrow, and the answer is no. Unfortunately, the reality
of the US equity market is we were so far
above our valuation bogies that even with the seven percent
or so correction that we've had in stocks so far,
we're still near all time high valuation levels set in
the post pandemic period. That's only for US stocks, though,
(06:51):
and it's really specifically for large cap stocks. I still
think that the international opportunity is there even with the rerating.
This is a year where international stocks are just likely
to shine with the programs that are being initiated, and
small caps have derated again. Small caps have had an
absolute horrible February and early March so far, and they
(07:11):
have derated once again to be at discounted levels.
Speaker 5 (07:13):
Is there anything just kind of final question, final thought
at this point, anything about the selling that we're seeing
that makes you a little bit nervous. I mean, the
VIX is twenty eight. It's not like it's up to forty, and.
Speaker 6 (07:23):
That actually makes me nervous. Okay, the fact that the
VIX has We've talked about this a lot on our
team call actually this morning, is what's happening here with
volatility because low volatility stocks are absolutely pummeling high volatility
stocks right now, but the VIX is only incrementally moved higher.
You love a huge spike in the VIX because those
are usually affiliated with bottoming formations in the equity market,
(07:44):
like we had with the Japanese yen meltdown last summer.
We had a VIXED spike all the way to near forty.
I think it even got above forty in today, very
clear sign of panic. We don't have any panic emerging yet. Instead,
we just have this sort of sea sawing upward direction
of volatility. The last pattern like that that we saw
was twenty twenty two, which was obviously a horrible year
(08:06):
for stocks. That was also the last time we saw
such an extreme underperformance by US equities compared to rest
of the world.
Speaker 1 (08:14):
That was that when that Yen blow up happened, Carol.
That was back in August. The S and P ffvend
was out about fifty two hundred. It's at fifty six
hundred down, so about another eight percent to go to
get back to there.
Speaker 4 (08:26):
Happy Monday, everybody for it. News all around, Gina, Thanks
so much.
Speaker 5 (08:31):
Jean Martinadas, Bloomberg Intelligence, Chief equity Strategist.
Speaker 2 (08:35):
You're listening to the Bloomberg Business Week Podcast. Catch US
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Speaker 5 (08:49):
We're gonna stay with the markets, but also broaden out
and get a c suite view. I mean, we've talked
so much this year, often about how European markets are
out performing the US market by a wide margin. Stocks
fifty is up about ten percent year to day, while
the S and P is now down I think close
to five percent in twenty twenty five.
Speaker 1 (09:07):
With a view on that contrast and the continued electrification
of our world, Let's head on over to London and
to Gwenell Hewett, executive vice president of Europe Operations, over
at Schneider Electric. It's based in France. Schneider manufactures electrical
power products. The company's ADRs trade in the US this
year down roughly about five percent. Gwenell, welcome, first up
(09:27):
the global market environment today, geopolitics. How difficult is it
to do business in this economy, in this market.
Speaker 7 (09:36):
Well, I think that's what we are looking for is
some strong position in Europe in order to shape what
would be the future of the industry in Europe. And
in that sense it can be as an electro shock
right to switch gears. I mean, for the past years,
the Europe and Union has been regulating quite a bit.
Now we need to project that into concrete investments, into
(09:56):
a very friendly environment for industry, and that's what we're
expecting right now, right you.
Speaker 4 (10:02):
Are expecting a friendly environment for industry.
Speaker 7 (10:05):
Exactly. I mean the European Commission just announced a week
ago a clean industrial deal in order to promote and
accelerate the development of the industry in Europe. That's what
we need. We need a European industry that is much stronger.
We need to build and to boost its manufacturing footprint
within Europe. We need to compete globally, and the European
(10:25):
Commission has a world to play in that sense. Of course,
we have a very strong assets. The first one is
being a very large internal market. But at the same
time we have very strong industrial players, so we need
to leverate on that. And the problem is that in
the past years there are a lot of regulation, sometimes
over regulation, and now we need to come around more incentives.
(10:50):
How to accelerate through more incentives, friendly environment instead of
only compliance and just regulating in a very difficult way.
Speaker 5 (11:00):
Now, I do want to ask you though about the
US market versus the rest of the world. I mean,
how do you describe the demand that you're seeing from
your US customers? And from what I understand, you guys
produce about eighty three percent of what you sell in
North America locally, but tell us about North American demand,
US demand specifically, and then what you are seeing in
terms of demand.
Speaker 4 (11:19):
Outside the United States, is it strong?
Speaker 5 (11:21):
In both areas, How would you describe it for each Well,
so just to.
Speaker 7 (11:26):
Put it simple, a model for Schneider Electric is a
very much local model. So what we sell in the
US is produced in the US, what we sell in
Europe is produced in Europe, et ceterace. That's really very
much important, especially in geopolitical context that you're seeing today.
The mega trends that are below that that are below
the business is around energy transition, it's around data centers,
(11:48):
in electrification, digitarization and all that remains across the world.
So I can tell you today that yes, we have
huge demand in the US and we are building factories, expanding, etc.
But Europe is also an area of growth. Why because
we had in the past years the EU Green Deal
(12:09):
favoring renewable energy development, favoring also energy efficiency, and this
is taking off. So when you look at our numbers, yes,
we created growth also in Europe. So that's why you know,
we have to remain awful because the sustainability has set
that we have built across Europe is still valid.
Speaker 1 (12:28):
What about in the US when it comes to the
switch to renewables, because we've heard from the President that
he does not favor the policies of the last administration.
He likes to call the Green New Deal the Green
New scam, and he talks about drilling here in the US,
not the switch to renewables. How does that affect your business?
Speaker 7 (12:49):
But you know, let me come back to Europe, because
at the end of the day, this is an asset
that we have built in Europe. So how to continue
differentiated by developing the own technology in Europe? And a
lot to be done. Look at electrification. Electrification in Europe
is stagnant, so we need to accelerate. I don't want
to give the impression that everything is done in Europe.
(13:10):
On the contrary, we have to fight for more electrification
because again this is a challenge. More digitalization, more renewable enhance,
more investment into the network. This is not a done deal.
So that's why when it comes to Europe, you have
big numbers, big targets in terms of decombonization, in terms
of renewable energy, in terms of energy efficiency. We need
(13:32):
to turn that into reality already in Europe.
Speaker 1 (13:35):
But in the US, if you don't see those policies
coming from the federal government, do you start to see
companies moving away from that and that affects your business.
Speaker 7 (13:45):
Well, again I told you we have very much across
the world, and in US we have a much local
for local, we have our own customers. We have a
huge trend over there. And then makeasurrens that I was
discussing about around digitalization exctrification is still happening. So let's
not opposed one to each other. I think that we
have to look at each and every market and within
these mega trends, which one can accelerate faster depending on
(14:09):
the context that we foster. And in Europe again it's
not a don deal, so that's why it's not against
Europe against us. On the contrary, each and every region
has their own pathway. The question is that now with
the job politics, everybody is, you know, looking around I
think that we need to focus on the own market
(14:31):
and being the most local company is really an asset.
Speaker 4 (14:34):
So it sounds like you no and and forgive us.
Speaker 5 (14:36):
I think we're just you know, came in Monday and
we saw a global sell off, and I think we're
trying to get you have a great dvantage point in
terms of looking around the world and in terms of
business and really trying to understand when you guys sell
big time. North America is your biggest market, AGEA Pacific
is just right behind it.
Speaker 4 (14:52):
Western Europe. Of courses, you've been saying very very important.
Speaker 5 (14:55):
Uh, and then you know you've got almost five billion
dollars in the rest of the world. So you really
have this great snapshot of what is going on globally.
And I think we're trying to assess as we watch
the US market come down, with our European markets also
under pressure, that are we starting to see some kind
of global slow down? It sounds like from what you
are saying that you're not worried about it. Whether it's
(15:17):
a US recession or global recession, that's not necessarily something
that's in the cards from what you're seeing.
Speaker 4 (15:23):
Is that fair?
Speaker 7 (15:25):
You know why I'm so optimistic is that I'm looking
at the mega trends that we at Schneider are positioned. Okay,
it's climate change, it's energy transition, it's electrification, it's digitalization.
Those mega trends are not slowing down. So that's why
we are still optimistic. And to give you one example,
you're saying it's maybe it's challenged in Europe today, there
(15:47):
is a discrepancy between commitments that leaders have been taken
and the reality of the projects that are de flopping.
So we need to accelerate. So that's why I really
want to continue pushing and showing that even in a
country or in a region that is so committed to
the energy transition, we need to continue having attention. I
(16:08):
give you one number, just you know, to fulfill the
commitment that we have in Europe for renewable energy, we
should develop thirty gigawatt of wind a year and now
we're developping only seventeen gigawat. So just to showcase you
that in reality the path the acceleration should be made
also in Europe.
Speaker 5 (16:27):
Good stuff and some perspective on a day where it's
very easy to get distracted, probably rightfully so by the
markets and concerns about the outlook, but certainly some optimism
from Granell Hewett. She's executive vice president of Europe Operations
at Schneider Electric, joining us from London on this Monday.
Speaker 2 (16:46):
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Speaker 1 (17:03):
Well, we heard a lot about the equity market just
now from Charlie. I want to talk bonds because bond
traders are signaling an increased risk that the US economy
will stall as President Donald Trump's chaotic tariff rollouts and
federal workforce cuts threatened to further restrain the pace of growth.
We've got with us Michael McKenzie's Bloomberg News rates reporter.
He joins us here in the Bloomberg Interactive Broker's studio. Michael,
(17:24):
as you write, there was speculation that the president would
pour stimulus on an expansion it would keep upward pressure
on treasury yields. That is not at all what's happening.
What's happening instead.
Speaker 8 (17:36):
Well, I investors had to tear up the rule book.
They came into this year thinking Okay, this is Columbie's
going to get pumped up a lot by deregulation, and
that the Trump administration was going to be pro business.
And that's not really how it's panned out. And I
think some of the datas come on the disappointing side.
And you're beginning to get a sense here that the
cuts in government's government spending. If you think back to
(18:00):
last year, we had a big tail wind from government
spending under the Biden administration. So when even when the
markets started pricing in rate cuts last summer and the
Fed duly delivered in September the fifty basis point rate cut,
lo and behold, the economy held up, and by the
end of the year the Fed was saying we're pretty
much done. So the mark is now having to get
its head around the risk or trying to price in
(18:21):
the risk of Okay, if growth's going to slow, how
much is it going to slow? And from discussions with
a number of traders in the last week or so,
it seems to be if the data continues to point
to a deterioration, then the Fed probably going to have
to start resuming rate cuts at some point and probably
gets the funds rate down about three and a half.
And right now, that's where the market's pricing in at
(18:43):
least three rate cuts this year, which will get you
down to three and a half. So that's kind of
where we are at the moment.
Speaker 5 (18:50):
Does the bond market equally reflect the nervousness that we're
seeing in the stock market. I think we were talking
with Mike McKee earlier and you talked about spreads are
still pretty narrow on different segment of the bond market.
So does what we're seeing right now in the treasury
trade equate with the selling we're seeing in the stock market.
Speaker 8 (19:09):
The other fact that's behind the rally we've seen in
the treasure So think back to in mid January. We
peaked at four eighty on the ten year, four to
sixty on the five year. Ten years now back down
to four to twenty and the five years below four percent. Now,
these are big rallies, and essentially that's reflecting the hit
to risk assets. So when I was talking to investors
at the beginning of this year, they were saying, the
(19:31):
one case we're buying treasuries with a new adminstration coming
in is going to be that if you get a
hit to risk assets, you want to own the fives
a ten year sector that's really paid off and that
can continue to pay off if we continue to see
more pressure on risk assets.
Speaker 5 (19:46):
But are you saying, then the moves that we've seen
in yields already this year, the backing off, it's all
of this nervousness already factored in, Michael to some extent.
Speaker 8 (19:56):
But I think you need another catalyst here. I mean,
there's a lot more volatiley in treasuries. The treasury volatility
remains much higher than equity volatility, and that's just the
constant having to sort of go back and forth with positions.
We've been swinging around a lot in tight ranges to
some extent, but the market is volatile and there is
some deterioration and liquid at the margin.
Speaker 1 (20:18):
The ten year four point two percent is the yield
that we're seeing right now. Carolyn and I were talking
about this earlier as we were preparing for this afternoon.
Isn't this what Trump wants to see? He wants to
see the ten year yield fall.
Speaker 8 (20:29):
It does, And I think is what's interesting is talking
to some bond investors lately saying this is an administration
that they think wants short term pain, longer term gain. See,
it's been an administration that says, look, we're gonna take
some we're gonna make some cuts to government spending. You're
going to have a bit of turmoil, bit of you know,
sort of turbulence, but they are hoping that this will
get the economy back on track. And what a key
(20:50):
part of that is you keep rates down. So Scott
Besson has come out and said I want lower ten
year yields. He doesn't want to specify at what level.
But if you get keep ten year yields down, you
are going to see more mortgage refinancings. And I think
one thing that does anyone who thinks that we're going
into recession needs who ask the question do you see
balance sheet stress at the consumer and corporate level? If
(21:11):
you don't, it's hard to make a case for recession.
More importantly, though, look at the value of house prices today.
You can now extract home equity from your house, so
that will help buttress any kind of weakness we get
in the economy. So I think the general tone of
the ball market is the risks are rising, but we're
not quite quite yet there to say, okay, this is
(21:34):
a recession coming. That said, the real question here is
is the FED going to actually look past potential inflationary
consequences of tariffs and really look at a slow down?
And that's why the next couple of monthly payroll reports
coming out are going to be very important for this market.
Speaker 5 (21:51):
Is it just kind of interesting, though, Michael, that we
went from earlier in the year, you know, just NonStop
American exceptionalism, to all of a sudden using the recession
word pretty pretty regularly.
Speaker 8 (22:03):
Or it's been banded around. I don't in general, talking
to investors, they don't see a recession imminent. They don't
really see this. More importantly though, think back to what
happened last year. We had a big rally in. So
the tenure got last year, got after September and the
rate hikes just before the Fed started, the tenure fell
all the way down to three to eighty, but then
it started rising in because lo and behold, if you
(22:25):
drop interest rates, it helps the economy. Now, the question
here is how much of a hit is this administration
going to do with government spending? Bearing a minder course
that we still have Congress to decide on on one
big beautiful bill, and lo and behold, if you're going
to have tax cuts coming at the end of it,
I would suspect the bomb market could whip around again.
Speaker 5 (22:45):
So that would be enough to make up all the
tariffs and possibly more tariffs to come.
Speaker 8 (22:50):
If you combine that with deregulation, if you now allow
banks to buy more treasuries, if you cut all the
red tape around small businesses, I think you could lay
the case for a second half recovery. And then of
course you have the problems of what is the ultimate
inflation re impact of these tarifts that are coming through.
I mean, I think right now it's a trade war
(23:10):
that's really curting sentiment. You've certainly seen that on equities.
Speaker 1 (23:15):
The FED said to me next week, what is the
outlook and what's happening in the bond market signal about
expectations for the FED for this year.
Speaker 8 (23:24):
Well, if we look at the Marsh meeting, no one's
expecting any move. I think the key here is May.
We've been sort of dancing around pricing in about a
fifty percent od odds for a rate cut by May.
So it's in coint oustrochery and I think you're going
to have to see more. Obviously, you get inflation this week,
then you'll have another couple of months of payrolls and
inflation to come before that May meeting, and that's I
(23:45):
think will be the ultimate arbiter whether or not the
FED can go or not.
Speaker 1 (23:49):
And if inflation comes in heart that's not great, nurse.
Speaker 8 (23:52):
I think that puts the FED in a really tough spot.
I mean, I think at the moment they're okay, but
they really they want to see inflation still trending down.
They still want see signs of disinflation, and if they
get a hot number, that's going to complicate things. Particularly
if we see what happened in the last Friday's payrolls report.
We did see U six unemployment pickup. If that continues,
(24:12):
then you're gonna hear more chatter about stagflationary outcomes.
Speaker 4 (24:16):
What are you watching regularly? Like, what's top of mind
for you as we kind of go through this.
Speaker 8 (24:22):
It's every tape bomb that comes out of Washington and
from Donald Trump. I think that's because he keeps flipping around.
So everyone's got this kind of what are they really
going to do? And it's that uncertainty that I think
is driving people to say, you know what, I'm going
to put my money in the five year I think
the five year Treasury will tell you it's below four
(24:43):
percent today, couldn't get below four percent at the end
of last week, but it's now below four percent. So
that's telling you that there's a bit of bit of concern.
There's a flight to quality trade going on, and I
think that's the one thing to keep watching.
Speaker 1 (24:57):
I thought he was going to say, like White Lotus,
three boys, like Severance, fan of off the places. By
the way, she's great, and that I love you to
stop back in the nineties with hell you gotta read
I think New York Times profile on her a couple
of weeks ago, just like she's awesome.
Speaker 4 (25:12):
Yeah, I mean anything to step away from this.
Speaker 1 (25:14):
Yeah, what are you watching? Anything?
Speaker 7 (25:16):
I can right now?
Speaker 4 (25:18):
Michael McKenzie Love Love Love, Bloomberg News Rates reporter joining
us here in studio. Oh, bromuc, I'll about you.
Speaker 8 (25:25):
Let me drive.
Speaker 2 (25:25):
Oh no, no, no no, this is not a toy.
Speaker 3 (25:28):
He's going to drive an please gravest. I don't want
to drive.
Speaker 7 (25:34):
It's a good question.
Speaker 2 (25:38):
Good this is the drive to the clothes that longs
for me.
Speaker 3 (25:44):
A thing.
Speaker 2 (25:44):
Well, don on Bloomberg Radio.
Speaker 5 (25:48):
All right, everybody, we've got just about eighteen minutes to
go until we wrap up this trade on this Monday.
Having said that, you just heard from Charlie and Bill Maloney,
we are definitely off our worst levels of this session.
Kind of bouncing around here, but still down two point
seven percent of the S and P five hundred Dow
Jones Industrial average, a decline of just shy of two
hundred points. We were down more than one thousand points
on the Doubt one point now a decline of eight
(26:08):
hundred and sixty five points, and the Nasdaq one hundred,
which is dominated by that tech trade, it is down
three point nine percent, down seven hundred and ninety points.
Speaker 1 (26:16):
May curious with Max Wasserman, thanks on a Daylight today.
He's founder and senior portfolio manager of Miramar Capital. Max,
you argue that the market is finally starting to recognize
the risk of overvalued Nasdaq and the S and P
five hundred given the current market conditions, is it still
overvalued to you?
Speaker 3 (26:33):
Well, thank you for having me on, and the answer
is yes. I mean, the only thing that's surprising us
is that we've been saying this for the past six months,
that it took so long. But you know, the momentum
has a funny way of turning on you when everybody
can justify, you know, earnings going up the multiples of
thirty one to thirty five times on these large cap tech.
When it markets sours, it can take them right back down.
(26:54):
So we think they're starting to recognize that the multiples
are still too high on the NASDAK. We think the
general market is not priced like that, and there's a
lot of opportunity there. But given the fact that the
Nasdaq one hundred and the top s and P five
hundred stocks is pure NASDEC basically this is why you're
getting this major sell off.
Speaker 1 (27:14):
How were you prepared for today's selloff? How were you
invested ahead of this? If you thought that if this
isn't surprising to you, well.
Speaker 3 (27:21):
You know, we've been lowering our tech exposure for a while.
I mean we have investments we're diving and growth shop.
We have in investments in the broadcoms, the Apples, and
the Microsoft, but we were underweighted technology. We've been putting
more money into staples, which nobody wanted. On energy we like,
and healthcare. You couldn't give healthcare stocks away. I mean,
one of our largest holdings, like an av V, is
(27:41):
making fifty two week highs. We just tend to think
there was better value. We still like the growth in tech,
but we're not willing to pay thirty to forty times
earn needs for this.
Speaker 5 (27:50):
So is this just a valuation reset, is this just
a potentially somewhat fundamental reset based on Washington policies, or
is this the US economy starting to come undone.
Speaker 3 (28:03):
I don't know if it's coming undone or maybe we're
just taking a better look at the US economy. I
think we're starting to say that the economy is showing
signs of slowing down, and you have policies out there
that are basically saying that they could hurt the economy.
And if you go back to the fact that in
December that the Fed told you that they're not going
to be cutting interest rates, which Wall Street desperately always wants,
(28:24):
and because they had stubborn inflation. So there's a lot
of things that are stopping that ignission of a further
multiple expansion. I just don't think you're going to get
multiple expansion. I think you're going to get a little
bit of a contraction as it's showing, and the market's
going to come back down to an equilibrium on where
the fundamentals eventually show. But I think it's going to
take another quarter soon for us to understand what are
(28:45):
the tariffs what is the unemployment really going to look like?
What is the Fed really going to do in the meantime?
An uncertainty? Who wants to pay thirty forty times for
these tech earnings right now?
Speaker 2 (28:57):
Max?
Speaker 1 (28:57):
Do you buy it that the President is not paying
attention to the market, or rather, maybe a different way
to describe his comments over the weekend, saying that there
would be pain.
Speaker 3 (29:07):
You know, it's very hard for me to get ahead
of any politician.
Speaker 1 (29:10):
People keep telling me that when I ask these questions, but.
Speaker 3 (29:14):
When you look long term, there seems to be some
inherent contradictions. But he did say that there could be
some short term pain, and his policies don't seem to
be quarter by quarter. And for a president always just
say he looks at the stock market, he's telling you
he's not looking so closely. To me, it's the Fed.
The Fed is telling you that they're confused. They sort
(29:34):
of want to cut interest rates, but they're stubborn inflation
and they don't know what inflation is going to look
like with tariffs, if there's real tariffs, and how long
they last, because we don't know what the tariff looks
like because it's on again, off again, and we don't
know if April second's really going to be reciprocal, what's
going to be excluded. But it's very hard to run
monetary policy with allo of the uncertainties. And when the
(29:55):
when the Wall Street wants FED cuts and they're not
giving it to them just yet, I think more usure
is going to be put on the FED to eventually
start cutting interest rates.
Speaker 4 (30:02):
Are you more of a buyer or seller in this environment?
Speaker 3 (30:06):
Well, it depends right now. A lot of our stocks
to be candid with your running very strong, so our
top positions are hitting some fifty two weeks highs, So
we're gonna we're waiting here. I am looking through the
tech rubble once we start to get a little bit
more of a sell off to just nibble here and there.
Good companies are paying us dividences that we like. We
still like some of the large cap tech. We just
think they need to come down more. And we're starting
(30:27):
to see it. I mean, we can't. We like the
Googles of the world, we like the Broadcoms, and we
like the Microsoft. But you know it's sort of are
we catching a falling knife? But you know, for nibbling purposes, yes,
we would start because you're never going to time it perfectly.
But when you have these great companies selling off twenty
percent and still trading in the high twenties low thirties,
you could get another ten percent here on the Nezduck
(30:49):
sell off. But the equal weighted part of the market
is showing strong science. Look at the staples, Look at
healthcare right, look at it. Look at financials that are
taking a hit today. There could be some compelling valuations
coming there.
Speaker 1 (31:00):
I will note that there are one hundred and twenty
four stocks in the US right now, Carol that are
hitting fifty two week highs IBM one of them. Another
one is TUTSI Roll.
Speaker 3 (31:11):
You guya like chocolate, right, and we like Hershey, so
it's the same thing.
Speaker 6 (31:15):
Yeah.
Speaker 5 (31:15):
I mean, I'm looking at the S and P five
hundred equal weighted index just down about one point four percent,
So not as bad as what we're seeing in the
S and P five hundred at this hour. What about
on the fixed income side of things, are you anticipating
that yields along the US Treasury curve continue to go lower?
Speaker 3 (31:33):
Well, that's the quandary we've been telling people for the
last six months. Just focus on the short term one
to three years, we just don't think you're paid because
we still think inflation stubbor And then we don't know.
Do we think the tenure could come down to four? Yes,
but I think it could equally go up to four
eight five, depending on what the policies play out. So
we just don't think you're being rewarded to go long term.
(31:54):
We would still say stay short term, stay high quality.
We still like us treasures here. We still think they're
not a bad value because the spreads on corporates and
even unis aren't just there to take the risk.
Speaker 4 (32:06):
Yeah, that's something that right, the spreads are still pretty narrow, correct, correct.
Speaker 1 (32:12):
Speaking about the big picture of the market right now,
do you think we're going to bounce off of this
and this is sort of the low of this most
recent cell offware? Is there moved to go further down?
You say things are still overvalued.
Speaker 3 (32:22):
You know, I talked to some friends of my really
good friend of mine is a great trader, and he's
telling me at fifty five thirty or something on the
S and P could break through. I'm listening to a
lot of great tech glanists saying that you'll get a
bounce here. It's hard for me to tell because emotions
can run to extremes. As we know it. Think emotions
ran the extreme to bring the NASDIK up so much
for two years in a row, and it could take
(32:44):
you down a little bit. I would look at this
as an incredible opportunity for good companies. Find the companies
you really like, find the valuations that make sense, and
you average into them. We're right now, we're looking selectively
protect if they get sold up more bit more of
a sell off there.
Speaker 5 (33:01):
Hey, Max, just got about twenty five seconds left here?
How much have you been looking overseas? The eurostocks fifty
still it's up about ten percent so far in twenty
twenty five. Opportunity overseas and just quickly, well, you know.
Speaker 3 (33:12):
We don't look much overseas because we buy such global
companies in the currency risk and sometimes I get very
upset with the tax structure of how the dividends come back,
so we have to when we invest overseas, it has
to be tax friendly countries with US, and there's only
a few countries that do that, so we're mainly buying
domestic global countries, all right, got it?
Speaker 7 (33:30):
Hey, listen.
Speaker 4 (33:31):
Good to check in with you. Max Wasserman.
Speaker 5 (33:32):
He's founder and senior portfolio manager of Mira Mark Capital,
joining us from Northbrook, Illinois.
Speaker 2 (33:38):
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Speaker 2 (00:08):
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Speaker 4 (00:27):
Are no doubt about it.
Speaker 5 (00:27):
Starting with the US stock trade, as a course of
Wall Street strategists is warning about higher stock volatility. You
got Morgan Stanley's Mike Wilson saying the latest to sound
the alarma on economic growth worries. Other market forecasters include
over at JP, Morgan Chase, RBC Capital Markets, all tempering
bullish calls for twenty twenty five.
Speaker 4 (00:46):
You know what's really the catalyst here.
Speaker 5 (00:48):
You've had Trump's tariffs really stoking fears of slowing economic growth,
and you also had the President and the administration making
some talks about the US economy not such great ones
over the weekend.
Speaker 1 (00:57):
Well, let's get with it with the Bloomberg Intelligence Chief
Act Strategy Gina Martin Adams. She joins us here in
the studio.
Speaker 3 (01:02):
Gina.
Speaker 1 (01:02):
The plunge in the S and P five hundred's most
influential group big Tech. We got the S and P
five hundred going below it's two hundred day moving average
for the first time since November of twenty twenty three.
It's off at least well more than eight percent from
its high. The Nasdaq one hundred off about twelve percent
from its high. How much is tech weighing on the
overall trade?
Speaker 2 (01:21):
A lot.
Speaker 6 (01:22):
I think it's one of three monstrous issues weighing on stocks.
It has been the case most of the year. If
you look at the MAG seven, for example, they peaked
all the way back in December. They're down sixteen percent
as of yesterday from their.
Speaker 4 (01:34):
Almost bear more weakness.
Speaker 6 (01:36):
Yeah, pretty significant decline in the MAG seven. Of course,
a lot of that is selected stocks Tesla and Navidia
weighing heavily there. But nonetheless that in and of itself
is creating a big drag on the index. But it's
more than that. Clearly, the Doge firings and the concern
about the ultimate consumer outlook as a result of that
have been weighing on consumer stocks. At the same time,
(01:58):
you do have the tariff chatter, which is creating sort
of stalled activity to the with the lack of a
better descriptive term and a lot of uncertainty, and a
lot of that tariff chatter impacts tech as well. I
think this is a little bit underappreciated. If you look
at the companies in the S and P five hundred
with their greatest cost of goods sold, exposure to overseas economies,
(02:21):
its tech and communications stock, so those groups being the
biggest market cap share also really drove so much of
the optimism over the last two years, and that's now unlinding.
Speaker 5 (02:31):
So it's not a case of just repricing, because we've
talked about, right, what a tremendous run up we've seen
over the last couple of years. So at some point
you got to expect some of that to come out
of the markets.
Speaker 4 (02:40):
Is it still just a repricing or we've gone beyond that.
Speaker 3 (02:43):
Yeah.
Speaker 6 (02:43):
I think up until this weekend it really was about
a reset of expectations that were far too robust. I mean,
this is something we started talking about in December. Our
fair value models were detecting that inside the market, the
S and P five hundred was priced for greater than
twenty percent earnings growth to emerge this year, which is
the next two impossible tasks. This just doesn't happen unless
(03:03):
you're bouncing out of her session. So it seemed almost
impossible for the market to satisfy those expector for the
companies to satisfy those expectations embedded in market prices. There
was also, though, this underlying narrative, if you will, in
the market that the president was inordinately going to pay
attention to the market as a guidepost. And he obliterated
(03:24):
that theme. You and the weekend, I think he just
crushed it. And that's what's happening today is he just said,
I don't we are going to have short term pain
for long term gain. I don't actually pay that much
attention to the equity market. He completely just blasted that
whole theme out of the water.
Speaker 4 (03:43):
We got clues, I'm trying to.
Speaker 1 (03:44):
Think the clues last week, but he said I'm not
paying attention to it. But then he also said a
few minutes later, it's the globalists who are causing the
sell off. So that indicated to me that he was
sort of paying attention to it.
Speaker 6 (03:55):
Well, the globalists are causing the sell off because the
globalists recognized that tariffs are coming. Yeah, right, tariffs are coming,
And even though he is saying, ah, they may or
may not come, I'm using these as a negotiating tool. Incrementally,
we have had more and more tariffs implemented so far
this year. Maybe not as much as he originally said,
but we have had more.
Speaker 1 (04:14):
Do you buy it that he's not paying attention to
the market. I know you said it. That idea got
obliterated over the weekend. But look what happened during his
first term. I mean, there were tweets, there were social
media posts every time there was a new record. He
did the same thing in the Biden administration.
Speaker 6 (04:27):
I think we've rewritten history of what happened in his
first term. If you look back at twenty eighteen, it
was one of the most volaile years on record. We
had vall mcgeddon the first part of that year, We
had a twenty percent correction in stocks in the second
half of that year. He didn't jump into the equity
market to save the day by reversing tariffs in the
second half of twenty eighteen. There's only so much that
(04:49):
he pays attention to the market. But we've rewritten that
narrative somehow in our minds Now, Yes, in the first
year of Trump's term, we had magnificent returns to equities
because he put forward tax reform, which is a net
beneficial sort of has a net beneficiary beneficial impact to
earnings growth, and then we didn't get to tariffs until
(05:10):
twenty eighteen.
Speaker 4 (05:11):
It's the reverse today.
Speaker 6 (05:13):
Tariffs have a net downside to economic and earnings growth
that is inescapable. He recognizes this in his commentary. We
hope that we might get to some kind of tax
reform and some kind of domestic programs to substitute for
the loss of earnings momentum from tariffs and some of
the geopolitical risks that have emerged as well. But it's
(05:33):
a hope, and hope is not a strategy. So the
market is saying, Okay, real time things are a lot
worse than we were hoping for.
Speaker 5 (05:40):
If it is the strategy and it comes to fruition,
so tariffs first, then tax cuts later. Is that enough
to juice the markets and have them come back and
provide a floor, or it could be.
Speaker 6 (05:49):
It could be it depends upon what kind of tax
reform we get. Our best guess is based upon the
promises in the campaign. We will get about half as
much a benefit as we did in twenty seventeen, just
doing the math on the numbers. But it depends on
how far earnings expectations have been suppressed with respect to
tariffs and what comes out of those negotiations in the
(06:09):
second half of this year. It's still very much up
in the air.
Speaker 1 (06:12):
So it raises the question about valuations. Do you know,
which Carol was alluding to a little earlier, the idea
that people have said, by many measures, stocks are expensive
right now, they're out of line with historical standards from
a pe perspective. Are we starting to see them come
back to earth?
Speaker 6 (06:29):
That's a great question, something we actually wrote about today
for tomorrow, and the answer is no. Unfortunately, the reality
of the US equity market is we were so far
above our valuation bogies that even with the seven percent
or so correction that we've had in stocks so far,
we're still near all time high valuation levels set in
the post pandemic period. That's only for US stocks, though,
(06:51):
and it's really specifically for large cap stocks. I still
think that the international opportunity is there even with the rerating.
This is a year where international stocks are just likely
to shine with the programs that are being initiated, and
small caps have derated again. Small caps have had an
absolute horrible February and early March so far, and they
(07:11):
have derated once again to be at discounted levels.
Speaker 5 (07:13):
Is there anything just kind of final question, final thought
at this point, anything about the selling that we're seeing
that makes you a little bit nervous. I mean, the
VIX is twenty eight. It's not like it's up to forty, and.
Speaker 6 (07:23):
That actually makes me nervous. Okay, the fact that the
VIX has We've talked about this a lot on our
team call actually this morning, is what's happening here with
volatility because low volatility stocks are absolutely pummeling high volatility
stocks right now, but the VIX is only incrementally moved higher.
You love a huge spike in the VIX because those
are usually affiliated with bottoming formations in the equity market,
(07:44):
like we had with the Japanese yen meltdown last summer.
We had a VIXED spike all the way to near forty.
I think it even got above forty in today, very
clear sign of panic. We don't have any panic emerging yet. Instead,
we just have this sort of sea sawing upward direction
of volatility. The last pattern like that that we saw
was twenty twenty two, which was obviously a horrible year
(08:06):
for stocks. That was also the last time we saw
such an extreme underperformance by US equities compared to rest
of the world.
Speaker 1 (08:14):
That was that when that Yen blow up happened, Carol.
That was back in August. The S and P ffvend
was out about fifty two hundred. It's at fifty six
hundred down, so about another eight percent to go to
get back to there.
Speaker 4 (08:26):
Happy Monday, everybody for it. News all around, Gina, Thanks
so much.
Speaker 5 (08:31):
Jean Martinadas, Bloomberg Intelligence, Chief equity Strategist.
Speaker 2 (08:35):
You're listening to the Bloomberg Business Week Podcast. Catch US
Live weekday afternoons from two to five pm Eastern. Listen
on Apple CarPlay and Android Auto with the Bloomberg Business app,
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Speaker 5 (08:49):
We're gonna stay with the markets, but also broaden out
and get a c suite view. I mean, we've talked
so much this year, often about how European markets are
out performing the US market by a wide margin. Stocks
fifty is up about ten percent year to day, while
the S and P is now down I think close
to five percent in twenty twenty five.
Speaker 1 (09:07):
With a view on that contrast and the continued electrification
of our world, Let's head on over to London and
to Gwenell Hewett, executive vice president of Europe Operations, over
at Schneider Electric. It's based in France. Schneider manufactures electrical
power products. The company's ADRs trade in the US this
year down roughly about five percent. Gwenell, welcome, first up
(09:27):
the global market environment today, geopolitics. How difficult is it
to do business in this economy, in this market.
Speaker 7 (09:36):
Well, I think that's what we are looking for is
some strong position in Europe in order to shape what
would be the future of the industry in Europe. And
in that sense it can be as an electro shock
right to switch gears. I mean, for the past years,
the Europe and Union has been regulating quite a bit.
Now we need to project that into concrete investments, into
(09:56):
a very friendly environment for industry, and that's what we're
expecting right now, right you.
Speaker 4 (10:02):
Are expecting a friendly environment for industry.
Speaker 7 (10:05):
Exactly. I mean the European Commission just announced a week
ago a clean industrial deal in order to promote and
accelerate the development of the industry in Europe. That's what
we need. We need a European industry that is much stronger.
We need to build and to boost its manufacturing footprint
within Europe. We need to compete globally, and the European
(10:25):
Commission has a world to play in that sense. Of course,
we have a very strong assets. The first one is
being a very large internal market. But at the same
time we have very strong industrial players, so we need
to leverate on that. And the problem is that in
the past years there are a lot of regulation, sometimes
over regulation, and now we need to come around more incentives.
(10:50):
How to accelerate through more incentives, friendly environment instead of
only compliance and just regulating in a very difficult way.
Speaker 5 (11:00):
Now, I do want to ask you though about the
US market versus the rest of the world. I mean,
how do you describe the demand that you're seeing from
your US customers? And from what I understand, you guys
produce about eighty three percent of what you sell in
North America locally, but tell us about North American demand,
US demand specifically, and then what you are seeing in
terms of demand.
Speaker 4 (11:19):
Outside the United States, is it strong?
Speaker 5 (11:21):
In both areas, How would you describe it for each Well,
so just to.
Speaker 7 (11:26):
Put it simple, a model for Schneider Electric is a
very much local model. So what we sell in the
US is produced in the US, what we sell in
Europe is produced in Europe, et ceterace. That's really very
much important, especially in geopolitical context that you're seeing today.
The mega trends that are below that that are below
the business is around energy transition, it's around data centers,
(11:48):
in electrification, digitarization and all that remains across the world.
So I can tell you today that yes, we have
huge demand in the US and we are building factories, expanding, etc.
But Europe is also an area of growth. Why because
we had in the past years the EU Green Deal
(12:09):
favoring renewable energy development, favoring also energy efficiency, and this
is taking off. So when you look at our numbers, yes,
we created growth also in Europe. So that's why you know,
we have to remain awful because the sustainability has set
that we have built across Europe is still valid.
Speaker 1 (12:28):
What about in the US when it comes to the
switch to renewables, because we've heard from the President that
he does not favor the policies of the last administration.
He likes to call the Green New Deal the Green
New scam, and he talks about drilling here in the US,
not the switch to renewables. How does that affect your business?
Speaker 7 (12:49):
But you know, let me come back to Europe, because
at the end of the day, this is an asset
that we have built in Europe. So how to continue
differentiated by developing the own technology in Europe? And a
lot to be done. Look at electrification. Electrification in Europe
is stagnant, so we need to accelerate. I don't want
to give the impression that everything is done in Europe.
(13:10):
On the contrary, we have to fight for more electrification
because again this is a challenge. More digitalization, more renewable enhance,
more investment into the network. This is not a done deal.
So that's why when it comes to Europe, you have
big numbers, big targets in terms of decombonization, in terms
of renewable energy, in terms of energy efficiency. We need
(13:32):
to turn that into reality already in Europe.
Speaker 1 (13:35):
But in the US, if you don't see those policies
coming from the federal government, do you start to see
companies moving away from that and that affects your business.
Speaker 7 (13:45):
Well, again I told you we have very much across
the world, and in US we have a much local
for local, we have our own customers. We have a
huge trend over there. And then makeasurrens that I was
discussing about around digitalization exctrification is still happening. So let's
not opposed one to each other. I think that we
have to look at each and every market and within
these mega trends, which one can accelerate faster depending on
(14:09):
the context that we foster. And in Europe again it's
not a don deal, so that's why it's not against
Europe against us. On the contrary, each and every region
has their own pathway. The question is that now with
the job politics, everybody is, you know, looking around I
think that we need to focus on the own market
(14:31):
and being the most local company is really an asset.
Speaker 4 (14:34):
So it sounds like you no and and forgive us.
Speaker 5 (14:36):
I think we're just you know, came in Monday and
we saw a global sell off, and I think we're
trying to get you have a great dvantage point in
terms of looking around the world and in terms of
business and really trying to understand when you guys sell
big time. North America is your biggest market, AGEA Pacific
is just right behind it.
Speaker 4 (14:52):
Western Europe. Of courses, you've been saying very very important.
Speaker 5 (14:55):
Uh, and then you know you've got almost five billion
dollars in the rest of the world. So you really
have this great snapshot of what is going on globally.
And I think we're trying to assess as we watch
the US market come down, with our European markets also
under pressure, that are we starting to see some kind
of global slow down? It sounds like from what you
are saying that you're not worried about it. Whether it's
(15:17):
a US recession or global recession, that's not necessarily something
that's in the cards from what you're seeing.
Speaker 4 (15:23):
Is that fair?
Speaker 7 (15:25):
You know why I'm so optimistic is that I'm looking
at the mega trends that we at Schneider are positioned. Okay,
it's climate change, it's energy transition, it's electrification, it's digitalization.
Those mega trends are not slowing down. So that's why
we are still optimistic. And to give you one example,
you're saying it's maybe it's challenged in Europe today, there
(15:47):
is a discrepancy between commitments that leaders have been taken
and the reality of the projects that are de flopping.
So we need to accelerate. So that's why I really
want to continue pushing and showing that even in a
country or in a region that is so committed to
the energy transition, we need to continue having attention. I
(16:08):
give you one number, just you know, to fulfill the
commitment that we have in Europe for renewable energy, we
should develop thirty gigawatt of wind a year and now
we're developping only seventeen gigawat. So just to showcase you
that in reality the path the acceleration should be made
also in Europe.
Speaker 5 (16:27):
Good stuff and some perspective on a day where it's
very easy to get distracted, probably rightfully so by the
markets and concerns about the outlook, but certainly some optimism
from Granell Hewett. She's executive vice president of Europe Operations
at Schneider Electric, joining us from London on this Monday.
Speaker 2 (16:46):
This is the Bloomberg Business Week podcast. Listen live each
weekday starting at two pm Eastern on Apple car Play
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Speaker 1 (17:03):
Well, we heard a lot about the equity market just
now from Charlie. I want to talk bonds because bond
traders are signaling an increased risk that the US economy
will stall as President Donald Trump's chaotic tariff rollouts and
federal workforce cuts threatened to further restrain the pace of growth.
We've got with us Michael McKenzie's Bloomberg News rates reporter.
He joins us here in the Bloomberg Interactive Broker's studio. Michael,
(17:24):
as you write, there was speculation that the president would
pour stimulus on an expansion it would keep upward pressure
on treasury yields. That is not at all what's happening.
What's happening instead.
Speaker 8 (17:36):
Well, I investors had to tear up the rule book.
They came into this year thinking Okay, this is Columbie's
going to get pumped up a lot by deregulation, and
that the Trump administration was going to be pro business.
And that's not really how it's panned out. And I
think some of the datas come on the disappointing side.
And you're beginning to get a sense here that the
cuts in government's government spending. If you think back to
(18:00):
last year, we had a big tail wind from government
spending under the Biden administration. So when even when the
markets started pricing in rate cuts last summer and the
Fed duly delivered in September the fifty basis point rate cut,
lo and behold, the economy held up, and by the
end of the year the Fed was saying we're pretty
much done. So the mark is now having to get
its head around the risk or trying to price in
(18:21):
the risk of Okay, if growth's going to slow, how
much is it going to slow? And from discussions with
a number of traders in the last week or so,
it seems to be if the data continues to point
to a deterioration, then the Fed probably going to have
to start resuming rate cuts at some point and probably
gets the funds rate down about three and a half.
And right now, that's where the market's pricing in at
(18:43):
least three rate cuts this year, which will get you
down to three and a half. So that's kind of
where we are at the moment.
Speaker 5 (18:50):
Does the bond market equally reflect the nervousness that we're
seeing in the stock market. I think we were talking
with Mike McKee earlier and you talked about spreads are
still pretty narrow on different segment of the bond market.
So does what we're seeing right now in the treasury
trade equate with the selling we're seeing in the stock market.
Speaker 8 (19:09):
The other fact that's behind the rally we've seen in
the treasure So think back to in mid January. We
peaked at four eighty on the ten year, four to
sixty on the five year. Ten years now back down
to four to twenty and the five years below four percent. Now,
these are big rallies, and essentially that's reflecting the hit
to risk assets. So when I was talking to investors
at the beginning of this year, they were saying, the
(19:31):
one case we're buying treasuries with a new adminstration coming
in is going to be that if you get a
hit to risk assets, you want to own the fives
a ten year sector that's really paid off and that
can continue to pay off if we continue to see
more pressure on risk assets.
Speaker 5 (19:46):
But are you saying, then the moves that we've seen
in yields already this year, the backing off, it's all
of this nervousness already factored in, Michael to some extent.
Speaker 8 (19:56):
But I think you need another catalyst here. I mean,
there's a lot more volatiley in treasuries. The treasury volatility
remains much higher than equity volatility, and that's just the
constant having to sort of go back and forth with positions.
We've been swinging around a lot in tight ranges to
some extent, but the market is volatile and there is
some deterioration and liquid at the margin.
Speaker 1 (20:18):
The ten year four point two percent is the yield
that we're seeing right now. Carolyn and I were talking
about this earlier as we were preparing for this afternoon.
Isn't this what Trump wants to see? He wants to
see the ten year yield fall.
Speaker 8 (20:29):
It does, And I think is what's interesting is talking
to some bond investors lately saying this is an administration
that they think wants short term pain, longer term gain. See,
it's been an administration that says, look, we're gonna take
some we're gonna make some cuts to government spending. You're
going to have a bit of turmoil, bit of you know,
sort of turbulence, but they are hoping that this will
get the economy back on track. And what a key
(20:50):
part of that is you keep rates down. So Scott
Besson has come out and said I want lower ten
year yields. He doesn't want to specify at what level.
But if you get keep ten year yields down, you
are going to see more mortgage refinancings. And I think
one thing that does anyone who thinks that we're going
into recession needs who ask the question do you see
balance sheet stress at the consumer and corporate level? If
(21:11):
you don't, it's hard to make a case for recession.
More importantly, though, look at the value of house prices today.
You can now extract home equity from your house, so
that will help buttress any kind of weakness we get
in the economy. So I think the general tone of
the ball market is the risks are rising, but we're
not quite quite yet there to say, okay, this is
(21:34):
a recession coming. That said, the real question here is
is the FED going to actually look past potential inflationary
consequences of tariffs and really look at a slow down?
And that's why the next couple of monthly payroll reports
coming out are going to be very important for this market.
Speaker 5 (21:51):
Is it just kind of interesting, though, Michael, that we
went from earlier in the year, you know, just NonStop
American exceptionalism, to all of a sudden using the recession
word pretty pretty regularly.
Speaker 8 (22:03):
Or it's been banded around. I don't in general, talking
to investors, they don't see a recession imminent. They don't
really see this. More importantly though, think back to what
happened last year. We had a big rally in. So
the tenure got last year, got after September and the
rate hikes just before the Fed started, the tenure fell
all the way down to three to eighty, but then
it started rising in because lo and behold, if you
(22:25):
drop interest rates, it helps the economy. Now, the question
here is how much of a hit is this administration
going to do with government spending? Bearing a minder course
that we still have Congress to decide on on one
big beautiful bill, and lo and behold, if you're going
to have tax cuts coming at the end of it,
I would suspect the bomb market could whip around again.
Speaker 5 (22:45):
So that would be enough to make up all the
tariffs and possibly more tariffs to come.
Speaker 8 (22:50):
If you combine that with deregulation, if you now allow
banks to buy more treasuries, if you cut all the
red tape around small businesses, I think you could lay
the case for a second half recovery. And then of
course you have the problems of what is the ultimate
inflation re impact of these tarifts that are coming through.
I mean, I think right now it's a trade war
(23:10):
that's really curting sentiment. You've certainly seen that on equities.
Speaker 1 (23:15):
The FED said to me next week, what is the
outlook and what's happening in the bond market signal about
expectations for the FED for this year.
Speaker 8 (23:24):
Well, if we look at the Marsh meeting, no one's
expecting any move. I think the key here is May.
We've been sort of dancing around pricing in about a
fifty percent od odds for a rate cut by May.
So it's in coint oustrochery and I think you're going
to have to see more. Obviously, you get inflation this week,
then you'll have another couple of months of payrolls and
inflation to come before that May meeting, and that's I
(23:45):
think will be the ultimate arbiter whether or not the
FED can go or not.
Speaker 1 (23:49):
And if inflation comes in heart that's not great, nurse.
Speaker 8 (23:52):
I think that puts the FED in a really tough spot.
I mean, I think at the moment they're okay, but
they really they want to see inflation still trending down.
They still want see signs of disinflation, and if they
get a hot number, that's going to complicate things. Particularly
if we see what happened in the last Friday's payrolls report.
We did see U six unemployment pickup. If that continues,
(24:12):
then you're gonna hear more chatter about stagflationary outcomes.
Speaker 4 (24:16):
What are you watching regularly? Like, what's top of mind
for you as we kind of go through this.
Speaker 8 (24:22):
It's every tape bomb that comes out of Washington and
from Donald Trump. I think that's because he keeps flipping around.
So everyone's got this kind of what are they really
going to do? And it's that uncertainty that I think
is driving people to say, you know what, I'm going
to put my money in the five year I think
the five year Treasury will tell you it's below four
(24:43):
percent today, couldn't get below four percent at the end
of last week, but it's now below four percent. So
that's telling you that there's a bit of bit of concern.
There's a flight to quality trade going on, and I
think that's the one thing to keep watching.
Speaker 1 (24:57):
I thought he was going to say, like White Lotus,
three boys, like Severance, fan of off the places. By
the way, she's great, and that I love you to
stop back in the nineties with hell you gotta read
I think New York Times profile on her a couple
of weeks ago, just like she's awesome.
Speaker 4 (25:12):
Yeah, I mean anything to step away from this.
Speaker 1 (25:14):
Yeah, what are you watching? Anything?
Speaker 7 (25:16):
I can right now?
Speaker 4 (25:18):
Michael McKenzie Love Love Love, Bloomberg News Rates reporter joining
us here in studio. Oh, bromuc, I'll about you.
Speaker 8 (25:25):
Let me drive.
Speaker 2 (25:25):
Oh no, no, no no, this is not a toy.
Speaker 3 (25:28):
He's going to drive an please gravest. I don't want
to drive.
Speaker 7 (25:34):
It's a good question.
Speaker 2 (25:38):
Good this is the drive to the clothes that longs
for me.
Speaker 3 (25:44):
A thing.
Speaker 2 (25:44):
Well, don on Bloomberg Radio.
Speaker 5 (25:48):
All right, everybody, we've got just about eighteen minutes to
go until we wrap up this trade on this Monday.
Having said that, you just heard from Charlie and Bill Maloney,
we are definitely off our worst levels of this session.
Kind of bouncing around here, but still down two point
seven percent of the S and P five hundred Dow
Jones Industrial average, a decline of just shy of two
hundred points. We were down more than one thousand points
on the Doubt one point now a decline of eight
(26:08):
hundred and sixty five points, and the Nasdaq one hundred,
which is dominated by that tech trade, it is down
three point nine percent, down seven hundred and ninety points.
Speaker 1 (26:16):
May curious with Max Wasserman, thanks on a Daylight today.
He's founder and senior portfolio manager of Miramar Capital. Max,
you argue that the market is finally starting to recognize
the risk of overvalued Nasdaq and the S and P
five hundred given the current market conditions, is it still
overvalued to you?
Speaker 3 (26:33):
Well, thank you for having me on, and the answer
is yes. I mean, the only thing that's surprising us
is that we've been saying this for the past six months,
that it took so long. But you know, the momentum
has a funny way of turning on you when everybody
can justify, you know, earnings going up the multiples of
thirty one to thirty five times on these large cap tech.
When it markets sours, it can take them right back down.
(26:54):
So we think they're starting to recognize that the multiples
are still too high on the NASDAK. We think the
general market is not priced like that, and there's a
lot of opportunity there. But given the fact that the
Nasdaq one hundred and the top s and P five
hundred stocks is pure NASDEC basically this is why you're
getting this major sell off.
Speaker 1 (27:14):
How were you prepared for today's selloff? How were you
invested ahead of this? If you thought that if this
isn't surprising to you, well.
Speaker 3 (27:21):
You know, we've been lowering our tech exposure for a while.
I mean we have investments we're diving and growth shop.
We have in investments in the broadcoms, the Apples, and
the Microsoft, but we were underweighted technology. We've been putting
more money into staples, which nobody wanted. On energy we like,
and healthcare. You couldn't give healthcare stocks away. I mean,
one of our largest holdings, like an av V, is
(27:41):
making fifty two week highs. We just tend to think
there was better value. We still like the growth in tech,
but we're not willing to pay thirty to forty times
earn needs for this.
Speaker 5 (27:50):
So is this just a valuation reset, is this just
a potentially somewhat fundamental reset based on Washington policies, or
is this the US economy starting to come undone.
Speaker 3 (28:03):
I don't know if it's coming undone or maybe we're
just taking a better look at the US economy. I
think we're starting to say that the economy is showing
signs of slowing down, and you have policies out there
that are basically saying that they could hurt the economy.
And if you go back to the fact that in
December that the Fed told you that they're not going
to be cutting interest rates, which Wall Street desperately always wants,
(28:24):
and because they had stubborn inflation. So there's a lot
of things that are stopping that ignission of a further
multiple expansion. I just don't think you're going to get
multiple expansion. I think you're going to get a little
bit of a contraction as it's showing, and the market's
going to come back down to an equilibrium on where
the fundamentals eventually show. But I think it's going to
take another quarter soon for us to understand what are
(28:45):
the tariffs what is the unemployment really going to look like?
What is the Fed really going to do in the meantime?
An uncertainty? Who wants to pay thirty forty times for
these tech earnings right now?
Speaker 2 (28:57):
Max?
Speaker 1 (28:57):
Do you buy it that the President is not paying
attention to the market, or rather, maybe a different way
to describe his comments over the weekend, saying that there
would be pain.
Speaker 3 (29:07):
You know, it's very hard for me to get ahead
of any politician.
Speaker 1 (29:10):
People keep telling me that when I ask these questions, but.
Speaker 3 (29:14):
When you look long term, there seems to be some
inherent contradictions. But he did say that there could be
some short term pain, and his policies don't seem to
be quarter by quarter. And for a president always just
say he looks at the stock market, he's telling you
he's not looking so closely. To me, it's the Fed.
The Fed is telling you that they're confused. They sort
(29:34):
of want to cut interest rates, but they're stubborn inflation
and they don't know what inflation is going to look
like with tariffs, if there's real tariffs, and how long
they last, because we don't know what the tariff looks
like because it's on again, off again, and we don't
know if April second's really going to be reciprocal, what's
going to be excluded. But it's very hard to run
monetary policy with allo of the uncertainties. And when the
(29:55):
when the Wall Street wants FED cuts and they're not
giving it to them just yet, I think more usure
is going to be put on the FED to eventually
start cutting interest rates.
Speaker 4 (30:02):
Are you more of a buyer or seller in this environment?
Speaker 3 (30:06):
Well, it depends right now. A lot of our stocks
to be candid with your running very strong, so our
top positions are hitting some fifty two weeks highs, So
we're gonna we're waiting here. I am looking through the
tech rubble once we start to get a little bit
more of a sell off to just nibble here and there.
Good companies are paying us dividences that we like. We
still like some of the large cap tech. We just
think they need to come down more. And we're starting
(30:27):
to see it. I mean, we can't. We like the
Googles of the world, we like the Broadcoms, and we
like the Microsoft. But you know it's sort of are
we catching a falling knife? But you know, for nibbling purposes, yes,
we would start because you're never going to time it perfectly.
But when you have these great companies selling off twenty
percent and still trading in the high twenties low thirties,
you could get another ten percent here on the Nezduck
(30:49):
sell off. But the equal weighted part of the market
is showing strong science. Look at the staples, Look at
healthcare right, look at it. Look at financials that are
taking a hit today. There could be some compelling valuations
coming there.
Speaker 1 (31:00):
I will note that there are one hundred and twenty
four stocks in the US right now, Carol that are
hitting fifty two week highs IBM one of them. Another
one is TUTSI Roll.
Speaker 3 (31:11):
You guya like chocolate, right, and we like Hershey, so
it's the same thing.
Speaker 6 (31:15):
Yeah.
Speaker 5 (31:15):
I mean, I'm looking at the S and P five
hundred equal weighted index just down about one point four percent,
So not as bad as what we're seeing in the
S and P five hundred at this hour. What about
on the fixed income side of things, are you anticipating
that yields along the US Treasury curve continue to go lower?
Speaker 3 (31:33):
Well, that's the quandary we've been telling people for the
last six months. Just focus on the short term one
to three years, we just don't think you're paid because
we still think inflation stubbor And then we don't know.
Do we think the tenure could come down to four? Yes,
but I think it could equally go up to four
eight five, depending on what the policies play out. So
we just don't think you're being rewarded to go long term.
(31:54):
We would still say stay short term, stay high quality.
We still like us treasures here. We still think they're
not a bad value because the spreads on corporates and
even unis aren't just there to take the risk.
Speaker 4 (32:06):
Yeah, that's something that right, the spreads are still pretty narrow, correct, correct.
Speaker 1 (32:12):
Speaking about the big picture of the market right now,
do you think we're going to bounce off of this
and this is sort of the low of this most
recent cell offware? Is there moved to go further down?
You say things are still overvalued.
Speaker 3 (32:22):
You know, I talked to some friends of my really
good friend of mine is a great trader, and he's
telling me at fifty five thirty or something on the
S and P could break through. I'm listening to a
lot of great tech glanists saying that you'll get a
bounce here. It's hard for me to tell because emotions
can run to extremes. As we know it. Think emotions
ran the extreme to bring the NASDIK up so much
for two years in a row, and it could take
(32:44):
you down a little bit. I would look at this
as an incredible opportunity for good companies. Find the companies
you really like, find the valuations that make sense, and
you average into them. We're right now, we're looking selectively
protect if they get sold up more bit more of
a sell off there.
Speaker 5 (33:01):
Hey, Max, just got about twenty five seconds left here?
How much have you been looking overseas? The eurostocks fifty
still it's up about ten percent so far in twenty
twenty five. Opportunity overseas and just quickly, well, you know.
Speaker 3 (33:12):
We don't look much overseas because we buy such global
companies in the currency risk and sometimes I get very
upset with the tax structure of how the dividends come back,
so we have to when we invest overseas, it has
to be tax friendly countries with US, and there's only
a few countries that do that, so we're mainly buying
domestic global countries, all right, got it?
Speaker 7 (33:30):
Hey, listen.
Speaker 4 (33:31):
Good to check in with you. Max Wasserman.
Speaker 5 (33:32):
He's founder and senior portfolio manager of Mira Mark Capital,
joining us from Northbrook, Illinois.
Speaker 2 (33:38):
This is the Bloomberg Business Week podcast, available on Apple, Spotify,
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Speaker 8 (34:08):
Yeah
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