April 29, 2025 • 32 mins
- Savita Subramanian, Head: US Equity & Quantitative Strategy at Bank of America
- Collin Martin, Fixed Income Strategist at Charles Schwab
- Kathy Bostjancic Chief Economist at Nationwide
- Stephanie Roth, Chief Economist at Wolfe Research
Savita Subramanian, Head: US Equity & Quantitative Strategy at Bank of America, joins to discuss the outlook for US equities and whether fundamentals are still in place for a bull run. Collin Martin, Fixed Income Strategist at Charles Schwab, discusses signals from the bond market and outlook for Treasuries. Kathy Bostjancic, Chief Economist at Nationwide, and Stephanie Roth, Chief Economist at Wolfe Research, preview this week's jobs report and talk about the outlook for the US economy and eco data in the US.
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Episode Transcript
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Speaker 1 (00:00):
Bloomberg Audio Studios, Podcasts, radio News.
Speaker 2 (00:11):
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
with Lisa Bromwitz and Amrie Hordern. Join us each day
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anywhere else you listen, and as always on the Bloomberg
(00:34):
Terminal and the Bloomberg Business App. Stephanie Rath of Wolfe
has one of the lowest estimates on the Street rising.
We're looking for ninety thousand non farm payrolls, weather, seasonal factors,
and the Canada alone suggests a substantial headwind. Stephanie joins
us now for more. Stephanie, Good morning.
Speaker 3 (00:49):
Good morning.
Speaker 2 (00:50):
Is it too early to expect to see a hit
from the policy volatility? Dan in Washington, No, I.
Speaker 4 (00:55):
Think we should start to see that companies probably pause
on their hiring if we don't know what the outlook is.
A lot of companies are quite uncertain about where things
are going. It makes sense that they're gonna pause on hiring.
And then from the comments that you just read, there's
seasonal factors weighing on the print, calendar factors weighing on
the print. It makes sense for it to be below
one hundred.
Speaker 2 (01:12):
Has been described as a random number generator at time
in the survey week claims are okay. Does that make
a difference to you, No.
Speaker 4 (01:19):
Because the seasonal stuff is not really an effect of firing.
It's more just timing around the survey week compared to
last month there was bad weather. That doesn't mean that
there was actual firing, so that shouldn't correlate with the
claims data. This is more function of this particular non
farm pails print.
Speaker 5 (01:36):
Does it matter which jobs end up getting removed or
maybe seeing a weak performance in this report given the
fact that there has been this ballast of healthcare as
well as a couple of other sectors, including the government,
that have really driven things over the past couple of years.
Speaker 4 (01:50):
Yeah, And I think that's something that we're going to
see over the next couple of months, is the parts
of the labor market that were really strong should start
to slow down. Government in particular healthcare is well, especially
since grants are likely to be slowing down healthcare hiring,
and then on top of that, you should start to
see the cyclical parts of the economy slow down. That
one I don't expect for this print necessarily. I think
(02:10):
we should see a sort of more gradual slowdown from
that perspective. But we should start see construction, should see
ahead wind from some of the weather stuff, healthcare, government
sho should be a little bit softer in this print,
and then in the next print things like rail employment,
stuff that's actually tied to the goods economy. That's probably
less of a story for this print. It's probably more
about the Maypairels print.
Speaker 6 (02:29):
You know, this has been a really confusing moment.
Speaker 5 (02:31):
On one hand, a lot of people are predicting a
lot of pain and potentially a real headwind to growth.
On the other hand, you do have companies with drawing guidance.
You have others like some of the travel companies cruise
liners and hotels increasing theirseph fullier forecast because they see
people still traveling, people still want to go around, The
consumer is still strong.
Speaker 6 (02:51):
How do you pair these two.
Speaker 5 (02:52):
Ideas and put them together in some sort of outlook.
Speaker 4 (02:55):
I think it makes sense today the economy is fine.
There will be something unificant headwinds in the next couple
of months unless Trump pulls back the tariffs.
Speaker 7 (03:04):
On China in particular in a big way.
Speaker 4 (03:06):
So if he doesn't do that in the next couple
of weeks, we might be on a sort of unsustainable
path towards recession base cases.
Speaker 7 (03:12):
He probably pulls down.
Speaker 4 (03:14):
The tariffs on China in particular fairly notably in the
next couple of weeks, otherwise we might be looking at
bare shelves and COVID like environment.
Speaker 8 (03:21):
But it was a self inflicted one Stephanie, what's fairly
notable in terms of pulling the tariffs down sixty percent?
Speaker 3 (03:27):
That still feels like to many people.
Speaker 4 (03:29):
In trade of bargo you need tariff rates to be
below fifty five percent roughly all in. That includes the
fentanyel tariffs, that includes the reciprocal tariffs. And then, by
the way, you have to be cognizant that there are
three oh one tariffs from the last trade war as well,
some of them up to twenty five percent, right, so.
Speaker 3 (03:45):
It's a massive cumulative rate.
Speaker 8 (03:46):
You said something earlier, you said you don't expect companies
to be hiring. They're on pause. Do you expect them
to be firing at this moment.
Speaker 7 (03:54):
At this moment, probably not.
Speaker 4 (03:55):
There's just so much uncertainty, there was so much difficulty
hiring in the past couple of years. It probably makes
send for them to just pause for a little while.
Of course, there's going to be still some hiring to
some extent, there's just a business eased, the economy still growing,
but to the extent that at the margin, if you're
not sure you need the position, you might just kind
of wait for the next couple of months, see how
things play out, and then make a decision about whether
you actually want to hire in that position.
Speaker 2 (04:16):
Later on this morning, we get consumer confidence numbers, and
within that you offer to read on attitudes to the
labor market, how difficult or hard it might be to
get a job. And I think this is really important
on taking the temperature not only for that, but also
the potential for second round effects when it comes to
inflation and price hikes. Now, if I'm worried about getting
a job, how likely is it that I'm going to
(04:38):
get a pay rise anytime soon, or at least ask
for one.
Speaker 4 (04:42):
Probably less so, so you're probably going to start to
see a little bit of deceleration from our wage perspective.
The one thing is the immigration stuff actually has a
different implication for the for the blue collar work or
the lower end.
Speaker 3 (04:53):
So there is a bit of stuff.
Speaker 4 (04:55):
Happening kind of under the surface that is quite nuanced.
So we might start to see an unusual tightening for
blue collar worker, even though the white collar worker might
actually be having a little bit more difficulty finding it.
Speaker 2 (05:06):
So, just for the record, ask for a pay rise, right,
really please? Always?
Speaker 5 (05:11):
Okay, So that's you basically, So in some please.
Speaker 2 (05:15):
Rachel, this can become self fulfilling, don't you think People
start to worry about these things, so they back off,
they stop spending, and it takes on a life of its.
Speaker 5 (05:22):
Own, which is the reason why I think it's really
salient that you mentioned these surveys and how people feel
about their jobs, people staying longer, the quits rate. Later
this morning, when we get that joelt Stata is going
to be key in terms of people's confidence not just
to ask for a raise, but to leave their jobs.
And as we're talking about this ups and how's his plans?
You got twenty thousand jobs this year as a result of.
Speaker 6 (05:42):
The Amazon tie up.
Speaker 5 (05:44):
You're seeing this on the margins, cost cutting coming more
into the floor.
Speaker 2 (05:47):
Where is the consumer price tolerance right now going into
potentially higher prices, not very high.
Speaker 4 (05:53):
So the biggest driver of consumer inflation expectations is past inflation.
So today, the extent that consumers are worried about the
inflation that we saw this time, they're quite worried about
inflation that we're going to see in the future, in
which case they're probably going to be pulling back on spending.
They're gonna be very attuned to the prices that they're
seeing on the shelves. So this is very different than
the last trade war for a number of reasons. The magnitude,
(06:14):
of course, but also where we are coming from, and
in twenty eighteen we didn't have a period of inflation.
Speaker 3 (06:18):
People weren't really expecting inflation, they didn't really know what
it felt like.
Speaker 4 (06:21):
This time, consumers field are very very different versus where
we were.
Speaker 2 (06:25):
Amazon has a different idea of how this might play out.
Speaker 8 (06:27):
Right, Amazon, I think is gonna get very political and
tru administration is not gonna like this. Punch Bowl says
that they're going to add what the tariff rate is
on top of the cumulative price. So if you're a
consumer and you see something's five dollars and now it's
ten to seven, whatever, you see the additional tariff input
that is going to I think really irk the administration.
Speaker 2 (06:46):
Yeah, the politics of that is going to be interesting
for the next few months or so if that's how
it plays out. Stephanie's good to see you as always.
Thanks for dropping by, Stephanie roth Lair of Wolf Research.
Let's turn to a busy week of data ahead and
a busy week for Washington as well. The Fed's next
(07:08):
rate decision just a week away. Colin Martin of Chiles
Swelb writing, while self data has been concerning, the hard
data has held up well. If this week's data disappoints,
the Fed won't necessarily react. Colin joint us now for more. Colin,
good Mornick, Good morning, Tilson Slock Apollo. I don't know
if you saw this. I'm going to share it with
you now. The survey week for employment this week was
the week after Liberation Day tariffs were announced. It goes
(07:31):
on to say the consensus expects one hundred and thirty k.
There are significant risk the number is going to be lower,
perhaps even negative. What's your reaction to that.
Speaker 9 (07:39):
It'd be pretty disappointing.
Speaker 10 (07:40):
I mean, when we look at the labor market outlook,
there's all these thoughts and concerns about what can happen
as the tariffs are put in place over the next
few months, and there isn't too much concern in the
here and now opposite, you know, aside from what Wordslock
just put out. I mean, I think the consensus estimate
is one hundred and sixty five thousand something like that.
If we were to see slow down here in April,
(08:02):
I don't think that would change the FEDS calculus for
next week.
Speaker 9 (08:05):
We kind of heard that from a lot of FED
officials in terms.
Speaker 10 (08:07):
Of no move in May. Maybe it gets pulled up
to June. I think it'd be bad for the markets, though,
if we got that negative reading this early, this quickly,
I think that'd be a pretty bad outcome.
Speaker 5 (08:18):
When you see the markets, you're talking risk assets in particular,
and what we have seen so far is a real
divergence between the front end of the yield curve, which
has really signals a great more pain than certainly risk assets,
whether it's credit instruments or whether it's equity ones. Do
you think that that divergence needs to close to more
weakness on the risk side of things, or do you
think that people are pricing in an overly large response
(08:41):
by the Federal Reserve.
Speaker 9 (08:43):
I don't think they are.
Speaker 10 (08:45):
If you look at the ten year treasury, for example,
I mean, that's been hovering in that four to two
to four five range. I think a lot of that
comes down to potential confidence dollar concerns, things like that.
If you look at the Fed funds futures market, they
have been pricing in relatively aggressive cuts.
Speaker 9 (09:01):
We somewhat disagree with that.
Speaker 10 (09:03):
We don't think we're going to see that slow down
as quickly as a three or four rate cut outcome suggests.
But it does come down to the labor market. If
we see that weakening, we think the Fed over time
will react. We're seeing Powell kind of pivotal away a
little bit. I think a week and a half ago
he mentioned maybe we'll focus on the inflation mandate more
than the labor market mandate. That seems to be the
(09:24):
minority right now, based on concerns and comments we've heard
from other Fed officials.
Speaker 6 (09:28):
This is a fascinating moment.
Speaker 5 (09:30):
Where a lot of Fi Crui of gold mis Sax
yesterday came on the show, and so that he actually
prefers credit risk to sovereign risk right.
Speaker 6 (09:36):
Now and talking about removing.
Speaker 5 (09:38):
From some of the volatility that you're seeing in treasury
markets to really go with corporations that are telling you
we have no clue, that are one after another saying
we can't give you any forward guidance.
Speaker 6 (09:49):
Can you reconcile that? Do you agree with that?
Speaker 10 (09:51):
You know somewhat, But I guess it depends how much
credit risk we're talking about. We're still a little bit
cautious on the very low rated parts of the market,
I mean junk in general. We're worried that spreads can
blow out if we get this prolonged trade war investment creed.
We're still pretty comfortable taking that risk. So, whether it's
credit on the corporate side, whether it's municipal credit risk,
(10:11):
we're okay there because the hard data leading up to
now was generally okay. Corporations are in pretty solid footing,
especially ig rated. We're looking at really strong balance sheets,
plenty of liquid assets. If profits slow down, I think
that might need more of a stock market issue that's
an earnings issue, not a balance sheet issue, and we
think they have really strong balance sheets right now. Again,
(10:32):
IG issues. They've pushed back that maturity wall a little bit,
so IG we're okay with.
Speaker 9 (10:36):
But we're not really taking low credit risk right now.
Speaker 6 (10:40):
This is a really tough time to be an investor.
Speaker 5 (10:42):
I have to say, I can just begin to imagine
there's so many different themes that are kind of overlaid.
You've got this question of credit versus software risk, and
then you've got a question of just international appetite for
US dollars nominated assets, and that has been one of
the biggest shifts over the past few weeks, is that
that's really been called into question. How much have you
changed your allocation to shift away from US dollars to
(11:03):
nominated assets, just to touch on the margins, to immunize
yourself from that type of narrative that does seem to
becoming entrenched in certain pockets.
Speaker 10 (11:10):
I could say we're talking about it a lot more
with our clients than we were a few months ago
and over the past few years. When we look at
international markets a Schwab, it's not really a big aspect
of what we look at I think most US investors
from a bond standpoint, are probably under allocated to international debt.
With the dollar being as strong as it's been over
the past few years, there hasn't been as much of
a case because you have that yield disadvantage when you
(11:32):
consider other global developed markets. If the outlook is for
the dollar to weaken a little bit from here, then
the case can be made to shift a little bit
to international assets. We're not saying go nuts, We're not
saying go overweight, but it probably makes sense, especially when.
Speaker 9 (11:46):
You talk about the idea of a.
Speaker 10 (11:48):
Loss of confidence or sovereign risk. You don't hear about
those concerns with some of the higher rated issuers and
say Europe for example. So I think it's a decent option,
but really just for investors who are probably un are
allocated right now versus Hey take all your money out
of the US and go into Europe for example.
Speaker 3 (12:04):
You said you're talking to your clients about this.
Speaker 8 (12:06):
Are they nervous about us losing something like reserve status?
Speaker 9 (12:11):
Yes, full stop. I mean that's over the past few
weeks we've done.
Speaker 3 (12:14):
You've never heard this before.
Speaker 9 (12:16):
We get it a lot.
Speaker 10 (12:17):
It's a question that it always lingers, especially when you
have the idea of rising debts, rising deficits. There's no
shortage of concerns about the outlook for the dollar and
how investors should be positioned. But over the past few weeks,
especially since so called Liberation Day, the client events and
requests for communications have been through the roof no supply,
no surprise, and that's a major concern. The question is
(12:40):
what's going on with treasury, with foreigners potentially selling our debt,
what's the outlook for the dollar. We try not to
be too alarmist about it. We don't think the dollar
is going to lose its reserve currency status overnight. I
think there could be a risk over the long run.
If the goal here by the Trump administration is to
reduce those trade deficits, then maybe that means we have
(13:02):
less of a capital account surplus, and it means foreigners
over time don't need to hold as many dollars. It's
a very long term view, though, so we're trying not
to be alarmist. Obviously there's concerns out there, but we're
not saying you need to get out of the dollar
or dollar denominated assets right now.
Speaker 2 (13:17):
It's not something that happens. I have an eye something
that happens gradually, and we have start to say this
type place the dollar stats awaken goldsteins to appreciate that's
been a story for the last couple of years now.
And some of the people would also point to the
state of cufs. We've seen this well, less of a
willingness to hold the long bonped particularly moments of strengths
and equity markets. You're not even seeing sensual signs of
this stime to accumulate.
Speaker 9 (13:37):
What do you mean by.
Speaker 10 (13:37):
Starting to accumulate with foreign investors and nervousness about long term.
Speaker 2 (13:40):
Debt, nervousness about holding US assets, particularly a time of stress.
Speaker 10 (13:44):
You know, I don't know if it's so much a nervousness.
I think it's just a gradual shift away. Hey, there's a.
Speaker 9 (13:48):
Lot going on right now. And if you're a foreign.
Speaker 10 (13:50):
Investor, and it seems like it might be private investors
as opposed to turn for banks, obviously these are negative
headlines if you're a foreigner, just the idea of maybe
I don't want to hold that asset right now. But John,
you hit the nail on the head. It's a long
term potential shift This takes years for something like this
to happen, and it's not our outlook great now, mainly
because where else can you go? I mean, the dollar
(14:11):
is still the most held asset, the most traded asset,
so it's not something that we're worried about right now.
Speaker 2 (14:16):
And if you've been away for a while and came
back and saw de x y A ninety nine, you
probably wouldn't freak out.
Speaker 9 (14:20):
That's for sure.
Speaker 2 (14:21):
Going to see a Colin appreciate it as always, Colin
mouse in there of Charles Swam on the latest Savita
SUPERMANI but Bank for America writing, the only thing to
fear is fear itself. Folks are worried about a recession,
so they are acting recession rate speed and achieving policy
(14:43):
clarity is healthy essence. Savita joined us now for more Sevita,
good morning.
Speaker 3 (14:47):
It's good to see it.
Speaker 7 (14:48):
I'm morning great to see.
Speaker 2 (14:49):
A lot of cuts to outlooks. We're seeing suspensions of
guidance repeatedly across the board from Corporate America this morning.
What does that mean for you and the team.
Speaker 11 (14:56):
Yeah, well, I mean it's not great, It's definitely not good.
We're seeing the revision ratio, just a number of cuts
to number of raises to earnings approaching all time lows.
Guidance is being suspended.
Speaker 7 (15:10):
That's a hit.
Speaker 11 (15:11):
I mean, we saw the same thing during COVID, probably
more so during COVID because there was a much higher
level of uncertainty.
Speaker 7 (15:19):
And what we found was the companies that continued.
Speaker 11 (15:22):
To guide actually traded at the widest premium to the
non guiders or the suspenders that we've seen. So I
think right now people want transparency, investors want to know,
So that's that's one thing we're watching. I think what's
interesting is that in the last week we've heard more
companies talk about mitigation tactics for tariffs.
Speaker 7 (15:44):
Than we did in prior weeks.
Speaker 11 (15:47):
So I think that what we're in right now is
the environment where corporates are doing what they always do,
which is adapt, you know, figure out where they can,
you know, kind of change things around the edges. And
on top of that, we're seeing kind of a defer
of big decisions. So it almost feels like we're in
this phase where there's.
Speaker 7 (16:05):
No hiring, but no firing.
Speaker 11 (16:07):
There's you know, no new capital committed to projects, but
projects aren't necessarily being canceled, and I think that's both
good and bad.
Speaker 7 (16:15):
I mean, this pause.
Speaker 11 (16:16):
The longer it lasts, you know, the worse it gets
for the economy. But at least we're not seeing just
this sort of reactive firing canceling, you know, kind of
a downdraft and activity.
Speaker 2 (16:28):
This is important for the data that comes on Friday Pace.
When you say adapt, then if they're not firing, how
are they adapting?
Speaker 3 (16:34):
What are they doing?
Speaker 11 (16:35):
So what they're doing is they're sort of shifting supply chain.
They're thinking about more manufacturing in the US.
Speaker 7 (16:42):
I think that the idea that we've seen this.
Speaker 11 (16:45):
Movie before, back in twenty eighteen, especially with respect to China,
gives companies a little bit more confidence that they know
how to negotiate this.
Speaker 7 (16:55):
So I think that's a positive.
Speaker 11 (16:57):
What's interesting, though, is that you're hearing more weakness around
consumer and even in consumer staples. So if you think
you can hide in the food stocks and the you know,
the defense not necessarily working this time, and I think
that's also noteworthy. I will tell you, I mean everything
we're looking at really points us in one direction, which
(17:20):
is large cap value. And I feel like it's almost
this kind of unassailable theme in an environment where the
risks are you know, potentially higher yields, and we can
talk about that potentially higher inflation, because what we're seeing
right now on the table from a policy standpoint, is
mostly inflationary, and in that environment, you really don't want
(17:41):
to be in bonds.
Speaker 7 (17:42):
You want to be in dividends. Rustle one thousand.
Speaker 11 (17:44):
Value companies have a much higher tether to non discretionary spend,
either services or goods.
Speaker 7 (17:51):
Think about it.
Speaker 11 (17:52):
I mean, if we're in an environment where we're cutting back,
we're still going to pay insurance, We're still going to
be utilities, heating, et cetera. So I think those types
of areas of the market should hold up quite well.
Speaker 7 (18:03):
And the value.
Speaker 11 (18:05):
Index, the large pat value index has kind of consistently
outperformed the growth indexes here, So I think I think
that's where you really want to be to sort of
cover yourself as opposed to just going pure defense of
you know, kind of the old school defense playbook.
Speaker 5 (18:19):
Yeah, to your point, some of the consumer staples craft
hignds came out in cited worse than consumer sentiment and
cut their forecast. Evidently, Oscar Myer Sausages as well as
your hines catch up, but not necessarily moving off the
shelves as quickly as in the past.
Speaker 7 (18:32):
You said you've latched talk about hot sogs.
Speaker 5 (18:34):
Yeah, well, I mean maybe that's something else. Maybe that's
John in terms of healthcare exactly.
Speaker 3 (18:40):
Baby.
Speaker 5 (18:40):
You know, if you check your blood and then you
check that oscar wedding, that's my boot.
Speaker 6 (18:44):
You talk about yields, let's go there.
Speaker 5 (18:46):
You have a very non consensus call on what US
equity markets are implying about where treasure yields could go.
Speaker 6 (18:53):
Yeah, seven percent?
Speaker 7 (18:54):
Really seven percent?
Speaker 11 (18:55):
So this is this is the analysis we said, Okay,
equities and the core sector is actually quite unlevered and
unusually healthy when it comes to leverage because all that
leverage sits on.
Speaker 7 (19:08):
Government balance sheets.
Speaker 11 (19:09):
So if you look at the leverage ratio between corporates
and the government, complete opposites.
Speaker 7 (19:14):
And if you apply the math, so what we.
Speaker 11 (19:16):
Found is that investors will pay a higher multiple if
leverage risk is lower. If you apply that math to
where bond yields are where the US government is it
spits out yields around seven percent, it's a much higher
level of return that investors need to see in an
environment where leverage.
Speaker 7 (19:37):
Is so high.
Speaker 5 (19:39):
This is following the logic that the math is the
same for US sovereign risks. I mean, it's it's the
back of the envelope. But this raises this real question,
which is, if there is a credit risk component to
US sovereign debt, how much does that impede the equity
story in the United States? Given that a lot of
guests who come on this show say once ten year
(20:00):
treasure yields hit five percent, forget about it, you're going
to see some losses in equities.
Speaker 7 (20:04):
Yeah, I don't necessarily think so.
Speaker 11 (20:06):
I mean, let's say we're kind of becoming more like
an emerging market. Sometimes emerging market equities do really well,
especially when they're unlevered and there's potential for growth.
Speaker 7 (20:17):
And I think that's where we are today. So if
you look past.
Speaker 11 (20:19):
Tariffs and you think about what the administration is trying
to do, we're trying to get America manufacturing again. We're
already seeing the seeds sewn for that story over the
last four to eight years. So I think that the
idea that stocks have to implode if yields hit five
percent is completely false. In fact, we've looked at a
lot of We've looked at this a lot of different ways.
Speaker 7 (20:40):
I mean, think about it.
Speaker 11 (20:41):
Yields right now are not unusually high. Seven percent sounds
really high, but it's you know, we've been there, We've
been higher in the past, and stocks have done okay,
especially dividend yielding stocks. So I think this is an
environment where we have to kind of recalibrate to what's
actually going on.
Speaker 7 (20:59):
The US government.
Speaker 11 (21:00):
Debt levels are at you know, off the grid. We've
never seen this before. We're seeing a closed economy. We're
seeing signs of a closed economy. We're seeing signs of inflation.
We want to see growth in the US. That's what
the policymakers are trying to get. And all of that
is likely to push up bond yields on the long end.
Speaker 3 (21:20):
Yeah.
Speaker 10 (21:21):
Right.
Speaker 8 (21:21):
The administration, though, is targeting lower yields. If it hit
seven percent, does that mean they failed?
Speaker 7 (21:26):
I don't know if it's failing.
Speaker 11 (21:28):
I mean, I think it's just sort of we're all
anchoring to super low rates over the last twenty thirty years,
and they've been falling the entire time. But think about
where we are now. I mean, rate cycles last for decades.
We were in a multi decade period where interest rates
were falling, So I just think we should we just
sort of gear ourselves for the idea that interest rates
(21:49):
rising even from here is not necessarily anathema for stocks
from a policy perspective.
Speaker 7 (21:55):
I mean, nobody's calling me about, you know, if rates
we hire or have we failed?
Speaker 11 (21:59):
But I think that the idea is if rates move higher,
but growth is accompanying that rate move, that's not a failure.
It's actually kind of a more normal boom time economy.
And I just think we're so not used to that
because we haven't seen that in such a long time.
Speaker 2 (22:16):
Why they're high that was important. Is it going to
be the boom time economy that takes rates higher or
is it going to be something else.
Speaker 11 (22:21):
I think it's a whole bunch of things. The good
case is positive growth. The bad case is sovereign risk.
It's also a lack of demand for US treasuries because
the buyers, you know, foreign buyers have left the building
the FED used to buy treasuries.
Speaker 7 (22:37):
I mean, one could argue.
Speaker 11 (22:38):
That if we get to five percent on rates, the
FED will step back in and start buying.
Speaker 7 (22:42):
But I think even there.
Speaker 11 (22:44):
You know, we've got an environment where, you know, again
going back over time, we're just all looking at the
last ten to twenty years, and we're thinking that five
percent seems unsustainable.
Speaker 7 (22:55):
Companies aren't geared for it. Companies are actually very geared
for a higher rate in vironment.
Speaker 11 (23:00):
They've paid down debt, they've locked in very low fixed
rate obligations. Consumer balance sheets are pristine. I mean, for
the most part, you're seeing you know, you're seeing some
frame around the edges. But when you think about what
just happened, the government gave the private sector a whole
bunch of money. True, right, so what do you want
to buy the government or the private sector.
Speaker 2 (23:22):
But when I hear you, Suviat, I hear you talking
about the potential for earnings, I don't hear you talking
about the potential for what people will pay for those earnings.
And when you talk about higher solvereign risk. When I
start to think about that, when I start to think
about what could happen to the self reign, that makes
me think that people won't be willing to pay for
earnings in the same way they were, particularly foreign investors.
We have built up an incredible long on dollar assets yeah,
(23:43):
over the last decade, what kind of multiply you put
in on that very optimistic count.
Speaker 11 (23:47):
Look, it's yeah, it's it's tricky because I think the
S and P today is a very different animal than
it's been historically. So saying a fifteen multiple, which is
the long term average, you just slap that on and
that's what you get.
Speaker 7 (24:00):
What you get. I don't think that's fair.
Speaker 11 (24:02):
I think that's overly punitive because when you look at
the market today, it's you know, higher margin industries with
a lot of potential to become even even higher. When
you think about old economy sectors that can use a
lot of this automation and tools, and you know, little
AI sprinkled in to get more asset light and you
know kind of improve margins and improve earnings variability. So
(24:25):
I think a multiple of twenty seems completely reasonable. In fact,
we ran this analysis where we looked at the S
and P five hundred versus other global benchmarks. Granted the
SMP is trading in the stratosphere, everything else is super cheap. Now,
if you adjust for sector mix, if you adjust for earnings, volatility, leverage,
(24:46):
consumer aspects, you actually come to a conclusion that the
SMP isn't that expensive relative to these other benchmarks.
Speaker 7 (24:55):
So I think by just sort of painting this.
Speaker 11 (24:59):
Historical app everything has to trade at the same level.
I think we're sort of oversimplifying really important details about.
Speaker 2 (25:06):
US corporate bigdose of optimism this morning from Savita Subramani,
but Bank for Americas VETA, thank you. Kathy Postchansik of Nationwide, writing,
we think the economy out of just one hundred and
twenty thousand jobs in April, Kathy joins us now to
(25:28):
discuss Kathy, welcome to the program. One twenty we at
risk of something much much lower.
Speaker 12 (25:34):
Well, good morning, John.
Speaker 1 (25:36):
Well, yeah, I do do think the risks are on
the downside, but it's a bit early to look for
the real negative numbers in payroll or they hit from
the government layoffs and the hit to healthcare and even
the cyclical sectors.
Speaker 12 (25:51):
I think that's going to be a few months from now.
Speaker 1 (25:54):
But we certainly have seen businesses just pull in their
hiring range. And given that we do see churn in
the labor market every month, the fact that you're just
seeing companies paralyzed right and not hiring, that does impart
a downward bias to the number.
Speaker 5 (26:11):
Kathy, are there specifics that you're looking for with in
like under the hood of the headline number that's going
to be important to see.
Speaker 12 (26:20):
Yeah, No, absolutely.
Speaker 1 (26:22):
You know, one of the main engines of growth in
payrolls has really been the healthcare and a social assistance sector.
Speaker 12 (26:31):
Those sectors are.
Speaker 1 (26:33):
Very much related and dependent on federal government activity and support.
So we think those are areas that we'll start to see,
you know, some softening, and then that means overall non
farm payrolls you know, start the week, and really if
you looked at like kind of what we would call
the core cyplical sector, we had already seen the labor
(26:54):
market losing some steam, but overall healthcare, education, any even
the government sector was boosting the overall headline number.
Speaker 5 (27:04):
Katy. We're going to get a host of other data
before that, including the Jolts information, which includes the quits rate.
Speaker 6 (27:10):
We'll get some more consumer confidence.
Speaker 5 (27:11):
As John was just mentioning, I'm just wondering from your
vantage point, as you look forward, how you reconcile the
gap that we have seen between the soft data and
the hard data. Do you agree with some of the
earlier people earlier guests on the show said it's probably
a four to six month lag before you see a
similar type of deterioration in the hard data.
Speaker 12 (27:30):
Yeah, I would agree with that.
Speaker 1 (27:31):
I mean, maybe i'd say a little shorter, you know,
three to six months, but by and large, you know,
the movement in the soft data has been so pronounced
you really have be careful of shrugging that off. Sometimes
it can be a little bit misleading, especially the confidence numbers.
But when you spoke about the conference board consumer confidence data,
(27:52):
when I'm going to zero in on is all the
labor market readings, and particularly I want to see the
expectations for more jobs or you know, jobs are fewer
out there, and looking at the labor differential that I
think is meaningful, and also consumers' expectations about income going forward.
Usually that survey shows is very like an American attitude
(28:14):
the future incomes will be up. What we've seen is
some breakdown on that and people becoming a little more
pessimistic about future income. That can obviously influence current consumer spending.
Speaker 8 (28:26):
But at the moment we do see consumers also front loading,
wanting to get ahead of the tariffs. What does this
mean for spending at the second half of the year, Kathy.
Speaker 12 (28:36):
So the data very skewed by the terriffs.
Speaker 1 (28:39):
You know, you were talking about Mike was talking about
the import data.
Speaker 12 (28:42):
You know, yes, imporart is going.
Speaker 1 (28:43):
To drag on GDP, but consumption is going to keep
it elevated more than it otherwise would be.
Speaker 12 (28:51):
So it's very skewed.
Speaker 1 (28:52):
But that's pulling forward means it's just a lot less
consumption in the second half of the year, regardless of
what happens on the teriff Fright, Like, even if there
was if you bought an auto or a big ticket item,
you're not going to be buying one.
Speaker 12 (29:04):
In the second half of the year.
Speaker 1 (29:05):
So that's certainly going to be a negative for consumer
spending in GDP growth in the second half of the year.
Speaker 8 (29:10):
John has broughtup this point a lot. If you're going
out and you're spending on big ticket items, say a
car or some sort of suv, are you actually nervous
about losing your job?
Speaker 12 (29:21):
Well, it's a great question. I would say no.
Speaker 1 (29:25):
I think that you know, buying lads to those are
people who are just trying to get ahead of the
price increase. I think if you're worried about losing your job,
you probably hold on to your current car and just
run it as long as you can, or looked to
the used car market, which that's also going to feel
upward pressure right in prices. We saw that during COVID,
So I think that's a really good point. And even
in you know, our outlook, and I would say the
(29:47):
vast majority of others I've seen, you know it's going
to either be a borderline recession or if you get
a recession, at this point, most of.
Speaker 12 (29:55):
Us thinking mild.
Speaker 1 (29:56):
That means the unemploym rate goes up to five percent,
that's still overall all historically pretty good labor market. But
it's this uncertainty that is really I think killing the
economy right now.
Speaker 3 (30:06):
Kathy.
Speaker 2 (30:07):
As we've seen, the Chairman of the Federal Reserve has
chosen to prioritize anchoring inflation expectations. I just wonder from
your perspective, how you imagine that might shape his approach
the next Week's may think, yeah.
Speaker 1 (30:20):
He's going to have to walk a tightrope as many
times he does, especially during the press conference, but.
Speaker 12 (30:26):
I don't think he'll back away from that.
Speaker 1 (30:27):
I know some others have suggest been a little more
devish right, some FED officials, but I think he'll maintain
this idea the inflation expectations. How the worst outcome for
them is it becomes embedded and becomes more persistent. One
of the things I worry about is the roll out
of the terriffs, Like we're still waiting to see if
there's going to be additional sectoral tariffs. The longer that
(30:48):
process gets elongated, the more inflation shock can be persistent.
Speaker 10 (30:52):
Right.
Speaker 12 (30:53):
I'd almost rather have all the terriffs at once.
Speaker 1 (30:54):
I mean, it's not good for the economy, but in
terms of inflation, it is really hard to gauge.
Speaker 12 (30:59):
Then what's you know, transitory verse persistent.
Speaker 2 (31:03):
Kathy, what's your take on some of the pressure that's
come from the President on the chairman of the Federal Serve?
How does that reshape the optics of them trying to
ease sometime soon?
Speaker 1 (31:13):
You know, I think Chairman Pow would say he ignores that,
and they're a political and they're only looking the data,
and I think by and large data is the case.
I just worry a little bit about the optics for
market and investors how they interpret that.
Speaker 12 (31:28):
And it could be that you know, they.
Speaker 1 (31:31):
Ease for the right reasons, but the market second guesses
at and that would be bad, right, And then you
get of long term interest rates rising by short term
interest rates are lower because of inflation expectations rising, or
an extra term premia embedded on the long end.
Speaker 2 (31:47):
Kathy got to leave it there, Kathy pill chance it
that of nationwide. This is the Bloomberg Seventans podcast, bringing
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Speaker 10 (32:13):
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Speaker 2 (00:11):
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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(00:34):
Terminal and the Bloomberg Business App. Stephanie Rath of Wolfe
has one of the lowest estimates on the Street rising.
We're looking for ninety thousand non farm payrolls, weather, seasonal factors,
and the Canada alone suggests a substantial headwind. Stephanie joins
us now for more. Stephanie, Good morning.
Speaker 3 (00:49):
Good morning.
Speaker 2 (00:50):
Is it too early to expect to see a hit
from the policy volatility? Dan in Washington, No, I.
Speaker 4 (00:55):
Think we should start to see that companies probably pause
on their hiring if we don't know what the outlook is.
A lot of companies are quite uncertain about where things
are going. It makes sense that they're gonna pause on hiring.
And then from the comments that you just read, there's
seasonal factors weighing on the print, calendar factors weighing on
the print. It makes sense for it to be below
one hundred.
Speaker 2 (01:12):
Has been described as a random number generator at time
in the survey week claims are okay. Does that make
a difference to you, No.
Speaker 4 (01:19):
Because the seasonal stuff is not really an effect of firing.
It's more just timing around the survey week compared to
last month there was bad weather. That doesn't mean that
there was actual firing, so that shouldn't correlate with the
claims data. This is more function of this particular non
farm pails print.
Speaker 5 (01:36):
Does it matter which jobs end up getting removed or
maybe seeing a weak performance in this report given the
fact that there has been this ballast of healthcare as
well as a couple of other sectors, including the government,
that have really driven things over the past couple of years.
Speaker 4 (01:50):
Yeah, And I think that's something that we're going to
see over the next couple of months, is the parts
of the labor market that were really strong should start
to slow down. Government in particular healthcare is well, especially
since grants are likely to be slowing down healthcare hiring,
and then on top of that, you should start to
see the cyclical parts of the economy slow down. That
one I don't expect for this print necessarily. I think
(02:10):
we should see a sort of more gradual slowdown from
that perspective. But we should start see construction, should see
ahead wind from some of the weather stuff, healthcare, government
sho should be a little bit softer in this print,
and then in the next print things like rail employment,
stuff that's actually tied to the goods economy. That's probably
less of a story for this print. It's probably more
about the Maypairels print.
Speaker 6 (02:29):
You know, this has been a really confusing moment.
Speaker 5 (02:31):
On one hand, a lot of people are predicting a
lot of pain and potentially a real headwind to growth.
On the other hand, you do have companies with drawing guidance.
You have others like some of the travel companies cruise
liners and hotels increasing theirseph fullier forecast because they see
people still traveling, people still want to go around, The
consumer is still strong.
Speaker 6 (02:51):
How do you pair these two.
Speaker 5 (02:52):
Ideas and put them together in some sort of outlook.
Speaker 4 (02:55):
I think it makes sense today the economy is fine.
There will be something unificant headwinds in the next couple
of months unless Trump pulls back the tariffs.
Speaker 7 (03:04):
On China in particular in a big way.
Speaker 4 (03:06):
So if he doesn't do that in the next couple
of weeks, we might be on a sort of unsustainable
path towards recession base cases.
Speaker 7 (03:12):
He probably pulls down.
Speaker 4 (03:14):
The tariffs on China in particular fairly notably in the
next couple of weeks, otherwise we might be looking at
bare shelves and COVID like environment.
Speaker 8 (03:21):
But it was a self inflicted one Stephanie, what's fairly
notable in terms of pulling the tariffs down sixty percent?
Speaker 3 (03:27):
That still feels like to many people.
Speaker 4 (03:29):
In trade of bargo you need tariff rates to be
below fifty five percent roughly all in. That includes the
fentanyel tariffs, that includes the reciprocal tariffs. And then, by
the way, you have to be cognizant that there are
three oh one tariffs from the last trade war as well,
some of them up to twenty five percent, right, so.
Speaker 3 (03:45):
It's a massive cumulative rate.
Speaker 8 (03:46):
You said something earlier, you said you don't expect companies
to be hiring. They're on pause. Do you expect them
to be firing at this moment.
Speaker 7 (03:54):
At this moment, probably not.
Speaker 4 (03:55):
There's just so much uncertainty, there was so much difficulty
hiring in the past couple of years. It probably makes
send for them to just pause for a little while.
Of course, there's going to be still some hiring to
some extent, there's just a business eased, the economy still growing,
but to the extent that at the margin, if you're
not sure you need the position, you might just kind
of wait for the next couple of months, see how
things play out, and then make a decision about whether
you actually want to hire in that position.
Speaker 2 (04:16):
Later on this morning, we get consumer confidence numbers, and
within that you offer to read on attitudes to the
labor market, how difficult or hard it might be to
get a job. And I think this is really important
on taking the temperature not only for that, but also
the potential for second round effects when it comes to
inflation and price hikes. Now, if I'm worried about getting
a job, how likely is it that I'm going to
(04:38):
get a pay rise anytime soon, or at least ask
for one.
Speaker 4 (04:42):
Probably less so, so you're probably going to start to
see a little bit of deceleration from our wage perspective.
The one thing is the immigration stuff actually has a
different implication for the for the blue collar work or
the lower end.
Speaker 3 (04:53):
So there is a bit of stuff.
Speaker 4 (04:55):
Happening kind of under the surface that is quite nuanced.
So we might start to see an unusual tightening for
blue collar worker, even though the white collar worker might
actually be having a little bit more difficulty finding it.
Speaker 2 (05:06):
So, just for the record, ask for a pay rise, right,
really please? Always?
Speaker 5 (05:11):
Okay, So that's you basically, So in some please.
Speaker 2 (05:15):
Rachel, this can become self fulfilling, don't you think People
start to worry about these things, so they back off,
they stop spending, and it takes on a life of its.
Speaker 5 (05:22):
Own, which is the reason why I think it's really
salient that you mentioned these surveys and how people feel
about their jobs, people staying longer, the quits rate. Later
this morning, when we get that joelt Stata is going
to be key in terms of people's confidence not just
to ask for a raise, but to leave their jobs.
And as we're talking about this ups and how's his plans?
You got twenty thousand jobs this year as a result of.
Speaker 6 (05:42):
The Amazon tie up.
Speaker 5 (05:44):
You're seeing this on the margins, cost cutting coming more
into the floor.
Speaker 2 (05:47):
Where is the consumer price tolerance right now going into
potentially higher prices, not very high.
Speaker 4 (05:53):
So the biggest driver of consumer inflation expectations is past inflation.
So today, the extent that consumers are worried about the
inflation that we saw this time, they're quite worried about
inflation that we're going to see in the future, in
which case they're probably going to be pulling back on spending.
They're gonna be very attuned to the prices that they're
seeing on the shelves. So this is very different than
the last trade war for a number of reasons. The magnitude,
(06:14):
of course, but also where we are coming from, and
in twenty eighteen we didn't have a period of inflation.
Speaker 3 (06:18):
People weren't really expecting inflation, they didn't really know what
it felt like.
Speaker 4 (06:21):
This time, consumers field are very very different versus where
we were.
Speaker 2 (06:25):
Amazon has a different idea of how this might play out.
Speaker 8 (06:27):
Right, Amazon, I think is gonna get very political and
tru administration is not gonna like this. Punch Bowl says
that they're going to add what the tariff rate is
on top of the cumulative price. So if you're a
consumer and you see something's five dollars and now it's
ten to seven, whatever, you see the additional tariff input
that is going to I think really irk the administration.
Speaker 2 (06:46):
Yeah, the politics of that is going to be interesting
for the next few months or so if that's how
it plays out. Stephanie's good to see you as always.
Thanks for dropping by, Stephanie roth Lair of Wolf Research.
Let's turn to a busy week of data ahead and
a busy week for Washington as well. The Fed's next
(07:08):
rate decision just a week away. Colin Martin of Chiles
Swelb writing, while self data has been concerning, the hard
data has held up well. If this week's data disappoints,
the Fed won't necessarily react. Colin joint us now for more. Colin,
good Mornick, Good morning, Tilson Slock Apollo. I don't know
if you saw this. I'm going to share it with
you now. The survey week for employment this week was
the week after Liberation Day tariffs were announced. It goes
(07:31):
on to say the consensus expects one hundred and thirty k.
There are significant risk the number is going to be lower,
perhaps even negative. What's your reaction to that.
Speaker 9 (07:39):
It'd be pretty disappointing.
Speaker 10 (07:40):
I mean, when we look at the labor market outlook,
there's all these thoughts and concerns about what can happen
as the tariffs are put in place over the next
few months, and there isn't too much concern in the
here and now opposite, you know, aside from what Wordslock
just put out. I mean, I think the consensus estimate
is one hundred and sixty five thousand something like that.
If we were to see slow down here in April,
(08:02):
I don't think that would change the FEDS calculus for
next week.
Speaker 9 (08:05):
We kind of heard that from a lot of FED
officials in terms.
Speaker 10 (08:07):
Of no move in May. Maybe it gets pulled up
to June. I think it'd be bad for the markets, though,
if we got that negative reading this early, this quickly,
I think that'd be a pretty bad outcome.
Speaker 5 (08:18):
When you see the markets, you're talking risk assets in particular,
and what we have seen so far is a real
divergence between the front end of the yield curve, which
has really signals a great more pain than certainly risk assets,
whether it's credit instruments or whether it's equity ones. Do
you think that that divergence needs to close to more
weakness on the risk side of things, or do you
think that people are pricing in an overly large response
(08:41):
by the Federal Reserve.
Speaker 9 (08:43):
I don't think they are.
Speaker 10 (08:45):
If you look at the ten year treasury, for example,
I mean, that's been hovering in that four to two
to four five range. I think a lot of that
comes down to potential confidence dollar concerns, things like that.
If you look at the Fed funds futures market, they
have been pricing in relatively aggressive cuts.
Speaker 9 (09:01):
We somewhat disagree with that.
Speaker 10 (09:03):
We don't think we're going to see that slow down
as quickly as a three or four rate cut outcome suggests.
But it does come down to the labor market. If
we see that weakening, we think the Fed over time
will react. We're seeing Powell kind of pivotal away a
little bit. I think a week and a half ago
he mentioned maybe we'll focus on the inflation mandate more
than the labor market mandate. That seems to be the
(09:24):
minority right now, based on concerns and comments we've heard
from other Fed officials.
Speaker 6 (09:28):
This is a fascinating moment.
Speaker 5 (09:30):
Where a lot of Fi Crui of gold mis Sax
yesterday came on the show, and so that he actually
prefers credit risk to sovereign risk right.
Speaker 6 (09:36):
Now and talking about removing.
Speaker 5 (09:38):
From some of the volatility that you're seeing in treasury
markets to really go with corporations that are telling you
we have no clue, that are one after another saying
we can't give you any forward guidance.
Speaker 6 (09:49):
Can you reconcile that? Do you agree with that?
Speaker 10 (09:51):
You know somewhat, But I guess it depends how much
credit risk we're talking about. We're still a little bit
cautious on the very low rated parts of the market,
I mean junk in general. We're worried that spreads can
blow out if we get this prolonged trade war investment creed.
We're still pretty comfortable taking that risk. So, whether it's
credit on the corporate side, whether it's municipal credit risk,
(10:11):
we're okay there because the hard data leading up to
now was generally okay. Corporations are in pretty solid footing,
especially ig rated. We're looking at really strong balance sheets,
plenty of liquid assets. If profits slow down, I think
that might need more of a stock market issue that's
an earnings issue, not a balance sheet issue, and we
think they have really strong balance sheets right now. Again,
(10:32):
IG issues. They've pushed back that maturity wall a little bit,
so IG we're okay with.
Speaker 9 (10:36):
But we're not really taking low credit risk right now.
Speaker 6 (10:40):
This is a really tough time to be an investor.
Speaker 5 (10:42):
I have to say, I can just begin to imagine
there's so many different themes that are kind of overlaid.
You've got this question of credit versus software risk, and
then you've got a question of just international appetite for
US dollars nominated assets, and that has been one of
the biggest shifts over the past few weeks, is that
that's really been called into question. How much have you
changed your allocation to shift away from US dollars to
(11:03):
nominated assets, just to touch on the margins, to immunize
yourself from that type of narrative that does seem to
becoming entrenched in certain pockets.
Speaker 10 (11:10):
I could say we're talking about it a lot more
with our clients than we were a few months ago
and over the past few years. When we look at
international markets a Schwab, it's not really a big aspect
of what we look at I think most US investors
from a bond standpoint, are probably under allocated to international debt.
With the dollar being as strong as it's been over
the past few years, there hasn't been as much of
a case because you have that yield disadvantage when you
(11:32):
consider other global developed markets. If the outlook is for
the dollar to weaken a little bit from here, then
the case can be made to shift a little bit
to international assets. We're not saying go nuts, We're not
saying go overweight, but it probably makes sense, especially when.
Speaker 9 (11:46):
You talk about the idea of a.
Speaker 10 (11:48):
Loss of confidence or sovereign risk. You don't hear about
those concerns with some of the higher rated issuers and
say Europe for example. So I think it's a decent option,
but really just for investors who are probably un are
allocated right now versus Hey take all your money out
of the US and go into Europe for example.
Speaker 3 (12:04):
You said you're talking to your clients about this.
Speaker 8 (12:06):
Are they nervous about us losing something like reserve status?
Speaker 9 (12:11):
Yes, full stop. I mean that's over the past few
weeks we've done.
Speaker 3 (12:14):
You've never heard this before.
Speaker 9 (12:16):
We get it a lot.
Speaker 10 (12:17):
It's a question that it always lingers, especially when you
have the idea of rising debts, rising deficits. There's no
shortage of concerns about the outlook for the dollar and
how investors should be positioned. But over the past few weeks,
especially since so called Liberation Day, the client events and
requests for communications have been through the roof no supply,
no surprise, and that's a major concern. The question is
(12:40):
what's going on with treasury, with foreigners potentially selling our debt,
what's the outlook for the dollar. We try not to
be too alarmist about it. We don't think the dollar
is going to lose its reserve currency status overnight. I
think there could be a risk over the long run.
If the goal here by the Trump administration is to
reduce those trade deficits, then maybe that means we have
(13:02):
less of a capital account surplus, and it means foreigners
over time don't need to hold as many dollars. It's
a very long term view, though, so we're trying not
to be alarmist. Obviously there's concerns out there, but we're
not saying you need to get out of the dollar
or dollar denominated assets right now.
Speaker 2 (13:17):
It's not something that happens. I have an eye something
that happens gradually, and we have start to say this
type place the dollar stats awaken goldsteins to appreciate that's
been a story for the last couple of years now.
And some of the people would also point to the
state of cufs. We've seen this well, less of a
willingness to hold the long bonped particularly moments of strengths
and equity markets. You're not even seeing sensual signs of
this stime to accumulate.
Speaker 9 (13:37):
What do you mean by.
Speaker 10 (13:37):
Starting to accumulate with foreign investors and nervousness about long term.
Speaker 2 (13:40):
Debt, nervousness about holding US assets, particularly a time of stress.
Speaker 10 (13:44):
You know, I don't know if it's so much a nervousness.
I think it's just a gradual shift away. Hey, there's a.
Speaker 9 (13:48):
Lot going on right now. And if you're a foreign.
Speaker 10 (13:50):
Investor, and it seems like it might be private investors
as opposed to turn for banks, obviously these are negative
headlines if you're a foreigner, just the idea of maybe
I don't want to hold that asset right now. But John,
you hit the nail on the head. It's a long
term potential shift This takes years for something like this
to happen, and it's not our outlook great now, mainly
because where else can you go? I mean, the dollar
(14:11):
is still the most held asset, the most traded asset,
so it's not something that we're worried about right now.
Speaker 2 (14:16):
And if you've been away for a while and came
back and saw de x y A ninety nine, you
probably wouldn't freak out.
Speaker 9 (14:20):
That's for sure.
Speaker 2 (14:21):
Going to see a Colin appreciate it as always, Colin
mouse in there of Charles Swam on the latest Savita
SUPERMANI but Bank for America writing, the only thing to
fear is fear itself. Folks are worried about a recession,
so they are acting recession rate speed and achieving policy
(14:43):
clarity is healthy essence. Savita joined us now for more Sevita,
good morning.
Speaker 3 (14:47):
It's good to see it.
Speaker 7 (14:48):
I'm morning great to see.
Speaker 2 (14:49):
A lot of cuts to outlooks. We're seeing suspensions of
guidance repeatedly across the board from Corporate America this morning.
What does that mean for you and the team.
Speaker 11 (14:56):
Yeah, well, I mean it's not great, It's definitely not good.
We're seeing the revision ratio, just a number of cuts
to number of raises to earnings approaching all time lows.
Guidance is being suspended.
Speaker 7 (15:10):
That's a hit.
Speaker 11 (15:11):
I mean, we saw the same thing during COVID, probably
more so during COVID because there was a much higher
level of uncertainty.
Speaker 7 (15:19):
And what we found was the companies that continued.
Speaker 11 (15:22):
To guide actually traded at the widest premium to the
non guiders or the suspenders that we've seen. So I
think right now people want transparency, investors want to know,
So that's that's one thing we're watching. I think what's
interesting is that in the last week we've heard more
companies talk about mitigation tactics for tariffs.
Speaker 7 (15:44):
Than we did in prior weeks.
Speaker 11 (15:47):
So I think that what we're in right now is
the environment where corporates are doing what they always do,
which is adapt, you know, figure out where they can,
you know, kind of change things around the edges. And
on top of that, we're seeing kind of a defer
of big decisions. So it almost feels like we're in
this phase where there's.
Speaker 7 (16:05):
No hiring, but no firing.
Speaker 11 (16:07):
There's you know, no new capital committed to projects, but
projects aren't necessarily being canceled, and I think that's both
good and bad.
Speaker 7 (16:15):
I mean, this pause.
Speaker 11 (16:16):
The longer it lasts, you know, the worse it gets
for the economy. But at least we're not seeing just
this sort of reactive firing canceling, you know, kind of
a downdraft and activity.
Speaker 2 (16:28):
This is important for the data that comes on Friday Pace.
When you say adapt, then if they're not firing, how
are they adapting?
Speaker 3 (16:34):
What are they doing?
Speaker 11 (16:35):
So what they're doing is they're sort of shifting supply chain.
They're thinking about more manufacturing in the US.
Speaker 7 (16:42):
I think that the idea that we've seen this.
Speaker 11 (16:45):
Movie before, back in twenty eighteen, especially with respect to China,
gives companies a little bit more confidence that they know
how to negotiate this.
Speaker 7 (16:55):
So I think that's a positive.
Speaker 11 (16:57):
What's interesting, though, is that you're hearing more weakness around
consumer and even in consumer staples. So if you think
you can hide in the food stocks and the you know,
the defense not necessarily working this time, and I think
that's also noteworthy. I will tell you, I mean everything
we're looking at really points us in one direction, which
(17:20):
is large cap value. And I feel like it's almost
this kind of unassailable theme in an environment where the
risks are you know, potentially higher yields, and we can
talk about that potentially higher inflation, because what we're seeing
right now on the table from a policy standpoint, is
mostly inflationary, and in that environment, you really don't want
(17:41):
to be in bonds.
Speaker 7 (17:42):
You want to be in dividends. Rustle one thousand.
Speaker 11 (17:44):
Value companies have a much higher tether to non discretionary spend,
either services or goods.
Speaker 7 (17:51):
Think about it.
Speaker 11 (17:52):
I mean, if we're in an environment where we're cutting back,
we're still going to pay insurance, We're still going to
be utilities, heating, et cetera. So I think those types
of areas of the market should hold up quite well.
Speaker 7 (18:03):
And the value.
Speaker 11 (18:05):
Index, the large pat value index has kind of consistently
outperformed the growth indexes here, So I think I think
that's where you really want to be to sort of
cover yourself as opposed to just going pure defense of
you know, kind of the old school defense playbook.
Speaker 5 (18:19):
Yeah, to your point, some of the consumer staples craft
hignds came out in cited worse than consumer sentiment and
cut their forecast. Evidently, Oscar Myer Sausages as well as
your hines catch up, but not necessarily moving off the
shelves as quickly as in the past.
Speaker 7 (18:32):
You said you've latched talk about hot sogs.
Speaker 5 (18:34):
Yeah, well, I mean maybe that's something else. Maybe that's
John in terms of healthcare exactly.
Speaker 3 (18:40):
Baby.
Speaker 5 (18:40):
You know, if you check your blood and then you
check that oscar wedding, that's my boot.
Speaker 6 (18:44):
You talk about yields, let's go there.
Speaker 5 (18:46):
You have a very non consensus call on what US
equity markets are implying about where treasure yields could go.
Speaker 6 (18:53):
Yeah, seven percent?
Speaker 7 (18:54):
Really seven percent?
Speaker 11 (18:55):
So this is this is the analysis we said, Okay,
equities and the core sector is actually quite unlevered and
unusually healthy when it comes to leverage because all that
leverage sits on.
Speaker 7 (19:08):
Government balance sheets.
Speaker 11 (19:09):
So if you look at the leverage ratio between corporates
and the government, complete opposites.
Speaker 7 (19:14):
And if you apply the math, so what we.
Speaker 11 (19:16):
Found is that investors will pay a higher multiple if
leverage risk is lower. If you apply that math to
where bond yields are where the US government is it
spits out yields around seven percent, it's a much higher
level of return that investors need to see in an
environment where leverage.
Speaker 7 (19:37):
Is so high.
Speaker 5 (19:39):
This is following the logic that the math is the
same for US sovereign risks. I mean, it's it's the
back of the envelope. But this raises this real question,
which is, if there is a credit risk component to
US sovereign debt, how much does that impede the equity
story in the United States? Given that a lot of
guests who come on this show say once ten year
(20:00):
treasure yields hit five percent, forget about it, you're going
to see some losses in equities.
Speaker 7 (20:04):
Yeah, I don't necessarily think so.
Speaker 11 (20:06):
I mean, let's say we're kind of becoming more like
an emerging market. Sometimes emerging market equities do really well,
especially when they're unlevered and there's potential for growth.
Speaker 7 (20:17):
And I think that's where we are today. So if
you look past.
Speaker 11 (20:19):
Tariffs and you think about what the administration is trying
to do, we're trying to get America manufacturing again. We're
already seeing the seeds sewn for that story over the
last four to eight years. So I think that the
idea that stocks have to implode if yields hit five
percent is completely false. In fact, we've looked at a
lot of We've looked at this a lot of different ways.
Speaker 7 (20:40):
I mean, think about it.
Speaker 11 (20:41):
Yields right now are not unusually high. Seven percent sounds
really high, but it's you know, we've been there, We've
been higher in the past, and stocks have done okay,
especially dividend yielding stocks. So I think this is an
environment where we have to kind of recalibrate to what's
actually going on.
Speaker 7 (20:59):
The US government.
Speaker 11 (21:00):
Debt levels are at you know, off the grid. We've
never seen this before. We're seeing a closed economy. We're
seeing signs of a closed economy. We're seeing signs of inflation.
We want to see growth in the US. That's what
the policymakers are trying to get. And all of that
is likely to push up bond yields on the long end.
Speaker 3 (21:20):
Yeah.
Speaker 10 (21:21):
Right.
Speaker 8 (21:21):
The administration, though, is targeting lower yields. If it hit
seven percent, does that mean they failed?
Speaker 7 (21:26):
I don't know if it's failing.
Speaker 11 (21:28):
I mean, I think it's just sort of we're all
anchoring to super low rates over the last twenty thirty years,
and they've been falling the entire time. But think about
where we are now. I mean, rate cycles last for decades.
We were in a multi decade period where interest rates
were falling, So I just think we should we just
sort of gear ourselves for the idea that interest rates
(21:49):
rising even from here is not necessarily anathema for stocks
from a policy perspective.
Speaker 7 (21:55):
I mean, nobody's calling me about, you know, if rates
we hire or have we failed?
Speaker 11 (21:59):
But I think that the idea is if rates move higher,
but growth is accompanying that rate move, that's not a failure.
It's actually kind of a more normal boom time economy.
And I just think we're so not used to that
because we haven't seen that in such a long time.
Speaker 2 (22:16):
Why they're high that was important. Is it going to
be the boom time economy that takes rates higher or
is it going to be something else.
Speaker 11 (22:21):
I think it's a whole bunch of things. The good
case is positive growth. The bad case is sovereign risk.
It's also a lack of demand for US treasuries because
the buyers, you know, foreign buyers have left the building
the FED used to buy treasuries.
Speaker 7 (22:37):
I mean, one could argue.
Speaker 11 (22:38):
That if we get to five percent on rates, the
FED will step back in and start buying.
Speaker 7 (22:42):
But I think even there.
Speaker 11 (22:44):
You know, we've got an environment where, you know, again
going back over time, we're just all looking at the
last ten to twenty years, and we're thinking that five
percent seems unsustainable.
Speaker 7 (22:55):
Companies aren't geared for it. Companies are actually very geared
for a higher rate in vironment.
Speaker 11 (23:00):
They've paid down debt, they've locked in very low fixed
rate obligations. Consumer balance sheets are pristine. I mean, for
the most part, you're seeing you know, you're seeing some
frame around the edges. But when you think about what
just happened, the government gave the private sector a whole
bunch of money. True, right, so what do you want
to buy the government or the private sector.
Speaker 2 (23:22):
But when I hear you, Suviat, I hear you talking
about the potential for earnings, I don't hear you talking
about the potential for what people will pay for those earnings.
And when you talk about higher solvereign risk. When I
start to think about that, when I start to think
about what could happen to the self reign, that makes
me think that people won't be willing to pay for
earnings in the same way they were, particularly foreign investors.
We have built up an incredible long on dollar assets yeah,
(23:43):
over the last decade, what kind of multiply you put
in on that very optimistic count.
Speaker 11 (23:47):
Look, it's yeah, it's it's tricky because I think the
S and P today is a very different animal than
it's been historically. So saying a fifteen multiple, which is
the long term average, you just slap that on and
that's what you get.
Speaker 7 (24:00):
What you get. I don't think that's fair.
Speaker 11 (24:02):
I think that's overly punitive because when you look at
the market today, it's you know, higher margin industries with
a lot of potential to become even even higher. When
you think about old economy sectors that can use a
lot of this automation and tools, and you know, little
AI sprinkled in to get more asset light and you
know kind of improve margins and improve earnings variability. So
(24:25):
I think a multiple of twenty seems completely reasonable. In fact,
we ran this analysis where we looked at the S
and P five hundred versus other global benchmarks. Granted the
SMP is trading in the stratosphere, everything else is super cheap. Now,
if you adjust for sector mix, if you adjust for earnings, volatility, leverage,
(24:46):
consumer aspects, you actually come to a conclusion that the
SMP isn't that expensive relative to these other benchmarks.
Speaker 7 (24:55):
So I think by just sort of painting this.
Speaker 11 (24:59):
Historical app everything has to trade at the same level.
I think we're sort of oversimplifying really important details about.
Speaker 2 (25:06):
US corporate bigdose of optimism this morning from Savita Subramani,
but Bank for Americas VETA, thank you. Kathy Postchansik of Nationwide, writing,
we think the economy out of just one hundred and
twenty thousand jobs in April, Kathy joins us now to
(25:28):
discuss Kathy, welcome to the program. One twenty we at
risk of something much much lower.
Speaker 12 (25:34):
Well, good morning, John.
Speaker 1 (25:36):
Well, yeah, I do do think the risks are on
the downside, but it's a bit early to look for
the real negative numbers in payroll or they hit from
the government layoffs and the hit to healthcare and even
the cyclical sectors.
Speaker 12 (25:51):
I think that's going to be a few months from now.
Speaker 1 (25:54):
But we certainly have seen businesses just pull in their
hiring range. And given that we do see churn in
the labor market every month, the fact that you're just
seeing companies paralyzed right and not hiring, that does impart
a downward bias to the number.
Speaker 5 (26:11):
Kathy, are there specifics that you're looking for with in
like under the hood of the headline number that's going
to be important to see.
Speaker 12 (26:20):
Yeah, No, absolutely.
Speaker 1 (26:22):
You know, one of the main engines of growth in
payrolls has really been the healthcare and a social assistance sector.
Speaker 12 (26:31):
Those sectors are.
Speaker 1 (26:33):
Very much related and dependent on federal government activity and support.
So we think those are areas that we'll start to see,
you know, some softening, and then that means overall non
farm payrolls you know, start the week, and really if
you looked at like kind of what we would call
the core cyplical sector, we had already seen the labor
(26:54):
market losing some steam, but overall healthcare, education, any even
the government sector was boosting the overall headline number.
Speaker 5 (27:04):
Katy. We're going to get a host of other data
before that, including the Jolts information, which includes the quits rate.
Speaker 6 (27:10):
We'll get some more consumer confidence.
Speaker 5 (27:11):
As John was just mentioning, I'm just wondering from your
vantage point, as you look forward, how you reconcile the
gap that we have seen between the soft data and
the hard data. Do you agree with some of the
earlier people earlier guests on the show said it's probably
a four to six month lag before you see a
similar type of deterioration in the hard data.
Speaker 12 (27:30):
Yeah, I would agree with that.
Speaker 1 (27:31):
I mean, maybe i'd say a little shorter, you know,
three to six months, but by and large, you know,
the movement in the soft data has been so pronounced
you really have be careful of shrugging that off. Sometimes
it can be a little bit misleading, especially the confidence numbers.
But when you spoke about the conference board consumer confidence data,
(27:52):
when I'm going to zero in on is all the
labor market readings, and particularly I want to see the
expectations for more jobs or you know, jobs are fewer
out there, and looking at the labor differential that I
think is meaningful, and also consumers' expectations about income going forward.
Usually that survey shows is very like an American attitude
(28:14):
the future incomes will be up. What we've seen is
some breakdown on that and people becoming a little more
pessimistic about future income. That can obviously influence current consumer spending.
Speaker 8 (28:26):
But at the moment we do see consumers also front loading,
wanting to get ahead of the tariffs. What does this
mean for spending at the second half of the year, Kathy.
Speaker 12 (28:36):
So the data very skewed by the terriffs.
Speaker 1 (28:39):
You know, you were talking about Mike was talking about
the import data.
Speaker 12 (28:42):
You know, yes, imporart is going.
Speaker 1 (28:43):
To drag on GDP, but consumption is going to keep
it elevated more than it otherwise would be.
Speaker 12 (28:51):
So it's very skewed.
Speaker 1 (28:52):
But that's pulling forward means it's just a lot less
consumption in the second half of the year, regardless of
what happens on the teriff Fright, Like, even if there
was if you bought an auto or a big ticket item,
you're not going to be buying one.
Speaker 12 (29:04):
In the second half of the year.
Speaker 1 (29:05):
So that's certainly going to be a negative for consumer
spending in GDP growth in the second half of the year.
Speaker 8 (29:10):
John has broughtup this point a lot. If you're going
out and you're spending on big ticket items, say a
car or some sort of suv, are you actually nervous
about losing your job?
Speaker 12 (29:21):
Well, it's a great question. I would say no.
Speaker 1 (29:25):
I think that you know, buying lads to those are
people who are just trying to get ahead of the
price increase. I think if you're worried about losing your job,
you probably hold on to your current car and just
run it as long as you can, or looked to
the used car market, which that's also going to feel
upward pressure right in prices. We saw that during COVID,
So I think that's a really good point. And even
in you know, our outlook, and I would say the
(29:47):
vast majority of others I've seen, you know it's going
to either be a borderline recession or if you get
a recession, at this point, most of.
Speaker 12 (29:55):
Us thinking mild.
Speaker 1 (29:56):
That means the unemploym rate goes up to five percent,
that's still overall all historically pretty good labor market. But
it's this uncertainty that is really I think killing the
economy right now.
Speaker 3 (30:06):
Kathy.
Speaker 2 (30:07):
As we've seen, the Chairman of the Federal Reserve has
chosen to prioritize anchoring inflation expectations. I just wonder from
your perspective, how you imagine that might shape his approach
the next Week's may think, yeah.
Speaker 1 (30:20):
He's going to have to walk a tightrope as many
times he does, especially during the press conference, but.
Speaker 12 (30:26):
I don't think he'll back away from that.
Speaker 1 (30:27):
I know some others have suggest been a little more
devish right, some FED officials, but I think he'll maintain
this idea the inflation expectations. How the worst outcome for
them is it becomes embedded and becomes more persistent. One
of the things I worry about is the roll out
of the terriffs, Like we're still waiting to see if
there's going to be additional sectoral tariffs. The longer that
(30:48):
process gets elongated, the more inflation shock can be persistent.
Speaker 10 (30:52):
Right.
Speaker 12 (30:53):
I'd almost rather have all the terriffs at once.
Speaker 1 (30:54):
I mean, it's not good for the economy, but in
terms of inflation, it is really hard to gauge.
Speaker 12 (30:59):
Then what's you know, transitory verse persistent.
Speaker 2 (31:03):
Kathy, what's your take on some of the pressure that's
come from the President on the chairman of the Federal Serve?
How does that reshape the optics of them trying to
ease sometime soon?
Speaker 1 (31:13):
You know, I think Chairman Pow would say he ignores that,
and they're a political and they're only looking the data,
and I think by and large data is the case.
I just worry a little bit about the optics for
market and investors how they interpret that.
Speaker 12 (31:28):
And it could be that you know, they.
Speaker 1 (31:31):
Ease for the right reasons, but the market second guesses
at and that would be bad, right, And then you
get of long term interest rates rising by short term
interest rates are lower because of inflation expectations rising, or
an extra term premia embedded on the long end.
Speaker 2 (31:47):
Kathy got to leave it there, Kathy pill chance it
that of nationwide. This is the Bloomberg Seventans podcast, bringing
you the best in markets, economics, an giopolitics. You can
watch the show live on Bloomberg TV we tendings from
six am to nine am Eastern. Subscribe to the podcast
on Apple, Spotify or anywhere else you listen, and as
always on the Bloomberg Terminal and the Bloomberg Business app
Speaker 10 (32:13):
M HM
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