December 15, 2025 • 30 mins
- Sarah Hunt, Chief Market Strategist at Alpine Saxon Woods
- Henrietta Treyz, Co-Founder and Director of Economic Policy at Veda Partners
- Pooja Sriram, Vice President of US Economic Research at Barclays
- Keith Lerner, Co-CIO and Chief Market Strategist at Truist
Sarah Hunt, Chief Market Strategist at Alpine Saxon Woods, joins to discuss investor concerns on AI capex spending. Henrietta Treyz, Co-Founder and Director of Economic Policy at Veda Partners, weighs in on President Trump telling the Wall Street Journal that he’s unsure if his economic policies will lead to Republican wins in next year’s midterm election. Pooja Sriram, Vice President of US Economic Research at Barclays, shares her expectations for Tuesday’s US jobs report. Keith Lerner, Co-CIO and Chief Market Strategist at Truist, gives his outlook for the tech sector heading into 2026.
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Speaker 1 (00:02):
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 Amerie Hordern. Join us each day
for insight from the best in markets, economics, and geopolitics
from our global headquarters in New York City. We are
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anywhere else you listen, and as always on the Bloomberg
(00:34):
Terminal and the Bloomberg Business app.
Speaker 3 (00:36):
Stocks trading their record highs once again after Friday's AI pullback,
Sarah Hunt of Alpine Saxon Woods, writing.
Speaker 4 (00:42):
We think this illustrates a level of.
Speaker 3 (00:44):
Concern from investors that there is too much spending on
the horizon and not enough cash flow to fund it.
Sarah joins us now for more, Sarah, wonderful to see you.
Thank you for being here.
Speaker 4 (00:52):
Good morning. It's great to be here. So is it
enough fear?
Speaker 3 (00:55):
Is it enough skepticism to make you actually interested in
AI once again?
Speaker 4 (00:58):
Or does it need to go a little bit further.
Speaker 5 (01:00):
Well, it certainly seemed like enough last week. I mean
there were some big moves last week, and I don't
think the market. I mean, you look at Broadcom's earnings
and the numbers themselves were very good. It's back to
the expectations problem and the second derivative problem which Cameron
just mentioned, which is what happens when you're still spending
a lot of money, but you're not spending it quite
as fast as you were. And the more you spend,
the bigger that the problem of large numbers comes in.
(01:23):
And can I go ten percent on every ten percent
or twenty percent every year every year? And I think
that's an issue. And now people are starting to question
where is that money coming from? And it wasn't that
question didn't happen in the beginning. And you've got some
real issues with companies that used to be cash rich
now getting more sset heavy. And I think that that's
a little bit an absorption issue for investors right now.
Speaker 3 (01:43):
But have we gone a little too far with this
with the idea that Microsoft and Google really are going
to face some sort of solvency risk or some sort
of serious existential question because they're borrowing a bit from
the bond market, right I mean, have we sort of
thrown the baby out with the bathwater, to use John
Soulfus's term. Given the fact that people seem skeptical more
broadly of the promise that they embraced two weeks ago.
Speaker 5 (02:06):
I think that that is just indicative of what we've
been living with for the last several years. Out of
the pandemic, which is narrative ships every day, and yes,
the pessimism gets wildly bad, and then it gets wildly
fantastic again. And this is why I wouldn't say that
this is a moment where you have to go, oh
my goodness, we have to change everything, but you have
to think about what who else might benefit and how
that's going to go. And I actually think that even
(02:27):
the story about the CDs for Oracle, I think that's
much more about hedging the stock than it is about
actually thinking that Oracle's not going to pay its spons
back in the end. So I think a lot of
this is the mechanics of how that spend is going
to come about. And I don't think it's a really
challenging the fact that money's going to get spent.
Speaker 1 (02:43):
I want to say that group think is great, but
I want to pick up on what you just said there,
which is we have all of these narrative shifts, doling narratives.
What does that say to you just about conviction investors,
conviction in this not not just this trade, but in
the prospect's.
Speaker 5 (02:55):
FAYI generally it is difficult to have because it's hard.
I mean, it's the conviction that is going to be
a big thing. It's going to make a lot of changes.
I think hasn't changed. What those changes are going to be,
who is going to benefit from those changes, and how
fast they're going to be implemented seems to be a
big part of the current concern.
Speaker 4 (03:11):
It was easier to say at the.
Speaker 5 (03:12):
Beginning of the year, we see a ton of expending
on infrastructure. There's still going to be a ton of
spending on infrastructure. But now that that's getting questioned, is
that the peak of infrastructure spend discussion? Now do we
have to look at use cases and who's using it
and how they're using it, and is this going to
improve margins? Because in the end, that's what it all
comes down to. Is it going to make people more money?
Because if it isn't, then it isn't going to raise earnings.
Then it's less exciting than if it is going to
(03:34):
raise earn.
Speaker 1 (03:34):
No, it's December. I'm in retrospective mood. Perhaps you are
as well. You mentioned that question wasn't being asked at
the beginning, which was hou is all this going to
be paid for? It's going to be cash? Is it
going to be dead? What do you make of that
in hindsight now, the fact that people weren't wrestling with
those questions to begin with.
Speaker 5 (03:48):
I think with every big investing enthusiasm, there is a
willingness to suspend belief about whether or not and how
things have to happen to get to the point where
everyone's excited about And I think that it doesn't mean
that we won't suspend that disbelief again. Right, So, there's
going to be some technological changes. I don't see how
you get the molecules and the electrons to as many
data centers as we have, so I think that there
(04:09):
will be changes, and those changes are going to occur
in ways that are right now difficult to parse, so
you don't know who's going to win and who's going
to lose.
Speaker 1 (04:17):
There.
Speaker 5 (04:17):
I think it was very clear at the infrastructure beginning
who is the winners, and now it's like, Okay, who's
going to win now? And are the winners really over
or is that just something that isn't going to grow as.
Speaker 3 (04:25):
Found you get the conversation of the weekend was you
almost need bubbles to fuel technological advancement. I mean, I
know that that sounds really strange and perverse, but there
is a sort of element of you need thatcham to
finance absolutely everything. Is there sort of this feeling that
you need to see the broadening out in the trade,
the idea that other companies benefit from AI to keep
the am machine chugging, right, that in order for people
(04:47):
to justify valuations where they are in the big tech giants,
you need to see participation on a broader scale.
Speaker 5 (04:53):
I think you absolutely need to see that participation. And
I think that that was a question even earlier in
this year, in the beginning at the end of last year,
which was who's going to use this? And then Walmart
came out and said a few things about how it
was helpful for margins, and other companies came out and said, yes,
we can use it this way and it's going to
be and that sort of solved the short term problem,
but longer term that has to broaden out, and that
has to be This is also the question about small caps.
(05:15):
Can they use this to make some margin improvements because
the small cap earnings revolution was supposed to happen two
years ago and then last year and then this year,
and is that.
Speaker 4 (05:22):
Really going to come through?
Speaker 5 (05:23):
And I think all of those things are very important
as we go forward, and where valuations are right now,
it's even more important.
Speaker 3 (05:29):
This is where the economy starts to matter again. This
is where, all of a sudden, when we were talking
about how anything related to AI could be at its
own universe and the economy could keep sort of dragging
along and basically being in a recession if it weren't
for that AI investment. At what point can you see
this expansion, this broadening out unless you see economic data
like what we're going to be getting this week really
pick up.
Speaker 5 (05:49):
It's interesting because I think that the government shutdown has
not only made the data that's current difficult to see
what happened just recently, but it also may have shifted
some activity into next year.
Speaker 4 (05:59):
So it's going to be interesting to see that.
Speaker 5 (06:02):
You do have to see an economy that keeps jogging
along if it doesn't, you're going to have a problem.
There's no question that that's going to be an issue.
That's an issue for earnings, earnings lead evaluations, and that's
the circle that investors are looking at.
Speaker 1 (06:13):
Speaking of circles, let's talk about circular investment and your
sort of thoughts on that right now. I mean, we
can't have this conversation about it, i AI without going
back to that. And I'm curious how worriesome that is
to you. Have you been sufficient have your worries been
significantly or sufficiently assuaged by these companies saying that it's
not a big deal.
Speaker 5 (06:28):
I'm not sure that I can say one way or
the other it's definitely not a big deal or it's
a huge big deal. I know that in two thousand
there were a lot of issues with vendor financing. It
was quite simple, right that companies were selling.
Speaker 1 (06:38):
Stuff that we say circular deals and vendor financing are
the same thing.
Speaker 5 (06:41):
I don't think that you can because I think that
there are some some of the players in that circle
have much more cash than they did before. So last
time it was vendors financing who didn't have the cash
to companies who didn't have the cash. Now, there is
cash in the mix, and there's quite a bit of cash.
And that's where you're seeing the have and have nots
on the tech side of who's as rich and who's
not and who are people concerned about whether or not
(07:03):
they're going to raise money or not. Again, I don't
think the Oracle anyone's concerned that it's going to go bankrupt.
But I think that there are concerns about overburdening balance
sheets right now.
Speaker 1 (07:12):
Lisa brought us to the economy, let me go back
to that sort of to pull us away from that.
They're just remote. But I'm curious, how do you think
about growth in the year ahead. Are you, to borrow
a phrase from competers, you're saying not saying when about it?
Or are you feeling like prospects are good, things are
going in the right direction.
Speaker 5 (07:25):
I think it's tough because the K shaped economy is
a real thing that people who are spending the most
money are the people who have the most money. The
lower end consumer is not doing well. A lot of
the companies that track that are not doing well, and
I think it's going to be that's really a question. Now,
how much have we owed overstated jobs. Right, So in
Poll's conference he talked about some of those overstatements and
maybe instead of generating jobs, we're losing jobs every month.
(07:47):
How much is that really occurring? What can we see
and what do wages look like? Because all of those
things matter. It's great that the high end can spend,
but you really need for the full economy to chug
a long you need broader participation.
Speaker 3 (08:00):
Which is the reason why everyone's watching and hoping for
this broader participation in the equity space. Sarah Hunt of
Alpine Saxon Woods is with us for the hour.
Speaker 2 (08:07):
And stay with us. Mult Blomberg Surveillance coming up off
to this.
Speaker 3 (08:20):
Here's the latest President Trump telling the Wall Street Journal
he's unsure his economic policies will lead to midterm wins.
An NBC News poll showing the president's approval rating down
to forty two percent. Is economic concerns way on Americans.
Henrietta Treys of Veta Partners joins us now for more. Henriette,
how do you sort of view this interview in the
Wall Street Journal, in particular with President Trump, where he's
(08:40):
saying that people just haven't felt the ramifications or the
benefits from some of his policies. Will that actually make
any headway early twenty twenty six.
Speaker 6 (08:50):
Yeah, that's absolutely true.
Speaker 7 (08:52):
The one big beautiful bill went into effect immediately for corporations. Indeed,
we've seen that corporate tax revenue has dropped by about
a third into federal coffers this year.
Speaker 6 (09:01):
That's because of.
Speaker 7 (09:02):
The tax preferences that went out very quickly after they
passed that bill on the corporate side. But the individual
side is back end loaded and starts in the new
year when the tax filing season starts. So when you
think about the odds of a reconciliation bill two point
zero for example, or the two thousand dollars tire freebate
checks for example, that requires another Act of Congress. And
(09:22):
as far as the White House is thinking about it,
and indeed, when I talk to Republican staff on the
House and Senate side, they're saying, you know, we already
did the individual tax cuts, you just haven't seen them yet.
So when Kevin has it comes out and says twenty
twenty six is going to be a boon year for
the consumer and individuals, it's because the tax preferences that
hit the individual side of the docket.
Speaker 6 (09:42):
Really start in the new year.
Speaker 7 (09:44):
So if you are really looking forward to the salt
deduction that's coming for you, there's a really small segment
of the economy that's on the no taxes on tips,
no taxes on overtime piece that all starts in the
new year, and they're hoping that that's going to be
enough to overcome the continued hit of tariffs, the continued
negative narrative around affordability and the high cost of living, housing,
(10:05):
healthcare going up by one thousand dollars, etc.
Speaker 1 (10:08):
We'll see, henriettas you talked to staffers on the hill,
I'm curious what they want this president to be doing.
So you lay out very clearly sort of the benefits
that will be very evident imagined to the American public
here come in the new year. What do they make
of his emphasis on immigration, on foreign policy, him not
talking about affordability. What would they like him to be
doing more, and what's the reaction to him not doing
(10:29):
more on that front.
Speaker 7 (10:30):
It's a real mixed bag with the same answer. Get
President Trump on the campaign trail, and for Republicans, they
really want to see that because the majority of the
new voter turnout of the last decade of sort of
the magabase. They're here for President Trump, They're not here
for your average run on the mill, rank and file Republican.
So those members really want President Trump to come to
(10:51):
their district, come on the campaign trail. You know, they
would have liked to see him more in Tennessee, for example,
a couple of weeks ago to boost the numbers, because
he is a turnout generating machine, and there's a lot
of anxiety on the Republican side about going into a
midterm election cycle where the president himself, who is highly
popular with the Republican base and MAGA voters, is not
on the docket. Those voters tend to not show up
(11:12):
in a midterm, which is why you saw such as
shell lacking for the Republican Conference.
Speaker 6 (11:16):
In twenty eighteen.
Speaker 7 (11:17):
They don't want to see a repeat of that, So
they really want Trump to get on the cam Hayne trail,
come rally their voters, and get the turnout machine. Unfortunately,
that's what Democrats also want, because they know that Republican
voters that are still the court of a President Trump
are more likely to stay home. And the majority of
Americans now have a negative view of the Republican Party's
handling of the state of the economy, inflation, prices, housing,
(11:39):
and healthcare, and those are the top five issues of
voters going into the midterm cycle. So Democrats similarly want
President Trump to be.
Speaker 6 (11:47):
Front and center.
Speaker 7 (11:48):
So it's really a tough road to hoe for the
Republican conference and for President Trump in particular. He's got
to get out there. He's got to talk about affordability.
But the more he talks about it, the more health Democrats.
So it's sort of a catch twenty two.
Speaker 4 (12:03):
Good morning, Henrietta. So what of all those things.
Speaker 5 (12:06):
That you mentioned, it seems to me that one of
the most important things to try to nail down right
now is healthcare because you can't really change a rise
in price levels.
Speaker 4 (12:14):
Whenever you do about further.
Speaker 5 (12:15):
Height doesn't matter as much as changing what's going to
happen now with those subsidies. And this is a train
wreck that's been coming and pushed off and pushed off
and pushed off. Is there any do you think that
they can get something done in a timeframe that's going
to be meaningful? And do you think that there's enough
bipartisan anything, because everybody is going to be affected by this.
Speaker 4 (12:33):
How does that look in your opinion?
Speaker 7 (12:35):
Yeah, I'm not shy about making projections. There's no chance
that they fix Obamacare before the end of the year,
so we're going off the cliff. To put it into perspective,
that's twenty two million people that are going to be hit.
Speaker 6 (12:47):
Four million people will lose their insurance.
Speaker 7 (12:49):
If you're sixty years and older, your premiums are going
up by almost one thousand dollars in the new year.
Speaker 6 (12:53):
That's going to happen.
Speaker 7 (12:55):
There is this period of time between January fifth and
January thirtieth where they could find a solution.
Speaker 6 (13:01):
Our odds are pretty slim, my colleagues.
Speaker 7 (13:03):
Spenser Proman is our healthcare expert, and he's now down
to twenty five percent that we get any two year,
one year extension.
Speaker 6 (13:10):
Of the ACA subsidies.
Speaker 7 (13:12):
And you can hear it from Republicans in the United
States Senate who saw this train wreck coming, as you
rightly point.
Speaker 6 (13:17):
Out, and consider this a subsidy that needs to expire.
Speaker 7 (13:21):
We have a thirty eight trillion dollar debt load in
the United States. Let's cut this and make sure that
it is not extended. Unfortunately, when American consumers look at
Republicans speak to the healthcare issue.
Speaker 6 (13:33):
We're now on y're sixteen of not having an alternative
to Obamacare, so that leads to an erosion of trust.
Speaker 7 (13:39):
Within voters of Democrats and Republicans alike around the entire
concept of healthcare. For the Republican conference, i'mer speaker Bayner
had the best quote the other day. He basically said,
I've been in all these meetings with Republicans for decade now,
and we've never all been on the same page. And
so as long as that's the case, you're not going
to see a fix, then we'll go into the year
with that one.
Speaker 2 (14:00):
Stay with us. Mulblomberg surveillance coming up after.
Speaker 3 (14:03):
This, Poojaree Room of Barclays writing we expect a non
farm payroll and employment flat in October and up fifty k.
Speaker 4 (14:19):
In November, providing further evidence.
Speaker 3 (14:21):
That the labor market is not is slowing but not breaking.
Poo just realm of Barclays joining us now, Pooja, great
to see you, Thank you so much for being with USKS.
So just looking at slowing but not breaking. What's the
difference between the two. How narrow is the gap between
slow and before and between broken.
Speaker 4 (14:38):
Yeah, I think that's a great question.
Speaker 8 (14:41):
I think we're getting close to the point where people,
ourselves included, are seeing risks clearly to the downside. But
in terms of breaking that is a world where you
expect labor markets slack to shoot up, you know, pick
up very rapidly, and that's not something we're seeing either
in the official day or in some of the other statistics,
(15:01):
like you know, think about job openings and the separations
rate there or jobless claims data. So it is a
labor market which for a while now has been stuck.
You know, we're not hiring, but we're not firing as much,
so there's very little dynamason risks, sure of the downside,
but we still think we're.
Speaker 4 (15:19):
Not at that point where we're ready to fall off
the cliff.
Speaker 3 (15:22):
Well, I guess I'm wondering if we're at an inflection
point of sorts, or maybe we've been grinding along. We
could be heading toward an inflection point. Why wouldn't it
be to the upside, Because we have seen smaller businesses
really pull back and hiring. The hiring has been concentrated
in the larger companies. If they get some stimulus if
there is these rate cuts that kind of start percolating
through the economy, why wouldn't we see a pickup in
(15:43):
hiring rather than sort of the other way around.
Speaker 8 (15:46):
That's a great question, and I think that's a very
feasible scenario to keep in mind, just given you know,
we are quite constructive about growth into twenty twenty six.
We're seeing a lot of positive impulses that could keep
the economy highly support and in that world, yes, you
could have a labor market that actually stabilizes. In fact,
our own forecast, official forecast has the labor market looking
(16:08):
quite resilient in twenty twenty six, and we have the
unemployment rate coming down. So I think we really subscribe
to that view that there is a world where the
labor market stabilizes and eventually starts to look better. But
given where we are now, I think it's reasonable to
also see that risks could very well be to the downside.
It would take very little to push the labor market
(16:31):
in the opposite direction.
Speaker 1 (16:32):
I'm curious how you think about the legacy of what
we have been through here with this government shut down,
the delay of data that we hadn't seen before, and
all the while there was this conversation about what might
be a decent substitute for the data that we weren't
getting from the Labor Department. How could we get as
good as sense as we could about the state of
the labor market life not having that data. Now that
we're beyond it, I'm curious of what we've learned about
(16:53):
how good a sense we have of the jobs market
in this country. We've heard from the Fed share suggesting
perhaps are more fundamental problems with the way that these
numbers are are collected and counted. How are you thinking
about what we've been through?
Speaker 8 (17:03):
Absolutely so, I would say this that the government shut
down basically brought to the forefront the fact that we
are highly, highly reliant on official statistics, and there's a
good reason why. You know, we have very talented statisticians
who've been doing it the right way for a very
long time. But at the same time, I think it
also exposed the wonderabilities of suddenly not having these data,
(17:28):
or now we're in a scenario where the data could
be clouded in some sense. Right to answer your question,
we have looked at a dashboard of indicators which are
quite useful, and our reasonable alternatives to get a gauge
where the economy is headed. And you know these come
in different shapes and forms. You've got job openings data,
you've got job postings, some of them about hiring, so
(17:51):
it gives you a decent picture of where things are.
But we still don't think those are enough to substitute
the official statistics.
Speaker 1 (18:00):
I suspectedly it's going to ask my inflation am before
we get there. Let me just ask you that the
FED speak the mony. I'm sorry that Mike was mentioning
all that we're going to hear from and I'm curious,
what are you listening for? In specific, we've talked a
lot about the silent of sense, the quietest sense that
happened at that meeting. What are we likely to learn
from kind of pan and believe speakers who are going
to be giving remarks and the interviews over the course
(18:20):
of the week.
Speaker 8 (18:21):
Yeah, I think the one thing that stood out in
the December FO and C meeting is just how divergent
views are within the committee. I mean, if you just
look at even the dot plot for example, in twenty
twenty six, seven participants felt that it's appropriate to whold
rate steady where they are now, so I think going
(18:41):
into this week and also just you know, beyond this week,
we want to get a sense of who's thinking how
For example, we did hear from Goolsby that his descent
was to some part tied to the fact that he
didn't have enough data to go by, right, And so
that gives you some insight into I guess what he's
looking for. And you know, we're likely to get similar
insights from others, and I'm sure like a lot of
(19:03):
other FED watches, we will be trying to you know,
we're trying to place them on the dove hog lineup
to see exactly where their minds are at and to
go to give us a sense really of what the
reaction function is for each of these participants.
Speaker 3 (19:16):
Over the weekend, San Francisco FED president Mary Daily put
out a blog post and she was talking about why
she supported cutting rates the last meeting, and she talked
about how, yes, it was a very difficult decision because
there is this dual mandate that's very much in conflict.
Speaker 4 (19:29):
She was talking about inflation.
Speaker 3 (19:30):
Yes, I always got to talk about it and how
it has been really punitive for these families. But she said,
how you get down to two percent matters because if
you get there too quickly, you break the labor market,
and then you've got families grappling with both above average
inflation and potential job losses. Do you think that there
is this theory right now presiding over the FED to
run the economy a bit hot, especially at a time
(19:51):
of technological transition, with artificial intelligence posing some existential questions
around the labor market, in order to avoid some sort
of labor markets scarring at the expense of inflation knocketting
down to two percent any time in the near future.
Speaker 8 (20:06):
Well, I okay, Well, this is what I think stood
out to me in the December presser. There seems to
be this view in the FED that inflation is really
not a problem right now. In fact, Chair Powell's own
comments on inflation is he's quite sanguine about it. I
think in some part of the press that he did
think that inflation, you strip it out of all the
tariff effects, is somewhere in the low twos. Then he
(20:29):
mentioned something about productivity also likely to support the economy.
So if you sort of put all those views together,
I think there is this view out there in among
the FED participants that inflation is perhaps not a problem
to be concerned about, and what they need to be
concerned about right now is the labor market. That's perhaps
what you know Mary Daily is also subscribing to.
Speaker 4 (20:49):
In some sense.
Speaker 8 (20:51):
My own take is I think it's a little too
premature to think that inflation is going to take care
of itself. You know, we at Barclay's have been saying
for a while that we are yet to see the
full effects of tariffs on the inflation data. And sure,
while it may be a one time price shock, I
think it's a little too early to declare victory on
inflation yet.
Speaker 2 (21:13):
Stay with US multile imperg surveillance coming up after this.
Speaker 3 (21:25):
Keith Lerder of Truest writing, we are still positive tech
longer term, but in the near term there is a
lack of a catalyst for the sector, so investors will
need to be patient.
Speaker 4 (21:35):
Investors known for their patients.
Speaker 3 (21:36):
Keith joins us. Now, okay, thank you so much for
being with us. I just want to start there. I mean,
do you think that this so off that we've seen
or on a performance I should say probably putting it
more fairly. In the tech sector is something that can
persist for a longer period of time or is this
sort of like an end of the year melt off
given how much it's been outperforming.
Speaker 9 (21:55):
Yeah, well for us, great to be with you.
Speaker 10 (21:57):
I didn't realize it was the actually last full trading
week of the years, so that's exciting in some ways.
So to your points, specifically at LISA, I still think
tech is long term leadership.
Speaker 9 (22:09):
But to your point, we.
Speaker 10 (22:10):
Went up off the loads about seventy percent versus thirty
five percent for the S and P five hundred, and
now you get all these different questions as well.
Speaker 9 (22:17):
So I just think it's a point.
Speaker 10 (22:20):
Where you know that we have to kind of rebuild
that wall of warrior, which we're doing. But at the
end of the day, the earnings momentum for the tech
sector is still the strongest one out there. So I
think in the air term, I think the challenge is
what is the catalyst to move this up, Because you know,
we just went through an earning season. People are focused
on obviously Oracle and video comes out with some news
about some more chip selling to China, it's not moving it.
(22:42):
So I think it's just maybe a digestion phase, and
I think, you know, the next year at some point,
maybe that's three months or six months from now, we'll
see money rotate back into it. And when we look
historically at bull markets, maybe my final point here is
the leadership of a bull market tends to endoor towards
the end, notwithstanding periodic you know, pull and rotations. We're
seeing one of those rotations right now on this kind
(23:03):
of boarding theme, and I think that boarding theme, at
least in their term, has a bit more to go.
Speaker 3 (23:06):
You found somewhat skeptical of it long term. Is that correct, Keith,
that this broadening theme maybe is a short term lip
but not necessarily a twenty twenty six full year trend.
Speaker 7 (23:16):
No.
Speaker 10 (23:16):
I think, you know, Lisa, if we were here a
year ago, I think the theme was very similar about
this boarding theme. It didn't work out, but I know
I do think next year there's more of a reason
that we can see more broading. So I think a
lot of times people think about it's tech or X
and of you it can be both, especially as we
have these sharp rotations. But you know, the good news,
I think as we think about the equal weight index,
(23:37):
were we came into this year around the seventeen multiple
We're ending the year around the seventeen multiple and it's
been mostly earnest with The key for next year is
is profit margin and do we see the adoption and
the profit margins dot to expand for these four ninety
three But I think listen to their term. Were all
seeing some positive action. We had industrials breakout last week.
The equ Weight index just made a fifty two week high.
Speaker 9 (23:59):
Here's an interest.
Speaker 10 (24:00):
Since that, guys, you know, the EQUAT index is only
up about four percent since the November peak right after
the election, so almost more than a year we'll only
have four percent.
Speaker 9 (24:10):
So no, I think it has further to go. I
just think it's both not either or there's.
Speaker 1 (24:14):
A tendency to have this kind of monomoniacal focus on
the big tech names, the Magnificent seven and the like.
Do you foresee us you look into your crystal ball
more eagerness to look overseas in the year ahead. Of course,
it's done. Markets overseas have done extremely well this year
in many cases, Are you looking more to Europe for
instance in twenty twenty six?
Speaker 10 (24:34):
I don't know that we're looking more, but it's kind
of a similar story when we look around the globe.
I just checked this morning, ninety eight percent of the
markets we tract more than forty countries around the globe,
they were in up trends, defined as above their tunia
day moving averages.
Speaker 9 (24:46):
So it's kind of that similar story we just had.
It's like either or no. Both.
Speaker 10 (24:50):
We still have a tilt towards the US because that's
where the innovation and earnings are there. And let's you know,
if we think about the last year, the US underperformed,
but that was after a you know, in the prior year,
the US had outperformed by the most since the nineties
in twenty twenty four, so we had a bit of
mean version and almost all the increase in international was
pevaluation that earnings and the currency side. So I think
(25:13):
as we move into next year, we had a bit
of a revaluation. Currency has come down to the US dollars,
so I think both will do well. We're still tilting
towards the US on the margin.
Speaker 1 (25:23):
We've been kind of threading this needle over the course
of the three hours this morning. Mike Wilson's note Mike Wilson,
Morgan Stanley right about how we are now firmly back
in a good as bad, bad as good regime. As
you look ahead to this week and the data that
we're going to get, how are you thinking you're in
agreement with mister Wilson.
Speaker 9 (25:38):
I think the market like Scoldilocks.
Speaker 10 (25:40):
I think we want an economy that is still you know,
kind of chugging along.
Speaker 9 (25:44):
We expect a modest uptick into next.
Speaker 10 (25:46):
Year, with you know, with inflation that doesn't get out
of control, which we don't think it will, and interest
rates that remain you know, kind of in this range
that it's been overall. So I would say on the margin,
you know, solid news is good news. I don't think
we want extreme. If it's something that's really much stronger
to the upside for the economy, that probably means rates
(26:06):
go up and that will hit maybe valuations. If we
see a real weakening in the in the labor market
continues and it's divergence between GDP data and the labor market,
I think that's problematic as well. So I think, you know,
we're using an analogy for our outlook, the seventhing in a stretch.
I think we want something kind of in the middle
between those two extremes.
Speaker 3 (26:24):
Do you think Keith that this market's fully wrapped its
heads around the idea that we have seen the end
of one of the biggest global easing cycles ever outside
of some sort of recession.
Speaker 10 (26:34):
You know, it's an interesting question because it hasn't really
come up a whole lot in conversations as I speak
with investors.
Speaker 9 (26:39):
So I think that is, you know, a potecially a risk.
Speaker 10 (26:42):
And I think the other thing, you know, all things
come back, All roles lead back to the ten year treasury.
As we think about next year, we still are positive.
We think that the uptrend deserves the benefit of the doubt.
But going to your point about central banks, I mean,
I think the key tell for next year and the
risk fact that we'll be watching is the ten year,
which again seems relative to be contained at this point.
But that is a shift, and I think, just like
(27:03):
this past year, I think earnings will be the key.
Speaker 9 (27:06):
Again.
Speaker 10 (27:07):
We expect solid earnings and we do expect those earnings
to born out as we move through twenty twenty six.
Speaker 3 (27:12):
When you talk about earnings, this kind of leaves us
in the same place of yes, bonds may offer a hedge,
but maybe you don't want that hedge In twenty twenty six,
maybe you want to be exposed to the equity space
and then on the short end of the yield curve
at a time of yield curve steepening. I mean, how
do you look at that kind of interplay given the
fact that people are expecting enough growth an accommodator fed
(27:32):
despite that ongoing growth and this yield curve steepening that
we have seen really start to reassert itself.
Speaker 10 (27:39):
Yeah, So overall, heading into the year, we do have
a modest killed towards equity relative to fixed income. In cash,
we're still overweight gold as well, which.
Speaker 9 (27:47):
We've been overweighted all year long.
Speaker 10 (27:49):
And then on the on the fixed income side, you know,
again going back to the analogy around baseball, we still
look at fixed income as that consistent head kind of
collecting that coupon, you know, all and all over the
last year where the equity markets have done pretty well,
we are having a solid year in fixed income with
high quality returning six seven percent. And I think as
(28:09):
we think about next year, we talked about this, there's
a lot of cross currents. There's a midterm election year,
and there's a scenario where the economy is stronger than
expectations or there's a scenario where the labor market weekends
further and the latter one you would actually want bonds.
So I think going back to diversifications, kind of a
simple diversification aspect, you still.
Speaker 9 (28:27):
Want to have bonds.
Speaker 10 (28:28):
Are they at a modestly lower rate, Yes, but I
still think it makes sense. But we are peering that
with some exposure to gold still into the new year.
Speaker 1 (28:37):
Let's stick with the diversification. So there's this market Mason
rebuilding the wall of worry as you look beyond tech,
if you look beyond big tech telecommunications as well, where
do you see opportunity sector wise here in the year
ahead that might have been neglected in twenty twenty five.
Speaker 10 (28:51):
Sure so where we were overweight tech and communications for
most of this past year and we still are again,
We're still positive long term. What we've been doing is
making incremental changes based on this bordening theme. So you know,
over the recent months we added healthcare. You know, healthcare
is a sector where just you know, a little bit
of good news can go a long way. I know
it's done better recently, but it's out. I'm sorry it's underperformed.
(29:14):
The S and P by over fifty percent over the
last three years, and that's a historic extreme. So you
just get a little good news that can go along
a way. And we're seeing valuations attractive and some better
fundamentals there as well. And then just last week we
upgraded industrials. Industrials was a hot sector early in the year.
Since July, I kind of moved sideways, only up about
(29:35):
two percent. It just broke to the upside of a
five month trading range. And as we think about this
economic uptick that we envisioned and some of the benefits
from the one big beautiful bill, like accelerated depreciation, we
think that's an area that should benefit as well.
Speaker 9 (29:48):
So again tech communications.
Speaker 10 (29:50):
Now paired with healthcare and industrials and something else, we're
looking closely out, not.
Speaker 9 (29:54):
Quite, not quite there to upgrade.
Speaker 10 (29:57):
You know, Financials with that steeper curve that Lisa mentioned early,
are acting very well.
Speaker 2 (30:03):
This is the Bloomberg Surveillance podcast, bringing you the best
in markets, economics, an gient politics. You can watch the
show live on Bloomberg TV weekday mornings 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.
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 Amerie Hordern. Join us each day
for insight from the best in markets, economics, and geopolitics
from our global headquarters in New York City. We are
live on Bloomberg Television weekday mornings from six to nine
am Eastern. Subscribe to the podcast on Apple, Spotify or
anywhere else you listen, and as always on the Bloomberg
(00:34):
Terminal and the Bloomberg Business app.
Speaker 3 (00:36):
Stocks trading their record highs once again after Friday's AI pullback,
Sarah Hunt of Alpine Saxon Woods, writing.
Speaker 4 (00:42):
We think this illustrates a level of.
Speaker 3 (00:44):
Concern from investors that there is too much spending on
the horizon and not enough cash flow to fund it.
Sarah joins us now for more, Sarah, wonderful to see you.
Thank you for being here.
Speaker 4 (00:52):
Good morning. It's great to be here. So is it
enough fear?
Speaker 3 (00:55):
Is it enough skepticism to make you actually interested in
AI once again?
Speaker 4 (00:58):
Or does it need to go a little bit further.
Speaker 5 (01:00):
Well, it certainly seemed like enough last week. I mean
there were some big moves last week, and I don't
think the market. I mean, you look at Broadcom's earnings
and the numbers themselves were very good. It's back to
the expectations problem and the second derivative problem which Cameron
just mentioned, which is what happens when you're still spending
a lot of money, but you're not spending it quite
as fast as you were. And the more you spend,
the bigger that the problem of large numbers comes in.
(01:23):
And can I go ten percent on every ten percent
or twenty percent every year every year? And I think
that's an issue. And now people are starting to question
where is that money coming from? And it wasn't that
question didn't happen in the beginning. And you've got some
real issues with companies that used to be cash rich
now getting more sset heavy. And I think that that's
a little bit an absorption issue for investors right now.
Speaker 3 (01:43):
But have we gone a little too far with this
with the idea that Microsoft and Google really are going
to face some sort of solvency risk or some sort
of serious existential question because they're borrowing a bit from
the bond market, right I mean, have we sort of
thrown the baby out with the bathwater, to use John
Soulfus's term. Given the fact that people seem skeptical more
broadly of the promise that they embraced two weeks ago.
Speaker 5 (02:06):
I think that that is just indicative of what we've
been living with for the last several years. Out of
the pandemic, which is narrative ships every day, and yes,
the pessimism gets wildly bad, and then it gets wildly
fantastic again. And this is why I wouldn't say that
this is a moment where you have to go, oh
my goodness, we have to change everything, but you have
to think about what who else might benefit and how
that's going to go. And I actually think that even
(02:27):
the story about the CDs for Oracle, I think that's
much more about hedging the stock than it is about
actually thinking that Oracle's not going to pay its spons
back in the end. So I think a lot of
this is the mechanics of how that spend is going
to come about. And I don't think it's a really
challenging the fact that money's going to get spent.
Speaker 1 (02:43):
I want to say that group think is great, but
I want to pick up on what you just said there,
which is we have all of these narrative shifts, doling narratives.
What does that say to you just about conviction investors,
conviction in this not not just this trade, but in
the prospect's.
Speaker 5 (02:55):
FAYI generally it is difficult to have because it's hard.
I mean, it's the conviction that is going to be
a big thing. It's going to make a lot of changes.
I think hasn't changed. What those changes are going to be,
who is going to benefit from those changes, and how
fast they're going to be implemented seems to be a
big part of the current concern.
Speaker 4 (03:11):
It was easier to say at the.
Speaker 5 (03:12):
Beginning of the year, we see a ton of expending
on infrastructure. There's still going to be a ton of
spending on infrastructure. But now that that's getting questioned, is
that the peak of infrastructure spend discussion? Now do we
have to look at use cases and who's using it
and how they're using it, and is this going to
improve margins? Because in the end, that's what it all
comes down to. Is it going to make people more money?
Because if it isn't, then it isn't going to raise earnings.
Then it's less exciting than if it is going to
(03:34):
raise earn.
Speaker 1 (03:34):
No, it's December. I'm in retrospective mood. Perhaps you are
as well. You mentioned that question wasn't being asked at
the beginning, which was hou is all this going to
be paid for? It's going to be cash? Is it
going to be dead? What do you make of that
in hindsight now, the fact that people weren't wrestling with
those questions to begin with.
Speaker 5 (03:48):
I think with every big investing enthusiasm, there is a
willingness to suspend belief about whether or not and how
things have to happen to get to the point where
everyone's excited about And I think that it doesn't mean
that we won't suspend that disbelief again. Right, So, there's
going to be some technological changes. I don't see how
you get the molecules and the electrons to as many
data centers as we have, so I think that there
(04:09):
will be changes, and those changes are going to occur
in ways that are right now difficult to parse, so
you don't know who's going to win and who's going
to lose.
Speaker 1 (04:17):
There.
Speaker 5 (04:17):
I think it was very clear at the infrastructure beginning
who is the winners, and now it's like, Okay, who's
going to win now? And are the winners really over
or is that just something that isn't going to grow as.
Speaker 3 (04:25):
Found you get the conversation of the weekend was you
almost need bubbles to fuel technological advancement. I mean, I
know that that sounds really strange and perverse, but there
is a sort of element of you need thatcham to
finance absolutely everything. Is there sort of this feeling that
you need to see the broadening out in the trade,
the idea that other companies benefit from AI to keep
the am machine chugging, right, that in order for people
(04:47):
to justify valuations where they are in the big tech giants,
you need to see participation on a broader scale.
Speaker 5 (04:53):
I think you absolutely need to see that participation. And
I think that that was a question even earlier in
this year, in the beginning at the end of last year,
which was who's going to use this? And then Walmart
came out and said a few things about how it
was helpful for margins, and other companies came out and said, yes,
we can use it this way and it's going to
be and that sort of solved the short term problem,
but longer term that has to broaden out, and that
has to be This is also the question about small caps.
(05:15):
Can they use this to make some margin improvements because
the small cap earnings revolution was supposed to happen two
years ago and then last year and then this year,
and is that.
Speaker 4 (05:22):
Really going to come through?
Speaker 5 (05:23):
And I think all of those things are very important
as we go forward, and where valuations are right now,
it's even more important.
Speaker 3 (05:29):
This is where the economy starts to matter again. This
is where, all of a sudden, when we were talking
about how anything related to AI could be at its
own universe and the economy could keep sort of dragging
along and basically being in a recession if it weren't
for that AI investment. At what point can you see
this expansion, this broadening out unless you see economic data
like what we're going to be getting this week really
pick up.
Speaker 5 (05:49):
It's interesting because I think that the government shutdown has
not only made the data that's current difficult to see
what happened just recently, but it also may have shifted
some activity into next year.
Speaker 4 (05:59):
So it's going to be interesting to see that.
Speaker 5 (06:02):
You do have to see an economy that keeps jogging
along if it doesn't, you're going to have a problem.
There's no question that that's going to be an issue.
That's an issue for earnings, earnings lead evaluations, and that's
the circle that investors are looking at.
Speaker 1 (06:13):
Speaking of circles, let's talk about circular investment and your
sort of thoughts on that right now. I mean, we
can't have this conversation about it, i AI without going
back to that. And I'm curious how worriesome that is
to you. Have you been sufficient have your worries been
significantly or sufficiently assuaged by these companies saying that it's
not a big deal.
Speaker 5 (06:28):
I'm not sure that I can say one way or
the other it's definitely not a big deal or it's
a huge big deal. I know that in two thousand
there were a lot of issues with vendor financing. It
was quite simple, right that companies were selling.
Speaker 1 (06:38):
Stuff that we say circular deals and vendor financing are
the same thing.
Speaker 5 (06:41):
I don't think that you can because I think that
there are some some of the players in that circle
have much more cash than they did before. So last
time it was vendors financing who didn't have the cash
to companies who didn't have the cash. Now, there is
cash in the mix, and there's quite a bit of cash.
And that's where you're seeing the have and have nots
on the tech side of who's as rich and who's
not and who are people concerned about whether or not
(07:03):
they're going to raise money or not. Again, I don't
think the Oracle anyone's concerned that it's going to go bankrupt.
But I think that there are concerns about overburdening balance
sheets right now.
Speaker 1 (07:12):
Lisa brought us to the economy, let me go back
to that sort of to pull us away from that.
They're just remote. But I'm curious, how do you think
about growth in the year ahead. Are you, to borrow
a phrase from competers, you're saying not saying when about it?
Or are you feeling like prospects are good, things are
going in the right direction.
Speaker 5 (07:25):
I think it's tough because the K shaped economy is
a real thing that people who are spending the most
money are the people who have the most money. The
lower end consumer is not doing well. A lot of
the companies that track that are not doing well, and
I think it's going to be that's really a question. Now,
how much have we owed overstated jobs. Right, So in
Poll's conference he talked about some of those overstatements and
maybe instead of generating jobs, we're losing jobs every month.
(07:47):
How much is that really occurring? What can we see
and what do wages look like? Because all of those
things matter. It's great that the high end can spend,
but you really need for the full economy to chug
a long you need broader participation.
Speaker 3 (08:00):
Which is the reason why everyone's watching and hoping for
this broader participation in the equity space. Sarah Hunt of
Alpine Saxon Woods is with us for the hour.
Speaker 2 (08:07):
And stay with us. Mult Blomberg Surveillance coming up off
to this.
Speaker 3 (08:20):
Here's the latest President Trump telling the Wall Street Journal
he's unsure his economic policies will lead to midterm wins.
An NBC News poll showing the president's approval rating down
to forty two percent. Is economic concerns way on Americans.
Henrietta Treys of Veta Partners joins us now for more. Henriette,
how do you sort of view this interview in the
Wall Street Journal, in particular with President Trump, where he's
(08:40):
saying that people just haven't felt the ramifications or the
benefits from some of his policies. Will that actually make
any headway early twenty twenty six.
Speaker 6 (08:50):
Yeah, that's absolutely true.
Speaker 7 (08:52):
The one big beautiful bill went into effect immediately for corporations. Indeed,
we've seen that corporate tax revenue has dropped by about
a third into federal coffers this year.
Speaker 6 (09:01):
That's because of.
Speaker 7 (09:02):
The tax preferences that went out very quickly after they
passed that bill on the corporate side. But the individual
side is back end loaded and starts in the new
year when the tax filing season starts. So when you
think about the odds of a reconciliation bill two point
zero for example, or the two thousand dollars tire freebate
checks for example, that requires another Act of Congress. And
(09:22):
as far as the White House is thinking about it,
and indeed, when I talk to Republican staff on the
House and Senate side, they're saying, you know, we already
did the individual tax cuts, you just haven't seen them yet.
So when Kevin has it comes out and says twenty
twenty six is going to be a boon year for
the consumer and individuals, it's because the tax preferences that
hit the individual side of the docket.
Speaker 6 (09:42):
Really start in the new year.
Speaker 7 (09:44):
So if you are really looking forward to the salt
deduction that's coming for you, there's a really small segment
of the economy that's on the no taxes on tips,
no taxes on overtime piece that all starts in the
new year, and they're hoping that that's going to be
enough to overcome the continued hit of tariffs, the continued
negative narrative around affordability and the high cost of living, housing,
(10:05):
healthcare going up by one thousand dollars, etc.
Speaker 1 (10:08):
We'll see, henriettas you talked to staffers on the hill,
I'm curious what they want this president to be doing.
So you lay out very clearly sort of the benefits
that will be very evident imagined to the American public
here come in the new year. What do they make
of his emphasis on immigration, on foreign policy, him not
talking about affordability. What would they like him to be
doing more, and what's the reaction to him not doing
(10:29):
more on that front.
Speaker 7 (10:30):
It's a real mixed bag with the same answer. Get
President Trump on the campaign trail, and for Republicans, they
really want to see that because the majority of the
new voter turnout of the last decade of sort of
the magabase. They're here for President Trump, They're not here
for your average run on the mill, rank and file Republican.
So those members really want President Trump to come to
(10:51):
their district, come on the campaign trail. You know, they
would have liked to see him more in Tennessee, for example,
a couple of weeks ago to boost the numbers, because
he is a turnout generating machine, and there's a lot
of anxiety on the Republican side about going into a
midterm election cycle where the president himself, who is highly
popular with the Republican base and MAGA voters, is not
on the docket. Those voters tend to not show up
(11:12):
in a midterm, which is why you saw such as
shell lacking for the Republican Conference.
Speaker 6 (11:16):
In twenty eighteen.
Speaker 7 (11:17):
They don't want to see a repeat of that, So
they really want Trump to get on the cam Hayne trail,
come rally their voters, and get the turnout machine. Unfortunately,
that's what Democrats also want, because they know that Republican
voters that are still the court of a President Trump
are more likely to stay home. And the majority of
Americans now have a negative view of the Republican Party's
handling of the state of the economy, inflation, prices, housing,
(11:39):
and healthcare, and those are the top five issues of
voters going into the midterm cycle. So Democrats similarly want
President Trump to be.
Speaker 6 (11:47):
Front and center.
Speaker 7 (11:48):
So it's really a tough road to hoe for the
Republican conference and for President Trump in particular. He's got
to get out there. He's got to talk about affordability.
But the more he talks about it, the more health Democrats.
So it's sort of a catch twenty two.
Speaker 4 (12:03):
Good morning, Henrietta. So what of all those things.
Speaker 5 (12:06):
That you mentioned, it seems to me that one of
the most important things to try to nail down right
now is healthcare because you can't really change a rise
in price levels.
Speaker 4 (12:14):
Whenever you do about further.
Speaker 5 (12:15):
Height doesn't matter as much as changing what's going to
happen now with those subsidies. And this is a train
wreck that's been coming and pushed off and pushed off
and pushed off. Is there any do you think that
they can get something done in a timeframe that's going
to be meaningful? And do you think that there's enough
bipartisan anything, because everybody is going to be affected by this.
Speaker 4 (12:33):
How does that look in your opinion?
Speaker 7 (12:35):
Yeah, I'm not shy about making projections. There's no chance
that they fix Obamacare before the end of the year,
so we're going off the cliff. To put it into perspective,
that's twenty two million people that are going to be hit.
Speaker 6 (12:47):
Four million people will lose their insurance.
Speaker 7 (12:49):
If you're sixty years and older, your premiums are going
up by almost one thousand dollars in the new year.
Speaker 6 (12:53):
That's going to happen.
Speaker 7 (12:55):
There is this period of time between January fifth and
January thirtieth where they could find a solution.
Speaker 6 (13:01):
Our odds are pretty slim, my colleagues.
Speaker 7 (13:03):
Spenser Proman is our healthcare expert, and he's now down
to twenty five percent that we get any two year,
one year extension.
Speaker 6 (13:10):
Of the ACA subsidies.
Speaker 7 (13:12):
And you can hear it from Republicans in the United
States Senate who saw this train wreck coming, as you
rightly point.
Speaker 6 (13:17):
Out, and consider this a subsidy that needs to expire.
Speaker 7 (13:21):
We have a thirty eight trillion dollar debt load in
the United States. Let's cut this and make sure that
it is not extended. Unfortunately, when American consumers look at
Republicans speak to the healthcare issue.
Speaker 6 (13:33):
We're now on y're sixteen of not having an alternative
to Obamacare, so that leads to an erosion of trust.
Speaker 7 (13:39):
Within voters of Democrats and Republicans alike around the entire
concept of healthcare. For the Republican conference, i'mer speaker Bayner
had the best quote the other day. He basically said,
I've been in all these meetings with Republicans for decade now,
and we've never all been on the same page. And
so as long as that's the case, you're not going
to see a fix, then we'll go into the year
with that one.
Speaker 2 (14:00):
Stay with us. Mulblomberg surveillance coming up after.
Speaker 3 (14:03):
This, Poojaree Room of Barclays writing we expect a non
farm payroll and employment flat in October and up fifty k.
Speaker 4 (14:19):
In November, providing further evidence.
Speaker 3 (14:21):
That the labor market is not is slowing but not breaking.
Poo just realm of Barclays joining us now, Pooja, great
to see you, Thank you so much for being with USKS.
So just looking at slowing but not breaking. What's the
difference between the two. How narrow is the gap between
slow and before and between broken.
Speaker 4 (14:38):
Yeah, I think that's a great question.
Speaker 8 (14:41):
I think we're getting close to the point where people,
ourselves included, are seeing risks clearly to the downside. But
in terms of breaking that is a world where you
expect labor markets slack to shoot up, you know, pick
up very rapidly, and that's not something we're seeing either
in the official day or in some of the other statistics,
(15:01):
like you know, think about job openings and the separations
rate there or jobless claims data. So it is a
labor market which for a while now has been stuck.
You know, we're not hiring, but we're not firing as much,
so there's very little dynamason risks, sure of the downside,
but we still think we're.
Speaker 4 (15:19):
Not at that point where we're ready to fall off
the cliff.
Speaker 3 (15:22):
Well, I guess I'm wondering if we're at an inflection
point of sorts, or maybe we've been grinding along. We
could be heading toward an inflection point. Why wouldn't it
be to the upside, Because we have seen smaller businesses
really pull back and hiring. The hiring has been concentrated
in the larger companies. If they get some stimulus if
there is these rate cuts that kind of start percolating
through the economy, why wouldn't we see a pickup in
(15:43):
hiring rather than sort of the other way around.
Speaker 8 (15:46):
That's a great question, and I think that's a very
feasible scenario to keep in mind, just given you know,
we are quite constructive about growth into twenty twenty six.
We're seeing a lot of positive impulses that could keep
the economy highly support and in that world, yes, you
could have a labor market that actually stabilizes. In fact,
our own forecast, official forecast has the labor market looking
(16:08):
quite resilient in twenty twenty six, and we have the
unemployment rate coming down. So I think we really subscribe
to that view that there is a world where the
labor market stabilizes and eventually starts to look better. But
given where we are now, I think it's reasonable to
also see that risks could very well be to the downside.
It would take very little to push the labor market
(16:31):
in the opposite direction.
Speaker 1 (16:32):
I'm curious how you think about the legacy of what
we have been through here with this government shut down,
the delay of data that we hadn't seen before, and
all the while there was this conversation about what might
be a decent substitute for the data that we weren't
getting from the Labor Department. How could we get as
good as sense as we could about the state of
the labor market life not having that data. Now that
we're beyond it, I'm curious of what we've learned about
(16:53):
how good a sense we have of the jobs market
in this country. We've heard from the Fed share suggesting
perhaps are more fundamental problems with the way that these
numbers are are collected and counted. How are you thinking
about what we've been through?
Speaker 8 (17:03):
Absolutely so, I would say this that the government shut
down basically brought to the forefront the fact that we
are highly, highly reliant on official statistics, and there's a
good reason why. You know, we have very talented statisticians
who've been doing it the right way for a very
long time. But at the same time, I think it
also exposed the wonderabilities of suddenly not having these data,
(17:28):
or now we're in a scenario where the data could
be clouded in some sense. Right to answer your question,
we have looked at a dashboard of indicators which are
quite useful, and our reasonable alternatives to get a gauge
where the economy is headed. And you know these come
in different shapes and forms. You've got job openings data,
you've got job postings, some of them about hiring, so
(17:51):
it gives you a decent picture of where things are.
But we still don't think those are enough to substitute
the official statistics.
Speaker 1 (18:00):
I suspectedly it's going to ask my inflation am before
we get there. Let me just ask you that the
FED speak the mony. I'm sorry that Mike was mentioning
all that we're going to hear from and I'm curious,
what are you listening for? In specific, we've talked a
lot about the silent of sense, the quietest sense that
happened at that meeting. What are we likely to learn
from kind of pan and believe speakers who are going
to be giving remarks and the interviews over the course
(18:20):
of the week.
Speaker 8 (18:21):
Yeah, I think the one thing that stood out in
the December FO and C meeting is just how divergent
views are within the committee. I mean, if you just
look at even the dot plot for example, in twenty
twenty six, seven participants felt that it's appropriate to whold
rate steady where they are now, so I think going
(18:41):
into this week and also just you know, beyond this week,
we want to get a sense of who's thinking how
For example, we did hear from Goolsby that his descent
was to some part tied to the fact that he
didn't have enough data to go by, right, And so
that gives you some insight into I guess what he's
looking for. And you know, we're likely to get similar
insights from others, and I'm sure like a lot of
(19:03):
other FED watches, we will be trying to you know,
we're trying to place them on the dove hog lineup
to see exactly where their minds are at and to
go to give us a sense really of what the
reaction function is for each of these participants.
Speaker 3 (19:16):
Over the weekend, San Francisco FED president Mary Daily put
out a blog post and she was talking about why
she supported cutting rates the last meeting, and she talked
about how, yes, it was a very difficult decision because
there is this dual mandate that's very much in conflict.
Speaker 4 (19:29):
She was talking about inflation.
Speaker 3 (19:30):
Yes, I always got to talk about it and how
it has been really punitive for these families. But she said,
how you get down to two percent matters because if
you get there too quickly, you break the labor market,
and then you've got families grappling with both above average
inflation and potential job losses. Do you think that there
is this theory right now presiding over the FED to
run the economy a bit hot, especially at a time
(19:51):
of technological transition, with artificial intelligence posing some existential questions
around the labor market, in order to avoid some sort
of labor markets scarring at the expense of inflation knocketting
down to two percent any time in the near future.
Speaker 8 (20:06):
Well, I okay, Well, this is what I think stood
out to me in the December presser. There seems to
be this view in the FED that inflation is really
not a problem right now. In fact, Chair Powell's own
comments on inflation is he's quite sanguine about it. I
think in some part of the press that he did
think that inflation, you strip it out of all the
tariff effects, is somewhere in the low twos. Then he
(20:29):
mentioned something about productivity also likely to support the economy.
So if you sort of put all those views together,
I think there is this view out there in among
the FED participants that inflation is perhaps not a problem
to be concerned about, and what they need to be
concerned about right now is the labor market. That's perhaps
what you know Mary Daily is also subscribing to.
Speaker 4 (20:49):
In some sense.
Speaker 8 (20:51):
My own take is I think it's a little too
premature to think that inflation is going to take care
of itself. You know, we at Barclay's have been saying
for a while that we are yet to see the
full effects of tariffs on the inflation data. And sure,
while it may be a one time price shock, I
think it's a little too early to declare victory on
inflation yet.
Speaker 2 (21:13):
Stay with US multile imperg surveillance coming up after this.
Speaker 3 (21:25):
Keith Lerder of Truest writing, we are still positive tech
longer term, but in the near term there is a
lack of a catalyst for the sector, so investors will
need to be patient.
Speaker 4 (21:35):
Investors known for their patients.
Speaker 3 (21:36):
Keith joins us. Now, okay, thank you so much for
being with us. I just want to start there. I mean,
do you think that this so off that we've seen
or on a performance I should say probably putting it
more fairly. In the tech sector is something that can
persist for a longer period of time or is this
sort of like an end of the year melt off
given how much it's been outperforming.
Speaker 9 (21:55):
Yeah, well for us, great to be with you.
Speaker 10 (21:57):
I didn't realize it was the actually last full trading
week of the years, so that's exciting in some ways.
So to your points, specifically at LISA, I still think
tech is long term leadership.
Speaker 9 (22:09):
But to your point, we.
Speaker 10 (22:10):
Went up off the loads about seventy percent versus thirty
five percent for the S and P five hundred, and
now you get all these different questions as well.
Speaker 9 (22:17):
So I just think it's a point.
Speaker 10 (22:20):
Where you know that we have to kind of rebuild
that wall of warrior, which we're doing. But at the
end of the day, the earnings momentum for the tech
sector is still the strongest one out there. So I
think in the air term, I think the challenge is
what is the catalyst to move this up, Because you know,
we just went through an earning season. People are focused
on obviously Oracle and video comes out with some news
about some more chip selling to China, it's not moving it.
(22:42):
So I think it's just maybe a digestion phase, and
I think, you know, the next year at some point,
maybe that's three months or six months from now, we'll
see money rotate back into it. And when we look
historically at bull markets, maybe my final point here is
the leadership of a bull market tends to endoor towards
the end, notwithstanding periodic you know, pull and rotations. We're
seeing one of those rotations right now on this kind
(23:03):
of boarding theme, and I think that boarding theme, at
least in their term, has a bit more to go.
Speaker 3 (23:06):
You found somewhat skeptical of it long term. Is that correct, Keith,
that this broadening theme maybe is a short term lip
but not necessarily a twenty twenty six full year trend.
Speaker 7 (23:16):
No.
Speaker 10 (23:16):
I think, you know, Lisa, if we were here a
year ago, I think the theme was very similar about
this boarding theme. It didn't work out, but I know
I do think next year there's more of a reason
that we can see more broading. So I think a
lot of times people think about it's tech or X
and of you it can be both, especially as we
have these sharp rotations. But you know, the good news,
I think as we think about the equal weight index,
(23:37):
were we came into this year around the seventeen multiple
We're ending the year around the seventeen multiple and it's
been mostly earnest with The key for next year is
is profit margin and do we see the adoption and
the profit margins dot to expand for these four ninety
three But I think listen to their term. Were all
seeing some positive action. We had industrials breakout last week.
The equ Weight index just made a fifty two week high.
Speaker 9 (23:59):
Here's an interest.
Speaker 10 (24:00):
Since that, guys, you know, the EQUAT index is only
up about four percent since the November peak right after
the election, so almost more than a year we'll only
have four percent.
Speaker 9 (24:10):
So no, I think it has further to go. I
just think it's both not either or there's.
Speaker 1 (24:14):
A tendency to have this kind of monomoniacal focus on
the big tech names, the Magnificent seven and the like.
Do you foresee us you look into your crystal ball
more eagerness to look overseas in the year ahead. Of course,
it's done. Markets overseas have done extremely well this year
in many cases, Are you looking more to Europe for
instance in twenty twenty six?
Speaker 10 (24:34):
I don't know that we're looking more, but it's kind
of a similar story when we look around the globe.
I just checked this morning, ninety eight percent of the
markets we tract more than forty countries around the globe,
they were in up trends, defined as above their tunia
day moving averages.
Speaker 9 (24:46):
So it's kind of that similar story we just had.
It's like either or no. Both.
Speaker 10 (24:50):
We still have a tilt towards the US because that's
where the innovation and earnings are there. And let's you know,
if we think about the last year, the US underperformed,
but that was after a you know, in the prior year,
the US had outperformed by the most since the nineties
in twenty twenty four, so we had a bit of
mean version and almost all the increase in international was
pevaluation that earnings and the currency side. So I think
(25:13):
as we move into next year, we had a bit
of a revaluation. Currency has come down to the US dollars,
so I think both will do well. We're still tilting
towards the US on the margin.
Speaker 1 (25:23):
We've been kind of threading this needle over the course
of the three hours this morning. Mike Wilson's note Mike Wilson,
Morgan Stanley right about how we are now firmly back
in a good as bad, bad as good regime. As
you look ahead to this week and the data that
we're going to get, how are you thinking you're in
agreement with mister Wilson.
Speaker 9 (25:38):
I think the market like Scoldilocks.
Speaker 10 (25:40):
I think we want an economy that is still you know,
kind of chugging along.
Speaker 9 (25:44):
We expect a modest uptick into next.
Speaker 10 (25:46):
Year, with you know, with inflation that doesn't get out
of control, which we don't think it will, and interest
rates that remain you know, kind of in this range
that it's been overall. So I would say on the margin,
you know, solid news is good news. I don't think
we want extreme. If it's something that's really much stronger
to the upside for the economy, that probably means rates
(26:06):
go up and that will hit maybe valuations. If we
see a real weakening in the in the labor market
continues and it's divergence between GDP data and the labor market,
I think that's problematic as well. So I think, you know,
we're using an analogy for our outlook, the seventhing in a stretch.
I think we want something kind of in the middle
between those two extremes.
Speaker 3 (26:24):
Do you think Keith that this market's fully wrapped its
heads around the idea that we have seen the end
of one of the biggest global easing cycles ever outside
of some sort of recession.
Speaker 10 (26:34):
You know, it's an interesting question because it hasn't really
come up a whole lot in conversations as I speak
with investors.
Speaker 9 (26:39):
So I think that is, you know, a potecially a risk.
Speaker 10 (26:42):
And I think the other thing, you know, all things
come back, All roles lead back to the ten year treasury.
As we think about next year, we still are positive.
We think that the uptrend deserves the benefit of the doubt.
But going to your point about central banks, I mean,
I think the key tell for next year and the
risk fact that we'll be watching is the ten year,
which again seems relative to be contained at this point.
But that is a shift, and I think, just like
(27:03):
this past year, I think earnings will be the key.
Speaker 9 (27:06):
Again.
Speaker 10 (27:07):
We expect solid earnings and we do expect those earnings
to born out as we move through twenty twenty six.
Speaker 3 (27:12):
When you talk about earnings, this kind of leaves us
in the same place of yes, bonds may offer a hedge,
but maybe you don't want that hedge In twenty twenty six,
maybe you want to be exposed to the equity space
and then on the short end of the yield curve
at a time of yield curve steepening. I mean, how
do you look at that kind of interplay given the
fact that people are expecting enough growth an accommodator fed
(27:32):
despite that ongoing growth and this yield curve steepening that
we have seen really start to reassert itself.
Speaker 10 (27:39):
Yeah, So overall, heading into the year, we do have
a modest killed towards equity relative to fixed income. In cash,
we're still overweight gold as well, which.
Speaker 9 (27:47):
We've been overweighted all year long.
Speaker 10 (27:49):
And then on the on the fixed income side, you know,
again going back to the analogy around baseball, we still
look at fixed income as that consistent head kind of
collecting that coupon, you know, all and all over the
last year where the equity markets have done pretty well,
we are having a solid year in fixed income with
high quality returning six seven percent. And I think as
(28:09):
we think about next year, we talked about this, there's
a lot of cross currents. There's a midterm election year,
and there's a scenario where the economy is stronger than
expectations or there's a scenario where the labor market weekends
further and the latter one you would actually want bonds.
So I think going back to diversifications, kind of a
simple diversification aspect, you still.
Speaker 9 (28:27):
Want to have bonds.
Speaker 10 (28:28):
Are they at a modestly lower rate, Yes, but I
still think it makes sense. But we are peering that
with some exposure to gold still into the new year.
Speaker 1 (28:37):
Let's stick with the diversification. So there's this market Mason
rebuilding the wall of worry as you look beyond tech,
if you look beyond big tech telecommunications as well, where
do you see opportunity sector wise here in the year
ahead that might have been neglected in twenty twenty five.
Speaker 10 (28:51):
Sure so where we were overweight tech and communications for
most of this past year and we still are again,
We're still positive long term. What we've been doing is
making incremental changes based on this bordening theme. So you know,
over the recent months we added healthcare. You know, healthcare
is a sector where just you know, a little bit
of good news can go a long way. I know
it's done better recently, but it's out. I'm sorry it's underperformed.
(29:14):
The S and P by over fifty percent over the
last three years, and that's a historic extreme. So you
just get a little good news that can go along
a way. And we're seeing valuations attractive and some better
fundamentals there as well. And then just last week we
upgraded industrials. Industrials was a hot sector early in the year.
Since July, I kind of moved sideways, only up about
(29:35):
two percent. It just broke to the upside of a
five month trading range. And as we think about this
economic uptick that we envisioned and some of the benefits
from the one big beautiful bill, like accelerated depreciation, we
think that's an area that should benefit as well.
Speaker 9 (29:48):
So again tech communications.
Speaker 10 (29:50):
Now paired with healthcare and industrials and something else, we're
looking closely out, not.
Speaker 9 (29:54):
Quite, not quite there to upgrade.
Speaker 10 (29:57):
You know, Financials with that steeper curve that Lisa mentioned early,
are acting very well.
Speaker 2 (30:03):
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