Live on Bloomberg TV

00:00A ton of Fed speak. There s life from New York City this morning. Good morning. Good morning. We'll bring you those comments from the likes of Williams in the next 15 minutes in just a moment. Equity futures down a half of 1 percent. The countdown to the open starts right now. Everything you need to get set for the start of us trading. This is Bloomberg, the open with Jonathan Ferro. Live from New York. Coming up, Fed Chair Jay Powell sticking to script, President Biden told, saying that China's leader and a banned zone. The latest to cut jobs. We begin with a big issue. It's all about the TSA. Look at all of the data. The data we saw Friday, the extremely strong data. The data right now, the services data essentially is telling us they're data dependent. That's the basic dependent Fed figuring it out as they go along. How much we stuck to the communication of last week and peacemaking conference. He basically said, all right, you guys want to play data dependent? We'll play data dependent. Now he can let the data guide them. You have a big CPI report coming up next week. That's CPI. Print is kind of a sneaky risk event. We need to keep a close eye. Powell trying not to try and change too rapidly as the data come in. The Fed is not being bought into any one faith in any of the market, which, of course, is going to change very rapidly. Let's get right to it with our panel. Of course, Julian Emmanuel, Invest Goes Rob Wild. And gents, I want to start with this quote from Mike CAC over at Bank of America. Volcker has left the building. The Fed is embracing painless disinflation and hopes it continues when not in Wyoming anymore. Rob, what do you make of that? Well, I think, Jonathan, it's quite interesting because he they embrace disinflation during his speech. I think you need a couple of pieces about how deep and it is there. So what they're doing is they're looking at the recent core. I think recent core CPI has been relatively tame Michael Barr over the last several months. But I think he highlighted that this disinflation process is going to be slow and I think a bit bumpy. So I think we're in a little bit of a period here. We've got some really good inflation news. We think overall we will get inflation this year, but we could get some more pumping inflation news over the next several months. So I think it's not exactly sailing for the markets. So, you know, when we get if we get worse news, the Fed will be back and we'll get nervous. I think that's certainly what I heard from him. There has been a change, though. Gillian, I think you'll appreciate this for much. The last 12 months, we had what many people thought was a Fed cold as that fed Kogan now. It really has or it's softening at the very least. But look, it all goes back to Friday. I would suggest that Chair Owl was as surprised as anyone at the extraordinary strength of that and FTSE number and surprises anyone that the labor market has remained as resilient as it has. And frankly, what it all adds up to is sort of a path where, if you think about it in the context of Ed Hyman, Ed is convinced that the economy is as strong now as he is as convinced that a recession is on the horizon. Late this year or early next. And if you're not confused, you're probably not paying attention. It. Let's talk about it then. Is there a window, an investor for window between that strength now and that recession you ultimately expect? Is that something to get long in between? And how big is that window? So for us, this is a process. OK. We we expect 2023 to be a year of volatility. It's already proven at that to be the case, despite what the VIX is saying. If you look at individual stocks, you know, stocks down 70 percent over the past year, up 90 percent or more in a month. That's volatility right there. And for us, it's really discipline and sticking to a stock picking mentality, staying close to your home, home and close to what you know with one eye towards risk management, which means eventual managing the downside, which we do think is still part of the unwritten story for 2023 before the new bull cycle began. And potentially managing a recession, a hard landing, a soft landing, tossed a slug over Apollo has really pushed this idea that maybe we have to think about a no landing scenario. He wrote this this morning from hard landing to no landing. Investors have been underperforming that benchmarks because they entered 2023, underweight equities, expecting a slowdown. That still hasn't happened. Once that slowdown happening. So we think it's better the better chances than not, Jonathan, that we don't actually get a recession, we get subpar growth. I think that's kind of what we've what we've been having for a while here. We've had potential or slightly blow tension growth. We'll get that in 2023. But, you know, the labor market continues to show incredible strength. The details of that labor market report were strong in the same time. Wages are not showing signs of spiraling upward. So you don't get the Fed panic. So, you know, we think it's an environment where for the year as a whole, it's probably pretty friendly for public public markets. Public fixed income in general. But we'll be range trading for a while. It's going to be a little bit messy as we get, you know, as I said, noise around inflation. So, Rob, if that's the case, do you like treasuries at full 45 on a two year, 366 on a 10 year? Does that will add up? I think that over the balance of the year, it does. We would we would be looking for this tenure right now to be in a range of three and a half to four percent, something like that. So, you know, kind of a middle the range. But over the year as a whole, you know, we expect inflation to end the year much lower than where it is now. And we expect a flat fed probably to be moving towards cutting rates. And so, you know, fixed income overall offers quite a lot of value on the year as a whole. But of course, you start off it's a real boom this year. Jonathan, I mean, we're up over 3 percent. We were up over 3 percent in fixed income. Yeah. So we could get a bit of a range condition for Rob. I was going to say. I'm not sure that statement carries the same weight as it did maybe six weeks ago. How much value is there in places like high yield triple seats after the rally, the spread tightening we've seen in the last few months? Well, I think you're your slot talked about people being underweight equities. I think investors came in to the year underweight all risk assets. So we've seen a real I think has signs of a position driven rally. So we've seen probably spreads come in tighter than where it should be. That comes back to where we would kind of want to enter into. So that it comes back to my statement. You know, it's probably a lot of rangy and well, we get a couple of negative inflation prints, which we're likely to get over next couple of months. You probably get a great opportunity to reload. If you didn't, you don't get loaded up at the end of the year, CPI on February 14th next week. Look out for that. Yields come in just a little bit today. Equity futures down a half of 1 percent. I need to talk about corporate layoffs again. The latest eBay and Zoom Zoom kind of gets headcount by 15 percent after tripling get in just two years. The CEO said their soft trajectory was forever changed during the pandemic. We didn't take enough time to thoroughly analyze our teams and see if we were growing sustainably Kailey Leinz how many times we had different versions of that. It's eerie how often these messages sound exactly the same. The central thesis of all of them being we grew too quickly and now we have to adapt. And that is definitely what the Xoom CEO was alluding to there. You mentioned how they tripled their headcount over the last three years. In January 2020, they had twenty five hundred employees by torpor of last year. That number was more like 80 400. That is how quickly they grew. Now they have to adjust. And it's a similar story for eBay as well, seeing slate sales slow down now that the pandemic boom is over, which is why they are also cutting about 4 percent of their workforce or 500 employees. Interesting to not see a positive stock reaction for either of those companies today to this news. But I would say the CEO of eBay also had a very similar message. They said the job cuts are necessary to create long term sustainable growth. It's this idea of sustainability and maybe not being able to sustain the growth rate at which these companies were on. Now that the environment has softened and we know they are not the only two companies experiencing this, we can see tech layoffs picking up. That's the white bar bars here on this chart relative to the other job cuts tracked by challenger Gray Christmas. So you can see that this is really something that is happening and it is reflected, too, as well in the economic data. Yes, we had a blowout jobs report last week, 570000 in the headline figure, but information sector jobs actually were down 5000 as they were in December. So it's starting to show up, John. And the question is, will it start showing up in a bigger way considering many of these cuts are just announced? They haven't actually happened yet. Kathleen Hays see a bigger translation into the data later on. Katie, thanks for that. Let me just repeat that line zooms cutting the headcount by 16 percent after tripling get in just two years. Goldman put out some research a little bit early this week. Some wrote on Twitter that tweeted, This sounds fantastic. Chop. Here's the quote. Roughly 15 percent of companies in the S & P 500 have seen headcount increase of 40 percent or more. So that's 15 percent of companies in the S & P have seen headcount increase 40 percent or more since the start of the pandemic. And only one fifth of them have announced layoffs so far. Rob, can I come to you on that? When we think about excess, how much excess is there hanging over for the pandemic period and how much of it needs to be unwound? We think we've made it through most of the access that we had in the pandemic, certainly to look at the consumer side. There is some evidence there might still be some excess savings, but it's probably not in pockets that are easily, easily tapped. So we think the pandemic, those elements are kind of behind us. Supported probably going forward. It's picking up from that. I think maybe we didn't really anticipate is that inflation slows. You know, just real disposable income is picking up. So as inflation slows, as gas prices come down, we're getting another little late year for people to to pick up some disposable income, which is, I think, the good news. One of the piece of good news for the economy here back in the pants mean we talked about the casino on Wall Street. That's getting more conversation again. Shery Ahn, in fact, you wrote about it this morning. I want to share some of your work with our audience. I talked about it a little bit earlier on. You said this. We had a one point five to 2 percent bear bull bull sequence yesterday. Bull babble sequence, to be precise. You said why? Because zero day to expiry options. Trading has become an important marginal price setter. You said look at options volumes yesterday dominated by zero and one day to expiry SPI options and higher rates. Of course, this unintended consequence as people have moved out of zero percent money market funds and deposits into places where they can get 4 percent interest and take 10 percent of their capital and trade options. Julian Feld on this. What's happening here? So, again, you know, when you do what you've done to monetary policy, as quickly as the Fed has done it over the course of the year, there are all sorts of unintended consequences. And who would have ever thought that in a little slice of the market that actually raising rates would cause more speculation simply because you still have a situation where that your average bank in your average money market fund is still paying below market rates because it doesn't need the deposits. So that money is moving. And frankly, when you're in an environment, it is confusing at the macro level as it is right now. And yet people still have savings and still have investing interest that they built up almost from scratch if you go back to 2019. It's really just a natural outcropping of of what can happen. And obviously, the leverage inherent in those kinds of options can be very attractive when you win once, twice or three times, despite the most likely outcome in a range trading market in less success. Let's go one step further. Is this the tail wagging the dog all over again? The reason I ask is because when we see big moves like the one we've seen yet today, particularly the Nasdaq and the S & P 500, we might try to sign some kind of fundamental narrative to a price move. Just a story we like 10 stories. How much of what we've seen Shery Ahn is down to what you've just described. There's certainly a large element. Is that the undue element? No. Because I would say that part of what we saw at year end, albeit somewhat options driven, was really, you know, extreme tax loss selling to where the stocks that were underperformers at the end of the last year literally had no place to go except up. Now, would we have expected those names to move 60, 80, a hundred percent in a month? Absolutely not. Have options exaggerated that move? Definitely the most been huge. That's for sure. Gillian, you going to stick with us alongside Rob while the equity market down four tenths of one percent on the S & P. Coming up ahead today, see President Biden ditching the script. Some Republicans want Medicare and Social Security sunset. I'm not saying it's a majority. That conversation next. Instead of making the wealthy pay their fair share, some Republicans, some Republicans want Medicare, Social Security, sunset. I'm not saying it's a majority. Let me give you. Anybody who doubts, contact my office, I'll give you a copy, I'll give you a copy of that proposal. Means Congress doesn't vote. I'm glad you see and not say I enjoy conversion, chaos gripping Capitol Hill, the State of the Union filled with partisan champs, president pundits sparring with House Republicans before turning his attention to China. For the past two years, democracies have become stronger, not weaker. Autocracies grow weaker, not stronger. Name me a world leader who changed places with Xi Jinping. Name me one. Name me one. Let's get to IBEX, they say Montgomery. Good morning, John. That was an interesting moment because it wasn't prepared in the remarks that we got for the release. This is Biden off script and really going right after directly naming Xi Jinping, obviously going into the State of the Union. Of course, the surveillance balloon incident was saying there was going to overshadow this. He didn't directly talk about it, but he did make reference to it. But we should say the president also took a little bit more of a reasonable tone when it came to China in the sense that he said that they want to make sure they can continue to work with China on things that make sense for both Beijing and Washington. You think of things like climate change and those kinds of talks, but also that they want to make sure that they are setting up the United States to compete vigorously, compete with China. But on the domestic front, Jonathan, of course, the viral moment was when the president spoke about the debt ceiling and he talked about the fact that some Republicans want to sunset Social Security and Medicare. Take a listen. Committed here tonight to the full faith and credit of the United States. America will never, ever be questioned. We're not going to be moved in to be threatened to default on the debt if we don't respond, as we all apparently agree. Social Security Medicare is often off the books now, not to this one. So, Jonathan, that is the moment. This White House wants to really relish in the president was looking at someone who the American people are out for in the sense that they don't want to see. But by and large, Social Security and Medicare going away. But then you had the likes of some of these rabble rousers in Congress like Marjorie Taylor Green getting up, pointing the finger at the president, calling him a liar. I'm not sure that was the final moment, but we'll leave that there. Maybe we'll talk about it later. Can I pick up on this? Just pushing forward. We heard from the vice president earlier on this morning on CBS. She said if Biden runs, I'll be running with him. What do we get in the announcement? It's a great question. So the State of the Union is behind him. He's still dealing, obviously, with the documents probe. There's a special a special counsel that's been appointed for that. And I think this administration would like to put that behind them before they made this announcement. But they're preparing for it. It's coming April or March. And this was part of the 20, 24, 20 looking into 2020 for this speech could be seen as a soft launch. Now, the argument to that is obviously the president doesn't want to be a lame duck president. So I think likely a lot of the same mission, the mission he wants out of this speech would have been the same whether or not he was running or not. But definitely there were moments there. The real focus on the domestic agenda was something that really paints the picture frame in running in 2024. And we've already heard it from Ron Klain two or three times. It's not if, but when the president announces. Murray, thank you. And again, happy birthday. First, a love from the same time, a temporary. Thank you, Frank, with a student, a man who had rough welcome. Let's continue the conversation. We can do the domestic stuff. Then we'll get international, rudderless, not domestic. It's that time of a monarch. I used to reserve about 60 seconds for this conversation. It's about how long it lasts. I mentioned the debt ceiling. Someone shrugs and then we may on. Rob, is that how you talk about the debt ceiling debate? Well, the debt ceiling debate is still pretty far out there, right? So it's medium term risk, which is very hard to price in the markets. But, you know, when we when you game this out, Jonathan, it seems like it's probably going to be messy. So that is one of the factors. You know, I think as investors, as you get out to the end of the first quarter, beginning second quarter, you know, we're going to have to pay attention to, you know, my career's been long enough where I remember the vote on TARP. And, you know, sometimes the market has to force Congress's hand. And I hope that didn't happen this time. But I think it's a risk that's a fail. We get a replay on the horizon. That's the issue, Judy. And in the here and now, there's this tension again between China and United States, tension that hasn't really gone anywhere against the backdrop of a rip roaring rally for some of these names listed here. The United States is one of the ideas that China names have just absolutely ripped. Your thoughts, Judy, on what you're focused on right now? Is it the domestic debt ceiling issue or is the international relationship with China? Well, it's certainly both, and obviously they're going to be, as the year unfolds of a greater and lesser importance in terms of the hardliners. Just quickly on China, as you know, John, we've been behind the rally essentially since the aftermath of the party Congress. Those socks, those eight yards have a very long way. Nothing goes in a straight line forever. We think long term. The reopening is very, very supportive. But you'll likely add applause here. Now, in terms of the domestic situation, it's very important to remember that one year credit default swaps on U.S. sovereign debt are already bumping up against the extreme pricing that we saw at the first debt ceiling in 2011. So while we don't think that the U.S. defaults on its debt, we do think that the risk is it's going to feel that way, perhaps at a time when money supply is contracting further. Leading economic indicators continue to point down and the employment mark market probably starts to weaken at midyear. All of those conspired could cause the downturn that we expect to happen eventually to happen sooner and perhaps be greater. It's definitely a risk. The fact they say the US is even trading I think is a story in and of itself. Jihye Lee. And we can talk about it another time. You mentioned the Chinese names fighting for some numbers on a long way. That phrase a long way. Here's a number for you. Bodies up more than 100 percent from the end of October. Up another number on things. You guys have got China GDP 6 percent. Lots of people start the year saying, Judy and I want to play the real story. And we were sent a few weeks into twenty three. Gillian. Have we seen the real story play out already? Now we look you look at the energy market the last several days. There is a bit there despite signs of weakening in the economy elsewhere, albeit small. But the fact is, is that when you think about the fullness of that story and the idea that the virus itself has really worked its way with the majority of the population in China, the reopening story is very much alive and likely we've only seen the opening innings of it getting great to catch up. NIKKEI thoughts on a range of issues. Rob Walnuts to you as well. Rob Shery Ahn, thank you as always. We are about seven or eight minutes away from the opening bell. Equities down just a little bit by half of 1 percent. Big rally off the back of Chairman Powers comments or not comments yesterday. Yields come in just a little bit by a couple of basis points on a two, yet on a 10 year, 10 year down to about three, let's call it 366 on a 10 year this morning. Coming up, the money coach. And later, a decade of free money coming to an end, putting multinationals on notice. That's the view from banks America's Jill Carey Hill. She joins us at the opening bell. That's coming up shortly. Five minutes away from the opening bell, equity futures retreat in just a little bit, down a half of 1 percent on the S & P and the Nasdaq down four tenths of 1 percent yesterday. Decent day of gains snapping a two day losing streak. I see what this looks like. By the end of the day, that's the price action. Here's some more, of course, for you. First up, Morgan Stanley upgrading American Express to overweight. Maybe the stock, its top pick in consumer finance, giving us sustainable revenue growth. Stock up by 1 percent. Bank of America upgrading TripAdvisor to buy from underperform, raising the stock by two notches. As management continues focusing on margins, we advance their rally 7 percent. And finally, KeyBanc downgrading Sherwin-Williams to Sector Way, expecting we could amount to limit the company's valuation. That stock is negative by one point nine percent. Coming up, the Bank of America's jewel Kerry hopes singer challenging backdrop for multinationals this year. Why safe sectors are becoming risky in 2023. That conversation just around a corner. Twenty three seconds away from the opening bell this morning. Good morning, see you. Equity features negative half of 1 percent on the S & P, on the Nasdaq, down a half of 1 percent. Also, a rally, a lift off the back of chairman pounds comments yesterday. Just a tracing just a little bit right now as we get some comments from the New York Fed president, John Williams. I'll get to those comments right now. They show up in the back seat to the board and look at the bond market. Yields look like this. The come in about a basis point on a U.S. 10 year old William speaking at a Wall Street Journal event right now, saying the following 25 basis point increases seemed like the right size. If the situation changes, we can move faster than 25 basis points, a peak rate of 5 percent to 525. Still a reasonable view. There is a lot of uncertainty around the inflation outlook. We'll pick up on those comments in just a moment. All of the big range of the last week from 110 down to one of six and right now one to 731. We've gone absolutely nowhere on crude, 1 percent to about 78 tell us and 13 cents. 30 seconds into the session, we retreat by four tenths of 1 percent on the S & P, on the NASDAQ was down about four tenths of 1 percent. Also, the sector to watch at the open, its tech eBay and Zoom becoming the latest tech firms to slash their workforce. eBay blaming its 4 percent cut on economic forecasts. The CEO saying they are unnecessary to, quote, create long term sustainable growth and be more happy. Hey, John. Well, this story goes on. We've had so many tech companies laying people off recently. And there seems to be two main reasons. One, it has to do with over hiring in the pandemic or to more what eBay is talking about, tougher trends in the former category. Think of Salesforce.com, Microsoft, Alphabet, Amazon and so on in the latter. Think about Dell where they're talking about those difficult trends. And eBay has seen their sales decline and they are having a more difficult, fundamental background. So they're dealing with it with these job cuts. They are cutting roughly. They're cutting a number of people, 4 percent of their global workforce or about 500 people. This as sales started declining in the first quarter of last year, down 6 percent for this current quarter were in down 5 percent. So clearly they want to see that change. It's interesting, though, because you would think that he said the workforce reduction would target war. The margin situation. But nonetheless, that's one strategy that they are taking now relative to zoom, it seems to be a little bit of both. They're cutting thirteen hundred jobs, about 15 percent of their workforce returning to 2021 levels, as you and Kelly have been talking about. Just extraordinary. They tripled their workforce. Eighty four hundred people between 20, 19 and October of last year. Now they're paring it back, but they're also seeing a reduction of use coming out of the pandemic. What's so interesting about the stock, though, John, is it's down 86 percent from the pandemic boom, but it's still more than double from the IPO. So I'm guessing that they are trying to preserve some of that stock growth for sure. Abbi, thank you. Those comments keep coming through from the New York Fed president, John Williams, who says he broadly sees financial conditions as being tied to tightening the law in the past year. Now, this, of course, depends on what time period you look at and what you look at to establish what financial conditions are doing. Now, if you just take markets over the last few months. Let's go. Yeah. Today on the Nasdaq up 16 percent. Take the dollar, which peaked at the end of September. Negative about 10 percent. Look at credit spreads from the Y to last year. High yield tied to by 200 basis points. Have they tightened a lot over the last three, four months? That would be the pushback. But that time period seems to be over the last year. But it confusion around this. Mark McKay going to talk about it in about 15 minutes. I'm looking forward to that conversation. Just returned to the price section of the moment, about three minutes in when negative a half of 1 percent on the S & P, on the Nasdaq were down six tenths of one percent. Yields basically unchanged. Now at the front end, the two year full 46 on a 10 year 367. Want to stick with tech. Microsoft rallying for a second day after Infante gets new ISE software search engine using chat GP to compete with the likes of Google and finding the CEO. Satya Nadella said this. This technology is going to reshape pretty much every software category. Kailey Leinz has more. Hi, Katie. Hey, John. It's the new frontier of the new big thing. And it seems we can't go a day without talking about a guy and investors getting excited about A.I., which arguably is why Microsoft is positive on the day, even though we did get some arguably bad regulatory news out of the UK with the CMA taking issue with their sixty nine billion dollar deal to buy Activision because they say it'll harm competition in the UK gaming market. That's why Activision is lower by about two point four percent. But back to the app. A I think this is really about making Bing and Edge more competitive and I don't see all of you out there are asking is being even still a thing? It has really struggled to gain traction against competitors like Google. But that is what these new products with the charging software in the billions of dollars in investment into open A.I. are trying to accomplish. The new bing can be switched in and out of chat mode. The New Edge browser adds the A.I. based Bing for chat and writing text. I can summarize web pages, respond conversationally to queries and investors and analysts. The sell side today seemed to be into it. So that is what is adding to the gains Microsoft has already seen this year. Already seen more than 200 billion dollars in market value added. And this is part of a broader big tech rally we have seen in 2023, when you add it all up, among the six large stocks we have here, one point four trillion dollars worth of value gains in just over a month period, even though earnings arguably haven't been that great. And of course, more in video there, which is how to have about one hundred eighty five billion dollars added in value. That is also an eye play, John. A lot of it comes back to this. Kelly, thank you. Here's the line from Williams. If financial conditions loosen more, higher rates may be needed. Fannie and shimmied safe. That's certainly not what we heard much from Chairman Pound over the last week or so. Again, Mike NIKKEI going to drop by the studio. We'll talk about this. So you go you being an Uber. You don't lift Uber this morning. Basing analyst estimates with ridership and driver base hitting an all time high. We ended 22 with our strongest quarter ever with robust demand and record margins. The pandemics impact on our mobility business is now well and truly behind us mandate seeing this stock is flying. Okay. I think when you look at the print, obviously there's a lot to like here. But the most notable thing for me is they're able to grow supply in the marketplace by about 35 percent. Now, what that tells me is not only is inflation a tailwind for their business on the pricing side, but it's also helping them on the supply side, because remember, a lot of people are looking to supplement their income. And Uber seems to be that place where they can do that. And that's why I feel like with any marketplace, if you see supply growing in line with top line, that's a very healthy sign. And also they've improved their execution in terms of cutting costs. The incremental margins are going up. And finally, you're seeing some synergies between the ride sharing and delivery, which is there over one subscription. So a lot to like in that, Brent. The one more thing I would call out is their ad business. They said it's a 500 million dollar run rate. Now, that is even though it's a side thing for a company of Uber size, over 30 billion dollars in revenue, but still, it's a very high margin business. So I think that's why you see that, you know, optimism runs deep at times. We used to talk about streaming and say that could only be one winner. Who would it be maybe have been Netflix in this space. When you see the success of in this quarter, is it at the expense of left? To an extent. I would say it will come at the expense of the smaller players and not just less. I mean, this market is so fragmented for the last two, three years. You have got a lot of niche players. And look, there are certain players that have carved out, you know, scale, for example, is a card on the grocery delivery side, but Gord Ash on the food delivery side. But still, I feel like over with its scale and on the supply side, I think that's going to be a big advantage and something to watch out for. I mean, one data point doesn't make a trend, but clearly they seem to be executing very well on the supply front. I'm just looking at the year today, performance and mandate saying thank you, sir, from Bloomberg Intelligence opens up almost 50 percent here today. Thought ash up 31, lift up 63 percent year to date. These names have been flying for the broader markets. Seven or eight minutes into the session, equity to low by third of 1 percent, just about off the lows, early days and the Nasdaq down by four tenths of one percent. Thanks, America still. Kerry Hill sounded the alarm on big U.S. multinationals writing in the following. Cyclical and secular challenges face the sector. This is tech amid the reversal in 10 years of free money, forcing globalization and a massive Covid demand pull forward. Jill, I'm pleased to say, joins us right now. So, Joe, you guys have written about this. Talk to me about it. The globalization beneficiaries of the last decade or so. Do you think there needs to be some kind of valuation for multinationals to direct? Well, I think you've seen, you know, as you said, many, many decades where S & P 500 companies margins have expanded on a secular basis and you know, globalization was a really big driver of that lower costs from from offshoring, lower labor costs, lower taxes overseas. And, you know, we were in a backdrop where we're tech and growth stocks, where the leadership and we think that in the next cycle we could see some new leadership. You know, many of these stocks benefited from front free money, zero interest rate policy. You know, they saw that secular expansion in their margins. And even after the recent layoffs, we're still seeing that labor is still bloated relative to sales growth that many of these companies. So, you know, earnings have missed for for tech this quarter. We've seen NASDAQ earnings come down relative to the S & P 500 earnings, where after many decades the the opposite was true. So, you know, we see challenges for tech going forward. It is a cyclical sector. We saw a lot of demand pull forward during Covid. But but it is a sector that tends to be more more cyclical during recessions. And we think if we do go into a recession this year, which our economists are expecting a mild one, this could prove to be a more cyclical sector. Joe, a couple of points there. Let's pick up on the first one, earnings of mass for the stocks of round two. Could you explain why? Look, I think there was a big, you know, positioning and sentiment driven rally this year, we we had pointed out late last year that that sentiment had gotten very negative on the market for the first half. And as we moved into January, we saw that kind of positioning reversal. If you look at what sectors have done well this year, it's been kind of the exact reversal of what did well last year. And, you know, many of the sectors that won last year have done poorly this year. So, you know, some of the misses this earnings season have been underperforming. There's obviously also been optimism around China reopening potential for soft landing in the US. So, you know, we think those have been some of the drivers of the rally in January and the year to date. Can I pick up on that point yet? I think a really important one. Your point is a team pushing back against maybe the valuations of multinationals. How do you pair that with the first the hunger right now to get exposure with better international story off the back of China reopening? Sure, well, I think, you know, the multinationals will certainly have some tailwinds in terms of the global economic backdrop and in China reopening in terms of just the if the dollar, we see some reversals there. But. But overall, I think they've they've benefited from some of these trends that we've been talking about for for many decades. And, you know, on China reopening specifically, obviously some some areas like materials and commodities have rallied on the China reopening expectations. We think that the recovery there will be more consumption led. So, you know, perhaps some different beneficiaries than the typical China recovery story. Clearly, the overwhelming feature of some of the research for you guys over the last few months, Joe, has been the mounting pressure. Is there a shelter from some of those things? What do you find that shouts? Shelter. Yes, I think so. We're definitely seeing cross currents within the margin backdrop. So, you know, no question we think earnings and margin expectations for the overall market have been too lofty. We do expect earnings estimates to come down further this year, even after the the large amount they've been slashed heading into this earnings season. We're looking for a 9 percent decline in earnings year over year, which is about half of the typical earnings decline you'd see in a recession. Given our expectations that if we do see one, it'll be mild. Consensus is still looking for slightly positive growth, but I think there are a number of companies and sectors within the market that could see some margin benefits this year. You know, areas like some of the consumer staples or homebuilders where you're seeing, you know, lumber prices or many of the input costs reverse. So we think this year is definitely going to be less about macro. More about crosscurrents in the market. And it's going to be a good environment for, you know, picking stocks and sectors, active management. I want to finish on this line here from you because I taste it. Risky sectors are safe. Safe sectors are risky. How fiscal? Understand that you. Sure, I think, you know, when you look at sectors like tech, they've they've actually seen their their beta go up and tech is one of the higher beta sectors, whereas if you look at some of the sectors that are traditionally riskier, higher, be the sectors like financials and energy. They've actually seen their their babies decline a lot over the last year and or some of the now lower beta sectors. So I think, you know, risk profiles of some sectors have changed. You know, we've seen that within small caps as well. You know, small cap health care is one of the areas within small caps that I've been relatively more cautious on. Typically, you want to own health care in a recession. But health care in small caps has deteriorated dramatically in quality, 60 percent of that that sector and small caps is not earning stocks. So I think there are some shifts we've seen in sectors that, you know, the typical recessionary playbook may not necessarily apply where, you know, financials look a lot more like a high quality sector relative to how it looked going into the financial crisis. You know, energy companies have have much more are much more disciplined now. They're morphing into free cash flow generating companies. So we're actually seeing a lot of shifts in sector risk profile. And I've really enjoyed reading the research, particularly over the last month or so to start the year. Joe Carey, hold that. Thanks, America alongside Savita Superman in putting out some pretty equity research in the last couple of months. Want to get you a few more headlines. Alphabet CAC. She talked about Microsoft Alphabet getting hammered in RTX, right? Yeah, we're down about five and a half percent right now. So just off of session lows, but could be the worst day for the stock in some time. And this is about this A.I. competition and race to introduce these products. We were just talking about Microsoft making the investment into open AI. Google is also trying to do this with its own search engine with their A.I. chat bot barred. But WordPress is actually reporting this morning that in an online advertisement for BART, it was delivering in accurate answers, which maybe is why we are seeing such a down move for the stock right now, considering everyone seems to be rushing to put out this technology. If it is an accurate technology, obviously that puts you at a competitive disadvantage at a time when Microsoft is ramping this up by two is ramping this up. We're seeing millions and millions of dollars in funding going to various startups in this space. It's a race, John. And right now, Alphabet doesn't look like they're out front. They split between those two stories. Those two names right now fascinates. Katie, thank you. Microsoft up by 3 percent. Alphabet down by about 5 percent. Coming out said speak. Pick it up. Following last week's decision. We're gonna need to do further rate increases, as we said. And we think that we'll need to hold policy at a restricted level for a period of time. We'll get you the latest comments from the Neil Fed president, John Williams with my NIKKEI. I'm next. We're just at the beginning of this process, the disinflationary process, the process of getting inflation down has begun. It has a long way to go. These are the very early stages of disinflation. It's not going to be, we don't think, smooth. It's probably going to be bumpy. This process is likely to take quite a bit of time. My guess is it will take certainly into not just this year, but next year to get down close to 2 percent. We think that we're going to need to do further rate increases, keep rates at a restrictive level for, you know, for a period of time. The base case is it will to for many years and it will take some time and we'll have to do more rate increases and then we'll have to look around to see whether we've done enough. Chairman Pound, for the most part, sticking to script yesterday, setting the stage for a busy week of Fed speak. New York Fed President John Williams speaking right now, saying moments ago, we still have work to do. If financial conditions loosen, higher rates may be needed. And going on to say this, Mike, just a moment ago, putting a putting a timeline on a period of time, maintain restrictive stance for a few years. That coming in just moments ago. Yeah, a restrictive stance, though, might be lower than five and a quarter percent. He did say that he still thinks that a five and a quarter percent, what the Fed thought they would be at when they did their last dot plot in December is still a reasonable view. And he came back saying basically, as Jay Powell did, still have our work cut out for us, we are barely into restrictive at this point. At a 25 basis point increase seems like the right size. And then adding, as you just mentioned, that looser financial conditions might imply they have to go higher than five and a quarter percent if inflation remains sticky. And that's the big question, is they don't know exactly what's going to happen. And William is basically saying we're data dependent, we're going to follow what the data are telling us. And that might mean we go higher. That might mean we stop f five and a quarter percent. But he did suggest it's going to stay there for a while, which is the base case message from the Fed. And it seems like the markets are finally listening when you look at the yield curve over the last week from last Wednesday. That's the light on the bottom to today. The white line, you can see that markets have priced in higher rate, low all across the curve. And it does appear that maybe they got the message. You did, Mitch. A lot of Fed speak out there today. Bar, Bostic, Kashkari and Wall are yet to come when we have Lisa Cook speaking now, although nothing's hit the wire from her yet. So I guess basically we could simplified this and just handed out a piece of paper to all of this, come out and say, you know what he said that Paul guy and what she said, what he said and what they all said. Mike, I want to finish on this. There's been some pushback around financial conditions. All of this depends on how you measure financial conditions and over what time period. John Williams moments ago said financial conditions broadly have tightened a lot in the past year. The chairman take some criticism on Wednesday when he made similar comments in the news conference. Where are you on this debate? But as you say, it depends on the time horizon. If you look at financial conditions from the time the Fed started raising rates in March of 2020 to then, yes, they've tightened significantly over the past three or four months. They have come down. It just depends on whether you think financial conditions are slowing the economy enough, slowing inflation enough. And at this point, the Fed isn't sure. Even though they've come down, we have seen inflation come down. So they're going to keep an eye on this. And of course, next Wednesday, we've got the CPI minus a feeling they don't care about the equity market, maybe the same way they did in the summer. Would that be the correct rate or for the last couple of years? Yeah, it's like mom. Mom used to like me, but she doesn't anymore. The Fed is you talking about equity market has been looking up any question it had. They say they need to keep rates high long enough to keep the inflation rate going down. It's been a long time since they had to do that. And people on Wall Street weren't around it. And so now it's gonna be a test of wills. Who can go longer? The Fed or the markets hoping for a Fed put might. Thank you, as always. Appreciate that. Twenty two minutes into the session, we lower by half of 1 percent on the S & P and the Nasdaq down by six tenths of 1 percent. Just to lift the lid on the index and break it down sector. The sector is happy. John. Very interesting sector action today, only because of the decline that we're seeing right now. Relatively modest yet. Most sectors for the S & P 500 lower, some of them significantly. Communication services in particular, down three point two percent on that alphabet file that you and Kelly were talking about on the AIG competition. We also have utilities, consumer discretionary staples and industrials down there. So what's the defense down on the year, though? Take a look at these travel sectors. Airlines, hotels, railroads. And there's Uber ISE. We're talking about a 44 percent this year. Abbi, thank you. That's the sector price action. The broader index down four tenths of one percent on the S & P. You're trading down. Close to 26 minutes into the session, equities taking a little bite out of a big here today, gain on the S & P and on the NASDAQ to equities right now down about a half of 1 percent on the S & P, still up on the year by about 8 percent on the Nasdaq, close to 16 percentage points higher, low on the session by eight tenths of 1 percent as the price action has. The trading diary coming up. Fed speak by Bostic Kashkari wallah all on deck. Keep talking right now. President Biden discussing the U.S. economy at 2:00 p.m. Eastern Time. We get earnings after the bell from Destiny, another round of jobless claims tomorrow morning. And we end the week with a new Mitch sentiment survey to close out Friday. I get straight into the weekend from the year of that. Is it for me? Thank you very much for choosing Bloomberg TV. Good luck for the rest of the trading day. This was the countdown to the open. This is pulling back.

No schedule data available.

'Bloomberg The Open' Full Show (02/08/2023)

Jonathan Ferro highlights the market-moving news you need to know heading into the opening bell on Wall Street. (Source: Bloomberg)

More From Bloomberg The Open
All episodes and clips