On November 6th, I'm the cat in the hat! Let's get it started! You know the hat! I am an entertainment specialist! Now, meet the cat! The clients today, you have to do more to impress them! These aren't your father's kids! My father has other kids! Do you go on long business trips? Oh no! Bill Hader is... Cat! Cat! Cat in the hat! You have gone too far! Did you say two farts? I said too far! Toot fart too far! I heard toot fart again! The Cat in the Hat, only in theaters November 6th.
Bloomberg Audio Studios. Podcasts. Radio. News. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Russ Mayfield with us right now, investment strategist. Baird, Russ, I love your note where you say, okay, they're selling this, but they're not running from the market. Describe.
Yeah, so the S&P is within a percent of the all-time high and the momentum index is down some 25%. So you've had this big rotation out of the darlings of the first half. And there's a lot there to pick up the slack, you know, equal weights near an all-time high, small caps near an all-time high. And it's, you know, some defensives and that's to be expected, you know, healthcare, utilities catching a bit, but financials, industrials doing well. You don't see that if it's, you know, investors fleeing the asset class because they're worried more of a rotation, which, you know, I think is healthy. So we'll take it. It's healthy and it's not a correction, is it? I mean, we're just simply on a blended basis. There's a lot of carnage out there.
But we're nowhere near like, quote unquote, a correction. No, not even close. I mean, the one thing you could worry about is, you know, where where's the leverage in the system? And if there's enough of a momentum unwind, do leverage players have to start selling other things, you know, to meet margin calls or whatever it is. So maybe there's some technical pressure down the pipe. But again, the indexes are within a percent or two of an all time high. I mean, they'll be done a little bit today. But yeah, correction, not even close rotation.
healthy consolidation, whatever you want to call it. It's not a reason to get scared of things here. Well, Ross, let's talk about rotation, right? I mean, let's talk about those factors that do drive the equity market, low vol, value, growth. You tell me, through the second half of this year, which of those factors do you expect to do the best?
I think value could catch a bid, right? I think financials, industrials, some of those classic value stocks. Energy is obviously going to move with oil, but that's been good lately. To me, the strength or the robustness of that move depends on what happens in Iran. If we get yields down and oil down, I think value has legs. If we don't, it's more of a mixed bag. Okay, for us, we've all got experience here. Henry's in the studio today. Rocket, he listens every morning. Henry's 10. For the kids out there, Ross, how do you begin to learn about your game with all these different narratives going on? What's your advice to Henry about starting an investment account?
Well, I would say get started now, Henry. The best time to buy stocks was 10 years ago. The next best time is today. I think this is a perfect time to learn about stocks because we're about to enter an earnings season where the thing that really drives stocks over the long term takes center stage. A lot of times it's easy to forget what the main driver.
of stock prices is, and we're about to see a great quarter of earnings. So, Henry, pay attention to what these companies are saying, because that's the game. Yeah, I mean, Housefield, you know, Justin Baer's great, great book. And, Damien, there's always an excuse to say no, right? Well, I mean, there is always an excuse to say no. I think, look, I think you're making a good point here, Ross, about position sizing. At least that's the way I'm reading what you're saying, right? I mean, you can take risk in this market, but it's about, you know, it's about how you position within the broader portfolio. And, you know, instead of getting defensive outright and buying, you know, I don't know, what are defensive sectors? Staples, utilities, energy, to a lesser extent, you know, maybe you just have to kind of, you know, take a little bit off the table here.
Yeah, and one of the things we've been talking about to clients is, you know, there's a lot of passive investors out there who might not know how concentrated their portfolios have gotten, and especially in the AI trade. And so it's a good time to be proactive about looking to those other sectors. It's not necessarily a repudiation of AI trade, but more just, as you mentioned, kind of risk management, diversification. And I think a lot of people don't know how concentrated the S&P is, even if it's talked about all the time. I mean, even internationally, right? You can make an argument like what we're seeing in China with their stock market is heavily tied to the AI trade.
100%. I mean, the EM indexes now are so weighted in China, Korea, and Taiwan that they're basically AI indexes. They're not plays on demographic growth or stronger economic growth in the emerging market world. So you just have to know what you own. And then, like you said, size those positions accordingly and kind of just play the game. Risk management is important here. With Barrett, Ross Mayfield with us this morning. Thank you so much. Stay with us. More from Bloomberg Surveillance coming up after this.
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You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube. Last time, Tiffany Wilding was on for like a minute and 12 seconds. Going along here today with the Pacific Investment Management Company, their economist for all of North America, Tiffany Wilding. Tiffany, what are you thinking about for the PIMCO manager brief on Monday morning? What's the thing that matters right now?
Well, I think we're clearly focused on how Federal Reserve official communication is evolving. Obviously, we're also very focused on the data. And I think there's an interesting sort of bifurcation that's happened. Because on the one hand, Federal Reserve officials appear to be setting the markets up for potential rate hikes if inflation doesn't start to moderate here. On the other hand, we got good news on the inflation data this week, both the CPI and the PPI, coming in under expectations. Our own forecast is that you will see some moderation in core inflation, which is the important one for the Fed. But I've been saying this.
even on this program with you, Tom, that you have to keep in mind that headline inflation, unless we're going back to pre-war levels on commodity prices, headline inflation is actually likely going to dip below 2% next year. So all of that sort of suggests to us that we have a Fed on hold, but nevertheless, officials are certainly preparing the markets for a couple of potential heights. Okay, so the first derivative of inflation is coming down. There's a lot of people that agree with what Tiffany just said there. Are we going to see lower prices, or dare I say even, are we going to see level prices as we go along in time?
Well, we've already seen the national average retail gasoline price come down off of its recent peak. Now, over the last few days, it's up again as the Middle East conflict has kind of flared up. But we are down off of the wartime peak levels. We're also seeing some various food prices that are actually falling. But in general, when we say inflation is coming down, that is the price change. And so we're not expecting overall inflation in the United States to dip into negative territory, go into deflation. But we do think moderating inflation is a completely reasonable outlook to have. I mean, Tiffany gets everything. She's at restaurants seven days a week. What's the grocery shopping look like?
at the Stats Hour House. Tiffany, I have to ask you this. You know, obviously you were watching, I was watching Kevin Morsh's testimony to Congress this week. And, you know, some of the questioning, specifically the questioning I saw from Senator Warren regarding $100 million payments or some craziness. I mean, is there any validity to that? I mean, is she just kind of muckraking? I mean, what's going on, you know, underneath the surface here in terms of, you know, the Senate's real acceptance of the new Fed chairman?
Well, you know, I mean, certainly, you know, I mean, Senator Warren, you know, will we'll have we'll have her piece to say, you know, I think what and certainly there could be some more that comes out on that. But I think what we're focused on, at least, is, you know, what what sort of signals is Chair Warsh sending in terms of how he's going to conduct monetary policy? You know, I think the biggest emphasis that's come out since he's become chair, you know, is that he's very focused on price stability. You know, I think that's very consistent with the other communication that we've seen from other officials to say that if you're not getting inflation that's moderating, you know, that the Federal Reserve is prepared to act. You know, I think that, you know, this is a good focus to have, you know, in terms of And in terms of the markets, you know, anchoring longer term inflation expectations or ensuring that they're anchored, you know, with this commitment to act if inflation, you know, doesn't moderate, as we all expect, should actually keep longer data interest rates anchored, right? Because you don't have inflation risk premiums that are getting priced into the long end of the interest rate curve. So everything that we've heard from Warsh in terms of his commitment to price stability, we actually think is a good thing for the bond market. You know, now, of course, you know, there will be other questions that senators have. We'll continue to watch that as well. And Tiffany, what about the size of the Fed's balance sheet? I mean, I know we didn't really get into the thick of it during the testimony, but, you know, did you get any takeaways on that and where that's headed?
Well, I mean, I think there's I think this is now an open question. So the Fed stopped its so-called QT program quantitative tightening, where it gradually reduces its balance sheet at the end of last year. You know, and as because we saw front end interest rates, overnight rates and things like that, you know, start to start to increase to suggest that, you know, reserves were coming more scarce. But ultimately, we think they probably the Federal Reserve probably can further reduce its balance sheet. And the reason is just because you have Michelle Bowman and other bank regulators within her team that are laying the groundwork to try to relax some of the liquidity regulations and liquidity stress tests for banks and how they're.
implemented. And that should result in them effectively hoarding reserves less. And that can mean that the Federal Reserve can drain. So we actually think that the Fed will probably start to reduce its balance sheet again next year as some of these policies sort of reduce bank demand for reserves. Before you go, frame up the calendar for me. I got July 29, which is tomorrow. And then I go to September 16, which is a million years away. October 28, December 9. Which meeting is Tiffany Wilding focused on?
I mean, obviously, we're focused on all of the meetings, you know, and I think September is certainly one to focus on. You know, I think the interesting thing from FedSpeak more recently, Governor Waller in particular, you know, sort of suggested that regardless of the drivers of inflation, you know, whether they're supply or demand related, that if they see one more strong, firm inflation print, then they're sort of ready to act. So that suggests to us that even if our view is ultimately right, that inflation moderates, you know, if you get one more strong print here, you know, you could certainly see them hiking as early as September. You know, but again, we take a step back. We're not in a 22, a 2022 type of environment.
And ultimately, you know, we think the Federal Reserve isn't on course to hike dramatically here. Maybe a few if they do it. But inflation, I think, is certainly in a good place. And hopefully we'll get more data to that regard moving forward. Really wonderful. Tiffany Wilde, thank you so much for the PIMCO this morning. Stay with us. More from Bloomberg Surveillance coming up after this. 30 seconds. In that time, you can check your phone, reheat a cup of coffee, or decide to skip songs.
In 30 seconds, we can confirm an unknown identity, lock on to a distress signal, and switch course to respond. When every second counts, the Canadian Armed Forces is ready. It's every time. It's all the time. It's our time. Learn more at forces.ca slash our time. A message from the Government of Canada.
You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. In our studios in New York, Simona Makuta joins us with State Street Investment Management, their chief economist. You were in school in Romania, right? I was, yes. So I got to do an audible here. It's Friday. Get used to it. Okay. When we talk about the Black Sea, what is the number one misconception Americans get wrong? Stavridis. Admiral Stavridis tells me Romania is arguably the most important territory in Eastern Europe for America.
It is pretty strategic. And I think the interest in making that, you know, strategic and strong is coming from both sides. Because the water up in the Black Sea, the naval bases and all that. The Danube. Absolutely, yeah.
Have you done the Danube tour? I have not done the Danube tour out of Romania. But here's the thing about Romania. I mean, yields are pretty high now. I mean, they've had to hike pretty aggressively to offset some of the things that we've seen on the ground there domestically. And real yields in Romania have collapsed. I think they're one of the few now in EM that have actually a negative real yield on a two-year basis. But we're not going to talk about Romania, Simone. Let's talk about Japan. Let's talk about funding those carry trades in EM. Talk to us about the yen. Talk to us about, you know, do you see any potential buying of JGBs by locals repatriation of all those assets onshore?
You know, that's been the story for so long. We've been talking about this. We've been afraid about this happening. And so far, it's been a very slow-moving kind of animal here, right? And I think it will continue to be that. Incrementally, yes, because obviously you look at Japanese yields being at levels not seen in a very, very long time. There is an attraction there. But, you know, these things don't happen overnight.
No, they don't. But I mean, look, I'm just, Tom, I don't know if you caught this, the latest tick date out of the U.S. I mean, the foreign bid, specifically the bid out of Japan, has collapsed. Not collapsed, but it's gone down pretty significantly. And so, you know, these are the things that I get concerned about, right? Who's going to be buying all this debt, all this issuance, all this coupon, you know, issuance that we're expected to see from the U.S. Treasury? And so when I ask about, you know, the Fed's balance sheet, that's the place that I think most investors, myself and I, are looking for if there's going to be a black swan event. Would you agree with that?
I don't expect that. I mean, the concerns are valid, right? You look around the world and tell me, where do you see a fiscal picture that actually looks good? Maybe Germany and there you'd argue it's almost the opposite, where it's almost too good for their own benefit, right? It's a problem across the board. It's something that I think incrementally, the prices get squeezed and the pen gets intensified, but it's going to take a while.
You know, one of the biggest lessons I learned when I came to State Street, I'm an economist, right? I don't manage money, but I'm surrounded by all these people who do. We have $6 trillion under management, lots of people who manage money there. One of the best lessons I learned from a colleague was when I was told, Simona, I cannot hate everything, right? You have to own something. So are you buying Japan? Is State Street buying Japan? Because they're going to get their act together?
I wouldn't say so. I would say the view is that the U.S. dollar as a whole is in a multi-year depreciation cycle. And that comes from a number of places, including fixed income allocations. I don't see that. Well, no, that's the irony of it, right? You sometimes are the trigger of the geopolitical risk event, and yet you are the safe asset. So that's a reminder, though, that these things, there is a value in what the U.S. dollar offers. So incrementally, it can shift in a direction, but it's going to be a slow process. I've got to ask this. Can I do an autopilot Friday? Okay. You went to graduate school in a place with two of the most spiritual libraries in America.
It's Suffolk in Boston. The Mowgli Law Library. And there's also the ninth floor study lounge just down Tremont Street. Did you study in those libraries? Yes. I literally studied for half the CFA between BU and there. But the folks in Boston, it's Suffolk University in Tremont. They have built modern architecture in the old street. These spectacularly gorgeous libraries. Nobody knows about them. Yeah, no, they are beautiful. And it's like the location is amazing, right? I always say like, oh my God, I'm walking on history. With all this history.
You're with all this history in the Athenaeum there, and you're trying to study Friedrich Hayek out of LSE over to Chicago, because that's what Simona and I did. And then there's the damn sunset in your way, you know, across the pond. So this is great. Can you come back again? Oh, anytime. It's not that far, you know. Simona Makoto on Romania, her Romania, and also all of her effort at State Street Investment Management as well. Simona Makoto, their chief economist. Stay with us. More from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10 a.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app. Or watch us live on YouTube. And it's a good time to talk to David Katz, President and CIO, Matrix Asset Advisors, because he says there's no fog to Comcast. It's the one to buy. David, top of your list is CMCSA. Discuss.
Basically, the company has been under some very negative trends for the last few years in terms of subscribers. Management is doing everything they can to try to maximize or enhance shareholder value. They're going to be splitting the company up in the next 12 to 18 months. We think the two pieces are worth well above what the combined entity is worth. We think the stock is easily worth in the mid 30s. You're getting into 24. You get a very good dividend while you wait and have a very motivated and very competent management team to enhance shareholder value. And stocks about seven and a half to eight times earnings. So it's just dirt cheap. Right. Link that over then to Netflix. I mean, Mr. Roberts has taken a different path, hasn't he?
Netflix has been a great company. They've really done well in terms of subscriber growth and in terms of revenue growth. And in light of the problems that they're having, the stock is now down to about 16 and a half to 17 times next year's earnings. So it's on our radar. We think it's still a little bit early.
But at this price, you're getting a lot of the negatives in it. We think if you have an 18-month time horizon, it probably is going to be okay. We're not ready to step in here. Geetha Raghunathan with us in a few moments here on Netflix. David Katz of Matrix Asset Advisors with Damian Sessauer. David, I know you think it's going to be a pretty healthy earning season, but you're also expecting significant volatility. Talk to us about that. I mean, is that a little bit of a taste, I guess, this week in terms of what we should expect for the balance of July and August?
We think it is. We think that the numbers are going to, by and large, come through good, but you're seeing stock price moves of 3% to 7% if the market thinks it's a little bit better than expected or a little bit worse than expected. HCA pre-announced, IBM pre-announced, those stocks have taken out in shock. The flip side is Abbott said business wasn't as bad as people had expected, and their outlook was a little bit better than expected, and the stock was up about 5% or 6%. So unless you have a great conviction about what a company is going to do before they report earnings, we would not step in front of any companies this earnings season. Assess what's happened afterwards, take a longer-term perspective, but we wouldn't try to trade around or trade before earnings. What do you think about tech here? I mean, is this really a great road?
out of AI-related stocks? Is there any legs to this? Thank you, because Apple's hitting a record high when the rest of tech is flat on its back. Right. I mean, is this broad-based in nature? I mean, as you partly point out, is this just a little bit of bloodletting, a little bit of momentum?
Well, what's happened this year is the hyperscalers, the Mag7, which had a great year last year, had a horrible six-month period and actually were down 3% to 7%. Companies like Microsoft and Google and Amazon and Meta. The flip side is semiconductor companies basically melted up. It was actually the best quarter for semiconductor companies in the second quarter ever. So basically, after these huge gains, the stocks are giving back some. Our expectation for the year is a lot of rotation. So you're getting rotations into semis, out of semis, into the hyperscalers and the Mag7. Expect that to continue. We think the best way to approach this market is take a longer-term view. If you like semis and they just sold off 25%, you could add into it.
that weakness. We actually think that the MAG7, many of them, the hyperscalers are going to have a very good back half of the year. So we had been buying into that weakness. Then there are other sectors that, you know, the consumer staples has done poorly, healthcare has done poorly. We'd be buying a number of companies there because we think when the market falls out of love with tech, it's going to put that money elsewhere. Take me in one more. Yeah, I mean, look, with equities near record levels, David, I mean, you know, market breadth has actually turned negative here, right? I mean, we've seen a lot of stocks making more new lows than new highs. We've seen a lot of members trading, you know, below their 50 and 200 day DMAs. I mean, talk to us a little bit about, you know, technicals here.
Well, we're a fundamental shop, so we can't get great insight into technicals, but on a fundamental basis, we think the market is fully priced, but there are many, many pockets of undervalued stocks, and we think the key is to buy those undervalued stocks with a good long-term perspective. A lot of consumer staples like Pepsi announced earnings. They were a little bit light in terms of their outlook, but it's at 16.5 times earnings with a 4% yield. Put money in things like that, you're going to do very well in the next 12 months. David Katz, thank you so much. Matrix Asset Advisor. This is the Bloomberg Surveillance Podcast, available on Apple, Spotify, and anywhere else you get your podcasts.
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