'Bloomberg The Open' Full Show (08/04/2022)
>> THIS MARKET IS LAUGHING IN THE FACE OF THE HAWKISH FED TALK. LIVE FROM NEW YORK CITY, GOOD MORNING, GOOD MORNING. ANOTHER RALLY ON OUR HANDS. THE COUNTDOWN TO THE OPEN STARTS RIGHT NOW. ANNOUNCER:
EVERYTHING YOU NEED TO GET SET FOR THE START OF U.S. TRADING. THIS IS BLOOMBERG, THE OPEN WITH JONATHAN FERRO. ♪ JON: LIVE FROM NEW YORK, WE BEGIN WITH THE BIG ISSUE CLIMBING THE WALL OF DOUBT. >> WITH THE RALLY WE’VE SEEN SO FAR -- >> THE BIG QUESTION IS NOW WHAT? >> WE DON’T KNOW. >> POSSIBLY GOING THROUGH A BEAR MARKET RALLY AND POSSIBLY STARTING A RARE NEW BULL MARKET RALLY. >> RIGHT NOW IT’S ALL ABOUT EARNINGS.
>> EARNINGS ARE CRANKING AWAY. >> THIS SEASON SO FAR HAS BEEN, AGAIN, ONE MORE REALLY PRETTY GOOD SEASON. >> A RELATIVELY SOLID EARNING SEASON. >> YOU’LL START SEEING EQUITIES GET SUPPORTED. >> THE PROBLEMS ARE STILL WITH US. >> WE MAY OR MAY NOT BE IN A RECESSION.
>> A LOT OF DATA IS TILL OUT THERE. >> CORE HEADLINES, WHATEVER, IT’S SOME HUGE NUMBER. >> WE’RE STILL EXPECTING THE FEDS TO RAISE RATES. >> INVESTORS DON’T KNOW HOW THE SCRIPT WILL PLAY OUT.
>> A LOT OF ANSWERS WE STILL NEED. JOINING US, JANE, FIRST TO YOU, THE FED IS CHOPPY WITH MARKETS, DOES IT HATE THEM IN JULY AND AUGUST? JANE: WELL, YOU KNOW, I THINK SOME OF THE ECONOMIC DATA HAS BEEN A BIT BETTER FROM THE U.S. RECENTLY. YOU LOOK AT YESTERDAY’S NUMBERS. AND EARNINGS SEASON IS HIGHER, TOO. BUT THE METALS REMAIN THE SAME AND THE COMMENTARY THIS WEEK SUGGEST THE FED WILL BE PRETTY AGGRESSIVE IN TERMS OF GETTING INFLATION DOWN AND ACTION ON POLICY AND TRYING TO GET THE INFLATION EXPECTATIONS DOWN TO STOP THE EFFECTS. I THINK THE EQUITY MARKET
RALLIES AND IN THIS ENVIRONMENT THERE’S A LOT OF NEGATIVE NEWS STILL TO COME BUT FROM INTEREST RATES PARTICULARLY. JON: TROY HAS BEEN PHENOMENAL, UP 20% FROM THE LOWS OF JUNE IN THE NASDAQ AND CONSUMER DISCRETIONARY IS UP 25% FROM THE JUNE LOW? WHY ARE MARKET STOCKS LAUGHING IN THE FACE OF THE FED SPEAK OF THE LAST WEEK? TROY: BOTTOM LINE, SENTIMENT WAS VERY NEGATIVE IN JUNE FOR VERY GOOD REASONS, NOT ONLY A SLOWING ECONOMY WITH RECESSION RISKS GOING UP SUBSTANTIALLY BUT A FEDERAL RESERVE THAT YOU KNOW WILL TIGHTEN AGGRESSIVELY AND HAS ALREADY STARTED THAT. BEAR MARKET RALLIES ARE CLASSIC ATTRIBUTES OF BEAR MARKETS. YOU LOOK BACK AT HISTORY AND
YOU TYPICALLY HAD THE STRONGEST RALLY IN BEAR MARKETS WITH YOU -- WHERE YOU GET MARGINALLY BAD NEWS AND THE MARKET IS GRASPING AT BEING CLOSE TO NEUTRAL IN THE LAST FED ANNOUNCEMENT BY POWELL OR THE DISCUSSION AFTERWARDS. THE REALITY IS THE MARKETS ARE LAUGHING AT THE FED RIGHT NOW AND THE FED HAVE A TOUGH JOB BECAUSE THEY HAVE TO TACKLE FINANCIAL POSITIONS AND WE LOOK FORWARD AND HOPE C.P.I. CAN GET TO 7% BY THE END OF THE YEAR AND A SMIDGE LOWER AND IS OBVIOUSLY UNACCEPTABLE. THE LOSER FINANCIAL CONDITIONS ARE, THE MORE IT STEALS THE RESOLVE OF THE FED TO TIGHTEN EVEN MORE AGGRESSIVELY. AND MAYBE, JUST MAYBE THE MONTH OF AUGUST THEY’LL ACTUALLY HIT THEIR Q.T. TARGET FINALLY AND GET MORE AGGRESSIVE WITH THE DRAINAGE.
JON: I HAVE QUESTIONS WITH WHAT IS HAPPENING WITH THE BALANCE SHEET. FOR A CENTRAL BANK THAT DOESN’T WANT TO OFFER FORWARD GUIDANCE THEY’VE OFFERED A LOT OF FORWARD GUIDANCE THE LAST 24 HOURS, HAVEN’T THEY? JANE: IT WOULD SEEM THAT WAY. IT IS INTERESTING BECAUSE THE LACK OF FORWARD GUIDANCE SEEMS TO BE THE TOPIC OF SEVERAL BANKS GOING DOWN, CERTAINLY THE E.C.B. IS NOT WANTING TO PRODUCE GUIDANCE IN THE SAME WAY, MAKING POLICIES DATA DRIVEN BUT YOU LOOK AT THE FEDERAL RESERVE COMMENTARY FROM THE START OF THE WEEK, IT HAS BEEN HAWKISH AND A FAILURE OF CANDID OUTLOOKS IN SOME OF THESE FEDERAL BANK MEMBERS AND WHAT ARE THE MARKETS TAKING AWAY FROM THAT? THEY’RE TAKING AWAY THE FACT FROM THAT THAT 75 BASIS POINTS COULD STILL BE COMING AGAIN MAYBE IN SEPTEMBER. IT’S NOT TOTALLY OUT OF VISION FOR THAT. SO YOU KNOW, MARKETS I THINK
ARE PREPARING IN THE BOND MARKET FOR MAYBE MORE IN TERMS OF INTEREST RATE HIKES AND EQUITY INVESTORS NEED TO KEEP AN EYE ON IT. JON: EQUITY INVESTORS ARE CLIMBING OVER THE WALL OF DOUBT WITH EASE. EVERYTHING I READ SAYS THE SAME THING. HERE’S A NOTE FROM GOLDMAN SACHS, AND SHE SAYS WITHOUT CLEAR SIGNS IN A POSITIVE SHIFT, TEMPORARY RERISKING COULD INCREASE RISKS OF ANOTHER AND LOWER THE MARKET RATHER THAN SIGNAL THE END OF A BEAR MARKET.
AT HBCS, MAX WROTE THIS, FOR THIS RALLY TO CONTINUE WE NEED TO SEE FURTHER REPRICING OF RATE HIKE EXPECTATIONS AND ANOTHER SHARP DROP IN REAL YIELDS AND THE MARKET PRICING OF RISK OUTVETS OUT OF LINE WITH OUR CYCLICAL INDICATORS. BAR CHEYS JOINS THE PARTY, THERE’S BAD DATA AND PEAK INFLATION WILL PROMPT MORE DOVEISH BANKS AND WE ARE SKEPTICAL AND WOULD SAY COULD EXTEND THE SHORT SQUEEZE. TROY, WHAT IF THE BULLS ARE RIGHT, COULD WE CONSIDER THAT FOR A MOMENT, WHAT IF JP MORGAN IS RIGHT, THE STORY IS IN AND FROM HERE IT’S ABOUT RECOVERY FOR THIS EQUITY MARKET? TROY: I HOPE HE WOULD BE RIGHT NOW. THERE’S ALWAYS A POSSIBILITY
THAT ALL THE FUNDAMENTAL ANALYSIS IS WRONG, RIGHT? WHEN WE LOOK FORWARD, THE ONLY THING WE CAN THINK OF, AND VERY FEW, NOMINAL G.D.P. IS GROWING MUCH FASTER THAN REAL G.D.P. REVENUE COMES IN NOMINAL G.D.P. MARGINS ARE COMPRESSING BUT WILL THEY COMPRESS FAST ENOUGH INTO A SLOWER ECONOMY TO LEAD TO MEANINGFULLY LOWER EARNINGS? WE THINK WE HAVE THE ANSWER IN A RECESSION, OBVIOUSLY EARNINGS ARE GOING DOWN, THE QUESTION IS TO WHAT DEGREE. BUT IF THE FED CAN THREAD THE NEEDLE AND NOMINAL G.D.P. DWARF IT ENOUGH AND MARGINS DON’T COMPRESS SUBSTANTIALLY IT COULD MEAN WE HIT A LOCAL BOTTOM IN JUNE BUT IT’S STILL HIGHLY UNLIKELY WE HIT THE BOTTOM OF THIS INCREDIBLE BEAR MARKET THAT’S PRIMARILY DRIVEN BY EXCEPTIONAL INFLATION AND VERY AGGRESSIVE FED TIGHTENING AND NOW UNFORTUNATELY A MUCH, MUCH WEAKER ECONOMIC ENVIRONMENT. JON: AND AN EASING OF FINANCIAL CONDITIONS NOT JUST EQUITY MARKET BUT CREDIT SPREAD AND REAL YIELD WITH 140 BASIS POINTS AND THEY’RE TALKING RATE HIKES AND RECESSION IN AMERICA, GO FIGURE. FUTURES FADE AND UP BY A LITTLE
MORE ON THE NASDAQ. LET’S GET TO TAYLOR RIGGS FOR A LITTLE BIT MORE ON THIS MARKET’S JITTERY PHASE FOR A INVESTOR BASE. TAYLOR: THERE’S SOME HE’SING OF THE FINANCE CANNING -- IN THE FINANCIAL CONDITION.
IN SPITE OF WHAT YOU MENTIONED A HUGE LIFT UP IN YIELDS, EARLY THIS WEEK A A 20 BASIS POINTS MOVE AND A ADDITIONAL LIFT YESTERDAY ON THE FRONT END OF THE CURVE. THE LAST FEW WEEKS YOU HAD SOME SIGNIFICANT GAINS IN TERMS OF EQUITIES HIGHER AND BOND YIELDS TRYING TO FIND THEIR FOOTING HERE WITHIN A 10-YEAR YIELD AND I LOVE WHEN YOU TALK ABOUT THE BULLISH NOTES, HOW MUCH DOES THIS RELATE TO THE BOTTOM LINE AND COMING OUT OF EARNINGS SEASON? THERE’S A GREAT NOTE OUT WE’RE 6% TO 7% HIGHER IN TERMS OF EARNINGS PER SHARE THAN WE WERE THE JANUARY HIGH. PEOPLE ARE SAYING WE HAVE A LOT MORE ROOM TO RUN AND IT’S JUST A BIG BEAR MARKET RALLY BECAUSE IN PREVIOUS RECESSIONS WE REALLY NEED TO START TO SEE THE EARNINGS PER SHARE REALLY START TO COME DOWN AND WE’RE NOWHERE NEAR THERE. WHEN WEEING OF THE POSITIONING, LOOK AT THE TERMINAL CHART AND THE SURVEY SAID YOU’RE HIGHER ON THE WEEK BUT LOOKING AT 18 STRAIGHT WEAKNESS TERMS OF THE BEARISH POSITIONING AND THIS HIGHLIGHTS IT AS WELL IN TERMS OF HOW WE’RE THINKING IN SORT OF OUR OUTLOOK HERE AND THE BEARISH LEVELS GOING BACK SINCE 2016. JON: I WANT TO GO TO YOU, JANE, SOME OF THE ECONOMIC DATA AWAY FROM THE MARKET STUFF.
YESTERDAY, S&P GLOBALA P.M.I. FOR SERVICES, TERRIBLE, WE IGNORED THAT AND FOCUSED ON I.S.M. SERVICES, WHICH IS GREAT. WHY IS THAT, JANE? JANE: SOMETIMES THE MARKET SEES WHAT IT WANTS TO SEE AND CERTAINLY IF THE MARKET WAS IN THE EPITAPH OF A LITTLE RISK, THEY PROBABLY WOULD FOCUS ON THAT BUT ULTIMATELY THE DATA WILL COME OUT IN THE WASH, EVERYTHING THAT IS IN THERE WILL EVENTUALLY RUN THROUGH AND I THINK GENERALLY SPEAKING IF WE STEP BACK THE MARKET IS LOOKING AT THE SLOWER GROWTH THE U.S.
ENTERS NEXT YEAR AND GLOBALLY AS WELL FROM CHINA OR THE EURO ZONE AND FROM THE U.K. YOU KNOW, THIS IS NOT A INFREQUENT THING TO HAPPEN, THE MARKET FOCUSING ON WHAT IT WANTS TO SEE BUT IT IS PART OF THE SHORT TERM OUTLOOK RATHER THAN LOOKING IN THE BIG PICTURE. JON: YOU EXPECT THE I.S.M. TO COME DOWN TO THE GLOBAL P.M.I. AND THAT’S HOW THE GAP CLOSES FROM YOUR STANDPOINT? JANE: YES, THAT EVENTUALLY HAPPENS AND WE CAN SEE IT IN A LOT OF BIG SUR JAYS IF YOU LOOK AT THE VARIOUS NUMBERS OF LABOR, EVENTUALLY WHEN WE STAND BACK WE WAIT FOR THE PROVISIONS TO COME TRUE AND THEY TELL THE SAME SORT OF STORY AND I THINK GIVEN THE FED HAS BEEN HIKING AND GIVEN THE STRESS OF THE U.S. DOLLAR AND THE EARLY SIGNS OF LABOR MARKET LOOSENING AND VARIOUS INDICATORS, I THINK THAT’S EXACTLY WHAT WILL HAPPEN. JON: TROY, NO SIGN OF A FED PIVOT, THE DATA IS WEAKER AND WE’LL CATCH UP WITH MCKEON AND I’LL ASK THIS QUESTION OF YOU, WHAT BUSINESS DOES THE HIGH YIELD SPREADS HAVE TIMING 140 BASIS POINTS IN A SINGLE MONTH? TROY: YEAH, VERY LITTLE BUSINESS UNLESS WE CAN AVOID A RECESSION.
IF THE FED CAN THREAD THE NEEDLE, PERHAPS WE’VE SEEN THE REDDEST CYCLE BUT YOU LOOK AT WHAT THE FED IS FORECASTING FOR BALANCE SHEET DRAINAGE, IT’S 4 1/2 TIMES THE PACE OF LAST Q.T. AND THREE TIMES THE NOMINAL G.D.P. AND TWO TIMES NORMAL THE EXISTING MONEY SUPPLY AND SHOULD DRIVE HIGHER WIDES AND HIGH YIELD AND CLEARLY THE TIGHTENING BACK TO YOUR POSITIONING DISCUSSIONS BEFORE, ALONGSIDE EQUITIES WE HAD EXTREME BEARISH SENTIMENT AND THERE HASN’T BEEN A LOT OF NEW SUPPLY WHICH OVER THE MEDIUM TO LONG TERM IS TOUGH FOR THE ECONOMY BUT YOU COULD SET UP FOR A BEAR MARKET RALLY THERE. JOHN, YOU KNOW WHAT HAPPENS IN RECESSIONS, HIGH YIELD GOES TO 12,000 AND OVER AND GOT WIDER IN THE G.F.C.’S AND THE PANDEMIC BUT NO ONE IS CALLING FOR THAT. IN A RECESSIONARY OUTCOME HIGH YIELD SPREADS HAVE GONE WIDER.
JON: THE BANK OF ENGLAND IS EXPRESSING IT FOR 2023. WHEN I SAW THIS FORECAST FOR THE B.O.E., 13% INFLATION AND RECESSION THROUGH Q-4. CAN YOU IMAGINE THE FED FORECASTING THE SAME THING, WHAT DO YOU MAKE OF THAT? JANE: INCREDIBLY CANDID FROM THE BANK OF ENGLAND, INCREDIBLY CANDID LANGUAGE WE DON’T GENERALLY GET. SOMETIMES YOU GET THIS KIND OF LANGUAGE FROM THE RICH BANKS OR THE AUSSIE BUT GENERALLY NOT FROM THE BANK OF ENGLAND. IT IS VERY WORRYING TO SEE THE DATA THEY’RE TALKING ABOUT, A 13% PRINT ON INFLATION BY THE END OF THE YEAR AND SEPARATE QUARTERS OF RECESSION. SO MANY U.K. ECONOMISTS AND WATCHERS, IT’S NOT AN ENORMOUS SURPRISE.
THERE’S BEEN A LOT OF VERY GLOOMY INDICATORS FROM THE U.K. AND WHAT IS FOR CERTAIN IS THE U.K. IS FURTHER INTO THE GROWTH SLOW DOWN PHASE OF THE ECONOMIC RECOVERY THAN OTHER G-10 NATIONS AND WE HAVE THE FORECAST FROM THE O.C.D., THE ECONOMY WILL PERFORM THE WORST ALONG WITH RUSSIA. A LOT OF THE GLOOMINESS IS IN THE PRICE BUT IT’S STILL QUITE STARTLING TO SEE THIS SORT OF LANGUAGE FROM THE BANK OF ENGLAND TODAY. JON: I HEARD SOME PEOPLE SAY THEY’RE BEING MORE UP FRONT AND HONEST THAN WHAT THEY THINK WILL HAPPEN IN THE FUTURE.
JANE AND TROY WILL STICK WITH US AND WE WANT TO TELL YOU FUTURES ARE SLIGHTLY POSITIVE AND ABBY WITH MORE. ABBY: THE FUTURES ARE EVER SO SLIGHTLY POSITIVE BUT BIGGER MOVERS BENEATH THE SURFACE AND SHARES OF CIGNA ARE POPPING HIGHER AFTER THE INSURANCE COMPANY PUT UP A BETTER THAN EXPECTED SECOND QUARTER AND RAISED THE 2022 PROFIT OUTLOOK AS NONEMERGENCY MEDICAL PROCEDURES, THEY’RE NOT HAPPENING AS MUCH AND BRINGS DOWN THE COMPANY’S EXPENSES. CONOCO PHILLIPS UP 2.4%, BETTER THAN IN THE SECOND QUARTER AND DESPITE GUIDANCE FOR HIGHER COSTS THEY’RE BOOSTING BUYBACKS AND OFFERING A HIGHER DIVIDEND AND INVESTORS LIKE IT. THE LUCID GROUP, THE LUXURY CARMAKER PLUNGING AS THEY HAVE FOR THE SECOND TIME THIS YEAR TO 6,000 TO 7,000 VEHICLES CREATED, PRODUCED THIS YEAR FROM THE ORIGINAL OF 20,000 AND IN JUST CROSSING THE TAPE AND NIKOLA POPPING AND TOYOTA DOWN 3% AND THAT STOCK IS SINKING AFTER THE COMPANY SAID IT IS STICKING WITH WHAT IS CONSIDERED TO BE ITS CONSERVATIVE PROFIT OUTLOOK. JON: THE COMMODITY MARKET, BREAK AT 90 AND W.T.I.
DOWN .8% AND A BREAK BELOW $90 A BARREL ON W.T.I. FOR THE FIRST TIME SINCE THE INVASION OF UKRAINE. AND BRENTWOOD BREAKING DOWN 95 TO 75. FED OFFICIALS DOUBLING DOWN ON THE PLEDGE TO CURB INFLATION. >> WHETHER WE’RE TECHNICALLY IN A RECESSION OR NOW DOES NOT CHANGE MY ANALYSIS AND WE FOCUS ON INFLATION. JON:
A LOT OF FORWARD GUIDANCE FROM CENTRAL BANK TELLING YOU THEY WON’T PROVIDE FORWARD GUIDANCE. THAT CONVERSATION NEXT. ♪ >> WE ARE LASER FOCUSED ON GETTING INFLATION DOWN. WHETHER WE ARE TECHNICALLY IN A RECESSION OR NOT DOES NOT CHANGE MY ANALYSIS, I FOCUS ON INFLATION AND WHERE IT’S LIKELY GOING AND THAT TO ME IS WHAT WE HAVE -- MY OPINION IS WHAT WE HAVE TO FOCUS ON RIGHT NOW. JON: THAT WAS NEEL KASHKARI IN MINNEAPOLIS, ONE OF THE MANY CENTRAL BANKERS FOCUSING ON INFLATION EVEN AT THE RISK OF RECESSION WITH LESS THAN 24 HOURS UNTIL THE PAYROLLS SUPPORT IN AMERICA. LET’S GET TO MIKE MCKEE FOR
MORE. MIKE: THERE’S AN OLD SAYING DON’T FIGHT THE FED. IS ANYONE LISTENING TO WHAT THEY’RE SAYING? YOU LOOK AT THE BOND MARKET AND SEE WHAT’S HAPPENING WITH 10-YEAR DEALS AND THEY’VE GONE DOWN AND PULLS DOWN THE BLUE LINE WHICH IS THE FINANCIAL INDEX AND AS THE FED TIGHTENS CONDITIONS GET LOSER AND WE BELOW THE YELLOW LINE WHICH IS WHERE THE FED SAYS ITS BASE RATE WILL BE THE END OF NEXT YEAR. WHAT’S GOING TO NUT MARKETS. WE HAVE A JOBS REPORT TOMORROW THAT PEOPLE ARE TALKING ABOUT AND IT’S SUPPOSED TO SLOW TO 250,000. WILL PEOPLE TAKE THAT AS BAD NEWS. THE FIVE YEARS BEFORE THE PANDEMIC THE AVERAGE ON A
MONTHLY BASIS WAS 193,000, UNEMPLOYMENT AVERAGED 4.4% AND 3.6% NOW AND THERE’S ROOM TO GIVE WHERE THE FED COULD BRING IT IN FOR A SOFT LANDING AND RIGHT NOW THE MARKETS ARE NOT BELIEVING THAT. YOU LOOK AT THIS NUMBER HERE. THIS IS CLAIMS AND -- THIS IS JOB LESS -- THE JOBS NUMBER, JOBS CREATION NUMBER AND THE CLAIMS -- THE C.P.I. NUMBER, RATHER, AND THE FORECAST FOR BOTH. YOU SEE THAT WE ARE EXPECTING INFLATION TO GO DOWN BUT JOBS TO STAY STEADY. WHICH IS ALSO GOOD NEWS FOR THE
FED BUT DOES NOT TELL YOU WHY THE MARKET IS DOING WHAT IT’S DOING AND PRICING IN A RECESSION STILL. JON: I’M GOING TO SQUEEZE IT IN AND PEOPLE THROW AROUND THE QUESTION A LOT. THE FED LOSING CONTROL OF IT HERE. MICHAEL: THE REINS HAVE LOOSENED AND WILL THEY COME BACK? IT DEPENDS ESPECIALLY ON FED SPECK, JAY POWELL THE END OF AUGUST. JON: PAYROLL TOMORROW AND C.P.I. NEXT WEEK AND TWO DATA POINTS FOR YOU NEXT WEEK. THE FUTURES IS NEGATIVE AT .1%.
IS IT TOO EARLY FOR THE LABOR MARKET WEAKNESS TO SHOW UP FROM THE WEAKNESS ELSEWHERE. DO WE SEE THE WEAKNESS BLEED INTO THE LABOR MARKET AS AND SEE IT AS SOON AS TOMORROW? ONE SAYS THIS, I THINK THERE’S A POTENTIAL FOR LABOR HOARDING AND WE DON’T SEE THE EFFECTS OF THE LABOR MARKET TAKE PLACE FOR A VIEW OF A LONG TIME. DEUTSCHE BANK THERE. JANE, DO YOU EXPECT WHAT WE’RE SEEING TO BLEED IN THE LABOR MARKET ANY TIME SOON? JANE: WE DON’T KNOW, THE LABOR MARKET IS THE VIEW AND NOT JUST BECAUSE OF THE PANDEMIC BUT THE AMOUNT OF PEOPLE IN THE LABOR FORCE IN THE U.S. HAS REALLY DROPPED AWAY AND ANOTHER REASON WHY FIRMS MIGHT WANT TO HOARD AND IT TOOK AGES TO GET BACK UP TO SPEED AFTER THE PANDEMIC AND WE DON’T WANT TO ALLOW THESE WORKERS TO GO TOO EASILY.
THERE ARE GOOD REASONS WHY ECONOMISTS SEE THE LABOR MARKET AS HAVING BEEN LAX. THAT SAID, IF WE LOOK AT INITIAL CLAIMS, IF YOU LOOK AT THE SURVEYS AND WHAT’S INDICATED IN THE I.A.M., WE SEE THE LABOR MARKET COMING THROUGH AND WE WILL SEE SOME BUT PERHAPS IT WILL BE A PRETTY FIRM LABOR MARKET OVERALL THE NEXT FEW MONTHS. JON: WHAT DO YOU RECKON, TROY? TROY: SURELY LABOR MARKETS START AND SOFTEN AND GOOD NEWS IS IT STARTED IN A WHITE HOT ZONE AND DRIFTED TO RED-HOT AND ARGUABLY TO HOT. THAT’S THE MAIN REASON WE HAVEN’T HAD WORSE ECONOMIC OUTCOMES SO FAR. YOU LOOK AT EVERY COMPONENT TO THE G.D.P. WAS NEGATIVE THE FIRST HALF AND
EUROPE IS A DISASTER AND CHINA IS A MESS. THE U.S. CONSUMER HAS SINGLE-HANDEDLY BEEN KEEPING THE GLOBAL ECONOMY AFLOAT. UNFORTUNATELY IF YOU EXTRAPOLATE THE RECENT LABOR TRENDS FORWARD AND WE GET 200 BASIS POINTS MORE OF UNEMPLOYMENT FROM WHERE WE WERE RECENTLY, IT’S ALMOST IMPOSSIBLE TO FIGURE OUT HOW WE DON’T HAVE AT LEAST A MILD RECESSION AND EVERY DATA SERIES WE LOOK AT PARTICULARLY WITHHOLDING TAX GROWTH AND OTHER FACTORS ON THE TAX SIDE OTHER THAN REAL TIME POINTS TO A LABOR MARKET THAT SOFTENS SIGNIFICANTLY AND EVENTUALLY IS HARD FOR THE U.S. CONSUMER TO DO IT SINGLE-HANDEDLY. JON: I ASKS MICHAEL MCKEE IF THE FED WAS LOSING CONTROL AND JANE, WE ASK IF THEY’RE SEEING WHAT THEY WANT TO SEE BECAUSE JOBLESS CLAIMS HAVE YET TO CLIMB IN AND WE’RE TAKING HEAT OUT OF THE LABOR MARKET AND IT’S UNFORTUNATE AND WE ALL AGREE BECAUSE NO ONE WANTS TO SEE JOB LOSSES AND WANT TO SEE JOB OPENINGS COME DOWN AND CRUDE IS AT $90 A BARREL ON W.T.I.
CAN YOU HELP ME UNDER THE DISTINCTION BETWEEN THINGS DEVELOPING AT THE MOMENT THE FED DOESN’T WANT TO SEE AND THE THINGS THAT THEY’RE ACTUALLY SHOOTING FOR, THE OBJECTIVE? JANE: YOU HAVE TO SEE THE MANAGING POLICIES ARE BLUNT, TOO AND A LOT OF THE INFLATION IS APPLIED, NOT ALL BUT A NUMBER OF INSTANCES OF DEMAND PARTICULARLY IN THE U.S. AND IN FACT, BACK IN THE CALCULATION IN THE FEDERAL RESERVE FROM THE MIDDLE OF JEWEL SAY DEMAND BECAUSE OF THE FISCAL SPENDING IN THE PANDEMIC IT REDUCED U.S. INFLATION BY 2.5 PERCENTAGE POINTS AND QUITE SIGNIFICANT AND MORE THAN ELSEWHERE AND WE KNOW WE HAVE EXCESS DEMAND. THE FED CAN’T CONTROL THE SUPPLY PROBLEMS BUT CAN CONTROL THE DEMAND AND WILL BRING DOWN DEMAND AND ROB THOSE REMAINING IN THEIR JOBS AND JOB OPENINGS PRODUCED BUT THE REALITY IS IT CAN’T FINE-TUNE THE ECONOMY AND WILL MAKE THE LABOR MARKET WORSE AND THAT’S PART OF THE PASS-THROUGH OF MONETARY POLICY TO SLOW THE ECONOMY TO BRING EQUILIBRIUM AND SUPPLY AND DEMAND TO A LOWER PRICE LEVEL AND BRING INFLATION DOWN AND PURPOSEFULLY THE JOB MARKET WILL LOOSEN IN THE COMING MONTHS. JON: THANK YOU TO THE BOTH OF YOU, THANK YOU. COMING UP ON THIS PROGRAM, THE
MORNING NUMBERS AND AN ALARM ON THE RECENT EQUITY RALLY. HOW MANY BANKS ARE DOING THAT. CHRIS HARVEY FROM WELLS FARGO WILL JOIN US. LOOKING FORWARD TO THAT.
JON: LIVE FROM NEW YORK, EQUITY FUTURES SLIGHTLY NEGATIVE DOWN .1%. GOOD MORNING. THAT’S THE PRICE ACTION. THE MARKET EXPECTING A WEAKER AND INFLATIONARY BACKDROP. U.P.S. CHANGE OGBUEHI, SEEING FRESH GROWTH OPPORTUNITIES AFTER WINNING APPROVAL FROM THE LONG-AWAITED NUCLEAR POWER MAN. AND A HIGHLIGHTED MACROMARKET AND POOR EARNINGS AVAILABILITY. COMING UP NEXT BEING CHECK UP WITH CHRIS HARVEY OF WELLS ♪ JON: 25 SECOND AWAY FROM THE OPENING BELL IN NEW YORK THIS THURSDAY MORNING. GOOD MORNING TO YOU. PRICE ACTION IS SLIGHTLY NEGATIVE DOWN BY 0.02%.
THE NASDAQ TOTALLY UNCHANGED AFTER RIPPING 20% OF THE LOWS THE MIDDLE OF JUNE. WHAT A RALLY ON THE NASDAQ 100. OPENING BELL. LET’S GET TO THE BOND MARKET ALL OVER THE PLACE, YIELDS LOWER BY NOT EVEN A BASIS POINT TO 27028. MUCH HIGHER AT THE OTHER END. MY SCREEN ABOUT NEGATIVE 38 BASIS POINTS FOR THE MOMENT.
EURO SHOWING STRENGTH, 10184 AND CRUDE A CHANCE OF WEAKNESS WITH DOWN MORE THAN 1%AGE POINT, 957 ON W.T.I. 15 SECONDS INTO THIS, ETC. GET YOU SOME MOVIES WITH ABBY. ABIGAIL: NOT SO MUCH THE BIG WINNERS.
WE TALKED ABOUT META AND HEARD OF A BOND OFFERING AND IT’S NOW A REALITY AND THIS IS THE COMPANY’S FIRST EVER BOND OFFERING AND WILL COME IN FOUR PARTS AND COULD BE AS MUCH AS $10 BILLION AND THE STOCK IS SLIPPING HIGHER AND ALLEY BUBBA SOARING AND SALES BETTER THAN FEARED. ELI LILLY DOWN 1.5% OFF THE PREMARKET LOWS AND MISSED SECOND QUARTER REVENUE ESTIMATES AND SLASHED THE FISCAL YEAR ADJUSTED EARNINGS FORECAST AND LOOKS LIKE A COMBINATION OF MACRO, HEADWINDS AND PRICING. FINALLY YOU WERE TALKING ABOUT OIL BELOW $90 AND THAT’S WEIGHING ON THE ENERGY COMPLEX.
AS YOU KNOW THE WORST SECTOR ON THE DAY AND OCCIDENTAL PETROLEUM DOWN .8%. JON: ALMOST TOTALLY UNCHANGED. B TECH HAS BEEN LEADING THE MARKETS. THE NASDAQ 100 REPEATEDLY JUMPING 19% TO 20% FROM THE JUNE LOWS AND TAYLOR RIGGS HAS MORE. TAYLOR: AND MAYBE IF YOU THINK ABOUT A BEAR MARKET AT 20% DECLINE, COULD A BULL MARKET BE A 20% GAIN OFF THOSE LOWS? IF SO USING THAT LOOSE DEFINITION, WHAT A WAY WE’VE COME. IT’S BEEN ALL ABOUT BIG TECH AND THE STOCK INDEX AND NASDAQ 100, WE KNOW MORE FROM THE LOWS WE HAD MID JUNE, NOW 19% TO 24% OR SO A LOT OF IT HAS TO DO WITH THE YIELD STORY AND IT’S BEEN COMING DOWN AND THE LAST TWO DAYS THAT NEGATIVE HAS CHANGED PARTICULARLY ON THE FRONT END AND THE LAST FEW WEEKS IT’S BEEN A STORY OF YIELDS CONTINUING TO GRIND LOWER HELPING TO BOOST SOME OF THOSE LONG DURATION ASSETS THAT IS BIG TECH. FINALLY ON AN INDIVIDUAL MOVER LEVEL, WE’VE BEEN TALKING IN THE CLOSING BELL, PAYPAL OF COURSE GIVEN THE ELLIOTT INVESTLES AND TESLA AND AMAZON AS WELL WITH THE BIG MOVERS IN THERE AND UP 40% ON THE INDIVIDUAL NAMES THAT HAVE BEEN FUELING THE BIG REBOUND WE’VE BEEN SEEING AS OF LATE. JON:
UNREAL. ABSOLUTELY RIPPED. LOOKING FORWARD TO THE CLOSE. TAYLOR RIGGS THERE. I’VE TALKED ABOUT A LONG LIST OF STRATEGISTS, MAX KENT AT HBSC IS ONE OF THEM.
JULY’S PRICING HIGHER, RISK ON AND RISK OFF ASSETS LEADS US WITH AN UNREALISTIC GOLDILOCKS BACKDROP AND MOVE TO MAXIMUM ACROSS EQUITIES, HIGH YIELDS AND OUR TECHNICALLY OVERWEIGHT CASH. KAILEY HAS MORE. KAILEY: THEY SAY ALL GOOD THINGS MUST COME TO AN END AND THAT’S THE END FOR THE EQUITY MARKET RALLY BECAUSE WE SEE HOW THEY’VE COME OFF THE LOWS, ESPECIALLY TECH STOCKS AND MADE THEM MORE EXPENSIVE. WE LOOK AT HISTORICAL P.E. WE’RE ABOVE THE AVERAGE AND OTHERS SAY WE’RE EARLY IN THE DOWNGRADE CYCLE AND ECHOES WHAT WE HEARD FROM THE BANK OF AMERICA AND YES WE’VE SEEN FORWARD ESTIMATES COMING DOWN BUT NOT ENOUGH CONSIDERING THEY’RE 6% ABOVE WHERE THEY WERE IN THE EQUITY MARKET PEAKED IN JANUARY AND THEIR DATA SHOWS THE LAST FOUR RECESSIONS THE S&P ONLY BOTTOMS AFTER E.T. S. FORECASTS HAVE TALLEN BELOW THE LEVEL THEY WERE WHEN THEY PEAKED AND PESSIMISM IN THE FORWARD VIEW FORMING THE BEAR CASE BECAUSE THE BACKWARD LOOKING VIEW THE SECOND QUARTER HASN’T BEEN THAT BAD AND S&P EARNINGS UP 9.7% YEAR ON YEAR AND A LOT OF IT HAS TO DO WITH
THE OUTSIDE MOVES WE’VE SEEN FOR PROFITS FOR ENERGY COMPANIES AN IT’S NOT ALL THE EARNINGS STORY AND GOLDMAN SACHS SAYS THE PATH IS LIKELY TO BECOME MORE DEPENDENT ON ECONOMIC DATA AND WITHOUT A CLEAR SHIFT IN MACROMOMENTUM STOCKS COULD SEE ANOTHER LEG LOWER. JON: CHRIS HARVEY HAS A MESS DOW JONES INDUSTRIAL THE BEARS AND IT’S TOO EARLY AND DON’T EXPECT TO RETEST THE LOWS UNTIL THE FIRST HALF OF 20. FEDEX EXPECTATIONS TUMBLING DOWN AND SECOND QUARTER EARNINGS CLARITY HAVE RAISED THE EQUITY MARKET FLOOR. THE FIRST OF 2023 MAY BE TOUGH AND WE MAY SEE OPERATING MARGINS COLLAPSE AND THE JOB PITCH RETURNING FOR CERTAIN. CHRIS JOINS US NOW AND IT’S GREAT TO CATCH UP WITH YOU, SIR. WHY DO YOU THINK THE BEARS ARE
TOO EARLY? CHRIS: AGAIN, IT’S EXACTLY WHAT WE SAID THE COST OF CAPITAL IS DOWN AND THROUGH EARNINGS. EVEN FOR US. AS WE LOOK AT THE MARGINS, WE EXPECT THE MARGINS TO NOT BE AS STRONG AS THEY WERE AND "STRONG" IS NOT THE RIGHT WORD AND EXPECTED MORE COMPRESSION AND DIDN’T GET IT. THE THING WE TALKED ABOUT AND HUNG OUR HAT ON, IT WASN’T ABOUT A VALUATION OR LEVEL, IT WAS ABOUT THE FED. WHEN THE FED WAS GOING TO TOGGLE THINGS DOWN, WHAT WE SAID AND BELIEVED IS EQUITY MARKET CAN SUSTAIN GAINS AND EQUITY MARKET PRICES CAN GO HIGHER AND WHAT WE’RE SEEING. YOU TOUCHED ON IT AND A FEW OF THE COMMENTATORS TOUCHED ON IT, WE’RE IN A GROWTH MARKET AND RATES ARE COMING DOWN AND REALLY POSITIVE FOR GROWTH AND FOR THE MARKET IN GENERAL BECAUSE WE ARE -- THE S&P IS A LONG DURATION ASSET. JON: CAN THAT CONTINUE TO WORK WITH
INFLATION CLOSE TO 9%. CHRIS: LET’S TALK ABOUT INFLATION AND WHAT’S HAPPENED THE LAST YEAR. A YEAR AGO WE SAID THIS VERY LOUDLY A NUMBER OF TIMES AND LAST YEAR I HAD NEVER SEEN A PRICING ENVIRONMENT THE WAY I’D SEEN IT LAST YEAR AND EVERYONE WAS RAISING PRICES AND THE CONSUMER WAS PRICE UNCONSCIOUS. NOW WE’RE SEEING A CONSUMER THAT IS NO LONGER PRICE UNCONSCIOUS AND THEY’RE MAKING DECISIONS AND THEY’RE CHANGING THEIR BEHAVIOR, MORE SO IF WE LOOK AT BREAK EVENS. BREAK EVENS FROM RIGHT ACROSS MATURITIES HAVE COME DOWN SIGNIFICANTLY.
THE MARKETS ARE SAYING THAT CYCLICAL COMPONENT TO INFLATION IS COMING DOWN. IF WE LOOK AT THE COMPONENTS IN I.S.M. RECENTLY, THEY’VE COME OFF THE BOIL. AND WE HAVEN’T SEEN C.P.I. -- C.P. SIMPLE RUNNING HOT AND WE’LL SEE, WE GET C.P.I. A LITTLE LESS THAN A WEEK FROM NOW BUT WHAT WE’RE SEEING IS SEEING INFLATION COME DOWN AND SHOULD EXPECT INFLATION TO COME DOWN AND IT WILL BE STICKY. THERE ARE GEOPOLITICAL REASONS WHY IT WON’T GET TO LEVELS WE’VE SEEN IN THE PAST BUT ULTIMATELY WE’RE LATE IN THE CYCLE AND THE ECONOMY IS SLOWING AND DEMAND IS SLOWING DOWN AND THE CONSUMER’S BEHAVIOR IS CHANGING. EXPECT TO SEE INFLATION COME
DOWN. IT WILL BE A LITTLE TRICKY WITH C.P.I. AND SEE WITH A HAPPENS BUT ULTIMATELY ALL THE FACTORS YOU NEED TO SEE ARE OCCURRING AND SO WE’RE IN A MUCH DIFFERENT CAMP WITH INFLATION TODAY THAN WE WERE A YEAR AGO. JON: HELP ME OUT WITH THE TIMING AND AS YOU KNOW BETTER THAN MOST THE TIMING IS THE MOST DIFFICULT PART TO CALL, WHEN DO WE START THE TRANSITION AWAY FROM WHAT’S WORKING NOW TO WHAT YOU’RE ANTICIPATING TO THE FIRST HALF OF NEXT YEAR? CHRIS: WHAT WE SAID THE BEGINNING OF THE YEAR, WE THOUGHT THE FIRST HALF OF 2022 WAS GOING TO BE ABOUT DEFENSIVES AND TALLY REOPEN. IN JUNE WE ALSO SAID BY THE SECOND HALF OF THIS YEAR WE’LL GO INTO A GROWTH MARKET. WE’RE IN THAT GROWTH MARKET. IN JUNE WE DOWNGRADED CYCLICAL CAPITAL AND WE’RE TELLING CLIENTS YOU NEED TO RINSE THE PORTFOLIO FROM SICKLY CALITY.
AND WE’RE SEEING A LOT OF VALUE CAPS, COMPANIES TRADING AT MID SINGLE DIGIT EARNINGS. WHEN I SEE IT THIS LATE IN THE CYCLE THAT’S THE MARKET TELLING US THE EARNINGS YOU SEE TODAY ARE NOT GOING TO EXIST IN SIX, 12, 18 MONTHS. YOU’RE GOING TO GET MULTIPLE EXPANSION BUT NOT THE KIND YOU’D LIKE. I THINK WE’RE IN A GROWTH MARKET AND WE’LL STAY IN A GROWTH MARKET BUT YOU HAVE TO MANAGE YOUR RISK AND THERE ARE PARTS OF THE LOW VOLUME DEFENSIVE SECTOR WE LIKE AND YOU WANT TO BARBELL GROWTH WITH BALANCE SHEETS OR A LITTLE LESS VOLATILE. JON: I DON’T KNOW WHAT TO DO WITH DISCRETIONARY, EVERYBODY IS TALKING ABOUT A BEAR MARKET AND HERE WE ARE RIPPING 25% OF THE JUNE LOWS AND I SCRATCH MY HEAD AT THAT, WHAT ARE WE DOING? CHRIS: IT’S A GOOD QUESTION BECAUSE WE’RE LOOKING AT THAT RIGHT NOW. WE’VE BEEN UNDERWEIGHT RETAIL
FOR SOME TIME AND WORKED VERY WELL BUT YOU’RE SEEING A BALANCE AND WE LOOKED AT THE PERFORMANCE OF STAPLES VERSUS DISCRETIONARY AND STAPLES HAVE OBVIOUSLY RIPPED THE LAST 6-12 MONTHS VERSUS DISCRETIONARY. AND WHAT WE’RE SEEING GETTING BACK TO MARKETS WHAT WE’RE SEEING ON THE STAPLE SIDE WE’RE SEEING REAL MARGIN PRESSURE AND STAPLES -- EXCUSE ME, DISCRETIONARY LOOKS LIKE MAYBE IT’S IN THE BOTTOMING PROCESS, MAYBE IT BEAT THE RUSH SO IT’S WORTH A LOOK. WE’RE NOT SURE JUST YET BUT WE’RE DOING A LOT MORE WORK IN THE SPACE BECAUSE PRICES HAVE REALLY TURNED AND MULTIPLES ARE TRADING AT RECESSIONARY LEVELS. JON:
CHRIS, GOOD TO STICK WITH US, AND TALK LAYOFFS POTENTIALLY IN CORPORATE AMERICA. CONSUMER DISCRETIONARY UP AND THE DOWNSIDE AS YOU MIGHT EXPECT, CINERGY DOWN GIVEN WHAT WE’RE SEEING IN THE CRUDE. WHEN WAS THE LAST TIME WE TALKED ABOUT THE 80’S, $89 ON W.T.I., DOWN 1.4% ON THE SESSION. INVESTIGATORS GEARING UP FOR
PAYROLL AS CORPORATE AMERICA CONTINUES SHRINKING THE WORK FORCE. >> THOUGH THE ECONOMY IS SLOWING DOWN WE HAVE A TIGHT LABOR MARKET AND STILL MORE JOBS THAN WORKERS. JON: WAL-MART THE LATEST, THAT CONVERSATION UP NEXT. ♪ DON’T MISS IT. THIS IS BLOOMBERG. >> EVEN THOUGH THE ECONOMY IS SLOWING DOWN WE HAVE A TIGHT LABOR MARKET AND THERE’S MORE JOBS THAN WORKERS OUT THERE. IT IS POSSIBLE TO PULL THE ECONOMY WITHOUT SEEING A LARGE INCREASE IN UNEMPLOYMENT.
THERE’S A WAY TO THREAD THE NEEDLE EVEN IF WE HAVE A MILD RECESSION. JON: INVESTORS WAITING FOR JOBS DAYS AND THEY HIT THE BRAKES ON HIRING. WAL-MART C.E.O. WRITES, WHILE DIFFICULT THIS DECISION IS THE LARGEST STRATEGY TO REDUCE OPERATING EXPENSES AND SUPPORT SUSTAINABLE GROWTH. TAYLOR RIGGS HAS MORE. TAYLOR:
YOU’VE SEEN A COUPLE OF COMPANIES SEEING THE REDUCTION OF ABOUT 200 EMPLOYEES BUT AGAIN FOR THE LARGEST PRIVATE EMPLOYER THAT MAY NOT BE A HUMAN DEAL BUT WHEN YOU ADD UP EVERYONE ELSE AND YOU SORT OF THINK ABOUT THE DIFFERENCE IN ROBIN HOOD, FOR EXAMPLE, CUTTING 23% OF THEIR WORK FORCE AND THE SHIFT WE’VE SEEN FROM SLOWING GROWTH FROM HIRING TO FREEZES TO MAYBE LAYING PEOPLE OFF AND THAT’S WHERE WE START TO LOOK AT THIS LABOR MARKET. MAYBE ONE REASON MIKE MCKEE WOULD NAIL IT MORE THAN I WOULD AS THE EMPLOYMENT COST INDEX WE TRACK HOW EXPENSIVE AND THE DIRECT AND INDIRECT COSTS AND THESE EMPLOYEES ARE A RECORD WHEN WE STARTED TRACKING IT GOING BACK TO 2001, THE TRAINING, THE TAXES AND SOCIAL SECURITY CONTRIBUTIONS AND YOU NAME IT AND COULD BE ONE OF THE REASONS BEHIND IT. IT’S REALLY INTERESTING BECAUSE IF YOU LOOK AT THE TERMINAL CHART, COMPANIES HAVE BEEN PAYING MORE FOR THE EMPLOYEES AND HASN’T BEEN KEEPING UP WITH SALES WHEN WE THINK OF SALES PER EMPLOYEE, IT’S MAYBE A LOOK AT THE PRODUCTIVITY AND SORT OF REBOUNDING OF COURSE THE TROUGH WHEN IT WAS UP 30% FROM THAT DAY, JOHN. SO THAT CAN TRACK WHERE WE ARE WITH THIS LABOR MARKET. JON: THANKS, AGAIN IN PAYROLLS LOOKING FOR SOMETHING CLOSE TO 250,000. MIKE, YOU KNOW THE STORY, WE’RE ASKING THE SAME QUESTION AND SEEN WEAK DATA POINTS, WILL WE SEE ONE TOMORROW? MICHAEL: WE DON’T KNOW.
WE JUST GOT CLAIMS THIS MORNING AND JOBLESS CLAIMS ARE UP BY ANOTHER 6,000 AND THAT’S BEEN A REGULAR THING BUT WE LOOK AT THE BOX IN THE CORNER, CONTINUING CLAIMS RISING BUT NOT NEARLY AS MUCH WHICH SUGGESTS PEOPLE LOSING JOBS ARE STILL RAPIDLY GETTING NEW ONES. AND AS LONG AS THAT’S THE CASE THEN MAYBE WE DON’T SEE A HUGE CHANGE. THE FORECAST FOR TOMORROW, YOU’VE HAD IT UP A COUPLE TIMES, $250,000. THAT’S A SLOW DOWN FROM WHERE
WE HAVE BEEN BUT IT ISN’T SIGNIFICANTLY SO BUT MUCH HIGHER THAN AVERAGE OVER THE FIVE YEARS BEFORE THE PANDEMIC AND NO CHANGE EXPECTED IN THE UNEMPLOYMENT RATE SO IT DOESN’T LOOK REALLY BAD. ONE THING I HAVE TO POINT OUT HERE IS THAT JOBS ARE NOT A GREAT RECESSION INDICATOR. BY THE TIME WE GET TO A CONTRACTION IN JOBS, WE’RE ALREADY IN RECESSION. YOU SEE THAT CLEARLY IN THE CHART. NOBODY PREDICTS A CONTRACTION IN JOBS BEFORE IT HAPPENS.
SO IT’S HARD TO SAY THAT THIS IS GOING TO BE A HUGE LEADING INDICATEOR BUT WILL TELL US SOMETHING ABOUT THE HEALTH OF THE ECONOMY OVERALL AND THE FED TAKES COMFORT IN THE FACT JOBS ARE STRONG. JON: YOU WANT TO DO THE ACADEMIC DEBATE ESSENTIALLY ON JOB OPENINGS AND WHETHER YOU CAN REDUCE JOB OPENINGS FROM THE LEVEL THEY’RE AT WITHOUT UNEMPLOYMENT RISING. THERE WAS A ARGUMENT THE LAST WEEK. MICHAEL: SUMMERS AND BLANCHARD SAYS YOU CAN’T AND EMPLOYMENT HAS TO GO UP WHILE THE JOB VACANCIES GO DOWN AND WALLER SAYS IT’S NOT TRUE AND HE’S WINNING AND SHOWED IS VACANCIES GOING DOWN WITHOUT UNEMPLOYMENT GOING UP AND WE’LL SEE A DEBATE THAT WILL GO ON FOR A WHILE AND WON’T KNOW WHO IS RIGHT FOR SOME TIME. JON:
CAN’T SAY IT’S AN EXCITING DAY BUT IT CERTAINLY MATTERS. MICHAEL: YOU’RE NOT AN ECONOMIST. THIS QUALIFIES AS EXCITING. JON: MIKE MCKEE, GOOD TO CATCH UP. LOOKING FORWARD TO MIKE’S COVERAGE.
PAYROLL IS AROUND THE CORNER. CHRIS HARVEY WITH US NOW. HOW WILL YOU NAVIGATE TOMORROW THE LABOR MARKET REPORT AND INCOMING DATA NEXT WEEK, THE C.P.I. REPORT ON THE HORIZON. CHRIS: AS FAR AS THE JOB PICTURE, WE THINK MIKE HAD IT RIGHT AND IT’S NOT A LEADING INDICATOR BUT COINCIDENTAL TO A LAGGING INDICATOR. ONE OF THE THINGS WE’VE SEEN IS THINGS AREN’T GOOD. THERE ARE A COUPLE ANECDOTES. SIX MONTHS AGO WE HAD A TECH HEADHUNTER IN AND SAID HEY, CAN YOU GO INTO YOUR BOSS’ OFFICE AND DON’T NEED ANOTHER JOB AND GET A 20% RACE AND WE HAD HIM A COUPLE WEEKS AGO, YOU GO TO YOUR BOSS NOW AND ASK FOR A 20% RAISE YOU’LL GET FIRED. YOU’RE BEGINNING TO SEE THESE
THINGS HAPPEN. I THINK BY SEPTEMBER YOU WON’T HAVE TO TALK TO PEOPLE ABOUT RETURN TO OFFICE BECAUSE THEY’LL WANT TO GET MORE FACE TIME WITH THE BOSS. THINGS ARE BEGINNING TO GET TIGHT. WE’RE LATE IN THE CYCLE AND WE CAN ARGUE WHETHER WE’RE GOING INTO RECESSION OR NOT, I THINK WE ARE BUT IT’S LATE IN THE CYCLE AND SHOULD START TO SEE DELEGATION IN THE JOB MARKET. C.P.I. IS TRICKY AND WHAT C.P.I. CAN DO IF IT COMES IN HOT, THEN WHAT YOU WOULD EXPECT TO SEE, THE EQUITY MARKET COULD GET ROYALED AND EXPECT EXPECTATIONS TO GO UP AND DON’T THINK IT’S LASTING BECAUSE OTHERS ARE TELLING YOU THINGS ARE COMING OFF THE BOIL BUT C.P.I. IS MORE IMPACTFUL SHORT TERM TO
THE MARKET AND IF YOU GET A HOT NUMBER, EQUITY MARKETS WILL PULL BACK FOR A PERIOD OF TIME, IF YOU GET SOMETHING THAT COMES IN MUCH LIGHTER, THIS RALLY WE’RE SEEING, WE THINK IT WILL CONTINUE. JON: CAN I PICK UP ON SOMETHING YOU JUST SAID, HOW PEOPLE RESPOND TO UPCOMING WEAKNESS, IS THERE A SUGGESTION WITHIN THAT THAT YOU MIGHT GET A SUPPLY-SIDE RESPONSE IN THE LABOR MARKET AS YOU GET A DECELERATION IN ECONOMIC GROWTH? CHRIS: I THINK SO. ONE THE THINGS THAT’S ALSO HAPPENED IS YOU HAD PROBLEMS WITH -- WE LOOKED AT THE DIFFERENT POCKETS OF THE LABOR FORCE AND PRIME AGE WOMEN WAS A DEPARTMENT LAGGING AND PART TESTIFY WAS RELATED TO THE COVID ISSUES AND COMPLICATIONS WITH CHILDCARE ISSUES, SO ON AND SO FORTH AND THAT’S IMPROVED BUT WHAT WE’RE SEEING FOR THE MOST PART IS PEOPLE ARE COMING BACK INTO THE LABOR FORCE AND WE THINK THEY’LL SLOWLY BE DRAGGED BACK INTO THE LABOR FORCE AND NOT LEAPS AND BOUNDS BUT A DRAG GOING FORWARD. AND IT’S NOT SOMETHING WE’RE TALKING ABOUT AND CAN WEIGH ON THE JOB PICTURE. JON: INTERESTING, THAT’S PAYROLLS. LET’S FINISH C.P.I., CLOSE TO
9%. STILL WE GET A REDUCTION NEXT WEEK ON HEADLINING. IT’S BACK TO GROWTH AND I KNOW FROM WHAT YOU DESCRIBED YOU’RE LOOKING FOR THE PREPANDEMIC PLAYBOOK THAT WORKED SO WELL, NASDAQ DOING ITS THING. WHAT DO YOU THINK NEEDS TO FIT INTO THAT CALL THE NEXT COUPLE MONTHS? CHRIS: JOHN JON, WE TALKED ABOUT 10 YEAR BREAK EVEN GETTING THIS 250 OR 75% RANGE, WE THINK THAT’S GOOD FOR YOUR GROSS STOCKS. IT’S NOW ABOUT SLIGHTLY BELOW 250 AND ACTUALLY BEEN IN A RANGE LOWER THAN WE WOULD HAVE EXPECTED IN THIS KIND OF 225 U2 50 RANGE. AS LONG AS IT’S IN THIS SUB275 LEVEL, WE THINK IT’S VERY GOOD FOR GROWTH BECAUSE WHAT THE BOND MARKET AND 10-YEAR IN PARTICULAR IS TELLING YOU WE’RE GOING IN STAG NATION. YOU HAVE LOWS CLOSE TO ZERO AND
PLUS 25 BASIS POINTS AND BREAK EVENS AT 250. THAT’S AN INFLATIONARY ENVIRONMENT WITHOUT A GROWTH AND THAT’S STAG NATION BY DEFINITION AND GOOD FOR THE GROWTH STOCKS. JON: WHERE DOES ENERGY FIT IN, A FINAL ONE FOR ME, MAYBE MORE RECENTLY, YOUR THOUGHTS? CHRIS: I THINK ENERGY IS A PLACE WE’LL WANT TO COME BACK TO PROBABLY ANOTHER 3-6 MONTHS AND FITS IN THE CYCLICAL TRADE WE DON’T LIKE AT THIS POINT IN TIME. A LOT OF THE POLICY WILL KEEP SUPPLY PRETTY TIGHT AND WHAT WE’VE SEEN FROM THE ENERGY COMPANIES IS THEY’RE DOING A GOOD JOB AT RESTRUCTURING THE BALANCE SHEETS AND OPERATING ON PROFITABILITY AND NOT GROWTH AND THERE’S A LOT MORE QUALITY AND VALUE IN THE SPACE AND WE THINK IT’S A LITTLE TOO EARLY FOR THAT BOUNCE TO OCCUR AND PROBABLY ANOTHER 3-6 MONTHS IS WHERE WE GET MUCH MORE INTERESTED. JON: AWESOME TO CATCH UP, A DIFFERENT PERSPECTIVE WHEN THERE’S SO MUCH GLOOM AT THE MOMENT. CHRIS HARVEY FROM WELLS FARGO.
YOU SEE THE PAIN EVENTUALLY BUT YOU HAVE TO WAIT. EQUITIES UNCHANGED ON THE S&P, THE NASDAQ DOING ITS THING, UP 1/3 OF 1%. A ANALYST AT JP MORGAN MIGHT BE RIGHT AND SAID THIS EARLIER, WITH THE EARNINGS OF THE FED WE SEE A EXPECTATION AND THERE IS AN INDICATION OF BAD NEWS ANTICIPATED PRICED IN AND HE’S LOOKING FOR A BIG RECOVERY IN STOCKS. WE HAD ONE AFTER LOWS, FOR SURE.
J.P. PARIBAS SAID SOMETHING THAT STUCK ALL WEEK, WITH THE FED LAYING THE FOUNDATION FOR A MORE MODERATE APPROACH THE BACK HALF OF THE YEAR ALONGSIDE RESIDUAL EARNINGS WE SEE FURTHER UPSIDE IN THE NEAR TERM AS MARKET PARTICIPANTS COME CROWDING IN. AND MIKE MCKENNA JOINING THE BEST OF THEM JUST SAYING WISHFUL THINKING. YOU GET TO PICK YOUR SIDE. RIGHT NOW WE’RE BASICALLY UNCHANGED ON THE S&P. COMING UP THE MARKET MOVE AND WATCH YOUR TRADING DIARY AROUND THE CORNER.
JON: 25 MINUTES INTO THE SESSION. SO FAR SO GOOD. NO REAL DRAMA, UNCHANGED ON THE S&P AND NASDAQ AND POSITIVE AT .1%. THE TRENDING DIARY, PRESIDENT BIDEN HOSTING A ROUNDTABLE WITH BUSINESS LEADERS ON INFLATION AT 2:45 EASTERN TIME. THE FED PRESIDENT SPEAKING LATER.
AND WE ROUND OUT THE WEEK WITH THE MAIN EVENT WITH THE PAYROLL AROUND THE CORNER, $250,000 IS THE HIGH AND TUNE IN HERE ON BLOOMBERG TV, ALL-STAR LINEUP, BLACK ROCK RICK RYDER WILL CATCH UP WITH JACK LATER AS WELL. FROM NEW YORK CITY THIS IS THE COUNTDOWN TO THE OPEN. HAD IS BLOOMBERG.
2022-08-06 11:47
