Bloomberg Markets: The Close 02/13/2024
Super core proved to be super hot, making the markets super sad. Live from studio two here at bloomberg headquarters in New york, I'm Romaine Bostick. I love symmetry like that. And i'm Alix Steel. We're kicking you up to the closing bell right here in the u.s. and yeah, the markets are super sad.
In fact, around the lows of the session, the s&p is off by almost a full two percentage point, really shaking out the NASDAQ 100 also up by 2%. We also knew that Citi was saying that the long positions are already so extended on the Nasdaq that it didn't really take much to tip over into some selling. The dollar, though, a beneficiary here up by 7/10 of 1%. In fact, it's the highest that we've seen since November, caused dollar yen to skyrocket through 150. That's usually the level that we talk about.
BOJ intervention and the two year yield is where you saw a lot of the action was all across the curve, but the selling really pronounced in the front end up by 17 basis points, rising the most since last March remain. Yeah, a dramatic day here in markets and of course that's all on the back of that big CPI report that we got this morning. The market really taken down by that report and really the hopes now dashed for a continue drop in inflation, dashed hopes for the start of a drop in Fed interest rates as well with that so-called core consumer price index, which excludes food and energy costs increasing at a faster than expected 0.4% pace from December, that's the most in about eight months. You back out shelter and energy costs and that so-called super core services prices that everyone has been keeping an eye on that climbed 0.8%, the most since April of 2022.
Now it is the economically and well for that matter, rate sensitive stocks really fearing the worst today. The Russell 2000 right now down about 4%, sliding the most since at least September mid 2022, I should say, dragged down by real estate materials and consumer discretionary names. You have also green, big commercial property investor here in New York, having its worst day since October. Higher for longer interest rates, at least for now, look like they remain a threat. Lithium miner Piedmont having its worst day since at least last February amid continued softness in EV sales and online education company to you hitting a record low after flagging substantial doubt about its ability to continue as a going concern. Remember, a path to multiple rate cuts was supposed to be the salvation for a lot of these small and mid-cap names, but with dodgy balance sheets and debt refinancing needs on the horizon, Today's CPI reports is putting oil creating a lot of turbulence out there for that glide path for 2024. And now, Alex, believe it or not,
raising the not so bizarro possibility of rate hikes in 2024. I was laughed last week, didn't talk about it. I did not think I was the one who said you were.
And now maybe we're talking about it. And just yesterday it was you want to sell tech taken by small caps. What a difference a day makes. So this is what we're expecting for December 2024 in terms of rate cuts. So it's basically looking at rate cuts for the whole year.
Now, come last Friday or Monday, we were kind of bopping along just a little under five cuts and all of a sudden you get the CPI today, get this spike. Now we're only looking at about three and a half cuts now priced in for 2024, just enormous rerating all across the board from what, seven then to five and then now to three and a half maybe. Romain, The Fed was kind of right all along. Yeah, that seems to be the narrative that's been unfolding. Whether the markets can actually well stomach it is a whole nother question. Diane Swonk joining us right now, chief
economist at KPMG to help us kick off to the close. And let's get right to it. Diane, were you surprised by this report this morning? Well, I was surprised, especially in how much inflation there was in the super core, that service sector inflation and all of that will translate into the PC, which is what the Fed's target is. But it really was important to see where the increases were.
We saw increases in everything from hotel room rates to things like insurance costs, vehicle insurance up at its fastest pace since 1976. That's really stunning. We all know some of that is due to a surge in extraordinary weather events that have caused more damages to vehicles. But this is something that's also undermining the affordability of vehicles. At the same time, we're also seeing increases in medical costs.
And it's not just insurance that's more part of that is more of a wage story and one that the Fed is going to be watching extremely closely because that side of the equation had been one area where we were worried there could be more inflation and now it could be showing up. The good news is we're continuing to see goods inflation fall. So we're seeing deflation in the goods sector, but you need a lot of good sector deflation to offset that super service sector inflation that we're seeing out there. I am curious and forgive me if this is a dumb question, but for some of those sectors in this report where we did see that significant uptick in inflation, why did we not necessarily see that, I guess in the reports in the a couple of prior months here, was there a sort of a gradual run up to this or did this just kind of come up out of the blue? Well, the certainly the vehicle sector in terms of vehicle insurance, that's been going up really rapidly all year. And so we saw a big increase.
Last month in that as well. So that's not new. Also, medical insurance is being measured differently. That's been going on since the fall and that's been compounding and that's showing up because more medical insurance costs are being picked up in that index. But I think we are starting to see some of the health care. Remember, that's been one of the driving sectors for employment. That's a structural shift in demand.
However, it also is putting pressure on the labor market and I think that's a place where you have to worry about where wages may not have cooled enough to derail a service sector inflation. And what the Fed is worried about is that improvements in inflation will stall out. This sort of validates their view to keep monetary policy restrictive, even though inflation has come down very rapidly.
It doesn't mean we necessarily have to do a rate hike. I think the first rate cut is in June, but we only have three rate cuts this year and that really is sort of consistent with what Jay Powell had said at the press conference in January, and that was the dialing back of restrictive policy. This is not rate cuts to stimulate the economy. And the fear is that if they cut too quickly, they could really reignite the cooling embers of inflation. So this isn't. So you been labeled this is a reacceleration of inflation. It's like a pause in the disinflation.
I think it's just a bump in the road. But I think this is part of what we are due for. One of the things the Federal Reserve was worried about was that many of the things that got us to the rapid slowdown in inflation that we saw last year, the rapid cooling were one offs, the healing of supply chains, things like that. And they were worried that even though
service sector inflation looked like it might be coming down, that's where it could get stickier and have it stall out. This just suggests not necessarily that we're re accelerating per se. We need to see several months of that, but that the road to getting to 2% is in fact bumpy. It's not linear. And the Fed is right to be cautious in how rapidly they cut rates.
So you were saying the start in June. Do you agree them with where the market is right now? You're looking at about three, three and a half cuts. Well, that's where we've been. And so we're in June and we stay in June and we have three cuts for the year. And that's where the Fed is. And I think when we see the summary of economic projections in March, we will see them stay at three rate cuts for the year, but you'll see more clustering around three rate cuts.
There will be more consensus within the Fed for three rate cuts in 2024. They want to sort of straddle this. They don't want to destroy the economy. They like the strength. They just don't want to rekindle any
inflation or have it stall out too close, you know, too much above 2%. They'd like it to be just sort of better all around, a little more tepid in terms of the inflation situation. And they're willing to take time to get there. And I think that's important as well. That's what the market has been so hard to adjust to, is that a rate cutting cycle when you're not stimulating is not the same. And that's exactly what we're experiencing right now. Well said. That's a great place to end it.
Diane, always great to talk to you. Diane Swonk, chief economist at KPMG. A closer look here at that CPI report that we got this morning, driving stocks now down to session lows. A lot more coming up here on the big program. As you count you down to the close, can can sell. Going to be joining us president and CEO of Churchill asset management about why he says it's still a Goldilocks era for private credit. Plus, we're going to hear from our conversation with the head of Siemens Energy, North America, about how they're tackling the national shortage in power. Transformers.
It sounds nerdy, but it's really cool. All right. Also, pull over and get some earnings after the bell. Airbnb among the companies reporting today.
We're going to break down the numbers, what to expect and, of course, full coverage when it crosses the wire. Stick with us. This is the close on Bloomberg. Well, as we count down to the closing bell, we do have a focus on the closing bell literally down at the NYSE. Our next guest is going to celebrate the
recent listing of Nuveen, Churchill Direct Lending Corp.. It invests in senior loans, the private equity backed middle market companies. It's a market that's seen rapid growth in recent years and is expected to head even higher in 2024. For more insight on that, on private credit and, well, maybe a lot more, let's bring in Ken Kinsale, president and CEO of Churchill Asset Management. He's down there on the floor of the New York Stock Exchange. All right.
A new listing. And honestly, Ken, this seems like a pretty big milestone, I think, for a lot of these sort of a middle market lenders, if you will, that, you know, let's face it, ten years ago, 15 years ago, wouldn't even be listed on a stock exchange. Absolutely. Will remain. It's great. Great to see you. And obviously, Alex, good to see you as well. It is. And I think it's representative of a
continued trend toward, you know, individual investors getting access to what historically has been more of an institutional asset class. And I think it speaks to the democratization of private credit and the opportunities that are being brought to individual investors to to participate, obviously, in a very a very attractive area these days. You talk about the democratization of private credit. We've seen this industry really expand and you sort of allude to this idea that the traditional investors that were sort of the I guess, the backbone of this industry a few years ago has now started to shift to more family offices, more individual investors. How much further do you think this is
going to go in terms of attracting, I guess, a different class of investor than what we would normally think of so associated with private capital? I think it has a lot further to go. I mean, if you look at the the development of the private credit asset class, and you're absolutely right. Certainly over the last ten years, it's really been the story has been the institutionalization of private credit. But I think as as strong managers have
demonstrated, performance and track record of showing their ability to to deliver strong returns for investors, individual investors have have taken notice and see this as an opportunity. So I think it has a long way to go. You know, if you look at our ability to to generate attractive risk adjusted returns to to generate those returns overall, you know, over an extended period of time through economic cycles, I think it presents tremendous growth opportunity for the industry. And and I think that, you know, we're the better managers, the ones that have performed with institutional backing, I think will be the ones to be successful in the in the retail and the wealth channels. I love that you mentioned economic
downturn. Looking at a day where the S&P is up by 2%. Some critics of private credit would say, hey, it's not really been tested in a deep, deep downturn. We don't know what the hidden risks are, etc..
What do you say to that? I would say that the largest scale managers, the firms that have performed now for well over a decade, you know, have in many respects been tested. But if you look at how private credit performed during COVID, during a obviously a much more a rising inflationary environment, I think you've seen the top managers perform quite well. And certainly we as Churchill as a firm, have been investing now for 18 years. So we invested through Covid, we invested through the rising rate environment in the current dynamics, and we invested back through the GFC as well. So I think private credit is here to stay and I think that the performance of the largest managers that do have a ten, 15, 20 year track record, you know, is borne that out. So I think for the for the large, more experienced managers, I think you can look back pretty far and see that performance. So again, I have to wonder what the
adoption you think is going to be for like the regular investor like me is going to be a large part of my portfolio, a small sliver of my portfolio. How do you see that evolving? You know, it's interesting. I was talking to one of the senior folks at Bank of America the other day, and they were saying that their average client typically is invested, you know, less than 5% in alternatives, in private credit only being a portion of that. So, you know, I think that, you know, there's an argument to be made that alternatives for an individual investor representing 10 to 20% of their portfolio is not unreasonable at all.
And certainly private credit would have a place, you know, in that portfolio. So I think, you know, if you just look at the transition from less than 5% to as much as ten, 15 or even 20% of an individual portfolio, I think you've got a tremendous amount of runway there for further growth in private credit and for alternatives more broadly. I'm curious, in the here and now, Ken, there has been some concerns here about the length of time that we've been seeing, the holding periods basically being extended much longer, particularly in some of the buyout funds and even to a certain extent in some of the other funds as well here. Are you getting a lot of pressure or a hearing about a lot of pressure coming from limited partners and other investors, I guess, curious about when they actually see a payoff? Well, if you think about the nature of the alternative. Investors excuse me, the institutional investors that we serve, they are fundamentally less concerned about short term liquidity. So for for, you know, our large parent company, TIAA, or other investors like them, they're investing for the long term.
They're investing to support the retirement needs of their members, their participants, whether it's an insurance company, a pension fund, or even a sovereign wealth fund. So I think that those institutional investors, you know, are accustomed to less liquidity and are really looking at the longer term dynamics. So the short answer is, you know, we have not seen any pressure at all in terms of holding periods or longer duration investment periods. In fact, if we can generate attractive returns over a longer period of time, that's exactly what our investors are looking for. All right, Ken, good to have to leave it there. Great to catch up with you and congratulations. We'll be keeping an eye on you about 45
minutes from now. He'll be ringing the closing bell there down at the NYSE. You can cancel the head of Churchill Asset Management on a day where we have a new listing within Churchill Direct Lending Corp.. All right.
We do have some breaking news, this involving ESPN and its relationship with the College Football Playoff. We're now learning that the two organizations have agreed to a six year, $7.8 billion extension. This basically means that the College Football Playoff will now continue on ESPN and its other properties through the 2031 2032 season. This is according to a report from The Athletic.
I can't keep track of where things are when at what time. Anyway, I need like a smart TV to help me with that. Speaking of Walmart is in talks to buy TV maker Vizio for more than $2 billion. This according to the Wall Street Journal.
Vizio stock has been halted a few times. Now is jumping 23%. Roku is down on that news, basically. Wal-Mart already sells a lot of Vizio TVs and they want to be able to do more and then put a lot of ad and poor advertising on those kind of TVs as well. So sort of ramping up the kind of partnership that they have there. So could happen for about $2 billion. This is a close on Bloomberg
and. All right. Let's get a view from the sell side with our top calls, the big movers on the back of analysts recommendations. And we're going to start up with Children's Place V Riley cutting the youth apparel retailer down to sell price target for the analyst Jeff Flake saying he's not fond of the company's financial situation, says there's limited availability or visibility, I should say right now on that main credit line at a time when the company is in dire need of funds to offset what's expected to be a lackluster spring quarter.
Children's play shares have been one of their worst days on record, down 33%. Next up, let's take a look at two you disappointing investors after the online education platform flack substantial doubt about its ability to continue as a going concern. This caused analysts over at Needham to change their recommendation to hold until there's better visibility on to use ability to refinance its hefty debt load. Those shares have had an awful day, down 58% on the day. And finally, United Airlines also moving lower, a downgrade to neutral over at Redburn Atlantic with the analysts not happy with the broader airline sector citing the decline in earnings and slower demand for air travel, he also expects the outsized pricing power airlines have enjoyed.
Well, that's going to finally wane here in 2024. Shares taking a leg down big time, 4% lower on the day. And those are some of our top calls. We want to stick in the travel space here and talk a little bit about Airbnb. We're expected to get their results
after the bell tonight, and it's expected to be yet another quarter of slower revenue growth. Investors will be looking for clues on travel demand and what new services are in motion to, well, spice up the user experience. Chad Kelly joining us right now, managing director and senior equity analyst at Oppenheimer. He's got a market perform recommendation on Airbnb. All right. Yeah, let's get right to it. I mean, we kind of know, at least based on Wall Street consensus, that slowdown in growth certainly persisted in the most recent quarter.
Do you have any hope that we're going to get some commentary out of the company that that slowdown is over? I mean, I mean, I think one of the things you've got to realize is the reason the stocks we do, you know, they are guiding for slower growth. But the third party data has been trending a little bit above the street, call it by 2 to 3 points. So there is there is a potential that you actually could start to see accelerating nights after you get past one. Q That's kind of the last wonky, wonky Covid comp, right? So you could actually see them, you know, talk to improving demand. I actually think that's what a lot of the buy side is expecting, given that the stock has held up this well going into going into tonight's break.
Okay. So potentially a little bit better on the demand side. What about pricing and pricing power? How much, I guess, does Airbnb have at this point where you got to remember, Airbnb doesn't set the price right, The host sets the price. However, the value of the the value of Airbnb is they have a lot of unique inventory on their platform and the hosts are basically just using Airbnb and the guests as a place on Airbnb. They can't find it anywhere else. So on the commission rate, Airbnb probably does have a little more pricing power than some of their peers. That's what we saw about two weeks ago when they were able to raise the cross-currency fees.
Right. We actually think if you're shorting the stock, it could be a little difficult because we think they have a lot more underlying acreage levers to push that could potentially raise the commissions. So when we take a look at, say, Expedia, for example, Jen, I know it's not a one for one comparison, but we knew they had a weaker Q1, but it did look like the back half of this year was going to be weighted towards growth. Is it something we're going to see something similar with Airbnb? Yeah. One Q is the toughest comp in travel for
for for the online travel companies, given that you're not a lot of the Omicron, the International Omicron tailwind? So I think what you're seeing is a lot of the demand trends they're speaking to is going to be back half weighted. The other thing you have to remember that's kind of unique to Airbnb and Expedia is the U.S. short term rental market had very difficult comps or had had slowing growth last year because a lot of a lot of people were going over to Europe and those were the early Covid winners. We think travel, we think the travel trends normalize and Airbnb and Expedia's verb all in the U.S. are going to have favorable comps. So that's another reason for some of the back half acceleration. The stock just like a 52 week high like
yesterday. So what's the downside potential, particularly as we're in? This is tough tape. I mean, it's tough to call orders. And you know who I mean, it's my way of asking Jen, like what's actually priced What's actually priced in? You know, I think they're I think right now the street you know, I think investors right now are expecting nights to come in 2 to 3 points above, above consensus on for room nights, which is about 11%.
The stock that if the stock comes out, they're probably trading. All right, Jed, thanks a lot. We appreciate it. I know you got to get to your desk. Thanks a lot. Jed Kelly over at Oppenheimer. I'm just looking the markets remain. The Russell are down the most since June of 2022. The S&P down the most since December of 2022 at one point.
And the NASDAQ falling the most since October of 2023. It is ugly out there. It is ugly out there. And it really raises the question here as to just how much of that sort of rate cut narrative had been priced in to equities.
We know we saw the sort of the reversal already in the Treasury market certainly on this day, I mean, eight basis point higher on a two year, but apparently, at least based on the price action today, that wasn't reflected in equities because that's a huge move because we had seen the sell off in the bond market over the last few days, last weeks. Right. We hadn't seen that in the equity market. And if anything, positioning was very one sided.
In fact, if you look at the skew, there were just so many calls being bought versus puts. If we were just kind of primed for this. Anyway, coming up, Siemens Energy is expanding its manufacturing presence in the US. It has some political state ramifications. It's all about alternative energy. We're going to talk to Rich Broberg. He is president of North America about this new investment. This is the close on Bloomberg. And.
Just about 3:30 p.m. here in New York. This is the countdown to the close on Romaine Bostick. You find it's funny. I do feel like it's funny because I'll
let you in on this objectively. Oh, okay. Great. I'm Alix Steel. So, guys, the market is really tough out there.
You got to sell about Treasuries. I mean, not not if you're like equity markets. You're feeling a lot of pain right now, especially if you weren't buying any puts. Equities are just tanking at this point. The lows of the session, you got a big sell off happening in the Treasury market and we're actually breaking some technical levels were very near to the technical levels in the bond market.
So it could be pretty ugly. Yeah, pretty ugly. Not only you've seen that in the bond market, but of course, the big jump that you're seeing now in the dollar. And of course, volatility measures also spiking here. The VIX right now at 17 and a half. All right. One company that we're watching right now is Siemens Energy. So you're looking at a chart of Siemens.
Siemens owns a big part of Siemens Energy. And Siemens Energy announced an expansion of its operations in Charlotte, North Carolina, today to produce transformers. That's basically equipment that connects renewables to the power grid. And shocker, there's actually a shortage of them.
And this would be the first site in the US to do so. And we sat down with Rich Warburg. He's president of North America for Siemens Energy about why doing they're doing this now and why in the US. First of all, ah, every power that comes out of your wall that you plug your toaster in, that you turn your lights on, goes through a transformer, because you, you take the power that comes out of the out of the equipment, whether it be wind or solar or even gas turbines or nuclear goes through a transformer, gets the voltage at the right levels, transfers it across the over to your house, and then you have other transformers that step it down from there. So this is the challenge that we we see is if we're not making transformers here in the United States, we're relying on external and basically 80% of the transformers that we install here in the United States are made overseas. So it's important that we've got U.S.
content in here to make sure that we don't get caught up in any supply problems overseas or trans transportation, logistics, issues of bringing those from overseas here to the United States. And that's why we decided to build them here in Charlotte. Is are the policies right now here in the U.S.
supportive of that? I know there were some provisions in the I.R.A. and of course, you guys have a lot of experience with the regulations over there in Europe which have been supportive of these types of projects. You know, definitely the the changes, what we see in the support mechanisms, whether it be the I.R.A., the bill or
even some of the state incentives, we see a lot of that really starting, first of all, to grow the the grid, grow the energy transition, accelerate the energy transition, but also accelerate the and the grid capacity. And we're excited about seeing that. And that's that's why we feel now is the right time to build these transformers here in the U.S. So you're taking advantage of state policy, maybe federal policy, etc.,
Without that? Is the project economic because some might be looking towards the IRA in 2024 after the presidential election and be worried that those subsidies might not be there anymore. Well, that's always a concern when you look at we've got to make sure we've got the demand side so that our customers are asking for these transformers. And as things change within the I.R.A., we've got to make sure that our demand is is continuing. But we believe that demand will continue because we see the energy transition as a transition which is going to be needing these components. But also we see it as an expansion as a lot of things will get electrified. We see the grid expanding as well as
transitioning. Well, let's talk a little bit about the sources of that energy and how it feeds into those transformers that once they are all built here. A lot of questions right now, not only about the commitment to stay by some of these renewable energy projects, but also the costs to Siemens Energy as well as to your competitors, whether it's Labor, whether it's the cost of steel or some of the other components that go into making this. How manageable is that right now? So the costs are always the costs, right? So as you look at the the industry that we have here, we've always got to manage whether it be material cost, whether it be labor cost, and then some of that needs to come out at the end as a price. So that's what we're always working on, is the costs and the price that go into it.
And some of that is transitioning to our customers, educating our customers that pricing has gone up and pricing will go up even further, we believe. And that's what we see within the industry, that electricity is transitioning. And as we go to different sources, sometimes it's going to be more expensive. That was rich Burberry, president for North America, for Siemens Energy.
And what I just find interesting, the cost is the cost. Basically, guys, you're going to have to pay up for alternative energy. And it feels like at some point this is just a broadly inflationary story. It is a broadly inflationary story, and I understand why he said that. But it also gets to the question, too, as to whether people are going to take that price. And we've already seen the fact that you
have alternatives, right? I mean, this isn't just the only game in town anymore. And we've seen that with projects in Virginia. We've seen that projects here in New York State where people have really started to reassess whether it's actually worth moving down this road. Look, I mean, if you had somebody a bill for a renewable energy project that's more expensive than the traditional energy they were gotten, what do you think's going to happen that if the government wants it to happen, they're going to have to step in and spend more money? They're going, yes. Oh, which which is going to be hard for them to get rid of the IRA.
Yeah. And then that just feeds back into the broader like, okay, this is an it costs trillions and governments at the end of the day are going to be on the hook for that. So then what does that do to like longer term bond yields? What does that do to issuance? What does that wind up doing to inflation? A broader consequences that I don't feel like we really understand. Yeah. And then we talk about just the whole transformers and all that and just how this is really just kind of a state by state jurisdiction by your. Addiction. Think you have no real sort of like a federal program really pushing this right now.
All right. Definitely something we'll be talking a lot about over the next few days, weeks and months. And coming up here on the program, we're going to talk with Erica Clouser, portfolio manager for a James Jenison technology Fund. We're going to get her outlook on the tech sector here, valuations and the potential threats to the tech supply chain.
That's coming up next on the close. This is Bloomberg and. The high flying tech sector, well, wasn't immune from today's broad based equity selloff sparked by that CPI report this morning. A big downdraft in some of the big names, but semiconductor companies like NVIDIA, like ARM, well, they're still holding on to big gains on the year.
Geopolitical risk, including tensions between the U.S. and China, still represent a threat to crucial supply chains that the sector depends on. And it makes an interesting backdrop here for whether this rally in tech stocks has more room to run. Erica Cloud joining us right now, portfolio manager for the PJM Jennison Technology Fund to talk about her outlook for the technology sector. Erika, great to see you. Thank you so much for having me. You know, everybody right now is so obsessed about valuations or at least their perception of valuations here. When you look at the run up that we've
had in some of these big names here, did it seem justified? Look, you know, the the magnitude of the upwards earnings revisions we've seen in some of these companies has been astonishing. Case number one would be Advanced Micro Devices at before the beginning of the year. They mentioned their opportunity at $2 billion for 2024. They've now upped that number to over 3 billion, three and a half billion. And it looks like there could even be
some upside to that. So certainly the upward value movements in the expectations for earnings justifies higher valuations. But I think also it's to be expected that we should see some consolidation of the gains. Okay.
And maybe at least for today, we're certainly getting that. Whether that plays out, though, longer term, I guess it depends on your view of AI and all the sort of other technologies surrounding it. How much of that is going to actually be a contributor to the bottom line? I mean, we know there are certain companies out there was just natural fit, right? You know and it is going to sell the chips for it and aam maybe makes you know the machines that help make that but what about the other companies what is the value proposition there. So at Jennison we do take a much longer term view on the prospects for these companies throughout the supply chain. In fact we wrote a pretty detailed white paper on this that has received some very strong reception from the entire technology community. What we articulate is that it's not just
the chips, but it's also software, it's infrastructure, it's data centers. There's an extraordinary opportunity to see significant earnings power from many companies that are really enjoying this transition to accelerated computing. Interestingly enough, though, if you look at, say, NVIDIA going down like half a percent, like on a day where it's a tough tape, like are some of these guys are really holding up. So we were just talking to the Siemens Energy North America president about building transformers that connect to the grid in the US. Same kind of thing with having to build
chips in the U.S., manufacturing in the U.S. How long does that take? And like how do you as an investor play something like that? So this is a terrific question. And actually what we found with our holdings at JENNISON, which we have had for years, for a company, for example, like Lam Research, they are the companies that make the equipment that make chips. These companies have 12, 18, 24 months lead times to produce these pieces of equipment that are millions and millions of dollars. And so they really have quite a good line of sight on the longer term view of how many chips are going to be required to build out this entire ecosystem.
I think for these types of companies, they can continue to grow their revenues in excess of 20%. And of course, more importantly, profits even faster than that, because the more advanced the technology, the higher the price premium is that are put on these very valuated systems. Well, that's kind of my next question in terms of that growth rate, right? Like, can you keep growing at 10 to 20% every quarter, every year? Like, is that a realistic expectation? It sounds like yes.
So the answer is it really depends. Our mandate at JENNISON is really to look at the longer term prospects and figure out those companies that can sustain those types of growth rates that you mentioned. There are certain companies that are more mature and are not seeing the pricing power that we would expect to see in our core holdings.
But for companies like Applied Materials, LAM Research, RSM Lithography, and certainly in video, when we look out over the long term and we map out what we think the revenue growth is going to be, we come out in some cases double or even triple what the consensus looks like. Or alternatively, we find that on a longer term basis, we're some of the only people that have estimates published for those for those companies. There's there's a lot of promise there. Certainly from the corporate side, I do
wonder about regulations, geopolitics, getting in the way of all this. We know the U.S. and China are obviously at odds over what technology should be shared with whom. Do you worry at all about that potentially disrupting this trajectory? This, I think, is the best question, because it's actually the thing that keeps us up most at nighttime when we look at the tensions between the U.S.
and China. When we look on restrictions of what technologies can be. Sold into China. We see this as potentially hampering technological and development and innovation. Because if you think about it, there are incredibly innovative companies in China that now simply don't have access to leading edge technologies, whether it's lithography equipment, whether it's semiconductor etch equipment, you know, or even software tools. So this is something that really is something of concern.
You also think about what it is to have to duplicate all of your efforts instead of just having one plant in one low cost area. Right. In order to diversify against geopolitical risk, having to make things in two different disparate places is by definition, a higher cost proposition. All right, Erica, great conversation. We're going to have to leave it there. Erica, Gloria, portfolio manager for the PJM Jenison Technology Fund. Stick with us for 14 minutes until we
get to the closing bell. The full breakdown of all the market action with stocks is session lows. This is Bloomberg. This is the countdown to the close Romaine Bostick alongside Alix Steel with 10 minutes until we get to those bells. Alex The good news is we're off the lows of the day. The bad news is we're still deep in the red.
It's still a brutal, brutal day. I mean, the superlatives for the Russell for the Nasdaq 100 and for the S&P are all pretty dramatic, although I pointed out earlier that Nvidia is only down 5/10. So those really big high quality tech names are still definitely outperforming. The ten year yield is down up by 13
basis points, really kissing that 100 day moving average. Yeah, but I just really wonder what happens when we come in tomorrow. Like, is this the dip investors were waiting to buy? That's a big question, though. I guess if it weren't for that CPI report, I'd probably say, yeah, but this might be the game I have to be up for. Yeah, I mean, remember, it was a really hot CPI print that we got this morning and it's forcing a lot of folks out there to really rethink the path of Fed rate cuts. You're already seeing that, of course,
in the swaps market and we have a chance to catch up with Diane Swonk earlier at KPMG, who gave us her outlook for the year. We only have three rate cuts this year and that really is sort of consistent with what Jay Powell had said at the press conference in January, and that was the dialing back of restrictive policy. This is not rate cuts to stimulate the economy. And the fear is that if they cut too quickly, they could really reignite the cooling embers of inflation. Speaking a little bit earlier there with Diane Swonk, Anthony Segal and Bene. Joining us right now, chief market
strategist at Ameriprise Financial. And Anthony, I think this report we got this morning took a lot of people by surprise. But should it have taken them by surprise? No, I don't think so. I mean, economic growth has been very strong to start out the year. We've had very strong employment. We've got Atlanta Fed GDP now, first quarter tracking at 3.4%.
And I don't think the path lower inflation. I don't think it was reasonable to expect that that would be a linear decline, particularly that last mile. But the markets have a rate problem for the last couple of months. And today's inflation report probably takes a Fed cut off the table not only for March, but probably May. Our view has been very similar to your last gasp, where, you know, we see about three rate cuts this year and I think that is supportive for the market as long as earnings growth is moving higher. And today's decline is pretty wonderful. You're seeing small caps come down, the
interest rate sensitive sectors come down. Those areas that we're really anticipating more aggressive rate cuts this year. Those are the areas that are getting hurt in the areas that have very strong profit growth like technology. And they're not down as much.
And I think it makes sense given what we saw on the CPI report today. Well, then I'll steal Alex's question that I think she posed in the previous thing, which is are we going to see maybe some folks willing to buy the dip, at least when it comes to some of those higher quality tech names? Yeah, The trend over the last couple months, particularly since the October lows, is these pullbacks have generally brought in more buyers and you've seen stocks gravitate higher. Question is, is we haven't really seen a five or 10% correction in the next couple in the last couple of months. That's typically normal. Why have the technicals have been overextended for the last couple of months? And so there is room for the markets to pull back a little bit, particularly in some of those really high growth big tech names. But there's $6 trillion sitting on the sidelines.
And I think there's a lot of investors that have missed this rally over the last couple of months that would likely like a five or 10% pullback to maybe get more on side in the portfolio we have in terms of stocks. That's why I'm really interested to see what happens tomorrow morning. When you wake up, you look at futures, you look at them now, you'd be like, oh my gosh, forget it. We're going to be out to bed tomorrow.
But I feel like it could be different. Does that money, you think, go into the safety, quote unquote, of, say, big tech or does it go back to small caps that had been the trade the last few weeks? Yeah, why not? One of the most interesting concepts that I think gets lost in a lot of the macro noise around growth and inflation is that earnings expectations have been ramping higher for the last two years. So when you look at next 12 months earnings expectations, they have been on a steady climb higher and I think that's been very supportive for the fundamental narrative that stocks can continue to move higher. Question is, is a lot of that earnings
growth is coming in, big tech and it's coming in the areas that have really explosive growth opportunities. And so the rest of the market has not really kept pace. And so the question we're trying to answer is that in a pullback of five or 10%, do things like small caps and cyclical value add more opportunity? And I would say those areas have largely discounted the fact that maybe we don't get six interest rate cuts this year, we get three. And so possibly in a rotation out of big tech, maybe a pullback in the market would include some areas that just have not kept pace. Small cap cyclicals value those areas that maybe have more opportunity. If we do see a soft landing.
So it sounds like you do want to go in to the cyclicals and small caps. You still need to keep big tech, though. The barbell that. Yeah, I think, you know, in terms of earnings growth, you can't ignore what's happening in big tech, in A.I.. And so at least in terms of our positioning being equal with those areas and, you know, in a broader portfolio makes a lot of sense. But in terms of maybe that soft landing narrative where the Fed is cutting interest rates in the back half of the year, growth is remaining positive, employment trends are positive.
That's a real good set up for the rest of the 494 companies that haven't really gone anywhere over the last year for their profit growth trends to improve. And so I think if you buy into the narrative that inflation will move lower over time, which we do and profit growth will accelerate over the course of this year, then I do think there's a lot of areas that pose opportunities outside of big tech that maybe perform a little bit better this year if the Fed is cutting rates later this year. Have you been encouraged, Anthony, by the earnings season so far? What we've heard? Yeah. Yeah.
I mean, I think in terms of net profit margins they've held for four this year or they've held for the previous quarter. You're seeing cost cutting initiatives across companies. So while that's not really growth exciting, they are maintaining growth.
A lot of companies have said or mentioned that they still have some pricing power and the economy is still strong. So consumers have been resilient. Earnings growth and big tech has been pretty positive. And I think there's opportunities for that earnings growth to improve in some of these cyclical areas, things like financials, if rates come down a little bit, materials, industrials, health care, these are areas that really haven't kept pace over the last 12 months. And a few trends improve in the consumer and businesses remain resilient. There's opportunity for these stocks
outperform. All right, then I have to leave it there. Anthony, always great to talk to you. Anthony Cyclone Benny, chief market strategist at Ameriprise Financial, helping us count down to the closing bells. But less than 3 minutes to go, Alex. And if you put up an intraday chart of the S&P 500, you know what you're going to see.
It's a massive dip by really just in the last few minutes here. In fact, we're up about 30 points on the S&P 500 since just I don't know, about 20 or 30 minutes ago here. Still down one and a half percent on the day, though. Yeah, you saw it around 10:00. Yeah, you saw some dip buyers come in and then it kind of rolled over and we're going to pick up some steam to the downside, down 2% and no longer just down one and a half percent. It's just the money. Money's still there to be bought. It is. And not only are the prices going up, but so too is the volume.
Maybe that is the set up for tomorrow. If you stick with us, we'll have a full break down for you of all the market action as we take you to the bell on Beyond Beyond the Bell, Bloomberg's comprehensive cross-platform coverage of the U.S. market close starts right now. And right now we are 2 minutes away from the end of the trading day. Romaine Bostick alongside Alix Steel. We're counting down to the closing bell. And here to help take us Beyond the bell, it's a global simulcast with Carol Massar and Tim Fenwick.
Welcome to our audiences across all of our Bloomberg platforms, television, radio, originals, our partnership with YouTube on a very consequential day for the markets, which started with a big CPI report, a big jump in Treasury yields and a big drop in equity prices. Yeah, absolutely. We saw once again another major market reset when it comes to expectations about what the Fed will do in terms of rate cuts more like later rather than sooner. And you're seeing it play out. What would I find remarkable, guys, is even with this correction that we're seeing or not even technical correction, but move down in stocks, you still have a Nasdaq 100. That's up more than 4%.
You have an S&P that is still up about three and a half percent for the year. So still some significant moves here today even with the selling we're seeing today. Yeah, on the equity market off our worst levels of the day, which were down 2% on the S&P 500, down 1.4% right now. But Alex, I was thinking all day about what you said yesterday about the rates market and your comment yesterday that bonds did nothing. And it's almost like everybody heard you because today the story is all about the the bond market. So much credit.
I have so much power. No one listens to me. What are you talking about, Tim? That's what you know. I think the point is, if you buy the dip, Ramin, do you buy it in just tech and or cyclicals and small caps we put on the side right now as we rewrite the bond market yet again? Yeah, it's hard to know. But I do have a sense that is probably going to end up being the Magnificent Seven or Magnificent Six, whatever is sort of the new anomaly of the moment. But look, people gravitate to safety and those stocks offered a lot of safety as we get to the closing bells. And we should point out we have several
consequential earnings coming after the bell tonight. So stick with us. That includes Robinhood, MGM, Zillow, Lyft and Airbnb. Let's go through the numbers here with
the Dow Jones Industrial Average looking to close the day down. Well, what is it, 524 points here. That's down by about 1.4%. We should point out it could have been a lot worse.
Similar story for the S&P 500, which is down about 1.4% on the day, right around 4953. At one point, it was down as much as 2% on the day. The Nasdaq composite going to close out
lower by about 300 points, a 1.8%. But your big laggard on the day that was the Russell 2000 is going to finish the day lower by about 81 points or 4% lower than where it started. Yeah, not really many places to hide in this market. You look at the S&P 500 remain 451 names to the downside. As we say this, though, earnings
crossing the Bloomberg Akamai earnings crossing the wire right now. Those shares moving lower in after hours, trading down 12% here with fourth quarter revenue coming in a little bit light 995 million is what the company is reporting. What the street wanted to see was 1 billion on the nose did not get that adjusted EPS. That actually was a beat coming in at $1.69 a share. The street was looking for a dollar 60. So basically a little bit of a miss on
revenue, a little bit of a beat on adjusted EPS. But the net effect of it is investors don't like what they see. Shares down 8%. Also, tough tape to get into today.
Speaking of just overall, if you look at the map, everything red, there's like a sliver of something green, but don't even know what that is. Everything red. It was a. Pretty ugly, ugly spot. Yeah, no doubt about it. Right. It was a tough one. And that's why fighting Gaynor's not so easy.
But luckily for JetBlue, kind of holding on to its gains throughout the session up and pretty much finishing at its best levels of the day guys, JetBlue up 21%. You know the story. Iconic activist investor Carl Icahn revealing a new nearly 10% stake in the company. And this is making him, according to Bloomberg data, the third largest shareholder. Seems like he's looking to, I think, maybe get a seat or maybe some board seats.
It's not immediately clear in terms of what he's wanting, but the stake happening as JetBlue that carries new chief executive officer Joanna Geraghty took over. Can I just interject, though, too, because Alex was asking what that little green sliver was, so I had to look it up. Commercial and professional services, which is largely waste management, which rallied 6% on the day. Never a good day when we see red. Well, you always have if you had weighted in terms of my gainers were two companies among sanitation. Sorry, Carol, that I step on your toes. You did waste management, your number
two. I got to start going to these meetings. I didn't know what you were. Yeah, we reported fourth quarter adjusted EPS ahead of expectations. Company issued a full year adjusted operating EBITA guidance that beat estimates. Basically, garbage, you know, doesn't matter what the economy does.
Ecolab is also your number one gainer in the S&P 500 food sanitation company. Biggest intraday gain I think it's around November 2020 and this company forecast adjusted earnings per share for the first quarter. They beat the average analyst estimate. So yeah, garbage. Do you have any you. No. Okay. So can I mention another one real
quickly, zoom in info. Also had a great day, up about 14%. I wanted to give that to you. Oh, thank you. You're very thank you. You're so generous. I am so garbage in Zoom. Okay, well, let's let's talk about the seven or the mag six, whatever we're calling them these days. Whatever we're calling them. They really led losses in the S&P 500 on
a points basis today. In fact, they were the worst performers. All seven of them were six a month. You want to count six of them and take Tesla out of there. But it was up there. I do want to focus on Microsoft, though, finishing. They're down by 2.15% on the day. At one point, it was at its at its
lowest levels. It was the worst day since October 2023 in terms of intraday. Let's talk about Avis, budget ticker C.R. Car shares fell as much as 24% after the company's fourth quarter revenue and adjusted EBIT. It missed the average analyst estimate. Shares falling on the day, 23%.
On top of that, the inflation data that we got earlier today, it showed the cost of vehicle maintenance, also the cost of repair rose and prices of used cars drop. Both of those things. Bad news for Avis budget and for its peer Hertz. And finally, shares of Roku took a dive after The Wall Street Journal reported that Wal-Mart is in talks to buy the smart TV manufacturer Vizio for $2 billion. This a play on the data that these company that these this TV company has. All right.
So in a very down day, you've got Robinhood shares rallying about eight, 9% here in the aftermarket. Let's get to some of the numbers just crossing fourth quarter net revenue, 471 million. That's above street estimates, folks at 457,000,004th quarter transaction based revenue, $200 million. That to better than what the Street was expecting. They were expecting strong numbers. We had a lot of positive equity moves in that last quarter. The estimate in terms of transaction based revenue, as we said, coming in at 200 million and when 91.2 was the estimate sees 2024 total operating
expenses a little bit lower. Well, 185 to 195 billion giving a bit of a range. But again, fourth quarter net revenue, that's a beat and the Street's liking it remaining. I want that temper. Well, I just want to go back to the cost
thing because I saw in the quarter those operating expenses were down 17% year over year. And we should point out, though, our actual operating expenses rose. But it was actually apparently a lot of the share based compensation that drop that led to that drop in operating expenses on the quarter. Tim, let's talk Lyft. Shares of Lyft are moving higher in the after hours right now.
This after the company announced gross bookings came in above estimates at 3.72 billion versus 3.67 billion. Fourth quarter revenue came in exactly in line with estimates, but fourth quarter adjusted EBITDA was a big beat, 66.6 million versus estimates of $56.56 million.
Fourth quarter rides coming above estimates as well. Active riders also coming in slightly below estimates at 22.4 million. Lyft shares up a whopping 6.8%, kind of bouncing around in the after hours, up about 4% right now. Alex, let's get to Airbnb. Here's the headline Buying back up to $6 billion of shares class, a common stock. They're looking at the first quarter revenue and this is the one that they already kind of guided down to be a little weaker potentially, especially if you look at Expedia, first quarter revenue on the high end coming in 2.07
billion, that's actually better than estimates for the fourth quarter. Just overall, you're looking at a little bit stronger revenue, gross booking value for the fourth quarter, also coming in a little stronger than estimated experience is. Looked a little bit stronger than estimated margins, a little bit stronger than estimated. You're hearing a theme here, but that first quarter revenue outlook also better than estimated plus that buyback. Yeah, that's a big deal. Right. And this is a stock that's already been
outperforming this year, up almost 11% here in 2024. And so, you know, we wonder, are people still wanting to experiencing things? I would say it certainly was playing into the fourth quarter. It'll be interesting, first quarter revenue. So giving a little bit of an outlook there, 2.03 billion to 2.07 billion estimate is 2.02 billion. So remain in terms of yeah, they're
pretty upbeat that people are going to still want to do some traveling here and they even threw in a comment about A.I. for you guys there. You know, they're making deploying A.I. across all of their services and that includes the large language models, basically, that folds back into that game plan or project that they've been working on here. And the idea, at least according to them, what they've said on previous conference calls, the idea that this makes that experience better, at least relative to some of their competitors, like what's the favorite one you have with an exposure that is verbal? Yeah, yeah, that's for Turbo. Hey, is this a company where you can still work from anywhere? If you work for Airbnb, like, they're, they're still like leaning in to the completely remote work. Alex, the CEO says, okay, well, you know, we're Airbnb, so we're going to set the example that you can work from anywhere. I have absolutely no idea what you do,
but but it has to be an Airbnb. You have to be in there. That's true. But look at that stock. Move up about 9%, guys. You knew buyback stock up to $6 billion and you bet that's called lowering expectations and then beating and then you get a nice buyback. Hey, did we do Lyft? It's just me. Did you?
Okay. I did it, Carol. I know you don't. I know you don't pay attention to what I say. It's up 7% to end the year tomorrow. And just and before we go, we should point out Instacart shares are plunging right now. Those results also crossing the wire here. Hard to get the comparison here as the website is not loaded, but the results are out.
Shares are down. All right, guys, But some market action here and some good. So we can see
2024-02-18 12:58
