Bloomberg Open Interest 07/10/2024
A 36 new record yesterday. Will it be 37 today? Less than 30 minutes until the start of trading on Matt Miller. I'm Sonali Basak and i'm katie greifeld. Bloomberg open interest starts right now. Another day, another record for Wall Street.
The S&P 500 on its longest winning streak since January. And Jay Powell may power the rally even further. The Fed chair returns to Capitol Hill for day two of his testimony. And risks remain to the rally as investors brace for key inflation data and the start of earnings season. So let's take a look at where markets
are trading right now. 30 minutes to go until those bells ring. You can see they are building on yesterday's momentum. The S&P 500 currently up about 2/10 of a percent in premarket.
Even better if you take a look at big tech currently up about 4/10 of a percent on the Nasdaq 100. A little bit of a rally building in the bond market. That ten year yield back below 430 currently down about two basis points. Matt. So it's a big bet on tech revenue growth.
Also on bad economic news, you can see here this blue line represents economic surprises and they're mostly to the downside of late that has helped power the rally and valuations up to 22 times forward earnings as investors expect a cut. And Matt, there are some stocks to watch before the market opens. Of course, I'm watching shares of Apple gaining after reporting a 21% gain in PC shipments last quarter. That was the biggest jump among all global PC makers, according to a report by IDC, Apple up about 4/10 of a percent pre-market. Also, air products and chemicals watching its surge almost 2% this morning, higher after Honeywell announced that they're buying the company's LNG process, technology and equipment business for 1.8 billion in
all cash. Joining us now is Laurie Hymel, chief investment officer at State Street Global Advisors. And Laurie, you know, we continue to hit record after record, even with economic surprises, disappointing even with, you know, rate cuts.
We thought at the beginning there we'd see five or six. Now it's like one or two. What do you think continues to drive us higher? Well, there are several things that will drive us higher. First of all, is continued optimism about some of these long term thematics like A.I. and digitization. And we're going to probably continue to
see that as these companies have a lot of momentum in their sales activities and continue to kind of divine that future. But we're also seeing less concerned about a recession, and that's going to help areas like banking. It actually should help some of the consumer discretionary areas. And so you're seeing a broadening out in the marketplace. And let's follow that a I story because we had Citi out with a report earlier this week saying it's basically time to take some profit in the High Flyers of this cycle. Then you have BlackRock, who is still both feet into that theme.
When do we see the eye rally start to broaden out? And is that the time to really follow it into something other than just the makers, for example? Well, I think one of the keys is going to be when is there something else that looks attractive that gets confidence? And the you actually have investors starting to chase those areas as well. So we do think that there are opportunities in materials and industrials. We do think that there are opportunities in some of those consumer discretionary areas obviously select it. So right now, people aren't concerned about the stretch valuations.
But once you start to have other opportunities build, as we do navigate the soft landing, we think that there will be more vulnerability in some of those high flying names. Now, if you're worried about the high flying names, Laurie, how do you feel about some of the things that are starting to broaden out? I thought what you said was pretty interesting about the banks and consumer focused stocks. Given there is still a lot of concern around those names and on many of those names are going to start reporting as early as tomorrow. Mm hmm. Well, first of all, we don't think
there's any immediate concern. In fact, if anything, there actually are a lot of bright spots because we have continued to have strong economic activity and we're starting to see that broaden globally. So if you look at our tactical allocation portfolios, for example, we've started to spread our equity outs a bit. So earlier this year it was definitely more focused on us large cap.
But now we're looking at areas like Europe where we think the valuations are relatively attractive. So we think trying to diversify your portfolio here so that you're not over geared to those high flying names, but you're also ready for opportunities as this market does start to broaden out. What do you think about the leadership? I mean, are we going to see any changes, Laurie, as we get deeper into earnings season? I know that Gina martin Adams from Bloomberg Intelligence is writing that, you know, the Mag seven earnings growth is going to slow down. And for the first time in like seven quarters, the S&P for 93, the other stocks in the index are going to show expansion. Well, we've been waiting for this moment for a while. And if you think about what's happening right now, inflationary pressures are starting to abate. So that may support certain industries.
You probably see consumers slowing across the board, but very, very much pockets of strength still there. The banks will be an interesting one to watch because they may actually be able to release some of their risk. Herbs and things of that nature. There are still vulnerabilities and
things like the commercial sector. So I think it's going to be a much more idiosyncratic market. You're going to have to look industry by industry and company by company. As we broaden this market out. And of course, we're waiting for the unofficial start of earnings season, which is, of course, the big banks kicking off at the end of this week. We have had some earnings come through. Helen of Troy, for example, it results
really disappointing. They're a bit of a worrisome sign about the consumer. Saw one big downgrade this morning. Exactly that, too, as well. So you think about the state of the consumer, the softening consumer. You say that it's going to be an idiosyncratic earnings season, but how much of the common denominator is that weakening consumer in these reports that we're expecting? Well, it's likely to be pretty bifurcated.
We're already seeing that right there. If you look at the upper echelons, they still have the wealth effect. They're seeing their equity portfolios grow. They're seeing their housing values grow. They're not vulnerable in terms of employment at this stage in time. So they're actually in a pretty good spot. But as you note, if you look at the
other end of the spectrum, there are vulnerabilities. The savings rates are going lower. You're starting to see some consumer delinquencies. Wage growth is not improving. So it really is going to be a tale of two cities. And that's why we're very much focused on discriminating and quality.
Looking at those quality balance sheets, those companies that have a bit of a moat and are geared to those places that are still growing. How much conviction or do you have to put money to work at these levels? You're looking at potentially a 37th day of record highs in the S&P 500. And you have to wonder whether it's equities, cash, gold, fixed income. How do you think about allocation overall? Well, the first thing is we are still overweight equities, but we're also holding a fair amount of cash to be opportunistic if we do see a pullback. And as you note, we also are holding some gold because we think that that's one of the few diversifier as against some of the extreme events that we may see over the coming weeks and months. But I think it's important to note that
within our equity portfolios we are diversifying a lot more. We're not focused just on the MEG seven, we're not focused on US large cap growth anymore. It is a more broadening story. But when you say gold, you mean the actual soft metal or bitcoin? Well, the original crypto, I like to say gold, the original crypto not diversifying into I mean, it's pretty amazing to see Bitcoin still holding. I think it's up again another 1% and change today, $59,000.
Is that not an asset that you think? Is it you know important to hold in the portfolio yet? Well look, when we look at strategic allocation and tactical allocation, we tend to focus on those asset classes that have a little bit longer history, that have more stable correlations where you actually can think about, you know, analysing and going back further. But look, there are opportunities for you if you want to think about speculative opportunities, there are opportunities and all sorts of other assets and crypto would be one of those. But size your position appropriately, recognize that it's going to have a lot of volatility.
All right, Laura, are you going to stay with us? We have more to talk about with you as Jay Powell goes in front of the house today. So Lori High analyst, AC Global Global Advisors sticks with us after our 36th record high on stocks here. You can see futures. So right now, S&P futures up a quarter percent. If it holds or if we trade in the green
by the end of the session, it'll be a 37th record high and we're only in the middle of July. It is, though, a very solid month historically for stocks. Coming up, day two of Jerome Powell. His testimony will preview what to expect from the Fed chair next. This is Bloomberg.
Let's get to high interests now. A look at what's making headlines around the world. Joe Biden's allies are trying to shift the narrative from the president's mental acuity to Donald Trump's policy goals. Many Democrats are warning of the dangers of Project 2025, which is a suite of policy proposals drafted not actually by Donald Trump, but by the conservative Heritage Foundation for Trump to pursue if he's elected in November. The proposals range from gutting the federal Civil Service to blocking efforts to fight climate change, and Trump is getting closer to announcing his VP pick during a rally in Miami. Trump teased the possibility of Florida
Senator Marco Rubio, previously known as Little Marco, as his running mate. He stopped short of making an official announcement, but did say he was officially challenging President Biden to another debate, this time without moderators. NAITO Allies promised five long range air defense systems for Ukraine and a fresh show of support. The treaty organization's leaders resisted offering the country a path toward membership, and fresh assessments indicate the conflict with Russia is headed towards, as you may have expected, an indefinite stalemate. Katie. And also of high interest.
Today is day two of Paul's testimony on Capitol Hill, speaking today before the House Financial Services committee. Bloomberg's Michael McKee joins us now for a preview. And Paul really didn't want to say anything about the timing of policy moves yesterday, but what did we learn from the Fed chair? Well, there was a shift in tone or emphasis from Jay Powell yesterday towards the idea that the risks are balanced now between inflation and growth slash unemployment. The Fed watching the growth figures come down, the Atlanta Fed GDP now number now down to about one and a half percent unemployment, up to 4.1%, where they thought it would be at the end of the year.
So the trends are towards a slowing economy. Now, July is too soon, but they could be setting up if they get good news tomorrow with CPI at the end of the month, if they get good news from the PCG and that continues, they could be setting up for September. But because they don't know what they're going to get in these data releases yet, Powell is unlikely to give us any kind of firm indication the markets are just reading between the lines. Michael McKee, we thank you so much for
your analysis. Keeping an eye on all of it, of course, in day two now of Powell's testimony to Congress. But for now, still with us, Lori Handel, chief investment officer at State Street Global Advisors. And you hear what Mike was telling us, this idea about more balance risks between inflation and growth. But as an investor, what are you more concerned about, inflation or growth? Well, look, we're concerned about both, and they're both intertwined.
But we do think that the Fed needs to cut more rapidly than perhaps Powell is admitting at this stage in time, this idea of data dependence. While it's important we see a lot of variability in the data, a lot of revisions in the data. And so I think what we saw in the testimony was a recognition that those risks are more balanced, that the labor market is cooling a bit, and we hope that that will give them the cover that they need to cut rates ideally by September. Well, Laurie, to that point, you were out with a big call in April that you expected the Fed to cut rates in June. That didn't materialize. It seems like most people in the market are coalescing around September by 50 basis points. Right.
50 basis points was the June call for Lori there. But why do you think the Fed needs to cut rates here? Because there's plenty of people that we talked to on this program and others that say the Fed has the luxury of being able to wait right now. Well, look, we know that policy operates with a lag.
And so if we look at the backdrop right now, we've got an economy that's going to grow at around 2% or so. We've got inflation that, by the Fed's measure is now below 3%. We don't think there's anything magical about the 2% number per se. In fact, you know, not that long ago, the Fed was talking about a range around 2%. So this obsession with getting inflation durably below that target of 2%, we think is making the economy quite vulnerable.
Rates at five and a quarter to five and a half just aren't consistent with an economy that's slowing at the levels that we see. Well, let's talk about why it makes the economy vulnerable and why it might make the stock market vulnerable, because you take a look at where we're sitting with rates at 5% or so and it feels like you haven't seen sort of the that higher rate environment play out in ways you might have expected in previous cycles. So what do you see as the risk of the Fed waiting too long to lower rates here? Well, there are several things that have helped during this environment. Certainly one of the big ones is that their higher rates haven't built into consumers as much as one might have thought, and that is to for a variety of reasons, you know, the overhang of some of the stimulus that the consumers had a little bit of wage growth and strong employment. And if you look at housing.
For example, the bite just isn't there because you haven't had the turnover in housing that would reset the levels of rates in housing markets, for example. But it's also in businesses where they're not necessarily vulnerable. They have strong balance sheets. A lot of the refinancing risk is still sort of pushed out. But that doesn't mean that that doesn't
create problems because ultimately you do need to have good financing to grow. You do need to have attractive rates, etc.. It's pretty amazing. In fact, Torsten Slok was on on this yesterday and he pointed out that pre-pandemic 38% of homeowners had a mortgage under 4%. Now it's 63% of homeowners that have a
mortgage under 4%. So that reduces kind of the power of monetary policy, if you will. Do you think Jerome Powell needs to make bigger moves to fight that kind of drag? I mean, is that why 50 basis points he should be thinking about, in your view, rather than 25? Well, our view is that he does need to act soon and he should act with some intensity. So 50 basis points in September would be very attractive from our vantage point. And we think probably another rate cut before the end of the year because, again, policy operates with a lag.
If you're only doing 25 basis points each time, how long is it going to take you to get the rate from five and a quarter down to three and a quarter or perhaps even lower every day, if you will, That goes by or every Fed meeting that goes by where no action is taken, that creates more vulnerability. But we don't achieve the soft landing, that we actually have something more nefarious. So and he you know, yesterday he was saying, yes, inflation is coming down and they're confident about that. He also mentioned that the labor market is softening. And if you look at economic surprises, I know I harp on this, but if you type as you go on the Bloomberg, you can see that we just continue to disappoint in terms of the economy. Do they risk a recession if they don't
cut, you know, a little bit further, a little bit faster? We think that they do. And again, there's a lot of enthusiasm about some of the long term opportunities. Friday, we talked a little bit about, you know, digitization and other A.I. in other areas. But in the in the moment, if you will, consumers are starting to be vulnerable, particularly at the low end.
The higher rates are starting to bite. And the longer that we maintain an imbalance between growth and inflation and those restrictive policy rates, the more likely that we do have a recession. Laurie, let's talk about the potential for that September rate cut as the market is expecting.
And you think about all that cash that is on the sidelines, you think about all the money in money market funds and the rotation you may or may not see. How do you think that cut will cause any repositioning? And do you think that repositioning may perhaps be already priced in? So we think there's a slow repositioning already happening and we are seeing more demand for longer degraded fixed income, particularly some of the sectors like investment grade credit, where there's incremental yield beyond just Treasury rates. And we don't think this is going to be a tsunami because even if the Fed does cut by 50 basis points, you're still going to see money rates that are you forehand or maybe even a low five handle. So it's not going to be a quick change. But we do think that there is valuation and rates right now. We do see that there's volatility there. So it may take a little while to realize that duration bet, but that would be one of our favorite trades for the back half of the year.
And if you don't get that September cut, you kind of made this warning call here that every day that goes by without a cut and that rates stay high, it creates a greater risk of a greater downturn. How much room does the Fed really have, in your view, before causing something greater in terms of a downturn? Well, they have some wiggle room here, but the big thing would be that they'd have to respond more rapidly and more intensely if they keep delaying. So there also is this trade off where if they don't move in September and then you start to get into, you know, closer to the election period. And again, the Fed's not a political animal, but by the same token, they're going to be watching what they do very carefully.
Then all of a sudden, you might have a very sharp fall off in economic activity or a sharp increase in unemployment rates, and then they've got to act a lot more responsibly. And will they be willing to do that? Laurie, it is so great to speak to you. Really appreciate you joining us on our launch week. That, of course, is Laurie Heidel of State Street Global Advisors. It's so interesting to speak to Laurie. Of course, we spoke to Thorsten Stock yesterday.
His big call was that the Fed doesn't cut rates at all in 2024. She obviously on the other side of that saying that the Fed should have cut in June and they should cut right now. But part of that view too, from Thorsten was this idea that they have that wiggle room, that things are still really strong out there. Yardeni seems to take the similar type of view that things have not really broken to the degree thought they would with a hiking cycle that has not only been so fast but lasted so long.
On the other hand, depending on who wins in November, right. We've heard Larry Summers say that Trump's policies are the most inflationary he's ever seen. And, you know, if Donald Trump is elected and put those puts those policies in place, I know you know, those are some big ifs. Jerome Powell may not really have time to fight that and he may have to go the other way so soon. Exactly. A delicate dance for the Fed chair.
Of course, we'll be hearing from him in the next hour or so. But coming up on this program, we're going to take a look at the companies making the most social buzz today in our Social climber segment, up next. This is Bloomberg.
All right. It's time now for social climbers, the companies making the most waves on social media this morning. And first up. Microsoft and Apple are dropping plans to take board roles at open air. Now, the surprise decision underscores the growing regulatory scrutiny of big tech's influence over artificial intelligence. Big U.S. tech companies like Nvidia, Alphabet and Amazon have poured tens of billions of dollars into A.I. businesses.
Next up, we have legal zoom, not passing the bar. The online loss services company cutting its full year revenue guidance below estimates and also announcing a sudden CEO change. Now that news spurred at least three analyst downgrades and you can see that in the stock down almost 31%. And finally, the discount chain, big
lots saying today it will close up to 40 stores this year and may declare bankruptcy. The company blames inflation and decreases in consumer spending. And you've also seen other brick and mortar chains such as Rite Aid and Red Lobster also announcing closures this year. And of course, you can follow all the latest company buzz on t r e and go on your Bloomberg terminal.
So interesting to see more bankruptcies, more potential bankruptcies here, of course. Red Lobster shrimping themselves to death. That was a big story a couple months ago. And is that really what happened?
Did they offer like never ending shrimp and that drove them to bankruptcy and lose money on it, but probably not enough? That would explain, you know, what they say about good intentions. Right? Not all of them always work out so well. You know, actually, US bankruptcies according to S&P Global reaching the highest monthly level since the early pandemic. That is a cool function, by the way, Becky.
Why go on The terminal allows you to break down bankruptcies into industry groups. So you can also see where a lot of the pain is. Consumer discretionary, almost a fourth year of this year's bankruptcies, health care, real estate also starting to stack up, technology starting to rise as well. Remember, that is where a lot of those unprofitable companies are in the capital markets has started to close to them. So a lot of ripple effects.
And there really speaks to that dispersion. Investors are talking if I could quibble, if I could quibble, I would say that maybe the chart shouldn't be green. That makes it looks like I agree. Yeah, no, it should definitely be red. Good for the bankers and the lawyers.
You know how expensive a bankruptcy is. That's true. That's true. Someone does end up benefiting from. You can go into detail here on this function.
See Mallinckrodt odyssey and Viva Yellow Corp. I remember that one, Joanne. All of these with, you know, two, three, four or 5 billion in liabilities. Bad for consumer options, by the way, at the end of the day. All right. Very interesting stuff on bankruptcies. It hasn't stopped us from hitting new records, of course. It's really this rally been powered by
710, as some have even said. Wilson says 50 stocks are his nifty 50. And we continue to see futures rise into the open. Just less than 4 minutes left and we're up on the S&P, a quarter percent. We could have a 37th new record today. This is Bloomberg. 30 seconds until the start of trading after another record high for the s&p yesterday. This is Bloomberg open interest on Matt Miller. You can see futures pointing higher
again today ahead of Powell's testimony on the New York Stock Exchange. Ringing the bell, we expect expecting 360. That's a non-profit that helps education for people with autism and related disorders in New York. Stock Exchange has always been a big
supporter of of autism and talent energy starting to trade on the Nasdaq. Let's get over to Katy Greifeld right now. She's got to check on the major averages.
Yeah, you take a look at how the big indexes are trading as the bell rings. It's another update for the S&P 500, up about 3/10 of a percent. This would be number 37 for record highs so far this year. Take a look at the Nasdaq 100, up about 4/10 of a percent.
We put the Dow Jones just for you, Matt Miller, and it's doing absolutely nothing. I'm going to go ahead and call that 39,000. I'm not that excited. Let's talk about single stocks here because air products and chemicals, it's gaining this after Honeywell agreed to buy its LNG process, technology and equipment business. It's a $1.8 billion all cash transaction, not seeing a lot of movements in the stocks as you might have expected, but still snarly. So really interesting to see a deal in this market. Absolutely. M&A driving markets as well as leadership changes.
Keeping an eye now on three and the company announced that its CFO is stepping down at the end of the month. You may remember here, Katie, that at 3 a.m. they also had a CEO change earlier this year, three now up actually about 1% on the day.
People seeing it as a sign now that perhaps a new CEO could put one of his own in place. All right. Nvidia also climbing higher today alongside other chip makers and AI related stocks after TSMC. Let's get a closer look at Bloomberg's Abigail Doolittle everybody got. Yeah, well Taiwan Semiconductor put up a great quarter, 40% sales growth and as a result you can see those ADRs up about 2%. But to your point and video up nearly as much. And this has a lot to do with the fact
that Taiwan Semiconductor is the sole provider of Nvidia's most advanced chips. Apple's Chu as a matter of fact. And when I use the policy or the supply chain function in a Bloomberg terminal, TSMC is about 10% of their revenue or so comes from Taiwan, from NVIDIA, 25% from Apple. But that's why some of that strength is here. But we all know about the Nvidia rally.
But let's put it into perspective because one question everybody has. Can it last and you can see over the last year up 215%, the stock's up 59% and then the S&P 500 not shabby, 25%, but that equal weighted index up 8%. So, again, can this last one thing I would like to point out, Katie, is while their revenue growth is really robust, if we take a look at what's expected ahead in the last quarter, the fiscal quarter ending in January, up 126% this current year, that ends in January of 25, almost 100%.
But then take a look at this, really a slowdown as investors start to focus on that unless they continue to boost, boost, boost. Well, the shares may come back to Earth. And that, of course, would be bad news for the broader market, given it feels like the entire stock market rests on invidious shoulders. Abigail Doolittle, thank you so much. Joining us now is David Lefkowitz. He is UBS Global Global Wealth, head of
U.S. Equities. And let's talk about your year end price target, 5500, the S&P 500, it's just below 5600. Your upside target is 5700. We're not too far away. Tell us about the path there between now and the end of the year. Sure. Yeah. I mean, yeah, obviously the market has had a very good year so far, and we're we're just barely over. Halfway done.
But look, I would say the broader picture is that the environment remains pretty supportive. Right? We've got pretty, pretty good growth, pretty durable growth. We're seeing a reacceleration in profit growth. I think as we go into the second quarter earnings season, we're probably going to see the fastest profit growth in more than two years and a broadening out of that profit growth. At the same time, we've got inflation coming down and and it looks pretty likely that the Fed is going to start cutting interest rates. We think we'll get two interest rate cuts this year. And then you guys were just talking
about all the AA developments. And clearly that's been a major positive driver for the market. So it's a it's a positive backdrop. I would say It's it is tricky, though, because so many of the market gains, so much of the market gains have been driven by such a small number of stocks in the marketplace. That makes it tricky. But but in general, we think it's a positive environment.
You know, we're going to talk with Jessica again from Bloomberg News in a moment about earnings season. And you mentioned the broadening out Gina martin Atlas from Bloomberg Intelligence wrote a note about that broadening out. We're going to see the first expansion for the S&P for 93 in seven quarters. But for the Mag seven, David, it looks like the incredible sort of explosive growth they've had.
Earnings, I think for the Mag seven were up almost 60% in Q4 of last year, is going to continue to slow down. Does that concern you? Yeah, I'm not too concerned about that, Matt. Look, I think what the what investors are going to care about is, are those estimates beat or do they get beat or missed? And we think the trends in terms of AI especially are still quite robust. I mean, we just saw the the Taiwan semi news. You know, companies are scrambling in order to put to put together the applications, but make sure they have the investments in place to get their organizations ready for trying to trying to adopt artificial intelligence. And we think those trends remain in place.
So, yes, revenue growth, earnings growth is slowing down for the MAG seven. It's still at a very robust pace and it probably will remain faster than the 4.93 through the end of this year. You know, as we get into next year, that's that's more difficult to to assess at this point. But I think the key point is that will those will those numbers be beaten or will they be missed? We think there's still very good support for for the MAG seven. Well, another thing about this, too,
even if you believe that the high flyers here have room to run, what about the rest of the universe? Do you believe that it's better to keep your chips on the table with the safest, biggest names that everyone has been flocking to? Momentum has big been a big part of this market, or do you start to look for some of the undervalued ones? The unloved ones so far, David. Yeah, Look, I think in terms of, you know, technology, adoption curves. I do think history suggests you do want to stick with the leaders, that there's when there's the market I think has been very efficient about identifying which companies have the special sauce, which which companies have the advantages that will prove beneficial as we as we adopt these new technologies. Now, obviously, that can change over time, and we're very attuned to that. And we still have a lot of questions around who will be the winners in terms of the applications that are ultimately developed. And frankly, you know, will they come in time? I mean, that's in time to justify some of these valuations. These are all important questions.
But right now, what's happening is that we're building out the infrastructure and it's clear who has the leadership roles there. And we would say stick with those. Yeah, there certainly are, you know, some some ancillary companies that that also stand to benefit. But the core of the of the portfolio within the air complex should really be the leaders in the marketplace that have those those moats around their businesses. And it's a good point, too, that maybe when it comes to some of the users of the applications, it's too early to pick winners there. Let's talk about something other than
big tech. I know it's very hard in this market, but I'm looking through your notes. I see you also are positive when it comes to the industrial sector. What's the bull case there for some of the names in that group? Yeah. So, I mean, you know, this you know, obviously we're building diversified portfolio. So tech tech is an element of it. But industrials, we think is also kind of interesting here, especially because it's it's lagged quite a bit. It's a very heterogeneous sector, But
there are a couple of segments that we think are interesting. First of all, if you look at transports, these are, you know, primarily the railroads, the parcel guys. You know, we've been in a freight recession for some time now. We think we're nearing the end of that. A lot of the companies are executing on self-help measures, reducing costs, things like that. And we think those will that will start to bear some fruit. You'll look at the aerospace cycle. It's been hard for airlines to get new airplanes.
So we're running the existing fleet harder. That's that means, you know, we're going to the aftermarket in aerospace is likely going to remain pretty robust. You've got the infrastructure leverage companies in there as well. You know, there are some maybe some risks around if there's a new administration, there are some companies leverage to the end for the Inflation Reduction Act and and the green subsidies and things like that. But we think there's enough
diversification. And I would say the last point here is that the ISO manufacturing index has been depressed for quite a long time now. Inventories are pretty clean and we think it's going to it could be a just a matter of time before we start to see a more, you know, persistent improvement in the ISO manufacturing, just the global manufacturing cycle. So, you know, I think there's a number
of positives in the industrial sector, but it is a pretty diverse and diversified sector. You know, another part of this I want to talk about too, is the financials. I want to shift right over there because, of course, we have the banks starting to report this weekend, but also a ton of divergence in how investors are viewing the opportunity in financials, particularly if you have interest rate cut priced in in September. David, who wins in that scenario? Yeah. So, you know, I think there are some cross-currents in financials. Yeah. You know, first of all, I think we also have to acknowledge that if financial if if there is a Trump victory or a Republican victory in in November, you know, financials probably are one of the better sectors or one of the best positioned sectors because we'll probably get some deregulation, You'll probably get a little bit less focus on antitrust enforcement, which has been pretty stringent under the Biden administration.
That'll be good for merger and acquisition activity, which a lot of the capital markets leveraged companies would benefit from. So, you know, that is a potential positive. And you're right. So now as we get into Fed rate cuts, you know, cost of funding could start to improve. And so, you know, we're not making distinctions within the financial sector. But I would say what from my perspective, there is potentially sort of an asymmetric opportunity here.
If if Biden and the Democrats stay in office, there's probably not much downside. But if Trump does enter office, you probably get upside from some of those those items I was talking about. David, I want to show a seasonality chart on the Bloomberg terminal. I'm sure you've used this function, but if I look at the S&P 500 and type go, I can track how well the index has done over the 12 months of the year. I've looked at back 20 years. July is the best month.
And I bring this up because Shonali asked if you keep your chips on the table. Right. Is this a good time considering that August is a bad month? September is a bad month. Historically, is this a good time to take some profits? I mean, after the 17% rally on the S&P, can we expect a little bit of a correction here? You know, I was just running some numbers yesterday. We haven't had a 2% down day since February of 2023. So, yeah, it's been a remarkably slow and steady grind higher and a pretty rapid ascent for some companies. But look, I would say that it still is a pretty favorable environment for all the reasons that we talked about with the earnings, with the inflation improving, with the Fed now moving into a more dovish stance, which seems pretty likely.
So I do think you want to stay invested. And, you know, for our clients, we're building long term portfolios, right? So we're not going to be too concerned about whether there could be, you know, a small sell off, which is certainly possible, especially as we get into election uncertainty and things like that. But I would say I would focus on the bigger picture here, that the environment is still quite favorable.
You know, even though the market has been quite, quite strong this year. Got it. David, great getting you on our inaugural week. Really appreciate you joining us on Open Interest. David Lefkowitz there of UBS Global
Wealth. Coming up, earnings season kicks off and growth may expand beyond the Magnificent Seven. For the first time in seven quarters. We'll discuss the companies to watch next. This is Bloomberg. All right. It's time now for our top calls.
Some of the A-list action in Focus this morning. And first up, Goldman Sachs raising its target on Tesla to $248 after the EV maker reported better than expected second quarter deliveries. The analyst also cites reduced inventories levels and new IRS credit eligibility on some U.S. models. Next up, we have Needham upgrading Carvana to a buy with a street high price target of $160. The firm says that the online used car retailer has a profitable growth outlook.
Now the stock has climbed nearly 140% year to date, up another 7% or so today. And finally, we have Bank of America cutting its recommendation on visa. Deal is giving Visa a neutral rating, saying that there's limited upside to its valuation firm. Also downgrading MasterCard, definitely something to keep an eye on as those big banks kick off earnings season this Friday. Yeah, that is interesting.
I mean, especially as we see that consumers are putting more debt on plastic than ever before. Right. I don't know the exact number, but it's something like more than $17 trillion in credit card debt for U.S. consumers. You had the New York Fed consumer survey really just come out this week. Everyone is pointing just that out. And you have, for example, a Bank of
America now pointing out both Visa and MasterCard. Remember, these are two stocks last year, Matt, that were up more than 20% and Visa was up 25% last year. This is a question of whether they can really squeeze out more top line growth when the consumer is already so maxed out their age. By the way. I mean, that's the intraday right. But if you look year to date, this is
not doing anything no zero year to date. So really interesting stuff. All right. Speaking of earnings, we're going to get a fresh read on the consumer tomorrow, I should say. Speaking of the consumer, we're going to get fresh earnings tomorrow when Delta and Pepsi report analysts now focused on the S&P 500 stocks that aren't in the Magnificent Seven, specifically analysts at Bloomberg Intelligence. Right. Gina martin Adams wrote a great piece about it today. You can see it typing by go. We've got Jess Martin here on set.
She's our senior equities reporter for Bloomberg News. And the thing that caught my eye about GMA's report is she says the 493 are going to start growing their earnings for the first time in seven quarters. I didn't realize there'd been a contraction that's lasted so long. That's right, because we had a three quarter contraction that ended in the third quarter of last year. But during the overall overall for the index, That's correct. And then since then, big tech, not
surprisingly, has been carrying that. If you look at this last quarter, still about 50% growth year over year. But the narrowing is happening because if you think of the base effects for big tech compared to, say, there was a bear market, the earnings outlook wasn't as strong in 2022 then a little over a year ago. And video obviously had a gangbuster revenue forecast. So if you're comparing now to then, it's
just not as extreme. But the point is, is when you're looking at more of these consumer oriented type stocks, things broadening out because those are the ones that are really impacted with their margin growth, that was a problem. And that's really important to look at because especially consumer packaged goods companies and we have PepsiCo that's going to report tomorrow as well. If you think food and beverage companies, that's a real tell on the economy, inflation and and am I slamming exactly what's right if I'm if I'm hitting myself up with a little bit of monster or whatever it's called, then so price to mix and volume, the whole reason that's important, I was able to interview Tom Barkin from the Richmond Fed a couple of months ago, and they're watching that metric. And Jen Tarshis over at Bloomberg Intelligence, The reason it's important is because if like you and I, if we're going to a grocery store, we're paying money that people are spending down. And so you're seeing that in earnings
reports say the last ones we saw a couple of months ago from, say, Walmart, which had strong growth and especially in its grocery segment. But if you move over to you looked at Target, a competitor, which is now in the Staples sector in the S&P 500 because of its growing grocery business, it was struggling and so people were spending more and trading down for something like Walmart. Yeah. So we'll see if we can kick up the volume. It's been a lot of price so far. We only have a 30 seconds left with you, but this revival that we're expecting in the other 493 stocks in the index, is that enough? Is that actually going to breathe life into this broadening out trade that we've been waiting for? Well, if you look at the Nasdaq 100 equal weight that's actually trading at all time highs right now in the S&P 500, equal weight hit at record back in March, but it's only about 4% off of that all time high. So I know people keep talking about breadth and the issues with concentration, but we've been talking about that over a year now, especially after not even just this first half, but last year's first half, too.
So if you're looking at the equal weight, whether it's sort of with the big tech or even just broadly with the S&P 500, you're starting to see those stocks catch up. Jess, we thank you so much for keeping an eye on these markets. Looking forward to having you back on the show. But next, we're going to talk about the
trial of the decade. Really jurors decide Bill Hwang's fate. That and more in our Wall Street beat next. This is Bloomberg.
This is Bloomberg. Open interest. Let's take a quick check on the stock market right now. As it stands, the S&P 500 up about 3/10 of a percent.
Just 23 minutes into the U.S. trading day. The NASDAQ 100 leading the way up 4/10 of a percent. And my favorite, we're taking a look at the Russell 2000, the small caps to go from the big to the small. The Russell 2000 currently up about 4/10 of a percent. Finally and it's time now, Katie, for the Wall Street beat. We're going to talk about the most
talked about stories in finance. First up being Bell wants fate now in the jury's hands. Remember, he's facing fraud, market manipulation and racketeering conspiracy charges.
And it's one of the most prominent white collar prosecutions in recent years and a very difficult one for the jury to distinguish between artificially manipulating prices and trading of stocks that he liked. I want to just talk about the judge for about 30 seconds. The judge is 90 years old. We're talking about U.S.
District Judge Alvin Hellerstein sometimes losing his patience. He told the government at one point that, I think you're wasting our time. And then he also told the defense that it was boring the jury to tears.
This is a seven week trial. It's obviously very complex. And this is a jury that's mostly with people from a nonfinancial background. So really, he also asked, what's a meme? Yeah, right.
And didn't he stop the trial for a moment to show pictures of his new grandson? He did. He did. And I would say for those financial minds, this was not a boring trial. It was the most exciting trial I followed in so long. The two live on The Bloomberg was insane. Keep watching that live. By the way. We're going to talk about another story
next. Of course, that is private equity firm clear. Like best known for owning the Chelsea Football Club, at least $10 billion in distressed debt, prompting investors and creditors to question purchases it made at the height of the buyout boom. And of course, this story, guys, very well read on the terminal.
A good reminder that private equity is not always private. Public investors own their debt. Right? This is by the way, when I read that, I thought, what, they're buying distressed debt. No, the debt that they own has become
distressed. Right. And nonetheless, investors are still clamoring to invest in their new fund. The reason this story is interesting, Katie, is because you have a company here that is facing a lot of troubles, a lot of the private equity industry is facing. Yeah, and it's interesting, like, what do you do? Clear like, for example, uses continuation vehicles a lot compared to the rest of the industry, which by the way, is selling one of your companies that you can't exit any other way to a new fund that you've raised, which seems to me to be a little bit scary, a bit controversial, I would say it's very controversial. And, you know, it's also indicative of how close this IPO market is. Yes, we've seen IPOs nowhere near as exciting as what a lot of people would have wanted out of this market. That's a story I think we're going to
continue to talk about on Wall Street. But let's get to the trading day right now. These are the stories you need to be watching this week. Today, obviously, Fed Chair Powell
delivers his semi-annual testimony on Capitol Hill for the second day. He's going to talk to Congress today after the Senate yesterday. We get wholesale inventories as well. At the top of the hour. Tomorrow we get the all important CPI. So it really look good. Look at inflation. On Friday, we got big banks reporting.
Jp morgan, Wells Fargo and City really kick off earnings season in earnest, even though tomorrow we get Pepsi and Delta. And the next hour, we're going to talk to former Fed Governor Randy kroszner. Ahead of day two of Powell testimony, t satisfied that inflation is coming down. We are 30 minutes into the trading day. Welcome to bloomberg open interest. I'm Matt Miller. I'm Sonali Basak.
And i'm katie greifeld. And it's another day, another winning streak on wall street. Stocks are moving towards a seven session winning streak and that is the longest since November. And Powell may power the rally even further. The Fed chair returns to Capitol Hill for day two of his testimony, and risks remain to that relish. And I was talking about as investors brace for key inflation data and the start of earnings season.
Of course, we've got the big banks coming up on Friday. Before that, we get Pepsi. But before we get there, let's take a check of these markets right now because it's another Green Day on Wall Street.
The S&P 500 up about 3/10 of a percent. This would be a 37th record for the S&P 500 so far this year. The NASDAQ 102 up about 4/10 of a percent. This is still a tech led rally. Meanwhile, the bond market pretty quiet right now.
You take a look at where ten year yields are, just below 4.3%, pretty much unchanged on the day, Matt, getting wholesale inventories as well as the British may say type eco go on the Bloomberg terminal to see all of the economic data you need to trade on. You can see that wholesale inventories came in as expected up 6/10 of 1%. Of course, more important for the economy or for traders worried about the economy is Fed Chair Jerome Powell. His testimony today. He goes in front of the House Financial Services Committee. Here are the preview and highlights from
yesterday's hearing is Randy Kroszner, a University of Chicago booth school professor and economics of economics, and also a former Fed governor. No big deal. Randy, thanks so much for joining us. Let me get your take on yesterday. First, it seemed to me the important issues were Powell saying that he's satisfied with inflation coming down, but also the labor market is softening. Yeah, I think it's coming down broadly consistent with what the Fed is is hoping for the the kind of miracle of the of the of the immaculate disinflation that we don't get a significant slowing of the labor market, but we get a significant reduction in inflation. And obviously he was taking some credit
for that. Not too much not saying that the job is done. He's saying that the some of the heat is coming out of the labor market. It's still strong but not overheated. But it's very clear, I think, both from the minutes and from his testimony, that the thing that the Fed is now focusing on is, is there going to be weakness? So the unemployment rate ticked up, although it ticked up kind of for good reasons, because there are more people in the more people in the in the labor market. And so that helps to bring some of the heat out of the labor market. That is, it helps to bring the the wage
growth rate down just a little bit, as we saw from the most recent most recent labor market report. And and so it's sort of on course for them to be able to feel comfortable to start cutting in the fall. It's interesting, Randi, because we're at this point where we are clearly at the more precarious parts of the tightrope that the Fed is walking here. And the longer the Fed waits, how much do you think we get into a position that the economy does start to weaken materially? And so it is exactly that tightrope that you're talking about because they want to make sure inflation comes down enough and that they're convinced that it comes down, they're not going to pop back up. There's the ghosts of what happened in the late seventies, early 1980s, when the Fed said all clear reduced interest rates and then inflation exploded and they had to bring interest rates to double digit levels. They don't want to do that. So if they are going to air, they're going to air on the side of keeping rates high for maybe a little bit longer than they then would be perfect.
But the crystal ball is always cloudy. It's always hard to know. And I think they're going to make sure that inflation is coming down before they start to they start to cut. But that means that I think that raises the likelihood of a substantial slowing in the economy and a substantial increase in the unemployment rate. Right. Well, that's what I wanted to ask you about, whether that is the appropriate track to take here, because if you take a look at what Powell said yesterday, he said that easing too soon, too much, it could harm inflation, progress, but that easing too little, too late could unduly weaken the economy. So it sounds like, again, he's very aware of that tightrope. If you were in the chair right now, what would you do? So I think this is a tough call, but I think I think what they're doing is reasonable because the cost of inflation expectations becoming unanchored that people say, oh, you know, they got it wrong in the beginning, but, you know, they've kind of gotten it back. And so inflation expectations have
stayed pretty well anchored. But if they make another mistake and are on the same side and say, oh, yeah, inflation is down and inflation starts to tick back up, it's going to be super costly. And if you know, if you look back to the early 1980s, the unemployment rate was over 10%. It was one of the sharpest and deepest recessions we have we've had. They want to avoid that.
So even if the economy slows a bit, I think that's a reasonable tradeoff to make, to wait a little bit longer, to make sure that we really do see inflation coming down and the heat is out of the labor market. Randy, if I pull up f go on the bloomberg terminal con go, i see that financial conditions are really loose and i feel like the fed wants to be restrictive right now. Why do i see that divergence? How do I how do I square that circle? And so I think that's exactly right that the things aren't especially tight. Now, they don't want them to be too tight because, of course, that would mean that we very difficult to invest would be people would become very pessimistic and not not consume. But the markets obviously are quite, quite exuberant. The people are very positive about the prospects for the economy going forward.
In my personal view, I think they're a little bit too optimistic because real interest rates, that is, the inflation adjusted interest rate has only become positive over roughly the last year or so. And with the classic long and variable lags of monetary policy, it takes a year or so for that to start to have an impact. And so that's why I think in the latter half of the year, we're going to start to see a bit of a slowdown in investment.
Real wages are growing, which is great for households, but it's going to make it a little bit less attractive to hire people when real wage growth was was negative, when it was really cheap to hire people relative to the price that you could get. So I see. So I'm not quite as exuberant, but I also I don't think a crash is coming, but I do think that things will slow down substantially. Well, let's talk a little bit more about financial conditions.
When the Fed says financial conditions and talks about the movement there. Should we really just be looking at real rates because these market based measures that we keep an eye on? Again, as Matt said, they show very loose financial conditions, but it seems like we're really just talking about real rates. So that's what I focus on more. I mean, you know, I don't think the Fed ignores this this other measures.
But I do think when they think about restrictiveness, one of the key things they think about is where interest rates relative to the inflation rate. And obviously, even as they were raising rates fairly rapidly over the last couple of years, the inflation rate was generally the above that. So the real rate, the inflation adjusted rate was negative. It's still a great time to borrow. That's still not that's not at all restrictive. It's really only become restrictive over the last last year or so, which is really the first time in almost 20 years that real interest rates have been substantially positive.
And that's why I think that there is going to be a bit of a slowdown. But I think that's why the Fed needs to wait or it is reasonable to wait a little bit to make sure that they are going to see the heat come out, that inflation really is coming down. But, of course, that that means that there's some risks to the downside there. When you talk about risks as well, and the ghost of the seventies, as you had been talking about, the other issue here is the election season and a lot of worries about how different candidates would approach the economy here and what potential inflationary forces could be underneath the surface fiscal spending, tariffs proposed by the Trump campaign. How do you think that that complicates the Fed's equation? If they cut in September, do they risk cutting too soon just because the picture will be completely different moving into 2025? Well, it seems like the one thing the Republicans Democrats agree on is spending.
So I think there hasn't been a lot of fiscal discipline over the last number of years, not just the last few years. And and I think that's going to be an intermediate to long run challenge for the economy, for sure. And the Fed is acutely aware of that. The tariff issue is one that's a little more challenging because the the key is, is that a one off? Where is that going to be? Some of that will lead to higher inflation.
So if it's a one off, the Fed can can deal with that. If it's something that's and will be able to to work through that, if it's something that's going to be increasing tariffs and changes in in cost structures more broadly, that will lead to an ongoing ongoing increase in prices, then that's something the Fed has to has to really deal with. I don't think that they're assuming that it's going to be that more difficult situation yet, but they are certainly thinking about that. Does I mean, both parties definitely going to spend. Both parties are putting up protectionist tariffs on China.
The one place that they really differ, Randi, is immigration. Right? I mean, under Biden, we've had an absolute flood of immigrants coming into this country, which is great for the labor market. It supplies a lot of demand. And Mickey Bowman, in a speech a couple of weeks ago in London, was talking about if that gets restricted and the Biden administration, you know, now ahead of the election, is trying to restrict it a little bit. But if it gets really restricted, it's going to restrict the supply of labor, and that could be inflationary as well. What's your view on how important that is? So we're trying to suss out how important the the immigration issue is in the labor market, But it seems that most of the at least preli
2024-07-18 12:02
