Bloomberg Surveillance 01/02/2024
2024 is going to be the year that we have a very serious discussion in the financial markets about the Federal Reserve's credibility. What I'm excited about in 2024 is to not hang on every single word that the Fed is saying. Paul thinks the Fed's to be cutting rates in 2024, but it's possible that the economy could be firmer for longer. If our call is right, more likely to have a soft landing than a recession, clearly not cutting. In March of 2024, the Fed is really unlikely to start cutting in March. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz.
But the mikes on. Are. We're ready for this. You ready? Oh, yeah. Happy New Year. Let's get this year started in New York City this morning. Good morning. Good morning for our audience worldwide. This is Bloomberg Surveillance on TV and radio alongside Tom Kean and Lisa Brown with some Jonathan Ferro your equity market on the S&P 500 this morning, -0.1%, hitting the ground running for 2024 payrolls on Friday, the following
Friday earnings season kicking off with earnings from Jp morgan Tom starting the year on a nine week winning streak on the S&P 500. The winning streak soon has catch up. I think what's so important here is it wasn't about the big seven, Big eight stocks. It was about a catchup being done. And you just wonder what's the character
of the follow on if you assume a bull market just office with the Super Bowl in the 8:00 hour and you wonder, okay, if we're going to be bullish, what kind of bullish are we going to be? We got to learn how that works out in January. Well, let's talk about the scores of the last 12 months, Lisa. The S&P 500 up by something like 24%, the NASDAQ 100 higher by 54%. And the range of forecasts on Wall
Street coming into this year, you can drive a double decker through the 4200, the low end JPMorgan, 5200 at the high end Oppenheimer. And they're all unusual in the sense that they're all predicting a less than a 10% gain or loss for the full year. And to me, what I was struck by is that's really rare. We've seen 20 points or 20%, up 20% down pretty consistently for the past couple of years. And you'd have to go back to 2016 for a gain below 10%. I think it's important. John really laid out nicely the calls
out one year forward. John, I thought over the weekend, over the long holiday, it was way too much short term analysis. I went over to where we were 12 3119 from the beginning, a Covid aspects up 12% per year, Dow up 10% per year, Nasdaq up 19% per year with a Super 2023. We had a decade in 12 months.
Tell a decade with the stories in 12 months. We had a banking crisis, Lisa for about 5 minutes moved on from that. We had this story of high for longer yields through 5% on a US ten year move quickly through that November and December happened. Lisa We had this air phenomenon that could continue through 2024 and beyond, maybe for the next several decades. How many stories, how many themes were that? And I mean, major theme for 2023 is and pick another. Exactly. And honestly, for New Year's Eve, I was going into 2024 and I was thinking, we're going to have another decade in a year.
Think about all the themes that we have set up just for January. Think about all of the potential outcomes that could be the headwinds that could transpire. To me, that was sort of exhausting to think about. We could have another year of a decade of narrative stuffed into 2024, and it's time for rest this morning. Wall Street getting back to work. Barclays Tim Long on Apple this we are lowering our rating from equal weight to underweight.
The iPhone 15 has been lackluster. We believe the 16 should be the same. We believe the continued period time of weak results coupled with multiple expansion is not sustainable. This is the key point. You nailed it and you've nailed it with the one stock people care about is multiple expansion. That was the gift of last year. We'll talk about that the 3 hours this morning. But the answer is what character is the bull market this year? Can you get it going with the kind of multiple expansion of the last 12 months? In Apple's case, it was ginormous down in the pre market by 1.6%. Let's get your morning started your week
your month year with some price action equity futures on the S&P 500 shaping up as follows on the S&P were -0.15%. Your ten year yield three 9257 it felt like at times of this bond market was trolling us. So just to think about everything that was going on last year and then to finish almost exactly where we started 2023, I feel like the entire market's been trolling us, considering the fact that with S&P, the whole round trip, we basically are back to where we were in January of 2022. What we're looking at this week is really going to be massive jobs numbers.
And I'm really watching the labor market for clues of whether they're going to surprise the upside or surprise the downside economically. And when do we get ISM manufacturing for December? That will be interesting to watch. We also get the FOMC meeting minutes and the JOLTS job openings that I'm watching, job openings, even though a lot of people discount. This is a sort of non metric that is highly fudged by people posting three jobs at a time. That said, does it continue to go down, given the fact that people are seeing perhaps a little bit more labor come into the market Thursday, initial jobless claims watching, continuing claims which have been ticking up and on Friday we get nonfarm payrolls as well as ISM services. I am watching how much pay is increasing, so it is still increasing too quickly for the Fed to be at a trajectory where they're cutting rates as aggressively as the market is currently pricing it if it wants.
The minutes could be interesting, right? If they think about it, are they likely talking about it would sell then also. So that kind of talking about it. But they have to say that they're talking about it at this point because otherwise they discredit this office completely. If they don't address it. And it just is, they're throw Powell
under the bus. What point are we talking about something that just lacks any credibility whatsoever? We're going to have John Stauffer Slater and Hoover modeling, John Jones modeling out 11% earnings growth. That's all the Fed's got to know. I mean, the juggernaut continues in on any number of analysis of real rates are way behind. They going to cut, cut, cut and we'll see. No, you know, there's a lot of sophisticates don't believe they're going to do that. The biggest bell on Wall Street, John, still is a couple of hours away.
We start this morning. We start 2024, I'm pleased to say, with Chris Moran, the co CEO of Gabelli Funds. Chris, wonderful to catch up with you, sir. There was a range of questions that you ask in your note and I want to pick up on the last one I think is the most important where the leadership is going to come from in 2024. Where do you and the team, Chris, believe that leadership will come from? Yeah.
So 2023, obviously the leaders were the big tech enabled companies. They were safe havens. Fortress balance sheets are great cash flow, great places to hide out in economic and political turmoil.
We still have a lot of that turmoil, obviously. But you've got the Fed. When did you back? In 2024. You've got an economy that has probably hit a soft patch, but I don't think it's going off a cliff. So I think that gives some room for a broadening out of the market.
Smallcaps had a great December. I think that probably continues into at least the early part of 2024. So a broadening of the market. Some of the neglected sectors, neglected sized companies. Is there a part of value, Christopher Hanging with all of the Gabelli Heritage, that is growth, is there value, value and then sort of growth value? Yeah, we tend to look at those growth values. Growth growth is neither good nor bad. It depends how it's priced and whether it adds value or not to the firm.
So yeah, we love growing companies. There are the there is the cigar butt investing flavor of value investing. We are looking for a companies that are not growing and we've got plenty of those too. But again, you're looking for what's the price. Give us an example of a grocery value stock. It's not Apple or Microsoft is. No.
And you know, some of the sectors, by the way, that we're looking at in 2024 are some of the defensives. There's some growth there as well. If you're going to hit a soft patch, many of those companies were hit by higher rates and should look to recovery 24. Those would include some of the staples and what growth staples that we like as bellring brands. B. R. B.
R. OBP You started your day with a protein shake. That's what they make. They are very narrow dressing that personally, boy does that, you know, growing over 30% and this thing is just a rocket. Lots of other companies would love to own it and we think there's some opportunity there for them to be taken over in 2024. What did you do so well, Chris, you do fundamental research and last year it seems like a lot of fundamental research died. Do you think that this year will actually translate into performance that much more at a time where if you talk about the growth fitness, Apple didn't really have sales growth when it came to the actual unit sales.
A lot of people are wondering whether they're going to get punished for that. As John was mentioning earlier this morning, do you think that fundamentals will reconnect with stock performance this year? Well, hope springs eternal at this time of year, always, Lisa. And I do think that's true. It wasn't last year.
Obviously, you buy seven stocks and you did great. That's going to be a little tougher to do. You know, The Magnificent Seven, some of them probably will do well again this year, but it's going to be across the board. It's not going to be to the extent that we saw in 2023, you're going to have to do some work. And those small caps require a lot of work. They're just less harder to find information about them. You've got to go out and visit them.
And that's what we do and that's where we think we can add value this year just on a sort of whim that you do invest in some of the Magnificent Seven stocks. Which ones do you think are going to be winners? Which do you think are going to be losers? Well, you know, we're partial, just given our background to some of the ones that look more like media companies, the ones that have been eating advertising, in fact, eating the whole advertising pie. You know, those have been Google and better in particular. And I think better still has some some room to run. It's not expensive. But Zuckerberg has shown some cost discipline, which I think will continue and they continue to take share in advertising. Chris, 194% gained yet tonight.
Last year, if you weren't in that name, you were in that name. Chris. If you weren't in that name, would you suggest that people add fresh capital to it? Given the move we've seen in the last 12 months? Yeah. Listen, I think the market doesn't know how much it was stuck. I don't know how much it was up last
year. And just looking at what that earnings are going forward, as you know, over $20 a share. It's it's not an expensive stock. It's a matter at 194%. And video number one on the S&P 500 last year up 238.87% is a nice line up. And what's important here to Mr. Muranga and Mr.
Gabel is effort is you got to have a three, five, ten year perspective. Which of those tech superstars do you have courage to own out five years or seven years or ten years? I don't hear enough talk about that. Well, you heard from Chris there. I think it's really important that the
stock market doesn't have a memory that individual stock doesn't have. Yeah, well, what I noticed here with Maria Lisa, I think this is important. He goes right to the glazed doughnut. I mean, that's what he's doing.
He's got bell ring, 420 employees in St Louis. BBR, you've done your reading. They got a deal with the Dunkin Donuts where they're putting a hydrolyzed whey protein isolate on a Duncan on a glazed doughnut. That's why Mario Gabelli went into this is because it's donuts. Okay, you know what?
Let's go there and just I would love a final word from Chris. I know he's epic. Is he worried about Ozempic with that glazed doughnut? Chris, is that something that you're really thinking about? That's why we love PBR.
It actually is on trend. You need protein support if you're on any of these drugs. And so they're a beneficiary of actually the summer blue days. Chris Miranda, thank you for making that right. Appreciate it, Chris.
It's good to catch up as always. Happy New Year, Chris. Frankie Gabelli Funds. Here's the banner headline, Mario Gabelli on Trend with Glazed Doughnut, Some Dunkin Donuts.
With this going on, I feel like I'm you, Tom. I feel like I want to bite my tongue. So I'm just over body types. Basically, they sort of dress like the bars. Well, he's dressed up candy bars and got a little whey protein in there, but they're called a health shaker. And so far, I mean, this is the same
thing. It works. And that's exactly how it works, is chocolate coated and it's got, you know, a Splenda in there. So it doesn't have as much sugar. But essentially, for all intents and purposes, I walked by a Krispy Kreme and our sojourn is, oh, tell us more. Well, we were going to, you know, should I go in and buy a dozen for the team? Yeah.
Well, and did you say that it was unhealthy? It would be sending a bad. Okay. It was well, that's one company Politico.com out the we've mentioned big tech I went through in video number one performer on the S&P last year. Number two was Metta Royal Caribbean. Number three. Number three Tom, that was about 162% Carnival in the mix as well, over six stock up 130 on the year. You bring up a really important point,
folks, and this dovetails into the economic data we're going to see this week is some of these things are off the bottom, like maybe cruise ships off Covid, maybe China's on the bottom right now. That's a huge unknown. But these others are growing companies and we can argue about the valuation model. We'll talk about that the 3 hours today. But the answer is there's two discussions here. Growing companies, how do you price them
in off the mat last year? How do you come off the mat of 2023? There's not doesn't exist. And ultimately, Tom, the question on leadership, where that leadership is going to come from in 2024 and later towards the end of the year, I think a lot of people once again, for maybe the second or third time in 2023, got pulled up on the idea that discretionary can continue this performance into 2024, the likes of Neil Dutta Renaissance macro, who's really putting out there that he thinks that this resilience, this economic expansion can continue because real wage growth is can remain decent through the year ahead. And ultimately that's going to support this discretionary thing. If that is supported, then shouldn't the gains be a lot more than 6 to 9% on the S&P 500? If that's the case, don't you see big tech hanging in there, not necessarily declining and everything else catching up? And this to me is sort of the big sort of unknown. If the consensus is always wrong, the consensus calls for some sort of medium performance. So where is the apple trying to perform well, What's the efficacy of watching Bloomberg Surveillance? Here's the answer. John Farrell puts out JPMorgan 4200.
Oppenheimer 5201. So the slight difference that Standard Poor's 500, I can't even do the math. It's 20% variance or whatever. This is all BS. I mean, that's all there is to it.
And the answer is you take this to find your confidence if you're in the market, was the efficacy of surveillance and then that final price. Okay, it's a good start to the year. This is why you're watching this. You're watch this will give you a better. Now big question, think from New York City. This morning. Good morning. Coming up a little bit later, Sara, how about upon Saxon words and the big bell on Wall Street? Jon staffers of Oppenheimer about 2 hours away from new york philharmonic.
One. Just to reiterate what I said before, we're going to do what we have to do to protect shipping number two. We've got significant national security interests in the region just on our own, the United States. And we're going to put the kind of forces we need in the region to protect those interests, and we're going to act in self-defense. Going forward, again, I'm not ruling anything in or out, but we have made it clear publicly to the Houthis.
We've made it clear privately to our allies and partners in the region that we take this threat seriously and we're going to make the right decisions going forward. Things are looking increasingly fragile in the Middle East. That was John Kirby, the National Security Council spokesperson, speaking on ABC over the weekend live from New York City this morning. Good morning and Happy New Year to our audience worldwide. Let's check in on the price action to kick off 2024. Equity futures pulling back by 0.4% on
the S&P 500. Just a little bit lighter. Softer negative, lower. Off the back of this may be. Check out Apple in the premarket down off the back of this move from Barclays and Tim Long Lisa we're lowering our rating from equal-weight to underweight. We believe the continued period of weak results coupled with multiple expansion is not sustainable. That stock is down 1.6% and they're not alone. And this to me was something that I found interesting over the past week of reading Michael back neck over it would hold to wealth management put out projections that he admitted probably were fantasy just given the fact that all projections are to Tom's point earlier But he said Apple the business didn't have a great year in the last 12 months. Revenue is down, expenses are up and
operating income is down. This raising a question, does it have the growth of the other Magnificent Seven and does it belong there? It was true all year and we asked that question every month, every quarter and stock ended, Tom, that ended the year up by 48% a year. Today, I'm going to say 2023, say the multiple expansion for later. But right now I go to 29 multiple excuse me a 31 multiple. And on their massive growth subpar compared to others it's a 29 multiple stock. And so you say to yourself where's the
growth in this of these research notes, the concern at Barclays? And the answer is they're not running this for growth. They're running it for profit. It's a profit juggernaut. And use of cash is everything. And to your point, still a monster cash machine, Tom spitting out. There's no compare billions and billions
of cash, which is going back into big buybacks and shareholder rewards. I mean, I just can't say enough about how the the Magnificent Seven, John, aren't just seven as they are. We're going to move forward here now. And of course, we look forward to the politics of the money and futures down 22 of the VIX, 13.68. Jennifer Flint is head of US government affairs at INVESCO and joins us. And the 14 things that we need to focus on. Jennifer, I'm going to talk about something that I was shocked didn't come up this weekend.
It's a calendar item. It's January and January means you're going to be in your L.L.Bean boots in Concord, New Hampshire, watching the show go by. Does New Hampshire this year matter? Absolutely. New Hampshire matters.
I mean, this is the first primary in the nation. It is right after seven days after the Iowa caucus. And quite frankly, the best chance for Nikki Haley to really take hold in this race is in New Hampshire. And if she can, you know, this may be
locked up rather early this year for Donald Trump. They got four days ago of Ms.. Haley and the idea of slavery, misstatements, incorrect, whatever the debate was, will that affect her in New Hampshire? Well, I think it remains to be seen.
I think Chris Christie is certainly trying to take advantage of of that misstatement that she made a few days back. You've seen her try to change the news cycle, but I think we're on like the fifth or seven cycle here. And it isn't she's not shaking it. Well, given the fact, Jennifer, that Donald Trump likely is the Republican nominee and pretty much all the polls are pointing in that direction, how will he really influence some of the key debates that really are going to happen way before the election, including in 17 days time? Or we could get another get another government shutdown? Yeah, that's excellent point. And that's what we're really watching here. And it is the government potential
partial government shutdown here on January 19th and then another risk then on February 2nd. But there's also this defense supplemental. And so his reading of whatever sort of negotiated package comes out in the next week or so on immigration, Ukraine, Israel in the Pacific and border policy that could sink or allow for this defense supplemental to to actually take hold and pass through Congress and signed by the president. So I think we're watching his reaction rather closely to whatever comes out. When Congress comes back next week,
which really raises this question about whether there is more urgency around providing aid to both Ukraine, given the offensive that we've seen, the aerial offensive from Russia as well as from Israel, especially given some of the Houthi attacks in the recent Iranian warship, do you expect the attitude in Washington to have shifted about really voting for aid in a much more significant way? Look, I mean, Ukraine aid is completely tied to border policy, and that is only getting more tense due to the fact that we have close to 300,000 people who have now come over the border just since December 1st. And we're breaking new ground here. And so the reaction and we saw it on the Sunday morning shows from Senator Graham and from Mike Rogers, those who really would like to see Ukraine aid happen. And they want that support from the Republicans in their conference. They know it has to happen alongside
strong border policy shifts. And so we're still waiting to see what it is that they want. They're still drafting that language. Well, civics one on one, I mean, we're talking about a lot of Republicans here.
Does does the administration have a border policy after the cacophony of news the last ten days? Well, I think they have a border crisis. And I think there's an acknowledgement, especially among Democrats who are in difficult districts. You know, you have in the House specifically 24 roughly toss up districts. And number of those Democrats who are in those top races are really looking for a resolution here. And you see this especially down in Texas, New Mexico, Arizona. There has to be some sort of a dealing
with this issue and not just for House members, but also for Senate. You know, these toss up Senate races in Arizona and Ohio and Montana, you know, they need resolution here. And it's going to have to be part of this defense supplemental. I think the optics for the White House over the last week or so just absolutely terrible.
The president's on the beach. At the same time, U.S. border officials are processing more than 300,000 migrants for the month of December, potentially the highest monthly tally on record. It's extraordinary to follow this across the life of Bloomberg Surveillance. It's an intractable issue that everyone wants to dodge For us in New York City, folks, it's visceral. I think the latest thing I saw within
the zeitgeist is the buses from Texas are now being dropped off in New Jersey because the mayor and others in New York City said, no, you're not going to drop them off in New York State. What are those good people do in New Jersey? That's the immediate question. Jennifer, just to squeeze in an additional question, if we can, on that point, how does the president, between now and November, convince the electorate this is something that he can do something about? Well, and that's why the next several days really matter. So if it's not tied to defense supplemental, then it's going to have to be tied somehow to appropriations. You're you're going to see this pressure rise when Congress comes back next week. It's not going anywhere.
And there has to be some sort of resolution for this administration going into what may be an early start to a general election. They've got a lot of work to do down in Washington, D.C.. Jennifer Flood in there of INVESCO. Jennifer, thank you. Lisa, we've got these two deadlines coming up for spending, potentially talking about government shutdowns, FEMA, the election out there in November. It's going to be messy. It's going to be really messy because it doesn't seem like there's any resolution. And frankly, there's been discussion
from Mike Johnson, the House speaker, that they're going to be separate bills for each one of the spending packages. They don't have time to get past something like 17 independent bills. I suggest it will be October of next year, a full debate, and it will go right into the presidential election that we'll see in November. Two deadlines we're all looking for. January 19th, This one February 2nd is the other. Coming up shortly on the outlook for the economy in America, Bruce Castmate, Jp morgan, that conversation just around the corner from New York.
This is Bloomberg. Live from New York with the scores on the S&P 500 kicking off 2024, pulling back just a touch on the S&P. We're negative here by 0.5%. Lighter on the Nasdaq, taking things down by about 0.85%, Lisa. The majority this, would you say, Daniel, that downgrade from Barclays on Apple Apple down this morning in the pre-market, especially because it really comes after so many people have pointed to Apple as a potential outlier of the Magnificent Seven, not delivering the same kind of sales growth.
Those shares down 1.9% in pre-market trading. So, yes, given the weight of them, this one stock can break everything down. Just reminding us how important it is to get the Magnificent Seven right.
I would say there's a set of opinions on Apple. Let's go to 4 trillion man Dan Ives Wedbush models out 3 trillion to 4 trillion in market cap out 18 months. He doesn't really put a timeline on it but this is the bet on these stocks whether you're pro or con is it's more about the business strategy, the structure of it, and it's about gaming stock price, as Lisa mentioned. But Diana will most 2% in the pre-market. Let's turn from stocks to bonds in equity land. Nine week winning streak on the S&P 500
in the bond market, November, the ten year yield down 60 basis points. December, the ten year yield down almost 45 basis points this morning at January, Lisa, up five or six basis points back to three 9350, basically where we started last year. Again, this is sort of to your point trolling us because we see this wild shift up to 5%, wild shift down to sub 4% and we're just bang, we're back where we were before. Right now, it's very unclear to me whether people are going to get worried yet again about inflation. When you start to see a labor market hang in there in an economy, that's okay. But the micro trends there, the United Kingdom, John, you know, this 7.7%, I
mean, I mean, is that going to lower their prices, 7.7% down to 6.7% on food prices? That from Katy Lindsey on Queen Victoria Street. And the answer is there, Spain, there's London, there's Germany, there's the U.S. that these micro debt is of disinflation, including the deflationary impulse of China, which gets you to the enthusiasm. Let's turn to foreign exchange to push out some of those bond markets through foreign exchange, those big moves in bonds taking down the US dollar, the first down year for the dollar index since 2020, the euro through, what, ten? Briefly, Lisa, back down to 1.79. But if you look at some of the ranges,
some of the levels we've gone through, think about the move we've seen in the Swiss franc as well. The recent weakness in the Donavan, the strength house, where has been pretty notable in the last month. And it's all really stemming from this idea that the Fed is going to cut rates more than three times, maybe five or six times this year. Why? If there isn't true weakness in the economy, can they do that? And we're going to have to talk about that. Even though people are sick of that
conversation, it will still dominate things in 2024. Can't wait for the Fed minutes a little bit later this week. Did they talk about it? Are they actively talking about it? He came out, read them as well. What time of day? Tomorrow? I think they're at 2 p.m..
Cannot wait. Okay, good. Start to 2024 under seven is this morning crude gaining as a run ramps up tensions in the Red Sea. Tehran sending a warship to the area after the US Navy destroyed three Houthi boats over the weekend.
Maersk also suspending all Red Sea transit in order to assess the situation. This one has been simmering now for the last two months, last two, three months now, Lisa. And starting to get to boiling point more recently. Well, especially the fact that Iran is going to directly bring their own resources into the region. This is sort of getting closer to
honestly, what we've been hearing from Mitch McConnell and others, the direct confrontation between the U.S. and Iran and what really will trigger that if you have both U.S. warships, Iranian warships, the Houthi militants and the U.S. willing to shoot them down. You know, Elliott Ackerman scheduled to be with us here with a wonderful book, 2034. And that's all about unintended consequences. And this is how you do it.
You've got things in a sea contained like the Red Sea and, you know, the got the best of plans, the best of hopes. And then there's oops. And that's the risk that's out there right now is one oops. Tubes are sequential mistakes being made, deeply upsetting images coming out of the region in the last three months or so, the last two, three months. Shocking images coming out of Japan over the last 24 hours, including these a Japanese Coast Guard plane colliding with a Japan Airlines flight, Haneda Airport in Tokyo. All 379 passengers and crew on board the larger plane safely evacuated, according to a spokesperson. But five of the six crew on the Coast Guard plane are unaccounted for.
Lee said a smaller plane was carrying eight in northern Japan, where its 7.6 magnitude tremor hit the country. At least 48 people have died. We understand from the latest reporting coming out of Japan that five are confirmed dead in that Japan Coast Guard plane collision. That news just coming through moments ago.
And it's just horrible considering the fact that they're also reeling from what we saw with the earthquake, whether this was related or not. Very unclear about what some of the details were in this. But there's a real question here about how this country is going to really evolve. You're seeing the yen respond.
In early morning to the disasters, bring it across the world. Here we're off of COVID and off of the challenges of the American transportation system. There's a real worry, John. It's unspoken, sometimes reported on. People are worried about order at different airports. You know, in New York were focused on this. But this is not just a Japanese issue.
That's a developing story in the last 24 hours, particularly that crash in the last couple of hours. Any more on that? We'll bring those details to you. I wanted to finish on this. Dutch manufacturer ASML bowing to pressure from the Biden administration.
According to Bloomberg, the company canceled shipments of its chipmaking equipment to China weeks before export bans came into effect for January. The Biden administration is cracking down on China's efforts to make advanced semiconductors. And Lisa, progress in Iraq. And this, to me, comes as the ASML CEO talked last year about how they're going to lose some 15% of their revenue from China as a result of some of these bans, yet still going ahead with this, because it's not just the United States, it's also European countries trying to restrict China's ability to develop some of the chips in the iPhone rival and other things that they're developing. This, to me, is really the key area to watch, especially as you hear Xi Jinping with some niceties memorializing the ties between the U.S. and China that were initiated in 1979. And Biden trying to make nice noise.
This is what you need to be watching. But it's the mystery. I don't know if you agree with me, but I would say China has a simple mystery for this year is it can do 5% GDP. And also, of course, all of politics as well. Let's turn to that, some of the
mysteries of your 2024. Bruce Chasm brings chief economist J.P. Morgan. Bruce, thank you so much for starting our year. Strong. I'm going to cut to the chase. There's an enthusiasm out there. Tony Dwyer over at Canaccord Genuity just says investors are giddy. I mean, there's just no other way to put it after what we've seen in Q4.
Do we have the animal spirit, the nominal GDP to sustain our collective giddy? Well, I think on the one hand, there is a support for growth here that's already reflected in the health of what is both the private sector on the household and the business sector side that should continue to keep growth going. And now we've got an additional boost coming from financial market easing. So I think the prospects for growth here, while not gloomy, look reasonably good. The question is whether the enthusiasm, which is being driven in large part by expectations of substantial Fed easing in the first half of the year is going to be realized. And here we think there's probably going to be a bit of a a speed bump that comes in the way because I don't think inflation will keep coming down in a way that will deliver that outcome. Well, to the speed bump you've provided, this is, as you well know, Michael Farrell is on the short list to be the next Fed governor.
But the answer is Feroli of J.P. Morgan has a potential GDP of sub 2%. John Williams As an our star, it's back down to what it used to be pre-COVID. Should we just understand we're going to migrate at some point back to the feroli lower levels of real GDP? Well, I think it's it's pretty unclear right now, given how much the shocks from the pandemic have kind of affected things. I mean, my own view is that our star is
higher. I think it's shown in how the economy has performed over the last year or two. I don't want to argue that's a long term estimate, but I think the economy is in a healthy position here. I think it will take higher rates to be sustained here to continue to bring inflation down. Inflation is not going to stay high as
it was over the last two years. But I think getting down from 3 to 2 is probably going to take more work and I think it's not going to happen quickly. And as a result of that, I do think the Fed is probably going to be disappointing here relative to the speed at which rate cuts are priced into the market process. You know, as we all know, the last 12 months marked by recession calls that never really materialized. What have we learned in the last 12 months about which data points are relevant and which data points are totally irrelevant? Because I'm looking at a manufacturing guy, Sam, that comes out later this week, which has been sub 50 since November 2022.
How useful is that? Well, I think what we've we've learned or should have learned here, first of all, that forecasting is hard and that's something we should always be reminded of. But I think importantly in this environment, we should learn that there's a whole set of things happening in this pandemic recovery which are unusual, you know, 500 basis points of Fed tightening traditionally deliver a recession. And that's what a lot of people were basing forecasts on. But as you noted, even as manufacturing globally has been soft, the service sector has been lifting as a result of pandemic normalization. In the US, you had a big fiscal impulse,
which I think people missed last year and more generally the underlying health of the household and business sector I think is something that's not usually in place when the Fed is tightening a lot and has provided a real backdrop of resiliency. Resiliency has been the theme, not strength so much. And. I think it's still in place here, and I don't think we should bet against the US or global economy, at least not over the next six months or so. To build on John's question about which data points matter. I do wonder about the stacking of all of the employment metrics that we're going to get this week. I've really topped off with that nonfarm payrolls report. How high is the bar for either wages to
increase, for the numbers to stay high, for the market to wake up to the realization that you're talking about that frankly, the Fed cannot cut rates six times this year and that the economy is much stronger at inflation. Unfortunately, a bit stickier. So I'd say first off, that the you know, the payroll report, the data we're going to get this week are going to speak much more to growth, even though we have an average hourly earnings report which will speak directly to wage inflation. We are looking for a 4/10 gain on that. But I think the message from this week is that the economy is doing reasonably well, not as strong as it was six or nine months ago. We're looking for job growth to be settling here somewhere in the 151 75,000 a month range here. And I think what you want to look here as is the pattern of behavior, as you noted.
Manufacturing still looks weak, but there still is broader strength in the economy outside of manufacturing. And I think the net effect of this is an economy that's growing probably around 2% right now. So this leads to this question of the round trip that we've seen on the ten year yield. Are we currently seeing restricted levels of rates? Are we going to see that working their way through the economy this year? Or is this really going to be something that allows the recovery hurt the expansion to continue? Well, that's an interesting question because, as you know, the Fed responded to the rise in ten year yields from the middle of the year through the end of September by arguing that that was doing some of its work for it. It has not pushed back against the easing so far.
It's really embraced the idea that we can get inflation down without having to have any pain and possibly have material Fed easing. We do see the fall in ten year yields as a reflection of risk appetite going up. You see that more broadly in equity markets. You see it across risky assets around the world. I think it will support growth. It does promote resiliency and I think it is going to, on the margin, be a factor that's going to slow the Fed and other central banks down here continue to make ruinous into 2024.
Bruce, just too short an answer necessary with you and Joyce Cheng and your work at Jp morgan. What will be the GDP outcome of China this year? I think five is is good enough a number. China's economy, which is moving in different directions, in different pieces. But I think there's enough policy support. I think the external recovery we see, which is quite modest, but taking hold in tech and manufacturing will help it.
I think it'll grow five with a very weak private sector demand and quite significant supports externally and from the public sector following a pretty shaky year as well. Bruce, thank you, sir, for catching up with us this morning. Appreciate the update. Happy New Year. Bruce Kasman of Jp morgan. I did promise you an update on the latest out of Japan following that airline collision at Haneda Airport in Tokyo. A Japanese Coast Guard plane colliding with a Japan Airlines flight at that particular airport. As far as we understand.
All 379 passengers and crew on board the larger plane safely evacuated, according to a spokesperson. The latest we're getting on the smaller Coast Guard plane. At least five Coast Guard members confirmed dead. This according to the Japan land minister. And we will be obviously getting more
details as it comes in. But really, just yet, another tragedy on top of the already tragic images from the earthquake that we saw, as well as some of the tsunami fears. This coming as we still try to establish what actually happened here to the two airports of Tokyo.
We all know Narita and the horrific drive. It's 40 miles from Narita. It makes O'Hare look like a walk in the park. Haneda is is a newer airport, if you
will, for commercial aircraft, mostly domestic, mostly Northern Asia, less the international flights. That's the latest out of Japan. More on that a little bit later when we get more updates for you for the broader price action building like this on the S&P 500, pulling back by 0.7% on the S&P. An update on Apple, a downgrade from Barclays this morning. That stock is negative by about 1.8%.
From New York, this is Bloomberg. There will be a temptation to think that the the three major conflict areas geopolitically that you just pointed out, Ukraine, Israel, Taiwan are going to be somehow handled when in fact they're going to continue on for months. I mean, there's no easy end to the Ukraine war. The Israelis say that the mass war will go on for months, and I don't see anything there to stop it. And there's a lot of volatility around
Taiwan, which I think frankly is under underappreciated by markets. That was Terry Hang Seng, the founder of Panacea Policy. As geopolitical tensions mount and linger, the latest from Iran dispatching a warship to the Red Sea. More on that in just a moment. They brought a price action if you picking up on things in commodities. Crude looks like this on WTI 7320 by about 2.2%. Brent crude up to almost 79. Lisa, 78, 71 up there by a little more
than 2%. To me, I'm watching this very closely. We've been surprised all year by oil prices declining and actually ending the year with a loss last year this year. Really key to see as Iran sends a ship over to the region and we're not seeing any sort of quieting down and some of the conflict in the Red Sea. You heard it there from Terry Haines.
Underappreciated by markets may be Tom. October crude was down 10.76%. November it was down 6%, December it was down 5.67%. Then the last three months on crude, even with all of this going on in the Middle East, with all this going on in the Middle East and it's 78.68 on Brent crude up 2.1%. It's sort of middle tendency. I thought I'd see a bigger move over the last week.
But the answer is, you know, people are using surge or lifted. Well, it's just trading up. And I would thought I think it'd be much higher. Is it possible that the United States is the number one producer of hydrocarbons in the world? It is the weight of U.S. output, 13 million barrels a day of output in this country. It certainly contributes to that move. Some Joe Biden, Secretary Granholm, oil czars, if you will, that they won't talk about it. They won't talk about it.
They certainly won't talk about it to me. Oh, an inside surveillance joke right now. We need perspective and we get it from someone gifted. He's served the nation in the Marine Corps, also a White House fellow.
And critically, he is a king of speculative fiction with James two meters Elliott Ackerman's Must-Read, 2034. Boy, is that a must read right now, given the Philippines, given the South China Sea, and we eagerly anticipate 2054 that you'll see in March. Elliot Ackerman joins us this morning. Eliot, this is not speculative fiction.
It is reality in the Red Sea. What is lost in the press coverage? You know, I think the one thing that is often lost is we have a tendency to focus specifically on military events while losing perspective, that all military events happen in a political overlay. You know, ultimately, these are political questions. What's going on in Taiwan, what's going on in Ukraine, What's going on in Israel? And the longer these wars play out, the more and more central the politics of the war itself become and what the outcome is going to be. The heart of your fiction with the admiral story. This is things happen suddenly and then
in sequence. Do we have the ships in place against these terrorists? Whatever you want to call them. Do we have the process in place where unexpected bad things can happen in sequence? I think when it comes to to the Middle East and the challenges that we're seeing there. Yes, we do. And that is a situation where, you know, we the United States, vis a vis the Iranians, we are not facing a peer level adversary necessarily in Iran. And I agree with Terry's comments that
the underappreciated conflict here is Taiwan. And when it comes to Taiwan, you know, the United States does not have the forces in place, at least peer level force is in place that can meet Chinese aggression across the Taiwan Straits. And that's one of the huge challenges that we face, is that the Chinese would be fighting that conflict in their backyard and we would be fighting it from across the Pacific Ocean. I want you to elaborate a little bit on the point that you just made, that all of these international conflicts have real domestic political implications. What are some of the ramifications that we've seen over the past year, how the conflicts have developed and how public opinion has shaped the inaction that we're currently seeing in Congress to continue providing aid? Well, I think when we go around the go around the world, if we look at Ukraine right now, I would argue that that's probably a war that's not going to be decided on the battlefield as those conditions stagnate.
And it's a war that's going to be decided at the ballot box. And I think in Ukraine or in Israel, as we see, this war is now extending into months. I think domestic political considerations in Israel are going to determine the outcome of their war with Hamas. And I think if we look at the United States, you know, the elephant in the room is we have an election that's going to occur this fall. And how that election unfolds will be determined after those conflicts. And last thing we look at Taiwan. I mean, in two weeks, the Taiwanese people are having a presidential election and the outcome of that election will certainly affect China's perceptions on what they should do in Taiwan.
How different is the foreign policy of Donald Trump versus President Biden? I think the foreign policy of Donald Trump is much more unpredictable. And I think the foreign policy of Joe Biden, as we've seen it, is much more it has a much more incremental. So I don't think anyone can necessarily say what Donald Trump's policies would be on any three of these conflicts Taiwan, Ukraine or Israel, whereas I think we've seen sort of a more consistent approach that Joe Biden has applied. I mean, look, Eliot, where we are and it's about public service. There's a lot of people watching this across this nation that have loved ones that see loved ones on long tours of duty.
I know that the Ford is coming back from the Mediterranean. Are we fit now in our defense budget for multiple wars? You mentioned Taiwan. Let's take our war. Ukraine, our war, Iran, maybe our war, China. Do we have a budget near capable of meeting those three threats? I think we're I think we have to take a very, very hard look, not only at the budget and the financial resources that we're applying, but also the intellectual resources. And that's actually where I have the most concern, you know, is a, would a war against China look like a repeat of the Second World War, in which the coin of the realm, a naval battle where aircraft carriers, 80 years after the aircraft carrier, became the coin of the realm. And I don't know that that's necessarily
the case. You know, we've seen in places like Ukraine that the Ukrainians have been very effective in sinking Russian ships at the line with shore based missiles. And so, I mean, I'm a I'm a marine veteran of my own service right now, is in the midst of doing some real strategic a real strategic reset about what it would look like to fight a revisited island hopping campaign in the South China Sea. And they're restructuring the entire Marine Corps to do that. So I think there's there's a budgetary question, but there's also an intellectual question of, you know, what will the wars of the future look like? And that that work needs to be done now. And it's going to force some American
military institutions to transform in ways that are going to be very uncomfortable with the war of the future. ELLIOTT What's a more effective strategy, one that's predictable or one that's unpredictable? I think in terms of your battle plans, you always want to be unpredictable. The word I would use is one that is adaptive because it's very difficult to predict what the war of the future is going to be. It's most essential not to get the prediction right, but to get the posture right so that your forces can adapt to whatever the next conflict looks like. And, you know, to use an analogy from
the Second World War at the outset of the Second World War in terms of naval warfare. Again, the coin of the realm was the battleship, and it had been the coin of the realm, the most essential platform for four centuries. But as we all know, you know, Pearl Harbor, the entire U.S. battleship fleet was sunk. And we had this new platform, which was the aircraft carrier, and that that platform was able to adapt and become the central force around which naval battles were fought. And I think whatever the next war is, we're going to see a similar process of adaptation need to occur. It's going to have to occur very fast. And the side that gets it right will
probably be the side that wins. And it just to finish that, what do you suspect it is? I think it's going to probably be a network of platforms. I think it's going to be unmanned, unmanned ships, unmanned aerial vehicles. Our ability to fight both a high tech war and also a hybrid low tech war where those high tech systems are taken offline and our forces ability to kind of toggle between the two. So it's going to be very, very complex. But more of the network centric version of warfare as opposed to a platform centric version of warfare built around, you know, very big ships and aircraft and things of that nature, trust and interest. And. Elliot, thank you.
Appreciate your time this morning. I always do. Happy New Year, sir. Thank you for having us. Marine Corp's veteran on the latest. Okay.
I can't say enough about his book 2034. When the kids say to me, what book do I want to read, but I don't want to read 1200 pages of Jonathan Spence, I say, Shut up and read Sister Venus in Aquaman. Aquaman is Venus. It'll be a great movie on Netflix.
This is the reason why I'm watching ASML and some of the bans on certain technology to China, because what Elliot Ackerman is talking about is going to be fueled by a lot of these technologies that are connected to chips and artificial intelligence and unmanned kinds of high level not thinking, but processing of data points. We're on totally the same page. The difference between rhetoric and policy. The rhetoric is cozy, a little bit better between China or the United States, but the policy policy is not changing anytime soon. Coming up, Sarah Hahn of our pod Saxon words on this equity market pulling back just a touch with 10.6% on the S&P. The S&P 500 coming into a new year on a nine week winning streak. From New York, this is Bloomberg.
2024 is going to be the year that we have a very serious discussion in the financial markets about the Federal Reserve's credibility. What I'm excited about in 2024 is to not hang on every single word that the Fed is saying. Paul thinks the Fed's to be cutting rates in 2024, but it's possible that the economy could be firmer for longer. If our call is right, more likely to have a soft landing than a recession, clearly not cutting. In March of 2024, the Fed is really
unlikely to start cutting in March. This is Bloomberg Surveillance with Tom Keene, Jonathan Ferro and Lisa Abramowicz. Live from New York City this morning. Good morning.
Good morning. From our audience worldwide, this is Bloomberg Surveillance on TV and radio alongside Tom Keene and Lisa Abramowicz. Some Jonathan Ferro your equity market this morning, pulling back 5.6% on the
s&p 500. Before we get all excited and start talking about 2024, let's talk about 2023. Coming into a brand new year. The average forecast, 4000 points on the s&p 500. We close almost 20% higher.
So let's talk about Tom 2020 for the moves for the year ahead. You conviction on Wall Street, the high 5200, the low 4200 a 1000 point spread between Oppenheimer at the high end and Jp morgan at the low end John sofas of OpCo there. Sam Stovall also from CFR, you had a really interesting and wonderful 2023 of optimism as well.
And you say, well, how did this happen? And here's the solution is this thing called valuation expansion? Stuart Kizer at Citigroup. But a great research note here and the valuation expansion, the p e multiple expansion that we all witness, John, I would suggest 12 months ago that was not predicted and yet there it is. Look at apple with a 30 1pe. This sets up apple perfectly to the pre market pulling back the early call to start a brand new year coming from the team over at barclays. And tim lang lowering our rating from equal weight to underweight the 15 has been lackluster. We believe the 16 should be the same. We believe Lisa, the continued period of weak results coupled with multiple expansion is not sustainable. In the last 12 months, you've had a revenue down, you've had expenses up, you've had operating income down.
You've got this question of just how much is the cash flow fueling some of the gains by pouring them back into stock purchases, and how long can they continue doing that and be continue to growth stock at this point? This to me, how did we get it so wrong? Magnificent seven, we're up 107% last year. This year, people are saying all the others will come to the bat. Okay. This is still the mystery at a time where we're not getting real growth. And one of the biggest names. Yeah, but I'm going to go to the
optimism side of that is that I mean, there's a lot in common between the great Sir John Templeton, Indiana. They both were great Air Jordans in. The answer is Dan Ives is channeling Sir John Templeton this morning. Apple shares they're on sale. That's a sale. That's the language of the wonderful John Templeton of Tennessee. Yeah it's Dan I've saying on sale just to be very clear, he's saying Dan I've just seen it Wedbush on sale. He's modeling out a $4 trillion apple out there somewhere. And this is the struggle the pain of not
holding Apple. Everything that Barclays said this morning is true. Almost 99% of it is true. And it was true through much of the whole of last year, Lisa. And yet still that stock closed the year higher by almost 50% at the bull case include services. The bull case includes just ongoing
recycling and ongoing re upgrading. Considering the fact that the upgrade cycle was delayed, not deferred completely, there is a question here about how any of the tech stocks are going to perform because we headed into the beginning of last year, frankly, everyone was saying this is going to be the area of underperformance. Finally, they were so wrong. So we're so wrong. Again, whatever the consensus is. The number one thing I missed. Zuckerberg I'm Mr. Meta. Big Zuckerberg.
He's cutting just like you, John. I just I missed Zuckerberg in 2020. The first comparison I've ever had with Mark Zuckerberg takeover. Thank you. I think we're all eating humble pie on
Wall Street after the year we've just had on the S&P 500 and the year we've just had our sweat, by the way, and the bond market, just narrative after narrative and a ten year deal just laughing in everybody's faces and closing the year exactly where it started. It is the price action for it this morning at ten year at three 9557 it what's up this morning by seven or eight basis points equities pulling back a touch here Lisa we're down 0.6% on the S&P and how much is higher? Oil prices really kind of fuel this idea of potential inflation reigniting? This is what we're watching for the week ahead is that manufacturing comes out tomorrow as well as the FOMC meeting minutes around 2 p.m. at 10 a.m.. We get the JOLTS job openings which have been coming down Again, a fuzzy number. Unclear exactly how predictive this is,
but if you see the unemployment rate remain low and job openings come down, this fuels the immaculate disinflation discussion. Thursday we get initial jobless claims. Those have been increasing. I am curious about continuing claims considering the fact that, you know, there is this feeling something has to give on the labor market front for inflation to come down to nonfarm payrolls to finish.
The labor market theme comes out on Friday along with ISM services. Do we see average hourly earnings sticky at around 4% year over year? If they are, can we see a Fed truly cut interest rates by six times by 150 basis points throughout the remainder of 2024? We're hitting the ground running in a first week of 2024 where there's a roundtable. Sarah Hunt, chief market strategist at Alpine snacks and Worth. Sara good morning a
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