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We're just counting down, folks, just about a minute to those Fed minutes. Of course, it was related to the first FED meeting of twenty twenty four at the end of the month of January. Probably no surprises expected, Jennifer, but nonetheless we'll see there's some consensus in terms of what the Fed officials need to actually cut rates.
And then you know, if there's anything that we can read amongst the lines about how to read the latest CPI figures, which were much higher than anyone had thought.
All right ahead of that, folks, you've got a ten year note at four thirty one, a two year note at the shorter end of the you'll curve at four sixty five. Taking a look at the equity trade, it's been a muted trade down across the board, just down about twelve on the S and P five hundred and a decline of about one hundred and sixteen points on the NAZAQ, so down the most under percentage basis. We do want to get to the latest those Fed meeting minutes.
We want to head to DC. Bloomberg News International Economics and Policy correspondent Michael McKee is live at the Federal Reserve breaking down them as they crossed the Bloomberg.
Well.
As of January thirty, first Fed officials did not see any kind of a rate increase in their future, agreeing at their meeting the policy rate was likely at its peak for this tightening cycle, but there was no consensus on when they might start cutting and no real hints in the minutes about what they would be looking at to decide the future path of the policy rate would depend on incoming data, the evolving outlook, and the balance of risks. The minutes say cutting too soon was seen
as a bigger risk than waiting too long. According to the minutes quote, most participants noted the risks of moving too quickly to ease the stance of policy and emphasize the importance of carefully assessing incoming data in judging whether inflation's moving down sustainably to two percent, but not all felt that way, suggesting at least a small split in the committee. A couple of participants pointed to downside risks to the economy associated with maintaining an overly restrictive stance
for too long. Although they did not have January's stronger jobs and consumer price inflation data numbers, participants noted momentum and aggregate demand might be stronger than currently assessed. Several also worried the risk that financial conditions could become less restrictive, could add undue momentum to aggregate demand and cause progress on inflation to stall. Geopolitical considerations got a small nod,
as did slower growth in some foreign economies. And then, finally, on the balance sheet, members agreed it was important to continue balance sheet reduction at its current pay, feeling so far it had proceeded smoothly. Many of them said it would be appropriate to begin in depth discussions on the ballot sheet at the March meeting, something Chairman J. Powell had confirmed in his January thirty first news conference.
All right, Michael McKee, of course, our Bloomberg News International Economics and Policy correspondent live there at the Federal Reserve. Mike do not go anywhere. Quick check on the markets everyone, and a slight uptick, very slight when I look at the US Treasury trade that to year note right now yielding four to sixty six, which was just pretty much
where it was right before the minutes release. Ten year note going the longer end of the yield curve four to thirty two, which is pretty much where we saw that prior to the release of the minutes. Quick check on the equity side of things, of course, the focus very much on Nvidia of reporting after the close, and we are seeing equities move a little bit lower here on that news, so we'll continue to track that in
the meantime. I do want to get back to Mike here. Mike, it doesn't sound like there were many surprises here of any.
No, and one of the problems that the minutes have now is most of what we have heard in the minutes has already been discussed by Fed officials between now and their meeting that was three weeks ago, so we have a pretty good idea of what they were thinking. There isn't much in here except maybe the idea that there are more people leaning against the idea of cutting too quickly than moving too slowly. That that is the
one major concern that comes through here. But I know a lot of people are looking for guidance on what they're going to look at when they decide they're going to start cutting rates, and that's not in these minutes.
And you know, another thing that's not in those minutes is that very disappointing CPI number that's really changed the way market participants are thinking about the timing of the rate cuts. And you know, Mike, I wonder if you see anything in the minutes that policymakers, knowing what they now do about that latest CPI print, would perhaps go back and rethink or reassess.
Well, there were.
Hens, especially in that line, that the economy might be stronger than anticipated, that they were concerned these sorts of things could happen. But of course this meeting was two weeks before that CPI report came out, and it was three days before the employment numbers came out, so they
didn't really know what was going to be happening. There has been a concern all along among Fed officials that the economy was stronger than anticipated and that could be an inflation problem down the road, but it's not specifically reflected in these minutes.
All right, I do want to bring into our conversation Bloomberg Economics chief US economist to Anna Wong. She is joining us as well. She's joining us from our DC bureau also there at the nation's capital. Anna, what jumped out for you in the FOMC minutes? As might kind of laid out, It doesn't feel like too many surprises, But give us your take on this.
Yeah, So, you know what has puzzled me over the past couple months is why did the Fed feel like they need to hold higher for longer? Even though because if we looked at the reaction function which we estimated and which is that basically they followed the inertial tailor rule. This rule has very precisely predicted that what they had done in the past two years with monetary policy. So why are they choosing this moment to deviate from it?
And I think these minutes reveal why. I think part of it is that they have been surprised by how strong the economy is relative to what they expected. And recall that a couple of days before the FOMC meeting in January, they received the Q four GDP number, which really surprised to the upside, and I think based on that assessment, they're thinking that maybe the neutral rate is in fact higher than what they thought it would be
before the pandemic. And this is why that the tailor rule that they're the reaction function they're following, in fact is experiencing a level shift upwards, and that could explain the rationale for why they are choosing a hold rates higher for longer.
Mike, come on in on this in terms of you know, we've talked a lot about the new tool rate. Your take on what Anna is saying, and maybe there is a reassessment here.
Well, there's definitely, if not a reassessment, certainly a focus on it. We've heard from several members of the committee since the meeting that they are looking at the possibility that the neutral rate has gotten higher our star as they like to call it, an eco nerd talk, that the economy is stronger and they will need to react to that. But the minutes make it clear at the least as of January thirty first, that they would do that by leaning against faster growth at the same policy rate.
They weren't going to raise rates going forward. They would just leave rates where they were for longer, you know.
I did for both of you. Actually we'll start with Anna on this, but one thing that has really struck me is that the chat has indeed turned to the possibility of interest rate increases, obviously since this FOMC decision, since the CPI announcement, since the jobs numbers, And I wondered, for both of you, do you see that more as a possibility, especially you, and if you wouldn't mind starting giving your assessment of where the FED thinks the new to rate is.
Yeah, so I think that the likelihood is still tilted toward rate cuts rather than rate hikes. Our nop FED speak model does suggest that the probability of a rate hike is thirteen point three percent, and that is quite similar to the assessment of former Treasury Secretary of Larry Summers. But I think that given all the range of policy tailor rules that the FED follows, none of them would say that the FED should be hiking at this point.
And then, Mike, what do you think about the possibility of a hike at this point?
I agree with Anna, the rules and also what FED officials are saying rule out any kind of rate hike at this point, if they felt the economy was accelerating too much and an inflation was starting to become more of an issue, they would just leave rates higher for longer to see what happen. It's not on the table. Larry Summers put it there. An interesting discussion point, but it's not something that FED officials are considering right now.
Well, I go back to Mike, some of the conversations we've had around this table. That is, the FED gets, you know, to the end of its cycle, and we think we've picked out here in terms of rate increases according to what we got from the FED chare. But having said that that it is more difficult towards the end.
Is there some truth to it? Truth to this as we continue to see data points that come in stronger that make you think, well, wait a minute, you know, is it just a case of staying higher for longer or the possibility that we could, considering some of the data points we could get down the road, that the FED would have to raise rates. I mean, is it silly for us to rule it out completely.
I wouldn't rule anything out completely. We don't know what's going to happen down the road, but it's going to be some time before that even becomes would even become an issue to be considered. The strength of the economy sure, and the fact that we haven't had an effort to try to get down to a two percent level before. It could be very hard to do that, get that last mile, that last percentage into out of inflation rather
down to two percent. So FED officials are going to be making a decision on when to start cutting based on what progress they see in that regard, but they're not at this point looking to raise rates to push down inflation any faster.
Mike, if we could just stick with you for a second, because I want to go back to the text of the minutes, and I wondered if you could talk a little bit more about what officials were thinking about their quantitative using slash quantitative tightening program.
Well, they don't go into a lot of detail about it, but they do say that it's been proceeding smoothly at the pace they've been going at and that at some point they would make a decision, but they don't put any timing on that. They will have an in depth discussion in March towards end eventual decision is the way they said it, but it has been working all right, and they have been seeing the reverse repo funds decline
as that's become less important. And so it's all pointing towards the fact that sometime in the future, maybe not too long from now, they will start a taper. They did suggest that a gradual reduction in the balance sheet.
Sell off is.
Appropriate and that they would make that decision down the road.
All right, So not a ton of market reaction as we've gone over Having said that, and I want to go over to you in terms of what's your next focal point when it comes to thinking about FED policy moving forward and really the health of the overall US economy.
Yeah, I think that a next focal point would be the core PCE. We got CPI and PPI data last week, and that seems to imply that the January's core PCE and Powell's preferred supercore would be running pretty hot. And if it's true that the January readings is just noiselecting seasonality factors, then it could be possible that the February inflation reading would be ugly as well, because typically these
seasonal factors also repeat itself as January in February. So it is really only in after the February inflation data that do you really get good signal of what really is happening to inflation. So I would say markets should be ready for a wild ride even for February's CPI.
Data shocking as we've often talked about the volatility that we've seen, certainly in the rates market and the treasury trade. Hey, Mike, also to you last question, I got to cheat a little bit. Heard earlier on television. You are looking ahead to when fetch your J. Powell is up on Capitol Hill. That's important, That's.
Going to be important. We have a lot of Feds speak between now and the end of the month, but a lot of it will just kind of go away in the sense that J. Powell rules all and March sixth is the first day of his said by annual testimony to Capital Hill. He'll be talking to the House Financial Services Committee, and that's the one that the markets are going to focus on. That's where they're going to
expect to get some guidance. Don't know what he'll give them, but that is going to be a day where we will probably see markets move in terms of the FED and not in videos.
All right, net net it's stated point to data point, fed speak to FED speak and anything that Jay Powell does. All right, guys, thank you so much, so appreciated, of course. Are Michael McKee at the Federal Reserve in Washington, DC, is international Economics and Policy correspondent here at Bloomberg News and our thanks also to anawong chief US economist at Bloomberg Economics. She is there in our DC bureau.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple card Play and then brout Auto with a Bloomberg Business app, or watch us live on YouTube.
Intel back to sterrophiles for an initial public offering today on the NASDAC Wall Street Journal, noting that Reddit expected to make its IPO filing public this month, then reserve shares for seventy five thousand of its users and meantime earlier this year are Bailey Lipshealtz noting jump in biotech IPO listings. I do feel like Jennifer, that IPO obviously important. It's a great indicator of kind of health in the marketer.
The willingness right to bring new issues, But my attention has been a lot more on like M and A. We've seen a lot of M and A deals this year exactly other good indicator.
It is a very good indicator, and it's it makes a very nice change from last year when that was really in the doldrums, and that has ripple effects across the whole economy and all the markets.
All right, So watching M and A. But we did also though, want to dig a little bit more into what's going on with those new issues. So we've got a great voice on that. And back with us is Rachel gering Ey, America's IPO leader. She joins us from Nashville, Tennessee. Rachel, great to have you here with Jennifer and myself. So how would you describe the IPO market today? What are you hearing maybe from some of your clients.
Sure, thank you for having me, you know, sitting here today. I look at the ip market in definitely feeling and sensing positive signs of a continued, steady recovery in the IPO market similar to coming out of twenty twenty three. So not a spike in a resurgence by any means, but positive signs, steady recovery. Twenty four IPOs so far
in twenty twenty four. Five of those raising you know, well over you know, half over five hundred million in proceeds to over a billion, so strong results, cross sector representation, larger deals eleven of those twenty four all raising over one hundred million in proceeds. So positive to see some stronger deals, larger deals coming to market. Those are positive signs for twenty twenty four so far.
You know, Can you talk a little bit more about how the FED is affecting the environment, because we've been talking an awful lot today about the Fed minutes, and you know, we all remember how traders have really been wrong footed with the FED with their expectations on how quickly the Fed's going to cut rate. So how is this recovery of the IPO market sort of interacting with that dynamic.
It's certainly impacting and back to kind of just a steady recovery because we are still in that high interest rate environment. What's helpful is we're not anticipating or expect any rate increases. Rates are going to hold steady, hopefully start to come down, whether it's you know, late spring, early summer is still the question of when we would start to see those rates come down for twenty twenty
four and into twenty twenty five. But the economic you know backdrop is showing signs of improvement, not only with interest rates, but with you know, labor markets, supply chain, you know, tensions are easing and inflation is easing. So those are positive signs that will help fuel the IPO market, but we need to see those signals continue in a steady state.
You sound like a FED member, Rachel, to be honest with you, because it does feel like you are. Still there are a few different scenarios that could certainly play out here in twenty twenty four. Are you more cautious than not cautious? Maybe compared with the last I don't know six months or so.
I'm optimistic, quite honestly, not to say that there's not challenges. Companies are continuing to navigate. You know, cost is one, whether it's consumers, the price of goods, price of services, costs of capital continue to be high compared to your pre pandemic levels. So it's a challenging environment to navigate,
no doubt, but starting to ease and improve. I'm optimistic when it comes to IPOs, that the key is not only the economic backdrop and how that will sustain to bring companies to market, but the post IPO performance of those companies right needs to hit to maintain the momentum. That's absolutely critical. So how companies prepare in advance of the IPO that that time of preparation is really critical because we need them to perform well in strong post IPO.
You mentioned at the start of it the conversation twenty four IPO so far in twenty twenty four cross cross section across a much of different sectors. Is that true to like talk to us, Like, you know, we talk a lot about AI. I'm curious if you're seeing a
lot of IPO activity with that. The Intel back to Stera has an IPO certainly component to it, and they talked about an IPO on the Nasdaq that came across the Bloomberg today Biotech, Like where are you seeing them more momentum than maybe the rest?
Sure? Yeah, So biotech certainly a sector that's coming out strong so far in twenty twenty four ten IPOs two billion in proceeds raised, so really strong results, particularly in biotech. Then we're seeing kind of onesie twosies across all other sectors, you know, consumer, one, tech, IPO. So far that the biotech really is being fueled by interest in big pharma and the M and A activity that we're starting to
see that's improving valuations. So that's driving some momentum around IPOs and also follow on activity in the biotech sector. So that's really encouraging to see anticipate that to continue. When I think about AI, huge topic, everyone is talking about it, I think about it in two buckets. One
the peer play AI companies. We're going to see those come to market kind of onesie twosies in my opinion, over the coming months and so forth, but probably not in droves, largely because one the technology is still emerging and evolving, and two, in the private sector, there's still a lot of interest in investing in that direction, particularly from venture capital. So these companies are getting funded to continue working through the technology and so forth and remaining private.
But then alternately, there's alternatively there's all everyone else, our companies leveraging AI in their existing business, whether it's you know, product services, driving customer satisfaction, driving efficiency and reducing costs. Companies are still really looking to how they're going to employ AI within their business model. We're seeing that play
out and equity stories. The tension that's going to be there is investors and stakeholders saying, show me proof, right, not just talk about it, but show me the results of AI and how that's really impacting the business overall. So that'll be something companies really have to pay close attention to as they come to market with an AI story.
You know, if you could elaborate a little bit on that, I mean, how happy our investors do you think at this point with the real cash value of AI for companies? You know, are there is there patients about to get tested a little bit? And do they have a lot of patients right?
I think I think there's I think we're going to start seeing, you know, continued pressure testing around that and in healthy skepticism coming from investors and broader stakeholders. It's not just about talking about how how companies are leveraging AI, but showing me the results of that use and also demonstrating a responsible use around AI as well.
Is there a private equity component to this too? I mean, we've we've got a couple of stories about you know, private equity funds that maybe have been waiting for a much more friendly market to maybe either sell or spin out some of their investments. I'm just curious if you have a perspective on that as well.
We definitely know there's there's pent up demand, particularly from a PE perspective. The deal volumes have been low, both an M and A front and an IPO front, So starting to see that on you know, kind of unlock, you know, through both M and A activity and anticipated you know, i PO activity throughout twenty twenty four is what's fueling, you know, some of my optimism of what we can we may expect to see throughout the rest of this year and also beyond twenty twenty four into twenty twenty five.
Is there one big deal you're kind of waiting? I feel like whenever we talk about the IPO market, Jennifer right, there's always something a name or two in the newsroom that we were like hyped about, And I'm just wondering, is there anything Rachel on your radar that is that name? Like I talked about Reddit journal has some stuff on that today, but I don't know if that's it or is it something else?
Yeah, there's I can't comment to any particular company. What I am excited about, though, is when I look at the pipeline shadow pipeline, and then anecdotally just the companies that we're working with, we're speaking with a lot of interest around going public. So the interest, the desire is still there. What companies are doing today to prepare for future public listing is very encouraging, and we're seeing this
cross multiple sectors, not dominated only by one. Certainly, you know, hopefully the tech sector will will start to kind of come back to its historical norms, but it's going to take some time to get there through just navigating kind of the economic and geopolitical conditions that all companies are experiencing right now.
All right, we're going to leave it on that note, Rachel, thank you so much, really appreciate it. Rachel Gering, IPO leader EYA America is joining us out there in Nashville, Tennessee. It has been kind of a quiet market right for a while.
It's been quiet, but then we get some very interesting deals pop up. Capital one comes to mind.
The M and A activity has been pretty astonishing, especially if you think about the energy space and some other places right exactly.
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Jen Vidia shares. They are down about three percent in the aftermarket. Let's break it down, try to make some sense of as this stock bounces around, initially slightly higher, now slightly lower. Let's get to it with Lucas k Semiconductor analyst at Third Bridge, joining us here in New York City. Lucas, the outlook for first quarter revenue looks upbeat. What is your initial thoughts on the release?
Thanks for having me Just at a glance here. We saw that the beaten revenue expectations, as expected, came from the data center segment. And we're seeing a common trend over the past couple quarters where the data center revenue that follows the quarter before seems to eclipse the entirety of Video's quarter today revenue. So it kind of shows this strong growth trend continuing within the AI chip consumption
across its customers. Now you mentioned the guidance, it's also a strong signal that, you know, despite what many think in the market regarding competition and some customers looking to, let's say, reduce dependency on some Nvidia chips, we're seeing this timeline maybe not as quickly up to par as expected, and that in the meantime consumers will continue to purchase
these GPUs. You know, this is evident. We saw just a couple of weeks ago, Mark Zuckerberg and Meta kind of making this commitment for three hundred and fifty GPUs, which you know, on the low end of revenue for video, which would be about seven eight billion dollars just from one company.
Hey, I do want to mention a few more headlines crossing first of all, and Video saying data center sales to China declining significantly, and also talking about Generative AI has hit a tipping point. I'm actually looking at the press release where they are talking specifically about that. There was a quote here and I'm just looking for it. I'll continue to look for it, but anyway, saying that
Generative AI has hit the tipping point. I'm trying to make sense though of how the stock is trading here in the aftermarket. So help me out here to understand that we were okay, now we're up about one percent here, we've been down, lucas, How do you I don't know. Are you making sense of it as we bounce around? Where are some of the concerns because it feels like a hesitant trade.
Here, lots of volatility, as you mentioned. Regarding some of the concerns, I'll speak to China first here quickly. This has been an area of discussion for long term growth concerns from video for a couple quarters now. They mentioned that ongoing restrictions and technology more or less sanctions that are being placed on markets like China are going to
limit their long term growth potentials here. And although the company said that in the short term this was a couple quarters ago that they wouldn't see some material impact, twenty twenty four into twenty twenty five is when they would start to see some pains coming from this China market. As it stands today, China is anywhere from twenty five to thirty percent of idiot right, certainly a significant aspect of this.
Now.
Another concern that comes to my mind is the issue of supply given that and Video relies so heavily on TSMC for their most advanced chips, we're seeing sort of a build up a shortage and GPU availability given some of the advanced packaging constraints. Now, I'm not sure if this has been something that has been mentioned already by the company and the recent release, but you know this is something that investors are going to be keen to keep an eye.
On, all right.
Just want to mention that we've got in Video shares now up about one percent. Nasdaq e minis in the aftermarket down about four tens of a percent. That quote I was looking for in the press release, Thank you team for finding it for me. Accelerated computing and generative AI have hit the tipping point. Demand is surging worldwide across companies, industries and nations. That is from Jensen Wong,
the founder and CEO of n Video. I do also want to point at our Ian King weighing in and said that maybe some of the disappointment has to do that the sales forecast fell short of the most bullish estimates, so the revenue in the current period will be about twenty four billion, the company said in that statement, though that beat the average Anly's projection of twenty one point nine billion estimates Jennifer had range as high as twenty
six point one billion. There's always a range. There's a high and a low, and so you know, we used to talk a lot more about whisper numbers. We don't as much anymore. But obviously there was some higher expectations and maybe that's what some of the disappointment is and that's why you've seen the stock bounce around, still up about two percent after market.
Yeah, it's interesting that there's the focus on the high there. I mean, it just shows you that, like the market was looking for somebody to hang on to. How can I be disappointed by us?
Did really well? We just wanted better, all right. So, Lucas, as we continue to go through this this report, what's top of mind if you're sitting down with the C suite at Nvidia, if you're sitting down with the CEO, what is it that you want to know? What do you ask?
Sure? Great question, and it kind of goes back to maybe some points you were saying about expectations not being as lofty as maybe expected, or also on the other
end of this generative AI reaching its tipping point. You know, our experts are saying that as it stands today, the footprint of AI servers across these public cloud hyperscalers are only about thirty to thirty five percent, which you know clearly shows that despite the investments that have already gone into the space, we're still in the earlier legs of this AI race. And on to the other point that you've mentioned, if I was sitting down with the c suite,
I'd really ask what's the outlook on this capacity? I can really point to the reason for maybe these expectations for next quarter or not being as high as many people have wanted. Is the issue of supply, as I said, not really the demand and the customers. And you know whether or not they are willing to consume, but you know what pace that they are going to essentially be allowed to do.
So, you know, and one thing I'm wondering though, is you can elaborate a little bit more on that, because one hundred and twenty six percent gain in full year revenue, I mean, where does the company go from here? You've got also a changing interest rate environment, You've got the potential for potential a slowdown in the world's biggest economy and other economies not doing as fantastically as the United States,
as we were talking about earlier on this program. So what's the outlook for in Vidia to maintain this blistering pace even if it does continue to expand Nevertheless.
I think it's really sort of a generalized recognition of how centralized in video is to this whole AI picture. You know, not only are they responsible for more than seventy percent plus of this GPU market, they're also making investments into their own AIA ecosystem to really bolster the whole industry. You know, just last year we saw over thirty investments into private company private companies that in Vidia has done. You know, we're hearing that they could easily
surpass this. This year. We're already seeing some investments pour into AI companies. They're going to further strengthen their position, whether it's in technology or IP to as I said previously, kind of build this ecosystem that you know, not only their customers, but eventually their competitors will have to be depended on as well.
Interesting watching the trade here in the aftermarket and VideA shares up now about six and a half percent. Another headline that crossed and Vidia saying China sales decline caused by the US rules. We know the tensions between the United States and China and certainly the pushback when it comes to high tech that has certainly impacted various companies, US companies, Chinese companies as well. So interesting though, but we're seeing the momentum build up about seven percent here
in the aftermarket. Just to rehash, the company sees first quarter revenue of twenty four billion plus or minus two percent. The estimate that the street had was twenty one point nine billion. Fourth quarter data center revenue key when we talk about AI in this company, eighteen point four billion, Jennifer of That is above the estimate that was out there of seventeen point twenty one billion. So here's a stock that was down four days in a row going
into earnings. I think as much as about a nine percent or so move, if you will, maybe not a quite technical correction here, But now we're seeing it move up about six and a half percent in the aftermarket.
Yeah, and so I very much wonder what the read is going to be when we come in tomorrow morning, if this slipping around is going to continue. But now we've just had another headline crossing again is more than seven percent after the earnings after having started out down, So investors will have more time to digest and we'll see if that continues tomorrow.
Other things on your radar, Lucas, We've just got about thirty seconds left here. As you think about this company, what you will be watching in the current quarter, that's important, you think that our investing audience needs to keep an eye and just got about thirty thirty five seconds here.
Absolutely, and you know, just beyond even the current quarter, because one thing to keep in mind is that these orders are processed a couple months ahead. It could take customers even anywhere from six to eight months to actually receive the shipments. I'm looking at more of a long term growth outlook here you mentioned China. I think in the short term demand from areas like North America and the EU, these growing data centers will be enough to
offset some of the issues that we see. It's more of a long term question of how in Nvidio will continue to grow that revenue base with maybe a significant portion of that missing.
All right, really appreciate you weighing in on this, Lucas. Thank you so much. Lucas K seven Conductors analyst over at Third Bridge here in New York City, watching shares of Nvidia up now about six and a half percent here in the aftermarket, So certainly something we'll watch into the Thursday trade.
Marco a journal No, how about you let me drive?
Oh no, no, no, no, honey, please, I want to drive.
It's a good question, good time. This is the Drive to the Clothes dot Com thing well by Don on Bloomberg Radio.
All right, everybody, just about seventeen and a half minutes left in today's trading session. Carol Master along with Jennifer Ryan in for Tim Stenevic on this Wednesday. It's a fed Wednesday. We got the FOMC minutes at the top of our broadcast at two pm. Uh, and now we're waiting for Nvidia earnings, which are going to be out in about an hour from now, less than sixty minutes.
Equity markets, Charlie breaking it down, Jennifer, we're bouncing off our loads of this session when it comes to the equity trade.
Yeah, And it's interesting because there's been so much talk about the Magnificent seven and how important they are for the equity market. And now there's the darling of them all. In Vidia is about just side weether.
Sure.
Yeah, there's no pressure at all, and just about the decide for all of us whether or not we've been totally irrational for the past four days thinking about it.
All Right, Well, let's see what our next guest has to do. Our Drive to the Close guest on this Wednesday. Lisa Ericson, Senior vice President, head of the Public Mark Goods Group over at US Bank Wealth Management, joining us from Minneapolis, Minnesota. Lisa, good to have you here with Jennifer and myself. First of all, we are a little obsessed with Nvidia, but we're kind of at that moment in time where we're in between fed beatings and a lot of different things at the end of earnings cycle.
How are you thinking about it with your team, the results that we get from Nvidia and how it could possibly impact market sentiment.
Well, certainly, what's going on with technology is a big story on a number of different fronts, and it really has to do with the fact that, both from a performance standpoint as well as a contribution to earning standpoint, the tech sector in general really has been a driver, not only in twenty twenty three, but obviously year to date, and so I think as we look at the remaining earnings that we have, including some of these key bell weathers in the tech sector, it really does matter what
they're going to be able to produce, because certainly what we've seen in earning season so far is while we've had some fairly good numbers from the sector, the reaction has not always been even and simply because the margin for error is low, given that they have had really such great performance.
I just want to point out I'm looking at charts of the S and P the down the NASDAC. I'm not quite sure what has happened, but it's a straight line up. We're not in the green yet, but we and we're not at our best levels of the session, although I think we are on the S and P five hundred now still down about three points, but remarkably different from where we were, certainly at the top of our broadcast. So it's interesting to see some buying as we are, what sixteen minutes away from the clothes I.
Mean, maybe there's a sense there's an opportunity, but I mean, Lisa, we would love to get your perspective on this. I mean, you've got all this focus on what's happening after the bell, But what's your recommendation for the taking the step back and what's the bigger picture. Have equity markets overall come too far too fast or is there room for a little bit more sensibility here.
We're really fairly balanced on the US equity market right now, and there's really a conflict of factors that's leading to that more neutral position. And the reason why is because we have, on the positive side, really an economy that's been very resilient on the back of a strong consumer and a good labor market, and then also some hopes that again we're going to get some easing in that monetary cycle and get some relief in terms of the
tightening conditions that we've seen from interest rates. However, on the other hand, we've had quite a bit of run up, and so that does produce some cautiousness. And when you actually look at the overall growth levels, what you see is that growth certainly has been better than expected, but
at absolutely low levels. And when you have really tighter interest rates as well as the fact that growth has been on a lower trajectory that really usually isn't a good recipe for stocks, And so overall, we really advise our clients right now to be staying at usually where their strategic weights would be on US equities, as opposed to really trying to be heroic and highly overweting or underweighting them.
So could you build a little bit more on that, where are you recommending that they overweight?
Well, right now, we would say across the major asset classes, equities, fixed income, and real assets, we would again stay at whatever are your typical long term targets. We do see some opportunities, however, within asset classes. So a great example is within the fixed income area. For example, there are specific sectors such as non agency residential mortgages that have some extra carry and that are supported by really nice fundamentals.
On the housing market, where again credit remains fairly solid with those underlying borrowers, and so there are some areas to future certain sectors at this time.
You know, it's interesting that you bring up the real estate market because we've spoken an awful lot, not only on this program, but on other programs. We've written a lot of bloomberg news about the risks in the commercial real estate property market. And you know yourself, do you feel like it's something that it's difficult to manage at this point? Because you know, we have your bank corp.
Created some problems earlier this year. You know, it's very like there's a lot of worry about there about where that sector is headed. I mean, what's your advice to your clients?
Commercial real estate certainly is an area that we're keeping a very close eye on right now. Our base position is that we believe that that market can continue to
work itself out over time as we've seen happening so far. Again, real estate is a very localized market with a number of different sectors, and because this has been a problem that has been out in the news for some time, what we see is individual borrowers and lenders really working through that on a case by case basis throughout different areas of the nation. However, again, there is a wall
of maturities coming forward. And so while again it's been a fairly orderly process so far, and our expectations as a base case is that that can continue, we want to continue to look for signs of stress that again could spread further.
All right, So balance view on the equity market, I am curious what would make you say, Okay, that's not the right strategy. What would happen, whether it be it Fed policy or something else that happens that makes you say, we're going to have to think about where we really want to be exposed and where we don't want to be exposed.
Well, certainly our focus is really on some of that underlying support for the now okay fundamentals that we see, and the first stop, of course is the consumer. So we continue to watch again consumer behavior, their ability to spend, and how that strength is continuing to play out as really one of our key ongoing barometers. But in addition to that, to your point, policy is going to be key.
And certainly if you look at what's where's been heading with the FED, even the FED does not exactly know when they're going to be able to move from this more pausing phase that they're in right now to more of a pivot. And so again to the extent that we get some flaruffs and inflation from either consumer or corporate behavior or just shock events again, that could delay some of the relief that may come on the monetary policy front.
Real quick. We don't have a lot of time left just about a minute, can you talk a little bit about the very strong dollar, because that's been really, really quite intense, and so I wonder, you know, are you worried about them having some deleterious effects on investments that you're recommending, or are you hoping that you know it will continue?
More like twenty five seconds.
Certainly the dollar has been a key concern this SUS far Again, companies have been very resilient, but again to your point, it's something we want to continue to monitor. However, with again the Fed hopefully moving to easing, it may not be as much of an issue in the future.
All Right, great stuff covered a lot of ground, Lisa, Thank you so much. Lisa Ericson. She's senior vice president and head of Public Markets Group over at US Bank Wealth Management. Joining us from Minneapolis, Minnesota.
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