Bloomberg Audio Studios, Podcasts, radio news. This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast. With Carol Messer and Tim Stenebeck from Bloomberg Radio.
Let's get some thoughts on both the equity market and the bond market. We're joined for our Drive to the Clothes with Sylvia Jablonski, CEO and chief Investment officer over at Defiance ETFs. She joins us from New York City. Also with us for the bond side.
We love this Bloomberg Intelligence Chief US Interest rate Strategist Ira Jersey joining us from New Jersey. All right, Ira, I want to kick it off with you the decision, the rate market reaction, walk us through the day, what happened with CPI, and then what we got from the Fed and what really stands out for you in terms of the fundamentally kind of backdrop on inflation and FED think, and then how investors are perceiving it and traders are.
You're asking me for a whole dissertation here, but defend.
That's right.
So for CPI. Obviously, the better than expected CPI number, I think gave a lot of people relief, particularly in the bond market, and you saw a big rally in uh all across the yield curve, so you had two year yields and ten year yields both lower by about fifteen basis points at one point. And we kind of hovered there until we got the Summary of Economic projections because the statement didn't really change, meaning you know, there was basically one word of any significance that changed there.
But the summary of Economic projections I think surprised some people in the rate market, with only one cut now being the median dot this year, and four members who think that the Fed's not going to do anything this year, that they're going to remain on hold, so, you know, a little bit more hawkish there, sold off a little bit than Jay Powell starts to talk half an hour later, and we wound up with him being a little bit
more hawkish. In fact, we have a natural language processing model that parses all the words, and we looked at his opening remarks this morning for this afternoon seems like this morning, the last two hours, this has been absolutely crazy. But he was a little bit more hawkish than he was in May, and then the markets sold off a
little bit more. So now we've given back about half of the gains in the bond market that we made after the CPI report, And I think that, you know, traders are still trying to figure out, you know, is the Fed actually going to cut and if so, you know when and how much? Yeah, you know, that really affects the two year note. The longer end, what we saw was was basically the Fed pushing out their more
rate cuts into twenty twenty six. Now, because you have two less cuts this year than was in the dots, the same number of cuts next year, but then the terminal rate for twenty twenty six is exactly the same. So so basically for the long end of the curve, you know, if people think that the dots are going to be realized, which they don't, right, No one actually thinks that that what the Fed says is actually going
to happen. Yeah, exactly, they had to at least take some profits before before the end of the day.
You passed the oral examination for your dissertation. You are now doctor Jersey. All right, let's get to Sylvia Doblonski and get her view on this break it down for us in terms of what we got from J. Powell and Company and what that means in terms of the investing environment.
Sylvia Hiker, great to be here with you today. Yeah, tough to follow the lead on data dissertation there today. But you know, I think that in terms of what happened today, it's pretty much what the market expected, right, we didn't necessarily get a cut today. It's good news that CPI data is cooling off.
It looks like inflation is trending downwards, and this is really what the market wants to hear. I actually think that we're in the sweet spot now where equities are going to kind of continue to rally because we do have great cuts coming. Maybe we don't get as many as we thought this year, maybe gets push off, but we're just talking a couple of months here, so ray cuts are coming eventually, and this is kind of you know, stocks really performing on this news, and so I think
overall it's good for the markets. This feels a little bit like a soft landing. You have inflation coming down, jobs numbers for you know, maybe a little bit hotter than they should be but certainly you know, stable wages are stable, economic growth slowed but more or less in line with expectations. Corporate earnings are good. I think we're in a good spot in the market, and today doesn't change a whole lot.
But it's a great data point. Quick question to both of you. First to you, Sylvia, just quickly. I don't think I was listening to all of it, taking lots of notes. But did I miss anything? Did I hear anything about a rate increase?
No, no talks a break I resultso shaking his head. I can see them shaking his head, saying, no, well you passed the test too for doing a good job listening.
You are kind of.
Glued, like we like run the makeup, we run to the bathroom, like we've got to earbuds, it like everything because we want to hear all of it and the tone. But I reset significant that we didn't hear anything. Sorry, Tim, I you know she rate there a great reveal of what happens behind them.
Just so you guys know, they actually play Bloomberg Radio in the bathrooms here at Bloomberg News, so in the whole building.
So it's amazing that people come out like that was a great interview. Iira having said that significant that we didn't hear anything about a rate increase, and again their data dependence, so it could change.
Yeah, well, you know, the chances of a changing I think is pretty low because you know, Ja Powell has been very reluctant. Even when directly asked at the main meeting whether or not a rate hike was possible, he basically said no. He said, at this point, based on all of their forecasts and everything else, they're much more likely to remain on hold than they would be to cut rates. So it is a bit asymmetric, right to.
Raise rates, more likely to be on hold and raise rates.
Yeah, correct, to be on hold and raise rates. So so basically they're going to be on hold if inflation increases significantly, and then cut rates if the economy starts to deteriorate further, or if infliction keeps coming down, and it's at asymmetry that's keeping the yield curve inverted and and will likely continue to keep the yield curve inverted
until they actually start to cut interest rates. And I think that that's you know, someone pointed out to me today one of our customers was like two years to today is when the two tens curve first inverted, and so we're at basically, uh the the longest period of the yield curven version ever and that's likely to persist I think until close to the end of the year.
The other the other thing that's come out of this when in my quick discussions with customers after after Jay Powell spoke, is there's a lot of people who think that a September cut is very possible. I don't think that's true at all. Maybe if they cut twice, but why cut in September. You know you're only going to get two more months of data points basically between July and September, So why you know, why bother, why not wait until after the election. They move the meeting of November.
It's now going to be on a Thursday, so they have way to having a meeting on election day and they can cut rates then and six weeks in the grand scheme of things from the longer term, thinking that you know, we're markets people, right, we think about what the market's doing every second. The FED is thinking more longer term, so six weeks in the grand scheme doesn't really matter. So I think that they would hold off until then. They could still cut twice this year. That's
completely possible if the economy's falling out of bed. But you know, we were unlikely to see that prior to election day, at least in my view.
Okay, Sylvia, I want to go to you and just get you know, you have this thesis where things look pretty good. We're in the sweet spot for equities right now. I'm wondering what derails that thesis, Like what data could you see over the next few months that says, wait a second, things are not going the way that we think they should be going.
Yeah, and look that certainly happened, right. We get these events out out of left field that we don't expect and they move markets. And so I think that those events remain the same. If inflation, for example, where to suddenly start increasing or just you know, does a budge for long periods of time, I think that, you know, kind of challenges my narrative. The other thing is, of course, geopolitics.
This is you know, over the last few years, it's it's the first time where we have two very active, you know, global wars going on that are you know, taking time bomb, could be taking time bombs at any moment, and I think that that's something that we always have to think about China and Taiwan, what happens during the election, tariffs, things like this. So I think it's any of these kind of you know, unexpected events that have to do
with geopolitics and politics. I'll say, I don't think inflation is going to be the thing, to be honest, it's something like that.
We are data dependent too, We kind of move from data point to data point to FED speak to FED speak. Just got about forty seconds really quickly, Sylvia, twenty seconds for you. Your next focal point, just quickly.
Yeah, I mean I'm still looking to build out the AI trade and look for those opportunities, so starting to expand it to things that AI will benefit, like health care, like the materials uranium, copper, things like that. So for some new investment ideas around that theme.
Ten seconds for you are at next focal point.
Yeah, it's all about the data, so it's retail sales and then the PC data at the end of the month.
All right, so appreciate dynamic duo. Both of you passed the oral examination, so really good stuff. I'm great set up for us papers do tonight. I don't know. Now you go celebrate right our jersey chief you has interest rate strategies at Bloomberg Intelligence, and Sylvia Deablonski, she's CEO and chief investment Officer, defines ETFs.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from two to five pm Eastern. Listen on Apple car Play and then Broute Auto with a Bloomberg Business app, or want us live on YouTube.
Beneficials, as you know, pencil laying in just one interest rate cut this year, forecast more cuts for twenty twenty five, reinforcing policymakers calls to keep borring costs, hire for longer to suppress inflation. Fetch your j Powell at today's press conference after the decision.
We do see today's We see today's report as progress and as you know, building confidence. But we don't see ourselves as having the confidence that would warrant you know, that would warrant beginning to loosen policy at this time.
Hi for longer, that is, Jacob, I've.
Heard that before.
Yep, it's a narrative.
He's not I would say he's not full of surprises. No studies which is probably what a FED market a chair should do.
Yet right, Yeah, exactly, So I'm curious about like how it impacts the investing environment. So let's get to that. Alexander Brown is with us. She's senior managing Director, chief Development officer at the family office wealth manager Leedo Advisors. They have some nineteen billion in assets under management. She does us here in our Bloomberg Interactive Broker studio. Ali, Welcome, welcome, Welcome,
What if anything? And I am curious about We obsess as you would expect and as you just heard about the FED and which Jay Powell has to say, but it does move markets. So what about what we got in terms of the FED decision? What he had to say about kind of color on the economy and the outlook impacts kind of your world?
Oh absolutely, it's everything that we do. But understanding and educating yourself is one piece. Where were we six months ago? Like we projected six maybe seven rate cuts. We haven't had one, and yet the market's hitting new ultra ultra highs. Right, So the question is how do we I think everyone's waiting for that first cut.
When is that first cut going to be?
I do think if we would have seen signs from the press conference of having a second cut this year, we might.
Have seen stronger futures be producing now. But it absolutely plays a role.
But I think where we are now, it's proceed with caution, And how do we proceed with caution?
How do we build the portfolios to look like that?
It's interesting because I one would argue in the wealth management space, pre inflation, it was a hard world to retire in. Right when you when you exit your the workforce and you move from the accumulation phase of your life to the withdrawal out of the fixed income side of things, it was either you or your out.
Either you're making money or your making nothing.
But at the same time, you know, stocks were up double digits year on year with the exception of just a couple of years because of that low rate environment.
Exactly yet but yet we raised rates substantially in twenty twenty two. The stock market soared in twenty three, is still soaring in twenty four.
So how do we how do we look at that.
I'm curious about your clients. They're high net worth individuals, family offices, you know, family money maybe passing on to generation. Where is it that they typically like to invest in your world. Because we Tim and I spent a lot of time talking about increasingly family offices wanting to be in the private markets. But I'm curious about where a lot of your investors ultimately, you know, invest and they tend to park it then for a long time.
Sure, but it's also understanding there's so much similarities between the family office space and the retail space.
Let's put it into perspective. You've got to you sell a business and now you have five hundred million dollars a lot of wealth.
Right.
I have yet in my career to see a five hundred million dollar family have sixty percent in stocks, forty percent in bonds and rebalancing once a quarter.
So what where are they?
Yeah?
So what is their goal?
Their goal is to build in control?
How do I build in more control around outcomes like we're seeing today that we have zero control around whether it's building in alternatives within the portfolio with real estate. Right, It's amazing you look at a real estate investor, they're typically very heavy into real estate and cash.
Right.
Why because there's a lot more control in that aspect.
So building in control, whether it be using alternatives and there's ways to building control in the.
Chiwn like where are alternatives? Do you find like your folks wanting to put their money in this environment?
We like the alternatives.
We work in all aspects, so whether it's we we buy real estate, we lend on real estate, private equity, and middle market lendings being the topic of every conversation lately, all the way up to hedge funds right, which is an interesting factor if you see the amount of money pouring into hedge funds now, because one is arguing, is that tactical, active, single stock management beneficial?
Are you getting value there?
What's a typical allocation to alternatives in a portfolio?
So it very much depends upon the client.
With the clients seeking I think the big thing that we look at on our end is the need for liquidity. What people don't realize is that you know, you don't need one hundred percent of your money liquid on a daily basis, especially when you look at building alternatives into tax deferred accounts that have longer timeframes. So it's all about the client, the need, the desire where it's fitting from a tax perspective.
I'll give you a quick example.
A client that you know maybe has a one of the long aged pensions, right that's completely covering their income needs. Their portfolio can be a lot more aggressive and a lot less liquid than maybe someone who's needing to pull out of their portfolio on a consistence.
So they might have a higher concentration of alternatives because alternatives are less liquid, right, and they.
Can play because they've already got something kind of as their safety net, if you will. Having said that, I am curious among the wealth clients that you guys work with, what is it that they ask you about the most? Is it something like Nvidia? Is it Ai? Is it fed policy? Is it the fixed income air?
Like?
I'm just curious where they are, Like, wait a minute, is that an opportunity for listen?
AI?
We can't ignore without question. It is just a it's the way we're seeing it promote itself. I mean, look at this week, for example, with what happened with Apple.
Do you say get into Apple now?
I would say proceed with caution. It's all about everything has a place within a portfolio. It's a matter of how much and where and understanding. So clients that come to me and say I want private equity exposure because they heard about it at the golf course, right, you know, it's it educ covers a lot, which covers a lot, and what sector and how liquid is and so's there's a big, big education around the alternative space and what goes into that bucket.
How do you give clients exposure to private equity?
Yes, first of all, we need to educate them, right, they hear the word yeah.
Right, But I mean you can get exposure to private equity by buying the stock of a publicly traded firm that is in private equity. But you can also go to an alternative asset manager, which a lot of wealth managers work with, and then buy into their funds as well. What do you guys do we.
Do a combination of both, I would say more the latter. The private equity space that we do is in the private space. They're very opportunistic though.
And so I think you're buying KKR, you're buying no, yeah, no.
No, And it's opportunistic. We have a deal, the deal closes quickly, right, you know. So it's a client that we're build. Hey, listen, we're going to build an allocation for private equity, and this deal that may come around this week may work and it may not, and we'll reevaluate when the next one comes around.
What do you say in terms of how you think it's smart for your clients to get exposure to AI? And these are folks that will park money for a while, So is it? What is it?
I don't think we can ignore it. It's going to touch.
AI is not just tech. But how do you play it then? Or how do you suggest.
There's ways to get exposure to AI with controlled outcomes right, whether it's using a combination of options saying listen, I want to participate in this space. I want to grow in this space, but I don't know if I necessarily want to take very directive risks. So I like to get exposure, but how do I build in protection? We do a lot of options in house, like against specific equity name I against but very.
Or with right.
So options I think get a huge negative connotation in the market as the meeting, And I didn't.
Mean it like that because theo's two sides.
Yeah, yeah, yeah, no absolutely, So is there a way that we can get exposure to a certain number of AI stocks right where we can participate if things go up, but have some protection if we're wrong to avoid that timing component.
Speaking of AI, we are getting Broadcom earnings right now, second quarter adjusted earnings per share beat estimates. We're seeing stock move higher in the after hours right now after that eight percent Wow, yeh, stock moving higher in the after hours. He's fiscally your revenue approximately fifty one billion dollars beating estimates of fifty point six billion dollars.
Yeah, we'll be looking for some more color when it comes to certainly AI and chip.
But twenty seconds, do you use AI at your firm yet?
Yes, in different types of ways.
But were you using AI for years?
We are doing more and more.
It's all educating ourselves and how to incorporate it effectively.
You know.
Being in the finance world, we're so regulated, so as finance, because AI gets more regulated, I'm interesting to see how it bleeds into finance.
Thank you, really appreciate it. Ali Brown. She's senior Managing Director and Chief Development Officerver at Leedo Advisors. Joining us here in our Bloomberg Interactive Broker Studio. More on Broadcom that's coming your way in a moment.
You're listening to the Bloomberg Business Week podcast. Listen live each weekday starting at two pm Eastern on Apple car Play and Android Auto with the Bloomberg Business AP. You can also listen live on Amazon Alexa from our flagship New York station Just Say Alexa playing Bloomberg eleven thirty.
Rock com just out with earning. Scroll share is sitting an all time high ahead of results, also rallying big time after market.
Up nine percent.
Right now, look at that?
Yeah, this after an upbeat fiscal year revenue forecast. Let's get right on over to Kun John Sabanni, Bloomberg Intelligence senior semiconductor analysts, joining us from our San Francisco bureau. Kun John, I mean a lot of the chatter ahead of these results said that yes, the numbers would exceed expectations. Did they exceed even your expectations?
They did, And in fact, it seems like we don't have the segment details yet they will be given in the call, but seems like they expected on the two fronts which were the most important. One is on the AI side. It looks like the AI revenues beat what we thought it should be in the quarter, and the biggest beat seems to have come from the infrastructure solutions, which could be driven by better than expected VMware numbers, and maybe the non VMware business, which was supposed to
be weaker quarter over quarter, was not as weak as psix. Well.
Remind Ku John I always think about this when we speak with you or we talk with our Ian king, that not every chip company is the same. Remind everybody what Broadcom is all about, right, because there are chip supplier for Apple and some other big tech companies. But what type of chips they are specifically.
Well, they are almost like a conglogomerate when it comes to chips, like look for about forty to forty five percent of their business is actually software, so you can't even call it a chip company. But they have a huge business with about twenty with Apple, which goes in the smartphone business. Now they have a growing business in networking, which is regular enterprise networking all the connectivity chips in
the data centers. But a big pie of that, which is supposed to be ten billion this year is the new air revenues, which we will be looking forward to hearing. And then they have an industrial business. They have their regular storage business, they have an industrial business. So a lot of combination of a lot of business. But the key three biggest largest are the wireless to Apple, the networking and now the VMware with the software.
How safe is that Apple is part of the business, given that increasingly Apple's looking to do a lot of its own ship development in house. I thought dot Com too.
Yeah. Out of all the chip suppliers to Apple, I think this, according to US, is the strongest relationship. So we'd like I would fear other companies losing out before I would start worrying about Broadcom in short, getting out of Apple.
Okay, you know it's interesting too. I mean when you look at like different chip names, I mean, what is this a barometer for more broadly in the semiconductor industry, cujohon.
Typically because of the way they run their business, which is a fifty two week long lead time, you know, they seem to have less volatility, a less sort of channel inventory build up, and less sort of this whip kind of a demand. So it is generally a good indicator of long term, an year out or more out, how the demand is looking. More and more it has become an indicator of how the AI demand from the A six side is looking. So what I mean is
whether how much are Google, Microsoft, Facebook, et cetera. All of these companies spending or going to spend in their own custom silicon programs because Protcom is one of the biggest supplier to the largest cloud providers in their acy businesses.
We're seeing second quarter revenue from AI products coming at three point one billion dollars. How does that sort of gel kun, John, with how you're thinking about that of the business.
Yeah, we did expect this to be in a sort of in the two point seven to two point nine ish rangs, so definitely came above. One thing I would be very focused on is their fullier guide only came above five hundred million than what was on the street. You know it would have been. Investors were hoping for a higher upside to their ten billion air revenue target for the full escale year, as well as some higher
upside to the twelve billion VMware target. So at this point I guess because the upside is only five hundred million, I'm likely that both of these areas did not sort of hit it out of the park, but still still an upside to the numbers we were expecting.
Hey, top of mine, as we get ready for the analyst call with Broadcom, what are you going to be listening for what would be your top question to the executives there?
Yeah, again, the three key areas would be more upside or engagements on the AI business, especially with Google's TPU five and six ramps expected in the future, More upside or clarity on the VMware integration, and how the rest of the year looks like. You want to hear better or above that twelve billion number if possible. And just third on the non the cyclical areas, there's no sort of non sexy but still a decent percentage of their business,
which is broadband, regular, enterprise, spending, server, industrial. If Q two will mark the bottom or not, or we or if we expect continuous weakness into three Q.
I hesitate even to go here because it's not about fundamentals. But the company also announced a ten for one forward stock split, this coming just the same week that we signed video stock. Do a ten for one split?
Do you care what share?
That's that's that part's important. But you care at all about the stock split?
I mean you would think, and today's say you would not. But we saw the reaction. Nvidia got right and Broadcom is one of the other AI names here and doing the same thing. So definitely, I think of the reaction could be driven by that ten to one stocks.
Come John, Thank you so much, Kun, John Sabonnie Bloomberg Intelligence Senior semiconductor analysts. We're gonna let you get back to covering Broadcom because I know you got some reports.
Right, just quick rehash shares a broad come up about nine and a half percent in the aftermarket. This as the company's latest result in annual forecast top to animate estimates. Excuse me out there on the street, lifted by robust demand for artificial intelligence products. So definitely some upbeats. So we'll look for some more commentary when the call begins.
Yeah, shares hire right now. Look at that, Carol, change from the open up nine percent today, change from previous regular session close eleven twelve percent, and that's.
Building on a more than thirty percent gain three zero percent gain here in twenty twenty four.
This is the Bloomberg Business Week podcast. I'll a little Apple, Spotify and anywhere else you get your podcast. Listen live weekday afternoons from two to five pm Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and Bloomberg Business and You can also watch US live every weekday on YouTube and always on the Bloomberg terminal