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History has shown that stock analysts are famously bullish, right this year's no different. They're forecasting on average, a roughly eleven percent gain for US stocks next year. And that's despite things like inflation, like possibly rising unemployment. But guess what, all that optimism is actually putting some market watchers on edge. And Bloomberg's Alexandra Semenova wrote about this for the Bloomberg Terminal and she joins us here in an interactive broker studio. Alexander,
great to see you. You would think, okay, well, people are feeling optimistic about next year. That should make market watchers happy. Why are they worried?
Yeah?
So it's this hardy annual ritual for Wall Street strategists to issue s and P five hundred forecasts for the end of the year, and we all know that it's very hard to hit such a spurious level of precision, but it gives us a sense of whether they're a bullish or bearish on the market. And if you look at the forecasts for twenty twenty six, there's this resounding
sense of optimism. The lowest target on Wall Street is seven thousand, so that itself is already implying a modest gain on years that we've seen in the past where some were outliers and predicting some sort of loss. There were some bears, some contrarian calls, but this time around, even the lowest target on Wall Street is implying again. The highest sees the index ending at eighty one hundred.
That's from Oppenheimer. So the gap between the lowest and the highest is actually the narrowest that it's been in nearly a decade. So they're bullish and they're clustered, and there's this sense that when everyone is on the same side of the boat, there is too much optimism baked into consensus and it'll take very little to disappoint the market, and that's kind of the fear among some investors.
I feel like this story I loved it, by the way, because it was a fantastic story with a lot of nuggets. And you said, such locks of views are generally considered a contrarian signal. Why is that when some if you take the other side, you would think, oh, there's consensus, it must be going this way.
Indeed, right, well, sentiment is usually a contrariant indicator. And in this case, when everyone thinks that nothing can go wrong, it'll take very little to surprise to the downside. So it won't take a recession. It could take something as much as you know, a miss on earnings expectations, any kind of little benign announcement from the Fed about to them scaling back their expectations for monetary easing. And that is kind of the fear going into nexture. When you
think about it, there are still so many risks. We don't know when the next interest rate cut will be, despite a lot of investors hoping for another one. We don't know whether the AI story will continue the momentum that we've seen in recent years. Given some of these circular financing deals, we don't know why there will get
any more sporadic announcements from the president. Obviously that spread volatility this year, So any of those little things could be risks to markets, and it seems like Wall Street strategists aren't really accounting for them going into next year. But it's understandable because when you look on the when you look back in the past three years, they have actually erred on being too cautious and that has obviously
proven wrong given they underestimated the rally. So this time around they don't want to underestimate the market strength.
So the pendulum has swung. And of course there are external shocks right and black swans that we can't foresee. What are they saying, is God, what are these forecasters saying is going to push the market hired by double digits next year?
So we're still seeing expectations for double digit earnings growth. That has been time and time again that the thing that has made the market so resilient. Corporate America has defied you know, higher interest rate costs, it has defied tariffs, and it's still performed and grown profits. So that is expected to continue next year. A story largely is still intact for now, even though there are some concerns about how companies will monetize their investments. For the most part
these hyper scalers have been delivering on their earnings. Economic growth is still solid, the labor market, although it is a little bit sluggish, it's still in a good spot. And there's this view that that will actually make the FED ease policy, so that is probably going to lift the market higher.
As someone who watches this space very very closely, what do you make of this exercise of having year end targets because this whole year you've written, you have this story every year before we to set up the next year.
But then during that year you write so many things about sales side strategies, either advising upwards or downwards, and sometimes you've written about shops saying no, we just won't put out targets at all because you're just prone to basically putting out something and then it being wrong.
So is it still helpful? It's so funny, it's somewhat of a necessary evil. And actually ned Davis Research said that you kind of have to have a target to give investors a sense of how bullish you are, the magnitude of game.
That you see.
But at the same time, Cameron Christ actually did an analysis on this, the correlation between what the market does and what strategist targets are is actually zero. There's pretty much you almost never hit that exact number, and it feels like it's impossible to do. But at the same time, retail investors specifically are very interested in what these people have to say. Usually when I talk to these strategists, they say that their institutional clients don't care so much.
They care about sector views and kind of tactical trade ideas, but retail clients wealth managers do care how they're thinking about the market and.
What are they saying about outside of equities, because we've seen the run up that commodities have had really across the board, our forecasts for more bullishness there.
Well, there's been a lot of talk this year about exploring opportunities outside of equities, given how lofty valuations are. We've seen the S and P five hundred return something like eighty percent since the bull market began at the end of October, So you're seeing time and time again that some firms are recommending al turn diversifying into real assets commodities, and that's likely to be a theme going into twenty twenty six.
JP Morgan had in their outlook a sixty forty plus.
I liked that.
I was like, oh, that's catchy very quickly. Who got it right this year?
So it's funny Chris Harvey, who Isabelle and I broke the story that he left Wills Fargo to go to his new firm. He had a target of seven thousand and seven going into this year, and during the trade war, he was one of the only people who didn't capitulate. A lot of strategists were slashing their outlooks, they were downwardly revising, and then they ultimately had to u turn and go back to their original targets, and he stuck to his guns. And here we are, we're pretty close
to his target. So he's one of the people who got it right. Mike Wilson and Morgan Stanley is also one of them. He had a sixty five hundred target on the s and p five hundred were obviously above that level. But he's also someone who maintained confidence in his call that stocks would recover into the second half of the year. But for the most part, we did see a lot of flip flopping at Your Denny at Your Denny research that he's never had to change his target this many times ever in his career.
I remember you we talk sometimes when we collaborate with stories, and you would say you would prefer and you would look up to someone more even if the even if he's so far from the consensus, but if he stuck to his guns rather than people who just keep on revising and whenever the market moves, you're just like, oh, okay, let me change my target.
Exactly. It's almost somewhat paradoxical because as a strategist you have to be nimble, you have to be aware of changing economic data and earnings, and you have to be willing to change your views. But at the same time, conviction is so important, and obviously your credibility kind of diminishes once you're going back and forth.
It's all at play. Bloomberg's Alexandra Simonova, thanks so much for stopping by. Really interesting stuff, great read on the Bloomberg Terminal.
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The S and B five hundred is broken through sixty nine hundred in case you missed it. It's been a narrow tech lead. Advanced volume though not so great right, thirty five percent below the average of the past month ahead of the Christmas holiday, but that's to be expected. So what are the themes in the new year? Where are the opportunities? We've brought in David Shasler, he is here to lend his thoughts. He's head of multi Asset Solutions at van X Funds. David, great to see you.
Thank you so much for having me.
So you say that the long game in twenty twenty six has not changed. What is the long game in your view?
So we are thematic investors, and let's be clear, what does a theme mean. The theme is a structural market driver. If you're a thematic investor, this is a target rich environment. There are a lot of opportunities. So I'm going to start with disruptive technology innovation. Yes we're talking about AI. Yes, we're talking about AI automation. It's under hyped in regardless,
you're hyped. Yes, okay, it is going to drive more transformation, more productivity, more growth, and it's going to happen fast than people expect.
So that's where we're at.
It's under hype. There's going to be dislocation between expectations or reality and not expection bumpingess. So it doesn't mean it happens in twenty twenty six. A lot of competition there, But that's the first theme. The second theme is there's a stealth bull market in real assets. Real assets are performing extraordinarily well as Greatest Tech did last year. This year is Greatest Tech died in twenty twenty five. Lots of segments of real assets actually outperformed. Not a lot
of people talking about it. The new world doesn't happen without the old world build So give.
Us some examples of real world assets.
That you like.
Energy, how are you going to build it?
Right?
So we've been leaning into the energy that you have that's actually going to power things now, fossil fuels, where are we going, what's proven, what's reliable? And nuclear energy. We've made a lot of money with that, so we're leading into energy, but also the infrastructure build out need to facilitate not only energy transition, but infrastructure development to support the technology. So that's the second theme. The third, how are we going to pay for it? We've been
perpetually overspending for decades. We're in the period of accountability. Financial accountability, sorry not sorry. Debt matters, Deficits matter. You can't just spend and spend and spend without repercussions. And now we're at the point where that is the case. In pre twenty twenty, you could do whatever you wanted, print, print, print, no inflation. That's not the world we're in now. We're
the world of financial accountability. So if we're going to pay for all the sins of the past with all that perpetual spending, and then start to think about what's on our plate, what's on our plate. You've got reshoring, you've got an infrastructure bill out, you've got a global tech race. We're losing is existential And when you frame it that way, When you frame it that way, well, debt and deficits really don't matter as much. Losing is what matters. And how are we going to pay for it?
You're gonna pay for it with the basement why, because you have no option. That's what happens when you perpetually overspend. So you need to own assets with embedded scarcity. You've got to own gold, You've got to own bitcoin, bitcoins rugged. We think it does really well later part.
Of next year.
So are we going to have another another year where we see gold rally right along with stocks?
This I will be bold enough to frame it out. Give me a little bit of flexibility. So if we meet next year, give me a little bit of flexibility in this, because I'm gonna be very very specific.
Okay, we like that.
I think big coins a top performing asset next year. I'll frame out why think gold does well. I think real assets, broad based real assets. How do you actually build it? How do you power it does better than gold? Big gold does well. Technology stocks a bit behind that. All four of those do well. That's how I frame that up. Here's the thing, right, why will bitcoin do
so well in the later part of the year. We're not saying we're in a battle liquidity environment, but we're saying the liquidity environment is going to get a lot better. You're gonna have a new fed share coming into office. Check that box. You've got a large portion of this of the public that's not participating. You've got a narrow growth market, you've got declining employment conditions, it's setting the backdrop for easing financial conditions. Bitcoin is the instrument that
responds best to that. There's an emotional element to it, and there's a quiity element to it. If you're nervous, you're not going to lead into that. But if you get more exuberant and more confident, you're going to. If you've got bitcoin, which is outperformed almost every year of its existence and now underperformed by thirty percent relative to tech stocks last year, seventy five percent relative to gold last year, it's basically a coiled spring. We think it outperforms next year.
So you oversee model portfolios and vanac. How do you think of bitcoin and gold when you put them in your model portfolios? Do you think they complement each other or do you think they're in either? Or because you say that bitcoin will gain next year, will be the top performing asset, what is bitcoin like to you? Because I feel like it still needs to mature. Some say it's like a risk asset. Some but the premise of bitcoin is not to be like a risk asset. It's to be a hedge against installation.
It's definitely undergone an identity crisis over time, it's matured over time, it's a teenager now, and as it's continued to mature, it's starting to act more mature. It's volatility profiles more muted, the swings are less extreme, and it's starting to kind of set in its saddle in regards to what it is, and I think you could more correctly frame it and allocate to it. So we own gold and bitcoin, want a lot more gold than we do bitcoin. If the market sells off, I expect gold
to be there for me. I expect bitcoin to be a risk asset. The similarity, the core similarity, is that they both have scarcity, and that's why they're both beneficiaries of financial access. However, when they perform and how they perform are very very different. Given the structural under performance of bitcoin over the last twelve eighteen months, we think it's set up for our performance next year. Gold we think still does great, but it's going to breathe a
little bit. It's going to be volatile. It's not going to be a straight line. This way. The supply of gold static incremental investment demand. Given how small gold is relative to stocks and bonds, gold will become unhinged. It will become more volatile. People are gonna be surprised how voalatle it gets. That's the opportunity. It's a feature, it's not a flaw.
And you have a five thousand price market for gold too.
What was that?
He has a five thousand price.
Yes, we came out with that. We came out with that when gold was below three thousand dollars, so I think it was around twenty eight hundred. We said gold would go to five thousand dollars. Thought it would happen by the end this year. Miss that mark. We think it goes well above five thousand dollars in twenty twenty six.
And just in about twenty seconds. What about Europe? Are they going to outperform us as much as they did this year?
No.
If you want to hedge, first off, you go where the growth is, invest where the growth is. If you want to hedge the dollar, go to gold, go to big one. So extract the currency, move out of European equities and the picture looks different, all right.
David Chanstler, he is head of multi asset Solutions at van K Funds. Thank you for your predictions, some of them.
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Artificial intelligence. We keep talking about it. We talk about how it touches almost every part of our lives. Well, guess what. It's also changing the way life sciences companies use real estate, and guess what it's coming at a time when more than sixty million square feet of lab space is sitting vacant, vacant on US markets. Those are just some of the findings in jll's twenty twenty five
Life Sciences Real Estate Perspective and Cluster Analysis. I know that's a mouthful, but Travis McCready he is head of Industries and Leading Advisory at JLLL and he joins US now remotely. Travis, thanks so much for being with us. I found this report to be really fascinating. I love this kind of stuff, and I really love real estate. So this is sort of a different way into real estate. Look, there was a lot of overbuilding in the life science real estate industry.
This we know.
How does this set up landlords, tenants and also those looking for to invest in this area? How does that set us up for twenty twenty six.
Indeed, it's the asymmetry between demand and supply right now and the effect of overbuilding, building way too much too soon in the life science is really puts us at the bottom of a cycle heading into twenty twenty six.
And that's the good news.
As you mentioned, the artificial intelligence is changing the way that we engage in research and development, hopefully making it more efficient, making it more efficacious. So on the horizon will be an uptick in entrepreneurship and hopefully an uptick
and demand. But right now, heading into twenty twenty six, make no mistake, with sixty million square feet of vacancies that we need to digest across the United States, we have, as the saying goes, we have a lot of wood to chop in order to return to equilibrium from a lab standpoint in the United States.
So we've seen more than twenty five billion dollars in new US bio manufacturing commitments announced. Is this the start of US sustained resharing cycle or is this more tactical response to the current policy that the pressures we're seeing.
I think it's a little bit of both. Those investments.
That twenty five billion dollars worth of investment is both a reflection of policy change making it more favorable to engage in pharmaceutical manufacturing on US soil, US and Puerto Rico, but it's also a function of the fact that we have more drugs that actually need to be manufactured.
There's been an.
Increase in pharma m and A activity, there's a there's certainly going to be an increase in twenty twenty six in revenues, about an eighteen percent increase in revenues from the top ten drugs.
Alone sold in the United States.
So it's a combination of factors, both policy shifts and more drugs being on the market that's driving that's driving that investment.
In Travis I know Boston for sure, but also San Francisco, the Bay Area, San Diego, there are big markets for the biosciences, for life science, real estate. Any you think they're going to hold onto those positions in the new year. What are some other opportunities or other markets that might may be catching up.
Yeah, those two markets are and will continue to be the leading life sciences markets in North America. The Greater Boston area inclusive of Cambridge and Boston as well as the as the Bay Area. That's that's the major two. Rounding out the third, however, is San Diego. We've seen an enormous amount of activity over the past decade in terms of output and real estate in the southern California San Diego area.
So those that's the that's the trilogy to the trinity.
Of of of markets in in the life sciences. After that, there are just as a great number about a dozen of exciting markets across the US on both coasts, and a couple in in the Midwest as well. One I point out is Indianapolis, a great market right now for pharmaceutical manufacturing as well as animal and veterinary types of
life sciences activity. North Carolina, which is perhaps our most vibrant pharma manufacturing state in the United States, as well as Philadelphia, some really interesting things happening with massive urban reclamations in and around the Philadelphia area that are being backfilled with life science is activity driven by children's hospital and you Penn.
So there are lots of markets to watch.
But in terms of what's going to drive the amount of American activity in terms of volume, Boston, San Diego, and San Francisco.
And we know funding is tighter and investors are demanding more capital efficiency, but what does doing more with less space actually look like? For instance, inside a biotech facility.
Yeah, a lot of the efficiency metrics that are being pushed by biotechs right now will shift the amount of wet lab space, the space where science is actually conducted, as well as increasing the amount of dry lab space in order to densify real estate. Real estate environments, the actual signs increasingly can be pushed and outsourced to contract research or contract development manufacturing organizations, so that can densify the amount of lab space that you actually need. And
then again there's always artificial intelligence. Every amount of the R and D cycle right now is being activated by AI, and in order to deploy AI within that setting, you need dry lab space office space. So you can actually densify your footprint quite a bit for a biopharma looking to conserve capital just by deploying those strategies, outsourcing artificial intelligence and densifying your space.
Yeah, in about thirty second, Straves, I just want to talk about rent for a moment, because we know that rent has just been off the charts for when it comes to you know, residential for so many folks. But for buyertech companies, could the oversupply situation actually be an opportunity to maybe get a better deal.
There's certainly better deals in the offing. We've seen in all markets in erosion of top line rents, particularly for Class A space, and we've also seen an increase in deal time, and that's largely as a result of the fact that there's more inventory for tenants to be able to cycle through. They have more choice and they can push stronger, better deals, both in terms of top line top line rent, free rent and as well as lengths of lease. So you're absolutely right, and now is the time.
It's a great time to be an occupier.
Yep, they might just be throwing some incentives your way. Travis McCready, head of Industries and Leading Advisory over at JLLM.
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The airline industry, boil Boy, has it had its share of challenges this year. That shortage of air traffic controllers we know an ongoing issue, but also the historic government shutdown. It forced the airlines to drastically cut their schedules basically overnight. But through it all demand is there. We continue to fly in this country and over the holidays. It's just more of the same record high travel. And that's despite
higher ticket prices. The average round trip now get this, nine hundred dollars for a domestic flight.
I can't even believe that I've been braced talking about.
Bloomberg News.
Chief correspondent for Global Aviation Sid Phillip is here in studio to talk about this, and the Outlook for Global Aviation said, great to see you.
I'm great.
We're seeing you before your trip tomorrow because you're traveling.
Exactly hopefully it goes well.
You're flying to London to I am flying.
That's brave, it is pretty brave. It's also a sort of test to see how bad things could be there.
You go there a story out of US collector area exactly. So under three just under three million people are being moved by the airlines per day now through January fifth, exactly.
That's so the number that we've got from Airlines for America says that about two point nine million people will travel average from the from the during the Christmas rush until the first week of January, and the busiest days of travel would have been yesterday and the twenty eighth, and that's why people sort of go on holiday and come back and so that's why those are the busiest days.
And we will see some days when there isn't that much travel tomorrow and they after should be the days with the least amount of travel.
So hopefully things go well for me, Yeah, because everyone wants to be home exactly by Christmas. And New York and New Jersey airports are expecting a record five point seven million travelers from December twenty two to January before. Are those two the busiest in terms.
Of international travel, Yes, those are things to be the busiest. In terms of domestic airport we have Atlanta, We've got other airports Dallas, Fort Worth, and so there are many airports in the US that are seeing a massive sort of surge in demand. We're seeing people across the country
looking to fly. And that's also been because this year has been sort of all about various ebbs and flows for the airline industry, and so people are sort of now getting out there and getting on planes, going to see family gone vacation, and sort of just buckling down on being those prices, if at all.
I'm wondering if you have any insight into whether or not things are going to improve when it comes to the air traffic controllers, because we've seen I mean, not only is it an inconvenience, it's a safety issue. Is there is there a reason to believe that's going to change in the new year.
The air traffic controllers has been sort of under fire for a while. I mean not just during the shutdown, but even before it, when we had those sort of shortages that Nuak Airport had and those sort of massive issues very close calls exactly right, and so we've seen that. We've seen it from this sort of the middle of the The government has been talking about increasing funding for air traffic controllers, and the government has said that they've
hired more recruits and Chinees into the academy. They're also sort of getting those recruits across the line and into air traffic control stations. But it takes a long time. It takes some years to actually be able to be fully independent and actually be managing traffic. And so it's not really a sort of quick, fixed solution for anything.
It has to be a very long process to actually hire those controllers, to train them up and make sure that they're fully capable of handling traffic into and out of those airports.
I know there must be many reasons, a myriad, but why did we even see shortages to begin with? I just feel like it's it's a cool job. It must be a whelping job. It's like you're serving.
In the country.
It's a very stressful job. So it's a well paid job, but it's very very stressful. I mean, one of the controllers we talked to previously for a story said that you have to have the ability to drink in three dimensions.
So it's actually and clans, Yeah, exactly, And so you're making quick decisions, you're telling you're communicating with multiple aircraft multiple times, so that you've got to be able to work really fast, think in three dimensions, because you're not just dealing with things sort of vertically and horizontally, but you're also stacking things up and sort so that makes things much more complicated. And so it's a very complicated job and it's not ready for everybody, and many people
crack under the stress of the job. So off the recruits that get into the academy, very few actually make it out into the field because it's just a very demanding.
Job and you want to make sure that the people you put out there on exactly super qualified because lives.
Are at the risk, and then being able to do those jobs day in, day out, and not just sort of it's not one off thing. You got to do it. You've got to be doing it multiple days, multiple time.
It takes a special person to be able to do that exactly.
Yes, is this a US specific thing, I'm wondering if other parts of the world also see it.
It is an issue across the world. I mean, because you obviously need as generations of air traffic controllers retire, you need to make sure that the pipeline of newer controllers taking those jobs. And so it is an issue I mean, it came up in the US much harder because I mean of various reasons that sort of led to a lot of controllers retiring, as well as the fact that there wasn't sufficient recruitment years ago, and so
that sort of coincided to create this shortage. But the government has talked about both modernizing the air traffic control system because I mean, at the same time as the shortage of controllers is also very antiquated equipment in those air traffic controller systems. Yeah, and so that's something as well that they need to sort of tackle at the
same time. So Congress has given Sean Duff, Transportation Secretary, the first tranch of that funding that he's seeking in order to modernize as the air space and there are sort of upgrades in terms of upgrading from copper wire to fiber and sort of increasing increasing new systems, especially since some of the systems that they previously had are sort of long out of data need to be replaced.
I was going to say, AI still can't take it.
Hey, I don't thanks, don't do not get hand that over to AI, and not if I'm in the plane, thank you very much. I do want to zoom out for a minute and just look at the industry overall. Next year, I'm imagining consolidation is still going to be a theme if I read this right, Spirit and Frontier talking again about a possible merger. I think that's the fourth time we'll see if you know, the fourth time
is a charm. But do you think we're going to see more consolidation and will it be in the discount carrier space?
So the discount carriers have been struggling, So Delta and United sort of made their strategy in targeting premium travelers coming out of the pandemic, and they've done really well on that strategy. So a lot of people had money to spend and they were willing to pay more for
a better travel experience the premium. This sort of the low cost carriers at the bottom end the market have also seen that customers really affected, because I mean, we keep talking about the case shape recovery in the economy, and so the customers at the bottom end are the ones sort of holding off on travel decisions, holding off and going on those extra holidays, and that's where the low cost carriers play in, and that's where they're sort of seen a hit to their books and balance sheet.
I mean, so Spirits in its second bankruptcy, in a second chapter eleven bankruptcy, and so in order for it to survive, I mean, it is looking at possibilities. And we reported that they are in discussions with Frontier and that will sort of give them more scale and be able to better compete against the other airlines.
All right, Bloomberg sid fill up our chief correspondent for global aviation.
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