The Earnings Crunch Is Getting Real

You can also listen to our radio show at two pm Eastern Time on Bloomberg Radio or watch us on YouTube. Searched Bloomberg clovel News. Well, Katie, I mentioned some of the virus headlines, but we do like to do an update about where things stand. With numbers cases passed in the globe, about two hundred twenty three million deaths have exceeded six four point six million. More than five point six three billion doses of the vaccine have been administered.

Let's check in now, as we do each and every week, with Dr Ian lust Beder, clinical Professor of Medicine at n y U Langnes Medical Center. He joins us on the phone from New York City. Dr LUs Beder, How are you on this Friday afternoon? Great Tim and Katie,

Happy Friday. Lots of COVID news every day, it seems, yeah, And look, I think it's fair to say we're going to continue to be doing this Friday check in with you and focusing on COVID for quite a while, because it does seem like we continue to get relentless news

about the spread of the delta variant. And I do wonder to what extent you think that the President's vaccine mandate that he announced yesterday for companies with more than one employees have to get vaccinated or face weekly tests, to what extent do you think that will put an end to the spread of the virus? You know, I think there are are a few challenges with the with the vaccine mandate. On On the good side, or the good news is that at least sevent of Americans have

had at least one vaccine, over fifty have had two vaccines. Um, we also know that vaccines really have been very helpful in reducing severe disease, and you know, masks are certainly helpful as well, So we definitely are making some progress. The challenge really is how to get um everyone on board, and I think that's going to be very difficult. I'm not sure the vaccine mandate UM is going to be

that helpful for several reasons. One is, by the time this sort of set up in a regulatory fashion and you know, potentially enforced, it's going to be a number of months down the line, and probably this delta wave that we're seeing will likely be over sometime in the next few months. UM, So you're sort of risking political capital and and uh, maybe polarization for really an unclear benefit.

And I think a number of people may feel that, you know, letting um, having businesses incentivized too for the health of their own employees, maybe the best thing local districts and businesses really decide. I think the idea of vaccination is very helpful. Uh. The challenges will you alienate people? There are some studies that suggest of the about you know, twenty five to repercent of unvaccinated population, at that thirty of them say the reason they're not doing it is

they don't trust the government. The other percent is concerned about side effects. So I think we need credibility. I think we need to reassure people to some degree about side effects and reassure people that there are no ulterior motives to slowly kind of chip away at that population that's been somewhat resistant. I'm not sure mandates are going to be, how effective it's going to be, and how long it will take to really get that in place.

And so that's an interesting point about the holdouts that are still unvaccinated that you know, in your view, reassurance would work better. But I'm curious, you know, let's talk about carrots and sticks, because this vaccine mandate clearly it's a stick. And Tim and I were just talking about

airlines imposing fines on maskless passengers. I'm curious, how, in your view, are we going to see more things like this, like penalties and fines when it comes to getting people to mask up or get vas versus uh, you know, the administration or companies actually taking a more reassuring route. You know, I think scientific data is always helpful, and believe it or not, we don't have randomized control trials.

You know, we've been battling this for two years or more um and we don't really have randomized control trials about masks. And so when we talk about kids or you know, the benefits of masks and schools and so forth. We over the past two years could have done really big studies and made some determinations. So I think we're relying on data from another number of other countries, and

many of them don't even require masks. But I think individual businesses can do um set guidelines for what they want, and an airline if they publish this is, you know, our requirements, you have to show your vaccine card or wear a mask during the flight. I think it's really within their right to do it. I think it would be more helpful if we had these studies already up

so we can show people how effective it is. But it's certainly within the right to do it, and I think for short flights for a couple of hours, it's very reasonable to do. You know, when you're talking about people on five or six hour flights to remain master or kids, that's going to be tough to enforce in

the middle of a you know, six hour flight. What about when it comes to the role that school boards and in school districts take, because we learned yesterday at Los Angeles is saying that all students twelve and older must be fully vaccinated by January ten. Uh, students need a lot of vaccines already. There are vaccine requirements at

different ages, for for different schooling. I'm wondering why you make of this one, Dr LUs Better completely right, you know, Tim, We even mandate, which I disagree with, hepatitis B vaccines before you know, kids really start school. That's to reduce the incidents of potentially sexually transmitted disease. And you know these it can be twelve years before a kid or more before kids are even exposed. So I do think, um, uh, it is reasonable to require vaccines or a number of

vaccines required before school. But I think if we had safety data, more safety data, and more efficacy data, people would be a lot happier to be on board with that, And I think we need to accumulate that and really reassure people. It should, over time, really reduce COVID in the schools, but I think parents would want to be reassured about it. You know again, I think a lot of COVID is going to be over before all this gets enforced over the next few months. Dr Ian LUs Beda,

we unfortunately have to leave it there. Thank you so much as you do each and every week for joining us on this Friday. Dr LUs Beta is clinical professor of medicine at n y U Langnes Medical Center. He joins us on the phone from New York City. You're listening to Bloomberg Business Week with Carol Messer and Bloomberg

Quick Takes Tim Stinovic on Bloomberg Radio. Well, it is the big story of the day when it comes to tech companies and indeed Apple stock taking ahead as a result of court ordering that Apple can no longer force developers to use in app purchases. This the culmination of the Apple Epic games battle with us. Now for the latest is Mark German, technology reporter at Bloomberg News. He joins us on the phone from Los Angeles. Mark, how big of a deal is this for Apple? This is

a multibillion dollar per year deals for Apple. This set up major changes to the app store will where Apple will have to allow all apps, including games, to steer or have the option to steer users to complete transactions outside of the inept purchase ecosystem, which would save developers and obviously take that out of Apple's pocket. Mark, what does that look like for a user? For somebody who has been making an app purchases. How how much of a burden is going to be put on the user

to actually go somewhere else to make this payment. Is it just gonna be easier to pay Apple. So there's a big question that remains. Will Apple require developers to offer both in app purchase and allow them to also steer at the same time, So our developer is going to be allowed to steer users without offering I a P. In the past, Apple has made these concessions while silver

quiring I P to give the user choice. I'd imagine that's going to be the case, and I'd imagine there's still going to be some users who are going to use I a P for the convenience. And there's also going to be some developers who are not going to build external payment systems that could cost them a few percentage points and a bunch of convenience as well. And so Mark, let's broaden this out here, because you said this is a multibillion dollar a year deal for Apple.

That's a bunch of money. But what does it mean for the other tech giants out there? I mean, is this just the start of a wave of antitrust actions against some of these tech giants or what are you expecting? Yeah, I think what we want to say is here that this is probably going to impact Google's ruling. Right there

is Google trotal epic going. You know, it's going to be happening across the next year into and it's going to be very important for UH, you know, the ruling and there to take something to account this Apple ruling. I'm not sure this impact Amazon or Facebook, but definitely look for the seven impact from the Facebook or the Google situation next year. One thing that is interesting to see is the way that companies that have made UH

or pushed back against what Apple has been doing for years. Spotify, for example, higher by more than two percent. Netflix on a daylight today, where the broader market is lower, is higher today by more than a percentage point. What does it mean for those companies that have long complained about this what they call its hole on the app store highway? This has already been done already, right like Apple last week that it would allow Netflix and Spotify and other

media apps to bypass this. So there's no news here for those developers. The stock still live in higher though I don't know why it clear really the traders aren't reading our articles. This already happened a week ago, So no difference, no difference for these companies. It's just the gaming companies that are affected because Apple exempted gaming. No, no, there's no difference. Apple already did this a week ago.

There's no difference. No differences is that it's for games. Okay, that is very helpful context Hopefully up traders on the terminal click. But I do I am curious, Mark. We know that Apple is going to appeal this decision. Do they have any shot? And I mean, how far could this go? You know, I don't know. I just spoke to their general counsel who was noncommittal on appealing the decision.

So it's unclear yet. They say this is a resounding victory, a giant victory, and they're very happy with the ruling. So it's unclear what they're gonna do. They probably knew they were going to have to do this anyways, that's why they did it last week. Just in the last forty five seconds we have with you, Mark, do you think it's I mean, what does your gut tell you about Apple saying this is a victory? I mean, I think they're right they were ruled to not being a novel.

They were ruled to not having anti trust issues. They simply have to expand a decision they made a week ago to games. They already did it for spotifying Netflix, so there's not a lot happening here. They're also going to get about I don't know, four or five million dollars with an m from for lost revenue. It's like a tiny amount of money for the company Mark whom cooked by a new car, right, just a little bit of money. So yeah, overall it's a big one for Apple.

Mark German, it's always great to chat everything Apple with you. We really appreciate you taking the time, Mark German, technology reporter for Bloomberg News. He joins us on the phone from Los Angeles. This is Bloomberg Business Week with Carol

Messer and Bloomberg Quick Takes Tim Stinovic on Bloomberg Radio. Well, Poulti Group, the paint maker Sherwin Williams, and also the paint maker PPG Industries all slashing their outlooks this week as a result of higher input costs and inflationary pressures. Brooke Sutherland is Bloomberg Opinion columnist and she writes about it for bloom Opinion. Also joining us is Bloomberg Business We Get in Control Webber. He's on the access line

from Brooklyn, Joel. I thought that these issues were transitory. I keep hearing about these higher prices being transitory, and I'm wondering to what extent it's going to continue, Uh, to be a challenge to these industrial companies. Depends who you're listening to, I think, um, because I think the companies themselves, Um. And this goes just beyond industrials too. I've been saying that they don't always think it's gonna

be transitory. Um. But what I thought was significant about this is just how quickly things are beginning to change. And and Brooke does a great job of outlining this in our story. Um that you know what we saw a couple of months ago. It's really quickly changed and we're seeing that. Um, we'll continue to see that and earning. So so Brooke walk us through what's changed and how it's manifesting itself in the data. I mean, I think you really summed it up well. But it's just been

so quick. I mean, you have to remember it was just July that we heard from a lot of these companies giving their most recent earnings updates, and things are just moving so quickly, um, you know, particularly with with some of the raw material inflations, but then also with some of these shortages that are just really getting to the point where manufacturers cannot find a way around them.

But I thought one striking data point was PPG, which is a paintmaker, said that raw material inflation was running seventy million dollars higher in the third corder than what it anticipated in July. And keep in mind it was already factoring in a pretty significant headwind from rising costs in July. And so you know that really just studs underscores that business moving faster than anticipated and not getting better.

And so for transitory or not, I mean, how much pricing power do these industrial companies like PPG, like Sherwan Williams actually have. I mean, are they able to pass at least some of these costs to their customers? Are they just having to eat this themselves? Now, they do have a good amount of seeing power, and I would

say even more so in this current period. You're not really hearing about any pushback to price increases yet with the keyword being yet, but they are being, you know, generally able to push through pretty significant price increases to try to keep up with the rising costs. And I think that's because customers understand what's happening. I mean, all you have to do is look at the headlines and see reports everywhere about you know, various different kinds of

inflation and shortages, and so customers understand. But there is a breaking point to this. So what is it that's that What is it that's driving the cost increases? Brooke? Is it? Is it any one thing more than another. We've heard so much about container shipping prices going up. We've also heard about raw material prices going up. There is, of course the cost of getting employees off the sidelines

and making sure they're coming into work. And we've talked to CEO after CEO who said that they've had to raise price, raise wages as a result of that. What is it that's driving these price increases and these these higher input costs. I think it's everything that you just mentioned, And I think you know that's what makes so difficult, and that it's not just one thing, it's not one product that you can't find right now that you're having

to pay up for it. It's almost everything. Um. And then you know, with logistics costs rising, labor costs rising, raw material costs rising, you're you're really starting to feel the pinch. And one comment I thought was really interesting was we did a video interview with the Union Pacific CEO with a team of Bloomberg reporters and editors, and he was talking about inflation pressures from janitorial services between their office buildings and people who mow their laws and

their employee healthcare costs. This is a railroad. Those are that's not its main business. But these are major companies that employ you know, hundreds, if not thousands of people, and they rely on a lot of these ancillary services. And so there are the big ones that we talked about, raw materials, labor, logistics, but there are also these other sort of backed or inflationary pressures that these companies have to deal with, even if it's not their primary industry

or business. So do you just not mow the lawn? Brook? Is that the big takeaway there? Maybe? I mean, I guess save some water, right, I don't know, maybe you can say a few pennies there, But I mean I think you know, these companies have been incredibly creative about managing supply chain pressures UM and and coming up with ways to keep costs down. I mean, I'm talking about

re routing ships, but also redesigning products. UM. You know, I talked as a Honeywall supply chain chief a few weeks ago, and and they've redesigned some of their sensors to get around the semiconductor shortage. But there is only so much of that that you can do, especially when things are moving as quickly as they are right now.

And I think that's the period that we're getting into, and you might really start to see these supply chain challenges and inflation and raw materials and logistics really start to take a bite out of earnings in the third quarter.

So when you when you're talking to the CEOs that you talked to and and sort of attempting to understand where where things are aheaded Brook, I'm really curious, is this are they viewing this is like, you know, the new normal, which you know is going to be September and now is maybe January and if that if right? Or are they just recognizing that we're entering a new dynamic and these are really permanent changes in that that the sooner that they come to more permanent solutions, the better.

I do think it's a bit of a moving target. I mean, I think people were optimistic, um, you know, in sort of the earlier part of the summer, that some of these headwinds would clear or at least not be quite as strong as what we're seeing right now in the fall, and that is obviously not the case.

I mean, g E put out a statement earlier this seek talking about pressures that it's tating it's health care business from uh limited availability of workers and parts, and they don't expect you know, the operating environment to get much easier until you know, the midpoint of two and so we are talking about a pretty significant timeline here.

I will say, you know, a lot of the manufacturing CEOs who have been in this business for a while, they have seen raw material inflation go up and down significantly over the course of their careers, and most of them would tell you some of those price increases are probably not going to be permanent, that there will be some actility they're um tied to you know, weather events, tied to the reopening effects on the economy. But I think what's really sticky in manufacturing is wages. Once you

increase wages, it is hard to take those back down. Um. And so you know, I think that that is where they're getting a little bit nervous. I guess in terms of how this plays out over the long term. Well, I want to build on that, because that's what's fascinating to me that if we did see uh, companies really have to raise their wages, that's how inflation kind of gets built in. So, I mean, how have these companies been approaching that? I mean, have they been offering sort

of one time perks. Are you actually starting to see some of these companies uh, sort of capitulate and actually boost wages. You are seeing them wages wages. I mean, I guess they will say there's a little bit of a divide between, you know, the companies that complain about labor shortages and the companies that are willing to rage wages. Excuse me, um, you know where you're not quite some of the companies that really go out of their way to make their workers like they're part of the community.

They try to treat them like human beings, They pay them good wages. They're not complaining as much about labor shortageance. They're still feeling the pain here. But you know, I do think there is a little bit of that in terms of, you know, what kind of culture do you want to create? Because we also did just come out

of the other side of a pandemic heater. We have e s G is a big phenomenon, and you have investors getting, you know, increasingly attuned into what do workers want um and so I think that's definitely part of the narrative here. Brooks Outherland is Bloomberg Opinion columnists. She covers industrials and more. Also joining us Bloomberg Business Week editor Joel Weber. He's on the access line from Brooklyn, and big thank you to both of you for taking

the time. Check out Brooks article available at Bloomberg dot com and of course on the Bloomberg terminal. It's called the earnings Crunch is Getting Real. This is Bloomberg Business Week with Carol Messer and Bloomberg Quick Takes Tim Stinovich from Bloomberg Radio. Well. One way that lawmakers proposed to pay for the one trillion dollar infrastructure buil the Senator approved last month is by imposing tax reporting requirements for

cryptocurrency brokers. It's the way that stockbrokers report their customer sales to the I r S. It could open the way for tighter regulation of cryptocurrency, and that's something that the Biden administration is moving toward as it also pushes

for tax compliance. Let's get into it with Dnnelle Dixon, CEO and executive director at Stellar Development Foundation, a nonprofit organization that uses blockchain to unlock the world's economic potential by making money more fluid, markets more open, and people more empowered. Denniel joins us on the phone from California. Adult, It's great to have you on the show. Uh, this was a very contentious part of the infrastructure bill, and

I'm I'm wondering, I'm wondering what your thoughts are on it. Yeah, it certainly became so it was really fun for us to see the influence that we could have from the blockchain and crypto space. Uh, and for us just to really engage with policymakers. But in the end, I mean the languages with the languages, so it didn't change, but it was really fun to be able to engage and to to try to really create that educational opportunity I run with these policy makers and so donell this bill.

I know it was roundly criticized by the crypto industry for being too broad. Can so can you walk us through exactly what was the language that got crypto advocates so upset? I mean, what was the biggest point of contention there? Yeah, so, I think it was the definition of broker. So that was defined as any person who, for consideration, is responsible for regulator regularly providing any service effectuating transfers of digital assets on behalf of another person.

And so the argument and the concern was that there are many players in the space that run, for example, validators that just validate transactions on uh, working on blockchains, but they don't actually have access to any informations that traditional brokers would, and they don't act as brokers. Uh. So there was just concerned that this was very, very broad language with technology that's very new and maybe not widely understood. If you could write the regulation or write

the legislation, what would you want it to say. It's a great question. I think that the regulation itself should just have exclusions in it at the very least to talk about these that they think about blockchain more itself as infrastructure, and think about these providers that are allowing and helping these transactions just to progress that they actually are excluded from the bill, for example, like validators and

folks who run notes. There was language that was proposed that we were comfortable with and that we actually you know that that it didn't ultimately make it through UM, but it would really just be excluding and making clear that it's not actually trying to go after these true infrastructure providers that are just helping blockchain to operate. And so we've seen some efforts to try to change the language.

Last month, there actually was an amendment that would change the reporting rules, but that was blocked by the Senate. So I'm curious, what's the pass forward from here. Well, I think that this actually created a really great opportunity for us because it showed that, first of all, there is this large constituency that policy makers are willing to engage with and listen to. And I think that the pass forward is to create those open dialogues before you

get to the language of the bill. I think that it's crucial to engage with long lawmakers to discuss this, the use cases and the roles for different participants and that's bringing industry experts and policy makers together, and so that's what we're really focused on doing. Now. Which policymakers can you single out for us that that really seemed to get it well? I think that there are many.

I can't single out any particular prob Like, you know, we actually had some that supportive language that we wanted

to bring to the table. But most importantly, I think it's that when you actually understand how the technology operates and what we're trying to do here, I think that you know, you'll understand that the definition of broker doesn't and shouldn't cover some of these players that don't have access to that type of information and frankly have no relationships to any of the participants who are making these transactions.

So I think it's really it's it's all the senators and the members of how the House that we need to really engage with, but it's also the regulatory agencies that were really focused on participating with and engaging with. I think some of them understand what the technology does, but they don't have a knowledge of what the use cases can do and what it can and the value that that can bring to their constituents. So it's a lot of work for us to do in the US,

but I think it's actually really good work. And I think that, you know, once we demonstrate that excluding their own constituents from this really useful and valuable services that are offered through blockchain, they're going to want to be a part of it and there, and we're going to be able to help them to get there. And so

Dannell's stepping back a little bit. It definitely feels over the past few months that regulators have started to circle crypto, whether it's the US Congress with the Infrastructure bill or just the SEC this week cracking down on coin Base and really investigating their proposed lending product. I'm curious, what do you think is on the radar next? And we

have just about thirty seconds here. Well, I think that what a lot of a lot of focus right now is on the decentralized finance space, and so I think that we're going to see we just have to provide a lot more education around that. I want us to be able to demonstrate the value of this technology neutral opportunity that we have and that's made in the open and valuable to everyone. So I think we need to focus on a lot of different areas. But that's I

think that the next target space. Daniel Dixon is CEO and executive director of Stellar Development Foundations. She joins us on the phone from California. Stellar Development Foundation is a nonprofit organization that uses blockchain to unlock the world's economic potential by making money more fluid, markets more open, and people more empowered. Journal now, but you let me drive? Oh no, no, no no, all right, please the vel I don't want to drive. Drive baby question. This is the

Drive to the Close community. Thanks, we'll drying us down on Bloomberg Radio. Yes, indeed, it is time for the Drive to the Close. We are just about ten minutes away from the market closed on this shortened of trading week. It's Friday, September one. We are seeing red across the board right now. Stops taking into a leg lower as we do get to the end of the session. Let's get into it though with Ryan Dietrich, chief market strategist at LPL Financially, joins us on the phone from Charlotte,

North Carolina. Ryan, great to have you back on the show. Really glad to have you on a daylight today where we are expecting to see a fifth day of consecutive declines on the SMP five hundred, and I'm wondering, from a technical analysis perspective, what signal that's sending you. Yeah, Tim, thanks for having me back. But you're right, guys, we're looking at again a five day losing streak. But I was just looking into it. Is it something to really

be worried about? Now here's what you need to know. The last five days the SMPS down about one point four percent. All right, that's the smallest five day losing streaks since one way back in um October of And you think about it like this. Last year we saw thirty five single days with the worst return than we've seen the previous five days. So put a bow on this. Yes, down five days in a row is gonna be the headlines. But to us it looks like a normal consolidation. That

it is September, the worst months of the year. You know, there's there's some different factors there, but after more four percent rally off those lows since March, maybe just some seasonal weakness is happening. And again it's relatively contained. We're not overly right now. So this guy is not falling. Keep things into perspective. Is that what you're saying. Yeah, we've been trying to say that for a while. I think, you know, I think there's always scary things to look at.

I mean, and trust me, the worries are out there. You've got the delta concerns, the recent obviously economic data is not doing that great. What's going on with Washington? What's going on to said, we understand a lot of the concerns, um, but the bottom line is just look at those earning season. We just had record earning season. Um. You know, earnings are up twenty six above the peak back in en So yes, stocks are close to all time highs. Earnings are also at all time highs and

growing still really really nicely. So there's worries, don't get us wrong, but you know, this bull market looks alive and well, but it's in it with you feel like a broken record saying this market is one higher because the economy is still strong. Um, we still feel that way, and we still think there's time to go with this bull market. So Ryan, we're coming off of a record earning season. We also saw record p p I this morning.

I mean, if you look at the Producer Price Index for the prior month, it was way above forecasts out a series high. How are you thinking about inflation here? How does that factor in to what you're saying this still strong economy. Yeah, Katie, I mean that's a great question because clearly that's the headline. If you look at the core pp I was a little bit lower, but

still things are more expensive. I mean it's five dollars get a gallon of milk, at least three dollars to fill you know, per per gallon to fill up your car. So people are feeling that there's no doubt about it. But when we look at what's the market saying, is

the market truly worried about inflation? And when we see things like the tenure yield well off the one seventy one level from you know, back in late March, we see copper well off, the highs, lumber off the highs, break evens are well off their recent highs from a few months ago, it's inflation is there, but it doesn't appear like the market is extremely worried. It's hard for us to be goal just flatline bucks an ounce and not be soaring. If the market was worried about inflation,

and I just want to cut you. I just want to cut you off there because you you gave us a lot of data and which I just want to know the single signal that those things you just mentioned said, what are they? Yeah, the market is not as worried about inflation as I think the as a media, A lot of people are the likelihood that inflation terms of nineteen seventies style spiral the stock market, and I'm sorry, just the market in general. Market participants are not voting

on that. When you see a tenure yieldsill over on one thirty, it's hard for us to believe that. And so Ryan, I'm glad that you brought up break evens and they they've definitely cooled a little bit from their you know, decade plus highs. If we look at tenure break evens, the long term inflation outlook, though, it looks kind of sticky. I mean, it's not at the very peak anymore, but it's really just bounced back and forth in this range. I wish I could show our listeners

a chart because it is amazing. I mean, what does that say to you that, Okay, maybe we're not seeing an inflationary spiral. But it seems to suggest that inflations is going to stick around at an elevated level for at least a while. Excellent point. You know, we had barely two percent in inflation for like the whole decade, right then COVID happened and the economy came back, all the supply chain issues. It's likely that we'll see you know, maybe three or three and a half percent inflation for

a year or two. I mean, that's not historically abnormal inflation, just when we lived in a two percent inflation world for so long. It's clearly higher, but again it's not that inflation that we saw in the late seventies and early eighties. So I think it's a very key concept. You mentioned break even. It's a little interesting. Let's go

around the globe here. Break evens over in Germany and Europe are actually breaking up to some of the highest levels UK I think the thirteen year high, Germany's multi year highs as well. So there are some more inflationary expectations starting to show up across the seas over in Europe. Now what exactly does all that mean? Listen, that's to be a more difficult conversation. But we're seeing more inflationary worries overseas, we're just not quite seeing them here in

the US. So you said that we'll see three to three point five percent inflation for for a year or two. Is that transitory to you? A year or two? Uh? Well, not a good question. We all thought transitory in the beginning, like three of six months. But I think we've all are transitory means to sticking around a little bit more.

But when you had the worst you know, recession of our lifetime and the way the economy opened up with supply chain issues, um, you know, it just it's still feels to us like a little bit higher inflation is okay. But again it's it's just not that runaway. And maybe that is the new I hate to say this is a new normal, but maybe you know three three and happened three to three and a half inflation for a

couple of years is is a little more normal. And again that's kind of a long term average of inflation if you think about it. I mean, you look at unemployment and inflation, the misery index, right, um, you know that's right around ten percent. That's actually the long term average of where inflation and unemployment have been historically going back fifty years, so it's um a lot of ways

to look at it. But again, inflation, just to us, is not quite the concern, and if it was, we don't need to stock market me doing this good and we don't think you know, those commodities and industrial medals are probably a lot higher if the market were truly worried about inflation. Okay, so inflation maybe it's not a concern. How do you position your portfolio around on that? I mean, are you going into more duration sensitive sectors or what

looks attractive to you right now? Yeah? Well, on the yeah, on the fixed income side of things, we we have shortened up duration. We think there is likely coming higher rates. We've got the tenure yield we think can be up around one seventy five by the end of this year. Of course, i'll impact bonds which trade inversely with with higher rates, So we like mortgage backed securities which are not quite as impacted by higher rates. Um. Now that's

the fixed income side of things. But on the other side, and we do like the cyclicals, the financials, industrials, materials, the early cycle plays along with small caps. Historically early economic cycle of growth do better, fully aware they started the year off gangbusters. In the last three or four months have struggled, But we really do think we could see another fourth quarter rally like we did last year

in some of those areas. Do not forget last year, guys, the rustle two thousand small caps in twenty five percent, an all time record fourth quarter last year. To me, small caps have just been consolidating um most of this year, and we think that that that leadership from the cypical value area likely will take the baton before all is sudden done. Ryan Dietrich, chief market strategist at LPL Financial. We're gonna have to leave it there. Thank you so

much for taking the time. We really appreciate you joining us on the phone from Charlotte, North Carolina's Thanks for listening to Bloomberg Business Week. Download the podcast on iTunes, SoundCloud, or Bloomberg dot com, and you can also listen to our radio show at two pm Eastern on Bloomberg Radio or watch us on YouTube. Search to Bloomberg Global News