The Fed Decides to Remain Near Zero

Week on iTunes, SoundCloud, bl Bloomberg dot com. You can also listen to our radio show at two pm Eastern on Bloomberg Radio every weekday, or watch us on YouTube by searching Bloomberg Global News. Let's get into it even deeper with Kathleen Hayes, global Economics and Policy editor for Bloomberg in our Bloomberg Interactive Broker Studio. All right, k h you saw the headlines break You're continuing to look

at them. What jumps out at you? The Federal Reserve, led by j. Powell, has made one thing perfectly clear. They're providing lots of stimulus, and they intend to continue to provide lots of stimulus. Uh, They're going to buy treasuries. As you read the headline of mortgage backed securities at least at the current pace through two UH. In a related statement, that means about eighty billion dollars a month for purchases of treasuries and about forty billion of mortgage

backed securities. This is something that bond investors, bond traders really wanted more clarity on. I think it's also important. People were talking about the Fed's guidance and how it's been kind of fuzzy and wondering if they might make it a little more specific. Well, they're going to hold rates near zero UM, and they're going to do this through twenty twenty two. Okay, we're going to then we've got two. I think that's that's making their their UM,

their guidance, their forward guidance more definite. I think that's very important to investors, to the markets as well, UH, and generally speaking, I think it's also interesting when you look at their projections. UH. The Summary of Economic Projections shows that the FED expects GDP for six and a half percent this year and rising five percent next year. Unemployment down to nine point three percent in the fourth quarter twenty that's about four percentage points from where we

are now. Uh, and it would be a little bit below the worst unemployment rate in the Great Recession six and a half percent by next year. Okay, maybe not so bad. Inflation in their key measure at zero point eight percent in twenty that's the long way from the two percent target, but they're getting, i think, kind of optimistic seeing it back up to one point six percent by one So, you know, it will be interesting to see what J. Paul says about this at the press conference.

For example, if a really strong employment report that we got on Friday showing the jobs of two and a half million, if that influences at all. But it's it's it's I think it's seems like a realistic, maybe slightly tilted toward we're going to get through this and it's not going to take forever, kind of bent. What's key about this report, right, it's our first quarterly forecast since December.

We've got the dot plot of projections, Kathleen, so we really are getting an idea of how the board thinks, the policy setting board at the FED thinks about where we are and more importantly, what the outlook is at this point very important because you know we again, I think we're going to hear from J. Powell at the press conference. Really, someone's going to ask him, well, how

are how do you think the reopenings are going? And what about if we get a resurgence in in virus cases in the fall, as some people project we will. Is that something you've factored into the forecast? Right? Are you expecting that because a lot of people do, and still seeing you know, again growth that's going to be back on track by next year, unemployment down considerably by next year. Again, I considering how how much we've gone

through already, this strikes to me. This strikes me as if I had to classify it as one, I'd say more optimistic than pessimistic, because well, because they see growth picking up next year, because they see unemployment coming down. We're not going to be stuck here forever, you know, and so so V shaped you shaped, you know, we've all kicked around these doesn't give you better? I would say, if you want to call it a V, it's a

V that's really got wide, aren't you know? It looks more like half of a W than a V standing alone? You know what I mean? You we went way down and we're starting to come up. It's almost like a cheerleader doing sort of like the why there you go. But it's not going to be a quick v up. But it's not going to go from zero to sixty. Maybe it goes from zero to you know, you get

you get to sixty, but it takes you longer. I just want to point out market reaction, right because we're all about, you know, what's going on in the markets, and equity is seeing this, I guess as a bit of a doublish report, and you know they are going to their highs of the session. I mean, we're only up about eleven on the SMP, we're up about sixty on the Dow, and we're now up about a hundred and five on the NASTIC. We were actually down on

the SMP and the DAB. The Nazek was higher. But yeah, we're you know, that's how the equity markets are surely reading it. But that's because money is going to remain cheap for a long time exactly. And I think because the Job's report showed that strong gain in payrolls. As I was speaking to Ellen Sentner from Morgan Stanley, she's going to be with us tonight on Dave Breacasia, and she said that it's as though the jobs gains, for example, that her team thought would come in June, came quicker

they came in May. And I think there's a lot of investors because stocks have run so far, so faster, they need more AMMO to keep going. And the fear that maybe the FED would say come out, oh my gosh, we've got a good jobs report. We can start pulling back. But I think most FED watchers say that wasn't going to happen. It ain't gonna happen, and that's not what is going to express. Why are I mean? We were

also seeing yields tick up a little bit. I mean the ten year was at point seventy seven, it's not point seventy nine. If I look at the short end, two year was at point one four six. It hasn't changed too much, but you know, a little bit of an uptick um but not really worth noting. I guess, well, maybe they were really hoping that FED was going to announce yield curve control or something like that. And again

I think people think it's too early. Do you really need yield curve control if your forward guidance is so definite, right, if you're going to now say you're going to keep the raids near zero through two, got a good year about that, Kathleen, Because I mean, just at first, that's a long time away, right, isn't it. I know, now, remember the Fed can can change that. Let's say they're surprised by the data, but it's a very long time. That's a year and a half to keep the key

read at zero. Uh. And they're they're buying bonds and they just said how many They're gonna buy eighty million of the treasuries and then forty mbs. So they're gonna keep doing that indefinitely. You've got a lot of liquidity coming into the system. Uh. They So they've they've kind of put a floor under that they're going to keep the key right there. And I guess maybe what they're trying to tell us to is, this isn't now. It isn't just we're gonna try to keep the you know,

the virus crisis from becoming a financial crisis. Maybe they're they're they're leaning toward now is someday things maybe will be improved enough enough businesses open people back to work that this low rate uh A near zero, and all the bomb purchases will become stimulative, right, because so far this is to event crisis and and you know, demolished economy at some point. Though maybe that's the idea. We keep it in place and it starts getting economy growing again.

But for those of us who have not bought our yield curve control T shirts yet, I mean, that's the whole idea of the FED buying longer term rate securities. Correct. I want to yield curve control T shirts. I work. I got to make some and we'll wear them here in studio. Why do we want the Fed to do that? Because we have to be careful we threw out these phrases, and because we use it all the time. But why

do we want the Fed to do that? Kathleen Well, I guess if you are a bondable, you want to sort of you want to you want the FED to make sure it's going to keep buying bonds and prevent yields from rising very much. That's the idea. The other side of the coin, though, I guess if you're not so much in favors that the Fed's idea presumably is that we don't need to do that if we can.

You know, the market is, the bond market is maybe still enough in step with us and our forward guidance that they're not going to really expect us to remove stimus. They're not going to start pushing yields higher. Uh. And then there's still a lot of people out there, take the jim Biuncles of the world who say this is very bad. It's destroying the on market, and you don't get any kind of signal as from a market that you used to get. All right, Well, Kathleen Hayes, great

immediate insight. We really appreciate it. There's a lot to digest there, and you really walked us through it very cleanly and enthusiastically. We love you, Thank you so much. Curtie shirt though it's on my list before Christmas. Well, we also like lending into the lending and spending Tourwell, we could say control, we could say your Kirk control on the front and on the back of what would it say, like the lending and spending lending not spending. Okay, I've got my name is on the list. We got

a plan and we had a plaque. You're listening to Bloomberg Business Week with Carol Messer and Jason Kelly on Bloomberg Radio. We gotta talk a little bit more about that FED decision. Yeah, let's do it. Let's get into it, understand why the markets are doing what they're doing, and what it may set the table for for the FED going forward. We've talked a lot about the FED in

this crisis, and rightly so. For instance, downward with US Global chief Economist head of macro economic Strategy for Menu Life Investment Management on the phone from Toronto, and Lewis Alexander, chief el Economists for No Mura on the phone from New York City. Francis, I want to start with you. Most important thing that jumps out as you read the statement and look ahead to j. Powell's comments. Most important

change is that there is very little change here. They've only need three actually relevant changes to their statement, a lot of which is marked to market the projections. No surprises, no yield curve control comments, no change in the forward guidance. This is a fuederal reserve that does not want to rock the boat. And I'm guessing share Powell is sitting watching markets feeling pretty pleased with himself The problem is in the communications mine field that we're walking into in

fifteen minutes. Share Powell has to get through a lot of time in which he needs to say absolutely nothing at all. This is going to be pretty challenging when he's gonna get a whole flew of complicated questions. I gotta say, we have a top live blog and it's

really wonderful. It's our whole team, are FED team, our markets team, and they said the press conference will be interesting and Powell might face some testy questions about the advance of risky assets in the last few weeks, and I'm gonna get I'm going to guess a lot of testing, testing questions about some other subject as well. Um Lewis, Alexander, come on in our conversation. How do you see the latest FED decision? I guess I'd take it a little

bit differently. I think there was one important change, and that is the FED indicating that it's not going to continue to reduce the pace of its asset purchases. Really, since they increase our asset purchases dramatically in March is COVID as the COVID crisis broke, they've been slowing them really steadily since April, and they did indicate in the States and today that that processes it is at an end,

and I think that that is important. It's certainly true that they didn't go all the way to YO curve control, but essentially, I think it's a response to the way long term interest rates have risen in recent days, UH in in response to a stronger economy. So I think

I think we are. I think there was at least one important change and what they did in what they did today, look, I agree that it's largely UM what was expected UM there it wasn't anything else big, and there are the bigger issues like EO curve control are things that they're going to put off for a later day. UM. The press conference, obviously, UH will be interesting. UM. I think one of the places he's going to get questions is why haven't they made more progress on their thirteen

three programs, which is what UM. These are the broader programs they have to support corporate bond market UH, commercial paper, mainstream blending. Those programs which were launched UH in late March, frankly, frankly not done very much UH, and so that's gonna be I think one of the things they'll be asked about,

so forces. You know, one of the interesting things to think about at this moment, you know, June tenth, uh and several months into this crisis and another crisis piled on top of it, is that, you know, the FED and J. Powell has you know, gotten pretty good reviews. It feels like, so far, what do you make of it, uh in terms of what they've done and what they haven't done by way of programs and relief and um, you know, whatever stimulants they can provide. Well, they've certainly

throw on a lot of the problem. But it's an excellent point that a lot of the tools that have been engaged have not been fully engaged or fully utilized. I think the challenge for the SAID is actually the next chapter, how is the SAID going to be viewed when actually the economy starts to show more signs of reaccelerations, more gangbuster numbers that surprise us to that side, And how does the SAID respond if fiscal policy momentum starts to slow. That's going to be a more difficult chapter

for the SAID. They're going to have to avoid any type of miscommunication where they acknowledge too much upside risk and and risk a paper tantrum that probably keeps her Powell awake at night. And how is he going to continue to emphasize that the real problem here is solvency, not liquidity, and the fiscal weaver has to be the one that comes into play. So up until now, it is very easy to give the FED, you know, a raise reviews. You know, they closed spreads, they avoided a

credit crisis. But the challenging next act, I think is the one where a lot of central bankers are going to be a at night. So, Louis, what would be the question you'd want to ask J Powell right now? Um? I would want to ask him what is he doing with those what does he expect to do with US thirteen three programs? I think that's to me, that's the most immediate question. Another one, though, which I think would

be important, is they are completing their strategy review. We've kind of forgotten about that a little bit in the wake of uh COVID nineteen, but that is something they're going to be completing in and over the next meeting or two. And how does that play into the decision is going forward? I agree very much with the way the previous speaker characterized the challenge and conning months um and to a certain extent, how that strategy review plays out.

What does that imply about forward guidance? What does that imply about how they're going to apply their asset purchases, particularly as fiscal policy starts to contribute less in an environment where the economy is still a very long way from full employment. Uh, those are going to be big challenges for the FED. Be interesting to see what they're

thinking about that at this point. And so, yeah, Francis, I mean, this whole question of unemployment, I feel like has been so much on our mind me jobs obviously,

just given the eye poppy numbers that we've seen. And also, you know, you're starting to see a little bit more of a movement to ask the FED to be, if not more diligent, maybe a little bit more transparent about what they're doing with this unemployment gap, especially when it comes to white Americans versus Black Americans and doing a little bit more work or at least showing that they're

doing a little bit more work. How much do you think that the fetcher will hear about that in questions and how much do you think he is is thinking and talking about that with colleagues. I'll be shocked if he doesn't get some questions on the topic as inequality. COVID nineteen shining a very bright light on this issue, along of course and civil unrest. There's unemployment rate, if you look at their projections, actually remains verily stufforingly high.

Through one they still have a six and a half percent unemployment rate, which means they're aware people are going to be get going to be left behind, is still at nine point unemployment rate. There are going to be a lot of conversations that kind of come on the ends of what Janet Yellen talked about for years, which is that we have to let the economy run hot to soak up this excess labor and those have been

most disadvantaged on the sidelines. We know that it is our most vulnerable workers who are most at risk of prolonged unemployment. So there's gonna be additional motivation here that aren't us about getting your inflation target sustainably and symmetrically at two percent, but also how do we rectify some of this inequality? And from the central Bank that basically has one very blunt tool monetary policy, it means lower

for longer, Yeah, which is exactly what. That's really interesting observation because I feel like it feathers right into something we've been talking about with c e O s all the time, which is, you know, you have a lot of different things that that you can do and a lot of different things you have to think about, um, and you can't just think about all right, well I got it in the case of the CEO, just think

about my shareholders. Like, this is more complicated. And I think if there's one thing we've learned over the past couple of weeks that this is an economic crisis as much as anything when it comes to inequality. Well, and I do think you know, we're going to come up on one year, right anniversary, you have the business roundtable saying we're people stakeholders, and we're gonna, you know, do a scorecard or report card in terms of what we've done in that first year. And this has been a

rough yere. Let's remind everybody the headline that had met uh it was the fifth meeting of the year. We've had two emergency meetings, the FED pledging to maintain asset purchases at at least the current pace and projected interest rates will remain near zero through two is policymakers, I really look to support the economy's recovery from the virus and the subsequent recession. We're talking to Francis Donald at Manulife,

Lewis Alexandra at Nomura. You know, I asked this of Louis Francis, what's the question you want to ask J Powell? Then I would really like to know how they're paying attention to medical data. Paula has talked at length about how they need to pay attention to the medical data. How does he look at some of the curves are following, some of the curbs have reaccelerated, and what about the curb outside of the United States? How did that lay

on him? I know we've all forgotten, but we're in a pandemic that drove massive market moves and the greatest policy response we've ever seen. Seems like we're focused on other components here a little bit, but we still have to combine to back to the crux of the issue,

which is are we still facing downward curve? And how did that medical outlook translate into the way power is thinking about monetary policy, and so Louis, you know, I go back to one of my initial reactions, and certainly the initial reaction from our own Kathleen Hayes, which is this whole notion of like, hey guys, we got this under control in terms of you know, close to zero through two. I know they can change their mind to the intimate that does seem like a long time from now.

So if you look at the inflation forecast they've got, they've got core inflation well below two percent even out too, as as Francis mentioned, they've got an unemployment rate that is well above levels that we would can somewhat consider normal out through two. I think that interest rate at the effect of lower bound through that period is perfectly consistent with our other macroeconomic objectives. So I think there's

no inconsistency there. And I do think on this broader question of of the what can the FIT do about um inequality, for instance, was exactly right. They have a they don't really have a tool that can address it directly, but I do think they can change the way they talk about what their employment objective is. Traditionally they've talked about essentially getting the unemployment rate to some to some level,

that's consistent with nehru. You started to see this before COVID nineteen of the FED talking about they can it isn't clear that there's an unemployment rate that is too low for them, um and they can just run this economy hot uh and push in some sense labor markets

a long way without creating inflation risks. And in some ways, I think you're going to hear that kind of message coming out of their long run review of strategy, because I think that's what was the conclusion they were reaching before COVID nineteen, and given everything that's happened in the last several months, I think they'll just reinforce that mess. But all of that is very much about keeping right

slow for a very long time. Yeah. Well, last question, Francis you know, and it goes to something you know we were talking about and I think Jason talked about with you earlier. You know, this whole idea that Jason Powell in terms of how he's at Jason Powell, j pal Sorry, just give your promotion. J Powell. I mean he understands that people have looked to him as a leader during these moments of crisis, right now and he's really handled things well, and I think he's gonna be

very careful not to want to disrupt any of that. Absolutely, this is the point where he's supposed to hold steady and avoid rocking the boat. But it gets really hard when the data starts looking very good, and you're going to have a new faction of conversation that comes through, just like we're seeing on the federal side, saying this is going to be really hard to get out of and should you really be adding this amount of stimulus.

I think the way around that is to slowly downplay of the possibility of yeld curve control, continue to push back against negative rates, and keep those bullets like refining forward guidance alive in the background so that people know there's more that he can do, but he doesn't feel he needs to do it now. This this is going to be very very challenging press conference up ahead, and I'm curious to see how he does it. So far, so good, but we're really not out of the woods yet. Absolutely.

All right, Well, thank you both so much. Really fun to break all this down for you. And you know, when we make our yield cold yield curve control t shirts, Carol, certainly around they should each get one, all right. For instance, Donald Global, chief kind of his head of macro economic strategy for Many Life Investment Management, join us on the phone from Toronto. Lewis Alexander, chief US economists for Nomura

on the phone in New York City. I gotta say J Pal has got to be looking right now at the financial markets and being like, okay, the markets were okay with this, I mean in terms of very little movement along the yeeld curve. Equities a little bit of a positive bounce here, but not like they're off and running so kind of resuming, you know, just like okay, cool, we got kind of what you want to see. I mean,

if you're j Pal and his advisors. Yeah, that was not always what happened when he first started speaking, when he first started giving these press conferences. Um, so we'll see,

we'll see whether it holds. I mean, I think, for instance, Donald said exactly right at the top that he's got to spend however long it is, forty five minutes to an hour saying nothing, right, right, which is not new ways to say nothing, but especially because it's gonna be challenged question because well, First of all, people are gonna say Friday's jobs report shocked everybody. So everybody's getting it roll like we're doing okay, we're doing much better than

we thought. Right, So he's gonna, I'm sure going to be challenged several times on that. And then yeah, the role of the Federal Reserve, right, and in terms of you know, their role in society, especially against you know, all of the inequalities that were you know, exposed during the virus and then once again i know, laid bare.

And then also again in terms of what happened in Minneapolis. Yeah, yeah, and it's something that we continue to talk about it, and I do think you know, in Frances alluded to this, this whole notion that you know, people are going to

expect more. I am interested to hear you know, both uh, Francis and Louis talk about this, you know, kind of Janet Yellow notion of like you gotta let it run hot, Like don't get too worried, because when you let it run hot, it really, uh, you know, could solve some problems. You're listening to Bloomberg Business Week with Carol Messer and Jason Kelly on Bloomberg Radio let's get to IR Jersey, chief US interest rate Strategies at Blomberg Intelligence. He's on

the phone in New Jersey. Lindsay Piegsa back with US chief economist at stepl Financial. She joins us on the phone, UM from Chicago, and you know, I want to start with you. It feels like the markets kind of ending up where they started before the FED decision. But what's key for you, as you heard from the FED chief, not at all, Carol. I mean, the yield curve has flattened quite a bit if you look at two's tens

or five year versus ten year treasuries UM. I I think that the two things really caused the treasury market to react pretty you know, at least noticeably, if not significantly.

One is that the dot plot being as as devilish as it was with the you know, median UH forecast of of FED members saying that they're not going to hike rates until UH at least three that that has meant that you had so a pretty significant rally in five and seven year rates actually and then UH and then on the other side the UM the chairman mentioning gild curve control in his opening remarks and then also in response to a couple of questions, I think also

contributed to additional UM additional buying of treasuries. So so I think the the support that UH the market had back in March, that that's been ebbing. I think the FED leaves open the possibility that you'll have even more asset buying in the future if the recovery doesn't UH doesn't accelerate from the way that the some of the

members of the FED hope. So Lindsay Lindsay piegsa as I look at what our colleagues on the Bloomberg Top Live blog we're saying, as I look at the equity market reaction a little bit, I mean, it seems like everybody was kind of trying to make up their mind of what they were hearing, both totally and I think in substance from the FED chair what was the most important thing you heard him say? Well, I think the

most important thing was the tone of reassurance. The FED chairman really reiterating the notion that the Committee will continue to do whatever it takes to support the economy. Now, on the one hand, they pointed out that the policies already implemented have been relatively favorable. They point proving financial conditions specifically to get longer number of tools still in our chop box. We have not exhausted those yet. Back

to Ira Jersey and Ira I should have clarified. The equity market seem to kind of, you know, bounce around and then settle back to where they were. But you're right in terms of the treasury market, in terms of what we got. So, uh, you know, what's the next focal point? Do you think that's going to be really key for market watch, especially when it comes to the fixed income market and really some of those economic data points,

as J Powell you know, several times reminded us. You know, this was one data point that jobs report we got on Friday, and you could tell he's worried about the labor market. Yeah, for sure. I I certainly read his comments that way as well, that you know that there was he was he and everyone else quite frankly, were surprised by the data. And obviously the data is going to be very noisy, I think over the next couple of months. So I think for the rate market it's

going to be this push and pull. So the idea is how serious are they at implementing something like an open ended quantitative easing that would be yield curve control and defending a particular rate versus the amount of treasury

supply that's coming to the market. So obviously to fund all of the fiscal stimulus plans, and certainly if there's another potentially trilling in dollar fiscal stimulus in the future coming down the pipeline, then that's just going to add to the amount of treasuries that are going to have

to be issued. And you've already seen a little bit of um, a little bit of friction as some of those bombs have been issued over the last couple of weeks, uh T bills in particular, but also even uh ten ure notes yesterday had their weakest treasury auction that we've seen in quite a few months. So so so I think that that's the push and pull that's gonna go on. And obviously the you know, the traditional economic data is

gonna matter. But I think you have to look through the next couple of months and we won't really get a clear picture until August or September as we start to get, uh get a little bit deeper into the data cycle. Yeah, so talk a little bit more about that if you can, you know, deeper into that data cycle, what exactly are we looking for, who are we looking toward?

Um to really get that good sense, because you're right, it's been very hard to kind of get a handle on what's in even the FED chair basically like, listen, let's not get way too excited about last Friday's number. Well, I think in a way, the data is going to be lagging some of the real time data that we can look at. So I think it's things like where are aggregate cases and death from coronavirus, for example, and

then what is the policy response for that? Right? So, so do you see more and more states opening up because the number of cases being reported per day has gone down? I mean I live in New Jersey, as you noted at the top of the show, and you know, we're starting to reopen. We had one of the most draconian um you know, sets of of social distancing and

now we're we're starting to slowly open up. And when you look at you know, cases per day are now at three hundred instead of at you know, three thousand. You know, as you get that data, I think that data might actually push markets and be more important, um, certainly to risk assets I think than uh um so things like corporate bonds and equities more than more than you know I s M data for example. I agree

with you. I think a lot of the CEOs and individuals we've had they said, you know, it's a health care story. Is a health care problem? Um, just quickly, I just wanted to ask you, he said, many officials a different possible paths for the economy. Just got about thirty seconds. Um, So what healthy debate going inside the FED right now? Yeah? Well, I think that that just shows the the uncertainty, you know, both at the FED but also in the markets in general. Like like, we

don't know what the path of the recovery is. But in my in my view, it's more of a duck build fat tail, you know, reduction because we know now that that you know that the pace is probably going to be positive from here. The question is what is how how faft and and or or how flat is that recovery going to be? All right, Well, we really appreciate it. We know it's a busy day. Our Jersey chief US interest rate strategist for Bloomberg Intelligence joining us

on the phone from New Jersey. Lindsay Pieza, chief economists for STI full Financial, on the phone from Chicago. M Journal. Yeah, but you let me drive? Oh no, no, no, no, who's going to drive home? Honey? Please, I'll do the riding drivel. I want to drive all Just drive baby, question trying. This is the drive to the globe. Thanks, we'll drying us to dawn on Bloomberg Radio. All right, it is time for the drives of the clothes. Let's

check in with their man. Sean Cruise, manager of trader Strategy at T D mer Tree Johnny Us on the phone from Chicago. And you know, Sean, we were watching the tape as it went through J Pal's press conference. It's been a funky one for a long time now. But it was interesting to just watch almost tick by tick. You could see people being like, I mean, I'm using very technical market h sounds there, but interesting to watch

how dependent this market really is on J. Powell and friends. Yeah, And I think that the markets were trying to get was some guidance one on on where interest rates were going to be, not just for the time being, but looking forward for the next year or two um. And then also looking at what they're gonna do with asset purchases.

So I think one in one hand, they got what they wanted, that is, we are going to get the rates remaining in the zero or twenty five basis points range, and we also got what we wanted from asset purchases. But I think that they plan on keeping those rates lower. I think a little bit longer than the market anticipated sort of doesn't put you in a good place mentally

about the trajectory of the economy. If you are going to need rates that low for that long going out through two what does that say about your your expectations for what the economy is going to be doing. And I think trying to reconcile that was what paused a lot of that volatility back and forth as the conference is going on, Well so on, right, it's like wait a minute, Okay, that's cheap money for a really long time.

Wait a minute. That also means the economy is not so great, right, Like it's that yin Yang that was going on. Wait a minute, Wait a minute. I think so.

And so it's hard to imagine where one you're going to start getting um, some recovering employment, you're gonna get some recovering economic activity, but you're not going to get any sort of inflationary pressures to go along with it or anything else that would necessitate the set having to push rates higher at least before two thousand twenty two.

So if that's one thing where the market sort of read through um into that, and then if you're looking at rates being that load that long, it's not going to help out some of these sectors that need higher interest rates or take higher interest rates sort of as

a good sign of economic economic activity. And that's financials, that's industrials, and you definitely are seeing those sectors remain under pressure post conference, right, So, Sean, I have to ask you, amid all of this, and day was no exception, we continue to see tech stocks I was gonna say, grind higher, but there's not really a grind. It's just like they're going they're going up. Yeah, not a lot

of friction there. I do wonder what you make of especially the big tech names, the fang names, amid all of this, because they continue to really hold everything up. I mean, the NASDAC is up ten on the air at this point plus so it's almost like you have to think of this not in terms of cyclical versus defensive um. You almost have to think of it as

stay at home versus reopening. And when you get the stay at home scene prevailing that maybe we're not going to reopen as fast as as we were hoping or expecting, that's when you start to see some of these tech names. And I think it's been well documented just the impact that Microsoft, Amazon, Apple, Facebook, Google have on on the

NASDAC um. Whereas if you're looking at the SMP five hundred, where there's um a lot more like we just talked about industrials, financial energies that make up a decent amount of that index as well, it makes sense that you can see the NASDAK really take off, especially when the stay at home seeing prevails, because you've got you've got four or five names that make up so much of that index but also can benefit from the stay at home economy, and even if we start to reopen, they're

probably going to be in a good spot to reopen moving forward as well. Well, don't you wonder, I mean, Sean, I don't know you've watched the markets for a while, do we at some point wake up and say, uh, you know this is our economy. This handful of tech names largely and anybody connected with them, is our economy going forward? Or are we being kind of stupid and

thinking that. I don't think it would be wrong to to think that companies like Amazon and Microsoft are just bringing so many users and so much activity onto their platforms, and a lot of that probably will remain sticky moving forward. I think you've already seen some of that play out. And if you look at just the market capitalization, how much that is shrunk in some of those other sectors. UM. You can even look at some of the consumer discretionaries.

If if you take Amazon out of the consumer discretionaries, UM, there's been a significant um drop in the market cap of discretionaries, market cap of industrials and energy companies. So the image is already sort of starting to reflect that that is really going to be more representative of economic activity moving forward will be in those big technology and

communications services companies. Can I ask you about one thing that's a little baby sort of offbeat, which is, you know, you look at some of these bankrupt companies like Herds and J. C. Pennies, and you know these are well known names to two folks and yet you've seen these little runs in them. These are companies that are you know, it's not going out of business, being dramatically restructured legally.

Help me understand that. Well, that was a little bit of a head scratcher to me as well, because that's sort of just a given in any sort of bankrupts your your organization, if you are an equity holder, that the first and easiest item to check off the list as equity goes to zero. Yeah, so I think that

was a little bit of a mystery. And so that almost makes you wonder if there was going to be some sort of a deal or something put on the table where there was they were going to find a way to maybe take the company private or recapitalize the company without having to do that. But that was a very short lived right. What I think is maybe a just a little blitz in the pricing that that reverse itself fairly quickly. You well, and it's just it is

an interesting time. I just feel like there's so many people weighing in, Like, you know, we had John Paul Tutor Jones like eating some humble pie. You know, all of these big investors who were you know, saying back in March or even sooner, like this is not a market to be in, and then yet here we are, So I don't know, what are your expectations, what kind of visibility do you have in terms of the equity

trade right now? Well, the what we noticed in an before t dmritrade clients, and that is we actually saw our clients start lowering exposure to equities at the start of the year UM and we actually hit a seven year low in March for equity exposure and clients and it sort of turned around from there. So I think clients started dialing back exposure once we hit those loads in March, and it was sort of one thing where we've we've had some about a decade to see how

this plays out. But the FED came in with March

and they really announced some pretty extraordinary programs. We also got financial support packages that were pretty extraordinary as well, UM and I think investors saw that as an opportunity maybe to get back in and that was really meant to address what I think was the big concern issue for the market, and that was leverage and solving the issues and everything that FED and h Congress did, it seemed to be pointed to address those those solving issues.

Sounds like a little bit of market timing to me. And those were good, those are good before they did that. Clients, all right, Sean Cruise, thank you so much. Manager of Trader Strategy for t d Amor Trade, Johnnys on the phone from Chicago, Thanks so much for listening to Bloomberg Business Week. Download the podcast on iTunes, Southcloud, Bloomberg dot com,

or wherever you get your podcasts. And of course you can always listen to our radio show at two pm Eastern on Bloomberg Radio, or watch us on YouTube by searching Bloomberg Global News