This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus global business, finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
What's so while you like, all right, it is all about that big jobs report. Just talking about a little bit with our TV team here. But you know, Jess, you take a look at some of the headlines that are among the most read in the Bloomberg yep US hiring surges, bolstering the case for another FED rate hike. You got the five percent bond market, meaning more pain is heading everyone's way. We just talked about that with remaining Katie, and then treasuries sliding as jobs beat makes
another hike a coin to us. I feel like we keep going back and forth, right when it comes to what's the Fed do next?
Right, and whether or not we're headed for ace landing or hard landing.
Carol, exactly, all right, So to talk about it all the day's trade, the week's trade, and the news. Bloomberg Intelligence Chief US Interest rates strategist Iri Jersey on ZUM New Jersey and also with us Bloomberg News Economics editor Mollie Smith and Molly just quickly we talked about a little bit with our TV colleagues Bloomberg, TV, Radio, online, everywhere.
The terminal have been all over today's jobs report. But what are some of the highlights and what you think the street and the Fed is paying most attention to.
I mean, yeah, the headline number obviously was kind of frightening. You know, when we first saw it was like, wait, did I see us ride three thirty six, you know, above well above all estimates in the Bloomberg survey and also the sizeable revisions to the prior two months, So that was really just a bullish line across the board, especially seeing so many of the recent jobs reports have
been the opposite. We've seen big, big downward revisions in prior months, and I think it was just really impressive in terms of like the base nature of hiring. You know, it wasn't particularly concentrated anywhere, seeing the unemployment rate held at the same level, and wages also not so exciting, So it was yeah, I think just like the payrolls number was really by far and away the big story here.
I wanted to bring you into this conversation because, especially when we're looking at what's happening in the bond market, what do you make of this as far as the speed in which we've continued to see bond year olds climb from here.
Yeah, liquidity is not great, but you know, really a lot of this was positioning. So you had a lot of people back in the summer, you know, talk about June July August timeframe when a lot of strategists and then real money managers were getting long duration, so they were buying ten year notes, thirty year bonds and those sectors in the anticipation that the FED was going to be done. And usually when the FED is done hiking, the long end of the market does really well from
a total return perspective. But what's happened now is that with the turn in the data the last six or eight weeks, you've seen and haven't seen the slowing that I think most people had been anticipating. You have a lot of people in bad positions and then you so they wind up stopping themselves out. There were some really important technical levels that got broken last week, and as those got broken, you then had stops that got hit. So a lot of this move was part of this
move was technical in the positioning piece of it. But I think a big piece is just a reimagination. Imagining of what the Federal Reserve is going to do and what the FED does next. I don't think matters very much. It's more what is the FED going to do next, next, next?
So what is it going to do in late twenty twenty four, twenty twenty five, We've now priced out a lot of the cuts that had been priced into the market, you know, even after you had still had about sixty base points of cuts priced in after the FED meeting last month. Now those are you know, now people are saying, well, hey, maybe they won't actually cut interest rates.
So at this point, if I've bled's futures, are saying no cuts next year.
Just about yeah. So you know, it depends on if there's a hike or not. Right, so, good things. If they hike again and then yes, there's a cut priced end. If they don't. If they don't hike, then there's no price a cut price end.
Right.
So but basically you're talking about interest rates not doing very much in the very front end of the curve over the next fifteen months. Or so, and because of that, the whole yield curve has had to reprice, so you have, you know, five year notes need to be closer to five percent, and so do ten year notes, just because if you average out what the policy rate's going to be over the next ten years, that's come up quite a bit. Interestingly, Carol, I was just looking at this
earlier today. If you look at what the market thinks the ten year notees going to be, so you look at the fifteen month forward tenure rate, that is exactly where we are today, four point eight percent. So the market seems to think now right now that there's going to be very little movement in the long end of the curve. Is that going to happen? No, it's not.
So.
That means that there's going to be a lot of relative value and trades to do. But it might be a little bit early to try to think about exactly getting long because of the full momentum in the market and the good economic data.
Molly, I want to bring you back in here, because the economic data from day to day can can re create or you know, it's like a whole new think among the investing public or traders about what happens, and I just wonder, you know, here we are digesting an important data point, but I do wonder we've got inflation next week. Could could sentiment change much, you know from what we heard from IRA Oh absolutely.
I mean, take a look at what happened this week. You know, there was a bit of a relief rally on Wednesday after the ADP data showed a really weak private payrolls print, and then two days later, you know, gangbusters on the government shops reports. So you can see it's really a very pickle environment right now, and it doesn't take a whole lot to move the needle. I mean in terms of next week coming up. Obviously CP is going to be the big highlight later in the week.
We also have producer price index before that, you know, maybe you know you miss inflation expectations if that loves the needle in anything. And of course we get the Fed minutes as well, so all of those some good data points. Look go ahead to hey.
Mollie when it comes to what we're seeing with the wage pressures ease in here, how much of that today was part of offsetting maybe some of the labor market strength that people maybe would have been concerned about there.
I mean, it's it's a little bit tough because like you can't really compare this with the Jewel support because
it's not the same month. But if you were to look at it at the value of you know, you know, job openings going up by a ton and then wages coming down a little bit, like that would make sense, right, you know, like that workers like maybe you don't have as much leverage here, you know that there's that there's so many job openings right now, or that they can they do have a lot of choice actually in that So it's I mean, but yeah, like I said, it's
you know, it's two different months. It's a little tough to square the two here. But I mean, at least, like I think the FED will probably you know, if there is some positive takeaway from this report to see a more modest number on the wage side, that is certainly a good one for them.
We've talked a lot about five percent, but we've also heard, you know, various individuals talk about six percent or seven percent when it comes to US yields. Is that Are you ruling that out yet? In terms of your analysis and research, a.
Seven percent would be pretty astounding six. See, I can create a realistic scenario where we get to six percent, but I think that would require a reacceleration of inflation and the Federal Reserve to start hiking rates more. It's hard to see at this point how the market is going to price for a steeper yield curve. So let's say that the Fed does nothing right now, a significantly upward sloping yield curve in an environment where you don't
have accelerating inflation. So I could see a flat yield curve, right. I can see a scenario where we wind up getting a completely flat yield curve at five and a quarter percent, But the market's always going to be pricing for the Fed snacks move at some point, right, So it could be that the market prices for the Fed not to
cut interest rates until twenty twenty six. But even if it does, then that still means that you're going to have ten year yields need to be below the overnight rate, and so it's going to be hard I think, to get tenure yields up to six percent without the Fed hiking.
But that being said, you know, oil goes back to over one hundred and you wind up with a reacceleration in the labor market, and the next thing, you know, you could wind up with the market pricing for interest rate hikes and that could certainly push yields more than nowhere near my base case scenario for sure. But that's but there is a realistic scenario where we get there.
What do you think ira would be the make or break level in the tenure treasury yield to really see asset correct classes basically having to reprice, especially in the stock market collapse.
Right, Well, I guess well that's a better question for Geena Martin Adams are equity strategists, right, because I think that comes more down to valuation. Right, So, if if you look at what's been moving this market, though, it is there are tighter financial conditions. I think you mentioned that a little bit earlier in this in the segment where if this whole entire move has not been on
higher inflation expectations. So even though we had this blowout jobs report, it wasn't that that inflation break evens and the market's expectation of inflation moved up. It's all been in real yields, and real yields tend to move because of tighter monetary policy, market volatility, and fiscal deficits, so that that's in fact our model. Those are the three inputs to our model for ten year tips shields. Ten year tips shields approaching two and a half percent, our
model says two point six percent, so reasonably close. But it's because in large part because of the expectations of what the Fed's going to do as well as the just the massive volatility we've had in treasury yields, and investors want to be compensated for that volatiley and that shows up in tips yields for sure.
Hey, can you in thirty seconds your call him on the six trillion dollars title wave in the treasury market. What do we need to keep on our radar just quickly if you could.
Yeah, So that's all about tea bills. There's still tee bill The amount of tea bills are going to need to be issued over the next quarter is still going to rise. So there's going to be plenty for money market investors to supply for them to invest in.
That's good because there's demand out there anyway, as we know. Hey, guys, thank you so much. I really appreciate it and have a great weekend, Bloomberg Intelligence Chief US interest rates strategist Ari Jersey out there on zoom in New Jersey, and of course Bloomberg News Economics editor Molly Smith joining us on the phone in New York City. Can find Molly at Molly Smith News on Twitter, and you can certainly catch Ira in his research and his team's research on
the Bloomberg. You are listening and watching Bloomberg Business Week on this Friday, Carol Master along with just metten In for Tim Stanevik, and this is Bloomberg.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app, or watch us live on YouTube.
Nonfarm payrolls increased three hundred and thirty six thousand last month. I feel like we shall get like headbands and caps and T shirts because it really was a shocking number. It's the most since the start of the year, after sizeable upward revisions to the prior two months, so that's it's not just this past month, it was the prior
months to September as well. A Bureau Labor Statistics Report of course coming out with all of this earlier today, the unemployment rate, by the way, holding it three point eight percent, wages rising at a modest pace, and maybe that was some of what Colm folks down. So let's get to it. Back with us on a Job's Day, Becky Frankwitz, she's Chief Commercial Officer in president North America
at Manpower Group. On zoom from Durham, North Carolina. Becky, it is good to have you here with jessin myself. So it was quite a strong report, kind of a shocker when it first crossed. Was it a surprise to you?
Okay, it's a blockbuster report. I mean, Carol, what we're seeing as employers as we go into the holiday season, they really want to enter the first of the year fully staffed. And so when you think about what Jobs Report Friday really is, it's the match between open opportunities and people and what they want to do, and so we're seeing that match increase. So it just shows the
resilience of an increasingly cost conscious American consumer. We saw that because we saw services, leisure and hospitality go significantly up almost one hundred thousand jobs out of all the
jobs created over two hundred thousand. We're in services versus durable goods, and so Americans are wanting to continue to experience experiences and eating out, and that's why we're seeing you know, companies like Dominoes fall into a top employer from cost consciousness, Walmart, Dollar General following in the top employers, and so, you know, a very resilient yet cost conscious American consumer.
So what industries are seeing the highest demand for labor at this point versus those that are seeing the weakest.
Yeah, so this is a headline that hasn't necessarily been covered today if you think about in real time data Jess, and that's usually the view that we bring because we can track bisector by day what's happening versus looking just back at BLS as we look ahead. What we're seeing today is warm up in holiday hiring and the heavyweight holiday heroes is going to be operations and logistics. So for the first time in three years we saw it jobs fall out of the top three sectors. So it's
been medical sales. It now it is medical sales, and think about sales is getting ready for the recovery in the economy. So companies want to have a full sales team. And now in the number three position is operations and logistics. And how that's tied to holiday is we are seeing more clicks than bricks from Americans as we go into the holiday hiring period, and so Americans are shopping more online. You know a little bit they recovered from covid went
out into retail last year. Thish we're seeing American shop online. That's evidence by big headlines from Amazon, you know, hiring one hundred thousand more workers than last year target hiring one hundred thousand workers given their click and collect program. So we have some optimism in the upcoming months. So I'd say that's one of the standouts is logistics, and again medical continues to be in number one and number two sales for the reasons I mentioned.
It's interesting. I mean, I don't know. Do you talk to some of the companies that are posting or that you're that are looking to hire. Is it because they are doing more business there's demand out there? Is it again that labor hoarding story at Becky? What is it? Because it's interesting to hear what you say about that they want to kind of be stocked with workers heading into the new year.
Yeah, so it's really I mean, Carol, it's actually not very complicated. What's fueling our economy today is the confidence of the American consumer. We continue to spend, and as long as we continue to spend, that generates demand. Again, we're spending on services much more than good so keep that in mind. But as long as we continue to spend, it generates demand and companies are going to seek to
fill their open positions. Now, I want to be clear, as we look at the job demand, which is what fuels ultimately BLS, we have seen a little moderation month over month, Carol. It came down about five percent month over month in terms of overall jobs created in the economy. But you know, people say, hey, the fall weather's here, the labor market's cooling, But I would tell you it's not winter yet.
Hence the holiday hiring optimism.
So what's really driving some of that optimism when it does come to the holidays.
Yeah, it again, we as Americans now are are buying more online. So in COVID, we didn't really have the optionality we had to buy online, so you saw a significant increase in option logistics to fuel that During Covid. Then we got to go back to stores, and so last holiday season people went back into you know, shopping malls and retail stores. And now we're seeing that moderate again to more click you know, and you also know
when you click, you tend to spend more. It's hard to keep up with your basket if you will, across multiple providers.
And so it's giving some optimism.
And we're seeing the traditional retailers again, I said, Amazon, but Target again with their click and collect program. They're hiring as well, so it's not limited just to the online retailers.
Probably my husband's like slayer well babe with Amazon, right, it's so easy. It's terrible because it's just like, oh I want, I think I do. It's like crazy. But it is interesting when you talk about logistics and getting kind of gearing up for the holiday season. That makes me think, though, they'll get through the holiday season and let some of those folks go. I mean, are these full time positions. Are they getting all the benefits and everything or is it temp.
Yeah, Carol, so this is seasonal. It happens every year, you know, if you're call Last year, you and I talked about the fact that we weren't seeing the increase that we thought we would, so last year was a little bit of a different from the past. But this year we're seeing holiday hiring come back with strength, and it usually is people who want to get a second income to out their holiday shopping or someone who just wants to go to work part time to get their
holiday shopping. So this is a fairly normal cadence for the American economy. Again, last year was abnormal though, so it's very nice to feel some normalcy come back into the patterns.
So, Beck, if you had to use a word or two words to describe the labor market right now, what would it.
Be, I'd say very tight.
It's very tight, and so we're seeing you know, it's taking forty four days on average, Carol to fill a job.
That's very long.
That that's why employers get anxious because by the time I get somebody through the process, if I can't speed that.
Up, they may make another choice. And so, you know when you.
Said labor hoarding, it's different than it was where I'm scared I can't hire people, but the time to hire is taking so long, and it's causing employees to possibly have other options and so that it's still a very tight labor market.
You saw unemployment not move.
Oh.
In one highlight that I want to point out that is a little bit concerning is we did see for the first time in a long time, female participation drop only two tenths of a point. It's not alarming, but it's the first time and it's very concerning. And if you think about ops and logistics roles, they're over represented by men, and we cannot have another sheet session on our hands, and so I really want to watch that.
I'll be watching that closely.
Hopefully the retail in store is that comes back a bit offset some of that, But that's a little bit concerning.
I don't like to see that number.
Any indication as to why we are seeing that.
Yeah, so it's you know, there's a lot of headlines around the childcare situation and what's going to happen the cliff that could possibly happen there.
That's concerning.
But I also think the mix and the economy is changing a bit as we see this growth in OPS and logistics, and so that something for all of us to keep a close eye on.
Hey, Becky, you mentioned forty four days on average to fill a job. You said, that's very long. Is that kind of where we were twenty nineteen. Give me a little perspective.
Yeah, so no, it's taking much longer now to fill a job, you know it is.
So it's above what it was back in twenty nineteen, just before the pandemic shutdown.
Yeah, it's a labor market's tighter, Carol. So it's it's above what it was in twenty nineteen. And again it's flattened. We had seen it increasing, which is definitely not a good thing. Now it's kind of flattened. So I'm hoping there's stabilization there and then we'll see that come back down.
Interesting, like we keep hearing it. We talked with a CEO over at Omni Hotels. You can check it out on our podcast view. But he talked about strength in the labor market, but he said it wasn't as bad as it was kind of coming out of the pandemic, but nonetheless also seeing some strength there. Hey, Becky, great color on the US jobs picture, so so appreciate it. She's Chief Commercial Officer, President of North America at Manpower Group.
Joining us on Zoom from Dorham, North Carolina. And this you know, I feel like job's data strong good shows the economy. If you have a job, right, you're going to spend, You're going to go places you just travel. But it does it, you know, continue to provide a predicament a little bit for the fed right.
And hey, we are seeing some of those wheach pressures ease.
Yeah, interesting, all right, so something for us to continue them all over.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg Radio, the Bloomberg Business app, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa play Bloomberg eleven thirty.
Hey, it's the fourth day in the fraud trial of FTX co founder Sam Makmin Freed. FTX co founder Gary Wang on the stand again. The Cryptocurrency Exchange is other co founder and he did plead guilty in December. Green to cooperate in this case against SBF. Keep in mind, Wong Bankmin Freed's MIT roommate, is the first of three star witnesses testifying for the government. In our weekly look at the world of crypto, let's get an update on the trial back with US and following all the details.
Bloomberg News legal reporter Ava Benny Morrison, She's on the phone from Manhattan Federal Courthouse. Talk about the day, Ava, what went on and what did you hear?
So it was a big day today We heard from Gary Wong. He continued giving his testimony. Much of it was a sort of painstaking description of how Alameda and FTX operated, but towards the end of the day he gave a description of the final frantic days at FTX, talking about how he was in the Bahamas with Sam and some of the other top executives as ftx's financial
situation was getting worse and worse. He talks about when bankruptcy and then him and Sam went on a drive to the Securities Commission in the Bahamas and Sam instructed him to transfer the remaining assets of FTX to the Bahamas regulators. This was at a time when the US was trying to get a hand on it, and he said that Sam wanted him to do that because he thought the Bahamas were more friendly and they might be inclined to keep him as CEO of the company.
Will we continue to have more testimony from him.
Yes. So the prosecutor finished his direct examination of Gary today and now we're in cross examination. We only got to hear a little bit of what Sam's lawyer had to say. He was sort of questioning Gary on whether changing the FTX code really gave Alameda special privileges or if it was just a bolster of their role as a market maker on FTX. Gary's cross examination will continue into next week, and then we're expecting to hear from Caroline Ellison, who was the CEO of Alameda Research.
It feels damaging. So far, everything you've been hearing and listening to.
It's been pretty compelling. We've been wanting to hear from these cooperating witnesses ever since we heard they pleaded guilty and admitted to committing afford with Sam Bateman freed. They have a very rare and valuable insight into what was going on inside the company and inside that in a circle. Sam's in a circle. So it's been very interesting.
To say the.
Least, Sam's in the room right, I assume what can we any inside or anything about, you know, as people are testifying what he's doing.
It was interesting He and Gary have been friends since high school. They went to mathcamp together, they lived together when they're in college. Despite that history, there was no acknowledgment when Gary walked in the court of Thursday and today. They didn't look at each other. And Sam has just been sort of staring straight ahead when he's been giving evidence or talking to his lawyers and taking notes on our laptops as well.
What's the timetable for this trial and as far as when there could be a verdict reached.
We're expecting the trial to the last for up to six weeks, so a verticte could be a while away yet. And we're getting through a couple of the key witnesses this week next week, and then we'll expect to hear the Sam Bagmand Freed's case maybe in a few weeks time.
So cross examination just real quickly. We're not seeing that yet or it is happening.
It is happening. Sam's lawyer started cross examining Gary this afternoon, but it was less than an hour before the court was due to finish, So I think he's really going to get into the swing and things next Tuesday.
All right, So it'll be interesting to see that line of questioning as well, hey, Ava, thank you so much. You've just kept us up to speed all week on this Bloomberg News legal reporter Ava Betty Morrison on the phone from the Manhattan Federal Courthouse, where, of course that fraud trial against FTX co founder Sam Magmin Freed is underway. Let's get more on the trial and oversight of the crypto industry with us as Rory Doyle, head a financial
crime policy at Fernurgo, which provides financial institutions. So we're talking about the likes of P and C and Santander with compliance and regulatory and risk applications. Rory joining us on zoom from the UK. Rory, you've been listening, I assume too, our Evin Benny Morrison talk about the SBF case,
the ft X case. When you think about oversight and compliance and risk, certainly among the financial establishment, there's a lot at stake when it comes still to the crypto world, and is still a lot to be known.
There is indeed, and I suppose you know listening to the feedback there that I mean something that that comes straight away to what we're seeing is the immaturity and the inexperience of the C suite involved in ft X as that the legendary genre from the famous Enron case, who's now the liquidator for FTX, has explained he's never seen a more inexperienced and a more and c suite that that does not, you know, take any advice around you know, risk application or you know business risk assessments.
So there's a lot to have learned, you know, in the fintepech world and in the crypto world.
Talk to us about the compliance risks in solutions that you give to your clients that typically are financial institutions.
So we provide a suite of applications that it's an ecosystem for client lifecycle management. So I'm ahead of financial crime. So I look after making sure that when a client takes our suite systems, they are able to harmonize their policies and procedures and let let them integrate with one
hundred and twenty jurisdictions around the world. So essentially our clients obviously are worldwide, so they're able to onboard a client efficiently and compliantly from one location, and they may be able to want to book their trades out of France, and they want to book their trades out of Spain book trades at the US, and we give them a one stop shop to be able to do that both efficiently and compliantly.
And we're any of them impacted by ftx's collapse.
And not that I'm aware enough, So we just build the systems for them. Then it's totally housed within the cloud. But then our clients themselves are the only people who have visibility of their accounts.
I mean, but isn't part of the problem that compliance and oversight is different around the world at this point, there's not really any clear set of rules. And if you think about the established financial world. I'm not saying everything's exactly the same, whether it's Europe or Asia or
the United States. We know it's not, but there is kind of an acceptance of a certain level of rules and oversight, and that's what enables global financial markets to actually work right, or financial global financial transactions to work. Isn't that the big problem right now with crypto?
Yeah, you're absolutely right. But we are seeing around the world jurisdictions catching up with the fat F recommendations on crypto, so seeing very good laws and regulations coming out of Singapore. We've got the financial and Innovation Technology Act coming, you know, passing into Congress this this this quarter. Now obviously Congress is that a bit of a bit of a ponder at the moment, so there may be a delay on that.
We're seeing the EU Single Rule Book coming into place, and that's addressing the use of al anonymous instruments such as crypto assets. Australia published a consultation i believe last last quarter which gives coverage to various digital currency exchange services, so that makes them regulated entities. And your near neighbors Canada they produced a consultation paper there last quarter as well, and they're harmonizing their transactions reporting rules so for air, crypto, in line cash.
So more's coming fifteen seconds Rory. So does that mean you are seeing increased uptick in demand for your services? Can you quantify it and just very quickly?
Yeah, absolutely, especially since we've seen there's a dearth of financial crime professionals around the world. There's been an increase in screening and sanctions due to the war in the Ukraine, and therefore something needs to bridge that gap. All right, well we believe we have the solution for it.
Well, good to check in with you and get the playoff of certainly the latest on that trial downtown. Here Rory Doyle, thank you, head of financial crime policy at Ennergo, joining us from the UK.
Mark the journal.
Now about you let me drive?
Oh no, no, no, no, honey, please out of the gravels.
Let's I want to drive.
It's a good question.
This is the drive to the clothes Well on Bloomberg Radio.
All right, everybody, just about eighteen minutes left in today's session. Carol Master along, we've just met and Jess of course in for Tim Stanovik on this job's Friday, and we've got to rally underway. One point nine percent higher on the NAZAC. Charlie was just talking about amazing the trades. So we're seeing buying into the clothes not you know, we're almost getting ready to wrap it up. How do you make sense of it as somebody who is constantly reporting on the market.
Well, I look at a lot of different corners. I brought up earlier about the shorted basket, most shortage stocks in Goldman stacks basket, as well as those nonprofitable techs. So you're seeing those corners of the market actually higher than the broader market. So I think there's some things underlying surface there, so it's not just more broadly in the equity market, but then also trying to figure out.
Okay, so does it mean it's a strong trade this buying or no?
Not necessarily?
Okay, So let's see what Alan Zaffron has to say about. Let's if he's been doing some buying or telling others to do. He's founding partner co CEO at IQ Capital. He's on zoom from Foster City, California. Hey, Alan, always get to get some time with you.
How are you.
I'm doing great, and it is blazing hot here on the West Coast.
It's blaking out today in the market.
So do you buy it? Do you buy this trade?
This is a technical snap back from an over sold condition, but fundamentally I don't really buy it in the short run. Basically, this is the goldilocks trade. If you think you're going to get strong economic growth in moderating inflation, this is what you're looking for. On our perception is when the Fed has raised rates these many times, inevitably you get an economic slowdown that coupled with wage pressures. When you
see strikes taking place of autoworkers, people in Hollywood. When you see the healthcare system Kaija permanente, it's telling you wages are going to go up, margins are going to get hurt a.
Bit next year.
So we're a bit skeptical about the projected twelve percent of earnings growth and for the S and P five hundred next year, and therefore we're a bit cautious.
We think equities remain just a bit ahead of themselves, not egregiously overvalued, but we wouldn't be surprised if for a year from now equities we're trading at about eighteen times forward earnings, which gets you to write about where we are today.
You brought up earnings. Clearly, we'll have GP Morgan and other banks kicking things off at the end of next week for the third quarter earning season. What's your view as far as when the S and P five hundred looks poised to potentially be coming out of an earnings recession in the fourth quarter, how do you think that would bode well potentially for the broader equity market At a time when people are debating a soft landing or a hard landing, boy.
Bode wealth really going to get that earnings growth? So if you you know, this year's entire move up, which is at this point about fourteen percent on the index, is entirely multiple expansion. We're going to see no earnings growth this year. So if you really do buy into that twelve percent earnings growth next year, next here, and people really believe the Fed is finally on pause and we're going to have a more stable and clear environment
and uncertainty goes away, great markets go higher from there. Again, we're just going to try and issue an element of skepticism that it's uncommon for a yield treasure yield crip to be inverted, for the Fed have raised so quickly and meaningfully, and for that to be a real economic impact. And therefore we're not quite as bullish as the way you phrased that question.
To make you know, there's a lot of individuals weighing in. Michael Hartnett over at b of A saying that the bond market is going to rally big in twenty twenty four. He said, amid a recession, I saw another Wall Street house talking about I think this was a buying opportunity for equities. I mean, it's kind of like all over the place, allan so what's the major risk right here and getting and making kind of the wrong decision.
Well, I think among the major risks, are you think about it, the American economy goes to go back to basic economy on it's consumption and investments and government spending. With exports minus imports, consumption is seventy percent of the economy. Guess what COVID did. They made everybody decide they were going to eat into their savings and go travel abroad and spend all their money and go watch the tailor
swift concert and savings are cleaning. And if consumption can't keep up at this pace next year, and if interest rates are higher, which is slowing down investing, and if we have chaos in Senate and fiscal spending isn't going to bail us out, the C and the I and the G the makeup economic growth are all going to be less strong than we wish. It doesn't bode well for an exceptionally strong equity market. It doesn't mean it has to plummet, but earnings growth is going to be challenged.
We think a bit more than what is current consent. This wisdom in the typical tailings of driving economic growth aren't going to be as prevalent next year, and therefore it's gonna be a little more challenging.
What about the consumer in our when we're thinking about how strong the labor market has held up, how does this really signal that a recession is eminent in the next couple of quarters.
It doesn't signal recession is terribly imminent. We would argue, it's quite possible we've already been in this kind of bizarre, slowing, rolling recession, hitting different sectors at different points in the Remember all the tech collayouts that are happening much earlier. It's particularly here on the West coast. But what it does bode is when wage pressures go up meaningfully, companies'
margins begin to get crimped. Coupled with higher borrowing costs, their propensity to invest in their businesses gets hurt a bit, and it's hard to push on all those price increases back to the consumers. You get lower profits and less profit growth as a result. It may not mean a recession, but as you know, the inverted yield curve has yet
to fail signaling a recession. So either this time is different, or at least we're going to see somewhat of a slowdown from the rapid economic growth we had seen over the past twelve to eighteen months, which has frankly defied a lot of the conventional economic models. As a consequence partly of COVID and everybody changing their behavior about how they intend to spend their dollars, they're accelerating spending at
the expense of savings. It's not clear that can persist for another twelve to eighteen months without some slow down in consumption.
Right, And we've been lucky because the job market has been so tight, so people, whether or not their savings are being pared down, they're continuing to spend because they've got a job and they feel confident about that. And I do wonder Allan, as you look at the market, and I think about how quickly things can turn. And you know, we keep saying about these kind of reinversions or signs that are saying, okay, our recession certainly is near.
I don't know what is the sign that you kind of are what is the Is there a data point a metric that you really focus on to kind of get an indication of where to go next and that also guide you and how you invest and got about forty seconds left.
Well, typically the unemployment payroll figures are more of a coincident figure, not a leading or backward looking figure. So when you see payrolls not going up three hundred and thirty six thousand, twice the pace at which consensus expected today, but a real drop in payrolls, that tells you the party is about to end. And so we saw it.
Also if you go back to the last time we had a recession where payrolls was two thousand and seven came down pretty sharply in the fourth quarter, and it led to the recession we saw in two thousand and eight and nine. At some point when payrolls come down pretty sharply, that's the sign that we're in the recession.
The issue is stocks typically are in front of that just a bit, and so the ability for that to lead to your decision making is a little flawed because it will already dropping by the time you see that payroll drop.
It's a really good point, right Marcus Kinner, certainly read into things. Earnings will maybe be really helpful. We'll see what CEOs have to say, especially how much guidance we get in terms of outlook alan great stuff, have a great weekend. Alan Zaffron, jounting partner and co CEO at IQ Capital on Zoom from Foster City, California. Don't go anywhere. We're going to wrap up the trading day. In the week, you're listening and watching Bloomberg Radio.
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