A Short-Term Pullback We Should Have Expected

Christina Hooper. She's a chief global market strategist at Investco. They have a couple of shekels under management, one point three billion dollars. Christina, thanks so much for joining us again. All Right, So we've had a couple of days of some sell offs here, and I guess people are just kind of, you know, asking, just casually, is this something it's just a little bit of a pullback. What is you know, a longer term bull market or is this showing some cracks in what had been a pretty good

narrative for this market. I think it's a short term pullback, and and quite frankly, I think we should have expected it. Um what we saw was the ten year yield go up significantly earlier this year, and markets react to it. Reacted to it, particularly tech because of its higher valuations.

It's more sensitive. UH. And then as yields back down, there was this wave of relief and people started changing their expectations for the ten year For the rest of of UM, I've always expected that the ten year yield will finish the year at two percent or higher, and that means some pressure on stocks, particularly tech stocks, as they digest UH those higher levels of rates. That doesn't mean that this is the end UM. It just means

we're going through an adjustment period. So Critty Gouta was on earlier though and told us, you know, the big fang stocks are now sitting at the kind of valuations we saw in two thousand nineteen. UM. Why you know completely reset? Are aren't we still expecting UM the pandemic trends to be sticky and hold as we reopen. Well, I think certainly some pandemic trends will be sticky. We are going to see elevated e commerce sales going forward. As one example, we are going to see more of

a hybrid model for many employees. They're going to be working from home more often. Uh so. So certainly some trends hold, even if they moderate a bit. But we're also not factoring in that companies have significant cash on balance sheets, and in an expansionary environment, they're likely to spend more on investment, and I would argue more of

those investment dollars are going to go into tech. In fact, if we look at the last Federal Reserve basebook, the Cleveland Said reported that some of its contacts indicated they were planning to adopt more technology in lieu of more employees to keep up with demand, given that it's it's been difficult to source employees. Yeah, Christina, that's kind of

where I wanted to go. I mean, we've now had a couple of days to digest that, you know, exceptionally weak jobs report on Friday one of the narratives that's I think finding its way into the marketplaces. Boy, if corporate America wants to get people back to work, they're gonna have to raise pay and that might cause some wage inflation into this economy. How do you think about Friday and maybe what it might mean going forward for the economy and for policymakers. Well, I certainly believe there

is some truth UH to the argument that we are. UM. We have generous fiscal stimulus, including generous unemployment benefits, and that is one deterrent to people returning to work. But we have to recognize that that is a relatively short term deterrent. It ends in September, and in fact, some states are ending it as soon as June. So but

there are other reasons. Right, We've got health safety concerns, We've got public transportation schedules that are UM not back to normal yet, and we have childcare issues for many Americans. All those issues are very short term in nature. So yes, we're already starting to see wage increases in some industries in some regions, but I don't think we're going to see any kind of traumatic overall increase in wages. There should be more workers coming online in the coming months.

What about the idea that growth and you know, earnings, economic growth and earnings growth has peaked in this quarter or is peaking as we speak. I absolutely disagree with that. UM. We are just beginning what I think is going to be a very strong economic acceleration, and so I don't believe earnings have peaked. UM. I don't think we're anywhere in you're peaking right now? Alright, Christina, what are the sectors that you guys are doing the most work in

right now? Well, of course, our view is that in in an environment like this where the economy is accelerating, typically we're going to see cyclicals outperform, and that's likely to continue through this year. But that doesn't mean that we want to uh completely dismiss or overlook the growth side of the equation. In fact, days like today remind us that there can be valuation opportunities created in this

kind of environment, especially for tech. Now are we getting Are we now at a point where tech is a screening by no um? But it certainly looks more attractive today than it did look a few days ago, and it could look more attractive in a few more days. So for those with a long term investment horizon, which I hope that everyone has um, this could be an opportunity to pick up some some really attractive names at

lower prices. How important is it by the way that Biden gets his infrastructure his spending plans through, Well, we certainly already have a very robust environment in terms of physical stimulus. If we look at the US now versus how much UM we saw in the way of fiscal outlays during global financial crisis to the percentage of GDP. We're doing much better now. Um So it's not as important, but it would be nice to have Christina. Thanks so

much for joining us. Christina Hooper is the chief Global market strategist at Investo, with more than a trillion dollars more than a trillion and a third under management. This is Bloomberg. Let's get over now to Mark Nelson. He's the CEO of of Tableau UM, which can hardly be considered a small cap. They were bought for more than fifteen billion dollars by Salesforce back in pre pandemic? Was that that deal? Mark joins us on the future of

enterprise technology and how analytics can transform business. Those are kind of jargon e taglines there, Mark, But what are you really doing to change the way people work day by day? Yeah? Thanks for having me this morning. Um So. Our mission here at Tableau has always been to help

people see and understand data. We're at a point in the universe where the ability to gather data, store data, process data, and then look at it and make decisions from it has really introduced something that is as transformational as the microscope or the telescope. It really lets you see things about the world around you that have kind of always been there, but you've never had the ability

to see it. And our mission is really to provide a tool that lets lets people work with that data, understand that data, and answer questions in their day to day life. Not just analysts, but every knowledge worker as they're doing their jobs, being able to see the data that's relevant to them, understand it and make decisions be done it. Mark, how has your business of Tableau? How did it change during the pandemic? Has it been materially

changed during the pandemic? Of course they got bought exactly. Yeah, well, so to two separate questions that I can talk about. So during the pandemic, like the last year, has has made every business a go through a digital transformation if they weren't already, And the heart of every digital transformation is a data transformation. Things have been changing so fast

in the world and for every business. The businesses that have thrived to been the ones have been able to empirically measure what's going on in their business and and

just react to it so much faster. That need to be able to see, understand, and react and make decisions based on data has been huge, and we've really seen that for our customers everywhere, from your customers who are quickly adopting a digital model and e commerce to those dealing with the front line of the pandemic and trying to get out COVID data and trying to to validate

vaccines on the acquisition. You know, the combination of Tableau and Salesforce together um is like putting p bar and chocolate together, right, Like you take the amazing Customer three sixty application suite from Salesforce that works on and generates some of the most valuable data for a business and Tableau that let's you see and understand that data and get answers from that data, and you just have this ability to do things you were never able to do before,

to really get a sense of your business and that sense of where your business is going that you were never able to do before. So those two things, and you know, temporarily related, but have been great and I mean I love that. So Tableau was started, I think at least in part with help in the Defense Department right, the US and Stanford. Obviously everything starts at Stanford. But Mark Benioff calls the company his brother from another mother,

which I think is pretty cool. And now you're doing Now you're helping to UM try and attack the racial inequality problem, the sort of diversity and inclusion problems as well. How does that work? Yeah? For sure. So data is so useful on helping with these large societal problems, right that are so emotionally charged and can get wrapped up in in a whole bunch of things. Data is our superpower, right.

What we bring to that is the ability to you know, really look at data and understand it, to help understand what the problems are, UM, what solutions can be found for these and how effective those solutions are. And so during this we have launched the Racial Equity Data Hub along with our our partners like policy Link, to really provide data and to do a couple of things. One is to democratize access to that data so a whole bunch of people can help work on these really hard problems.

To de advertise that data so that you can really get down to which which groups are really being a acted by this, and then ultimately to be able to let people see data about these problems, so again we can help find solutions and measure the efficacy of those solutions as they're implemented. Thanks so much for joining us.

We really appreciate it. Mark Nelson, see you of Tableau talk to us about, you know, enterprise computing, particularly as you know, during this pandemic, there's been such a digitization of so many businesses, more than than before, and of course that generates a tremendous amount of data, and that generates demand and in the need for management teams to get a real handle on that data and what it means for their businesses, and the good folks at Tableau

help with that. Now, let's bring in Brad McMillan. He's the chief investment officer at Commonwealth Financial Network. They have about two hundred and thirty three billion dollars in assets under management. And let me first ask you about this. I think the word sell off has been overused a little bit. Certainly, markets are down one and a half percent on the day out in the S and P.

They were down yesterday as well. Does this look like we're going into a correction to you, Brad or um, how do you judge what is mostly really a big tech slump, and I think that's exactly right. The tech companies have gotten ahead of themselves a bit um they're pulling back, you know. I don't think this is anything out of the ordinary. There's a lot of talk about inflation going up, but this isn't really news. There's nothing news out there, so I think this is just normal action.

I don't see this. I think this is the start of anything worse. All right, So where are you, Brad in terms of where you're looking to allocate capital here? I mean in the equity markets. It's that pull and push between you know. I'm sticking with those big cap growth names. They've worked so well for me since the financial crisis. Really, if you think back that far, or do I play that rotation trade, that reopen trade? Where are you kind of looking these days? I think the

rotation trade makes a lot of sense. Not that the big you know, tech megacaps aren't going to do well, of course they are, but that's what investors expect. What you want to do is play where investors aren't looking yet. So when you look at financials, for example, you have banks that are all of a sudden starting to make money, and as the economy reopens, they're going to be in

a position to make more. You look at housing, yes, that's a story that's gotten a lot of press, but the millennials are moving out to the suburbs in a big way. In other words, let's gate to where the puck is going, not where the puck is and that's the rotation track. What do you think about the banks? You know, um, they have they're on the upside today and they've had some momentum lately with the cyclicals, but um, we're not getting any indication that rates are going to

rise within the next couple of years. And when you look at the banks business model, historically that's been a red flag, not question. But then when you start to look at banks and financial service firms more generally, they're moving away from interest rate driven revenue generation. They're moving more towards speed. And as you move to a more auductized financial economy, you know, some of the biggest financial platforms, you know, the major banks, for example, are uniquely positioned

to start to change that business model. And I think that's exactly what you're seeing. So not only will it be a more um more reliable revenue stream. It also frees them from the curinay of the interest rate cycle. That story is not done yet, but that's where they're headed. I think that's part of what's driving this and taking it away from the interest rate story. Brad. One of the concerns out there is taxes and how this tax scheme in this country may change going forward, both at

the corporate level, uh and at the personal level. How do you think about that? Well, I look at it this way. If you look at the if you look at the Biden tax proposal, some of the analyzes I've seen says that, okay, that could hit SMP earnings similar between five and ten percent depending on sect. Okay, fair enough, and you know if you just kind of eight line that that could knock some points off the market. But again, that's not a big deal in the broad scheme of things.

And when you start to think about what's actually going to happen, which probably isn't what's proposed, and then you start to compare that with the time frame and how earnings are likely to increase over that time frame, I don't think there's gonna be a material impact over time. There might be a glitch, but we've got a lot of cushion here to absorb that if it happens, and it hasn't happened yet. What's the biggest headwind, what's the biggest risk that you're that you're watching out for. I'm

watching employment. One of the things that UM is assumed in a lot of analyzes, including mind, is that we're going to see job growth, you know, bounce back, and we're going to be back to something like normal employment, not full employment, something like normal at the end of the year. But one of the things that came up with the most recent jobs report, I look at the number, I'm not worried about the number because a lot of that is seasonal adjustments, and if you look at non

seasonally adjusted numbers were right on tracks. I'm not worried about that. But one of the questions is are people really willing to go back to work? And I think that's something that a lot of us, me included, haven't thought about enough. So job growth is going to be the key for the rest of the year. Are you concerned about wage inflation coming into this economy? Not really. And the reason I say that is when you look

at wage inflation. First of all, it's been depressed for the past couple of decades, so you know, I think I think some catch up here is frankly overdo. From an economic standpoint. You'll hear a lot about the effects on inflation, which I don't think it's necessarily the case because we don't have the transmission mechanisms like unions and

wage price agreements that we had in the seventies. But more to the more to the point that money is going to be spent, that's actually gonna be additive to growth. Those people are buying large going to spend the money and that's gonna help. I think it's a good thing, all right, I really appreciate it. Brad McMillan, chief Investment Officer for Commonwealth Financial Network, giving us his thoughts on the market. Still long that rotation trade. I want to

bring in Margaret Franklin. She is the president and CEO of the c f A Institute, and so many of our listeners Margaret r c f A s or want to become c f AS. It's great time to have you on because yes yesterday I was talking to a younger c f A and of course Paul Sweeney is himself an older cf A. I was wondering, has the test gotten harder? Are you making it more difficult? Well, I think it depends on what you've been focusing on.

How long ago you wrote it um. Of course the test will seem a lot harder UM if you wrote it twenty years ago, just because the very nature of the capital market. So the quality and rigor are consistent, but they do match what's going on in the market. So I know I would have to study pretty hard for the exams today, irrespective of already having my c f A charter. Margaret, I want to talk about a topic that's become much much bigger part of the investment process.

That's E s G investing. You look at the environment, social and governance here, how does the cf AS to think about E s G and making sure that you know it's charter holders, you know what they need to know. Well, you've touched on something that has been important for about the last five years of note, but has been accelerating

since Davos in UM two thousand January. And this is an excellent example of what is now required of all investment professionals, which is lifelong, continuous learning anybody five years ago wouldn't have had the E s G skills broadly speaking that are required now from a portfolio perspective. So in addition to the c f A charter, we have

launched this year E s G certificate. It was created by our c f A u K Society UM and we've taken that global in the last two months and it really enables UH investment professionals to have the skills necessary to think about m E s G, incorporating them into their portfolio, security selection and meeting client meeting client needs. So that's one aspect of hang on. Is that another is that another year of study then or can c

f A perspectives earned both at the same time. Anybody can write it and you can do it concurrent, although UM I want to hear from those who are actually doing both at the same time and the tips and tricks that they're doing for it. UM. Anybody can write it. In fact, UM. The experience with the with it initially has been that it's a lot of non members and non charter holders that are writing it UM and that

really speaks to the very pervasive need for it. We had conducted a study UM of a million linked in profiles and in fact UM really less than eight thousand people out of a million had listed UM E s G skills and then we simultaneously did a look at ten thousand job postings and of that almost thirty we're looking for those types of skills. So we know out there that there is a real supply and demand gap and we think that the E s G Certificate does

a really fabulous job of meeting that. Margaret, I know, UH May eighteenth, the Alpha Summit is going to take place. You're gonna be part of that. Tell us about the summit and kind of what are some of the key topics you all plan to tackle there. Well, it's very exciting. This is our annual conference, which will be virtual this year for investment professionals around the globe. UM. There will be live conversations on a broad range of topics and

they're led by really change makers in the industry. So to just UM leverage off the conversation we just had, we had our we have our net zero carbon emissions conversation that will be with a panel of three but most notably Mary Robinson, the former Prime Minister from Ireland UH and Special Envoy to UM Special Envoy to the u N on Climate is going to be part of that conversation and in our preparation for it, one of the things she said was, this is the most important

year coming up to Cup twenty six in probably one of the most important moments in time for humankind UM. And so it's really getting the right people at the

table for those important topics. We have Shiro Mazzouno, who is UN Special Envoy on Innovative Finance and Sustainable Investment, and of course he's just come off of the UM the reformational Chief Investment Office for the world's largest pension plan UH, the Japan gp I F and a really provocative think are very vocal on how to implement portfolios with the climate aspect to it. We've got Michael Lewis speaking. Yeah. Yeah, so you know he speaks about every few years when

he's got a good provocative book out. He's articulate, he's entertaining, and he holds no punches at all when he is speaking to this particular audience because it's investment professionals and

capital allocators. Yeah. Absolutely, And we're starting to see Margaret Um issues pop up about compliance, know your customer again kind of we're starting to see almost great financial crisis style issues, not that that prevalent, of course, how important is that in the CFA And are there are there aspects of the tests that you have been emphasizing more

than others as as time goes on. Yeah, So I think, first of all, let me start by saying everything with the E with cf A really does center on ethical and fiduciary orientation. That is, putting your clients interests ahead of yourself and critically important to build and restore trust

within the system. UM. We do have, obviously, the cf A Charter program, which is foundational in nature and it changes with the time, so it's got about this close to UM of E s G ingrained, integrated throughout the program, derivative much more on the private client UM than, for instance,

many of us from years ago would have written. So you know, there's the practical application as well as foundational UM foundational knowledge, but our professional learning and much of our research and advocacy is becoming much more responsive to an accelerated UM changing nature between UM, social media, UH news strategies and things are incredibly important for people to

be thinking about. So it's been vocal on spack Uh products, and we're actually establishing a working group to provide input, for for instance, to this SEC who are also looking at this. And so those are things that can pop up very quickly that are meaningful where we think c f A Institute with its convening power and broad constituent group can add to that conversation. Margaret, thank you so much for joining us. We really appreciate it. Fascinating stuff.

Margaret Franklin's us the CEO of c f A Institute talking about sustainable investing e s G and how the c FA prepares folks for that. Thanks for listening to the Bloomberg Markets podcast. You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three on Fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio