Market And Tech Outlook For 2022

first of all, to you and Tailor. Happy new year. Thank you very much for having me on again. UM, so good news and bad news. Good news is that last year the stock market was up almost thirty on a total return basis. We've been up more than a hundred since the bottom of the market last March. Earnings last year probably up about fifty five zero percent year on year. UM, that's not the kind of year we're looking for In calendar to me too, earnings maybe will

be up eight percent year on year. We think we've seen as much multiple expansion as we're going to get, and we do expect that. You know, the bias in terms of interest rates and the Fed is higher. Um, So I don't think we're getting a multiple expansion. We've got a fifty three hundred target on the SMP five hundred are hundred call of course for last year, so that gives us, you know, roughly a ten percent move higher now is pretty good, uh, you know, uh, in

a normal year. But it's not you know, the thirty percent we saw last year, the percent we've seen over the last couple of years. So I guess what I'm saying is we need to mute our expectations a lot more volatility in our view in calendar twenty two. And that volatility, Phil, does it come from at least some of the surveys that Bloomberg has done, It is all about inflation less. So about COVID, how are you thinking about the volatility and the risks and where that stems from? Oh, Taylor,

that's a great question. Um. You know, when you look at COVID, maybe we've got a somewhat out of consensus view that we're looking at the you know, the cycles in South Africa, the cycles in the European Union, in the UK, and the cycles here in the United States, and we've got a view that that am Acron is going to peak here maybe you know, by the end of this month, uh, and become much less a big

deal uh than it's been over the last couple of months. Now, that's not to say that we don't know what the next variant is going to be. Is the next variant going to be more problematic than am acron? I don't know. But as we're looking at the financial markets, where we are a lot more concerned about what's going on with inflation and more precisely, what's going on with the federal reserves.

Likely response now while a lot of folks are on vacation, the government reported that the Core Personal Consumption Expenditure Index, which is the Fed's preferred measure of inflation, rose four point seven year on your basis in November. That that that's huge And and remember the FEDS target is two, where we're you know, will above that. So the FED, in our view, did the right thing in accelerating its tapering program. We think the taper is going to be

done by the end of March. We're expecting three quarter point rate hikes over the course of next year. But but suppose inflation is an even bigger problem than we think it is. Does that mean maybe the FED is going to shift from quantitative easing to quantitative tightening, shrinking its balance sheet, you know, aggressively. And and and maybe instead of quarter point rate hikes, maybe the FEDS thinking about fifty basis point rate hikes in order to sort

of catch up from behind the curve. I don't know the answer to those questions, but but that's part of the uncertain in the volatility that that potentially is in store for us over the course of calendar twenty two. All right, So given that backdrop, phil um, do I stick with the big growth names that have worked for me for more than a decade, the Apples, the Amazons of the world order, I stick with that cyclical trade. But boy, it's been really good over the last eighteen

twenty four months to whether it's energy or banks. How do I think about that? So? Uh, in our view, you stick with that cyclical trade, the value trade. And and to some degree there's a function of valuation that that forward multiples on the SMP five right now around you know, twenty times earnings, give or take, which is which is high? But I'm not losing any sleep over it. But when you look at the growthier names, technology, et cetera.

Those p's are up in the mid thirties. You look at the value names UH Financials, Energy, UH discretionary, UH materials, industrials multiples in on those sectors in the mid teens. Yet the pricing power and the outsized earnings gains, in our view, are going to come from those value categories. So as we look at where to invest, where do you put new money in calendar twenty two, I think there are three places we're focused on. Number one, domestic

large cap value and we just covered that. Number two small cap, particularly on a growth adjusted basis, those valuations are very cheap. And then finally, international international is extraordinarily chief versus the domestic um. If we're right that am aquana is, we're going to roll over here, you know, and let's call it the first quarter of the year. There's gonna be a cancerup training International. It's gonna start at some point during the year. Yeah, all right, Phil,

thanks so much for joining us. Really appreciate getting your thoughts as usual, always giving us some cogent thoughts as we take a look at these markets. Are Phil Orlando, Chief equity market Strategists and head of client portfolio management at Federated Herme's you know what, I think? That six billion assets under management, so they know a thing or two about these markets. So I've been saying to myself at least and maybe even to the audience here, why

isn't a ten year yield higher? I mean, I got the Federal Reserve talking about accelerating tapering at talking about raising rates next year, and you know, average Jersey from Bloomberg Intelligence said, just focus on the two years you are seeing that go up. The tenure will follow. Well, maybe it is following a little bit here today up about eight basis points, but let's bring in an expert who can really answer this question. Prea Misra, Managing director

and global head of rate strategy at TV Securities. So we're seeing a move up in a tenure today. This feels like what I should have been seeing all along. How do you? How are you thinking about this yield curve? Here? As we enter two hi fause thanks for having me so um Yes, I think a big puzzle for us

last year was why the long end rallied. I mean, I can see why the fronting should have moved the most, as hikes will getting priced in UM, but the long end, even a faster taper, it was just rock solid and actually lower rates. And so today it could be a little bit of catchup. I think also with the rise in omicron but hospitalization staying low. You know, I think there's a general hope perhaps that the pandemic is moving to an endemic state. Risk assets are doing well, so

today might be more catch up. We have a lot of data this week and I'll be watching the ice and services data particularly to see if there's any impact of omicron on that UM as well as of course we have payrolls and the minutes, and that's where I think another reason why the long end might sell off, as if they talk about balance sheet run off. I think that they clearly discussed it in that December meeting, and we think the minutes will have more in terms

of when do they start that. I think that's much more bearish for the long end of the curve. So we are looking for the tenure to reach two percent by your end. You know, there's no clear catalyst today. I think it's just more a catch up. Why did that started? The longer term catalyst as well as you're thinking about inflation, right you know, with the inflation, the issue is which part of the curve gets impacted depends

really on the FED reaction function. So far, it's been the front end that's been responding to inflation, because you know, the FED was responding through sooner hikes um. But if it seems as if the Freed is more cautious, and

that's why I would look at the growth side. If the growth momentum starts to slow down, perhaps due to omicron or phiscal drag, we're very nervous about the expiration of the Child Act credit and other impact on the consumer, then I think the long end can start to respond to inflation, because then you should get paid up more to take on inflation risk if you're buying the tenure.

But in the near term, as the FED hiking cycle is very much front and center, I think the front end is more inflation driven than the very long end by background, and so I'm not very sure I'm getting all the nuances from this feder Reserve, but it seems like the Federal Reserve is doing a very good job at telegraphing and messaging what they plan to do in two is that your take as well. Are you concerned that maybe they could make a mistake here in terms of maybe the pace or the rate at which they

raise rates. Right, So, I think the market is pricing in a risk of a policy mistake because even though the start of the hiking cycle is well priced, you know, to your point, the Fed is telegraphed to hike this year, and the markets now pricing in May of this year, first hike, three hikes this year. It's really the endpoint and the piece of hikes after this year that the

market is really underpricing what the fret is messaging. So either the markets calling the Fed's bluff that they won't be able to raise rates that much, or it's an idea of a policy mistake that they slow the economy down and therefore they will either have to cut rates or not be able to raise rates. So, you know, I think they've been able to telegraph the near term, but it's really how much are they going to raise rates?

How much are they gonna hike next year and the year after, And this is where I think there is uncertainty both from the economic out look as well as the FED reaction function. We're going to have new FED governors, three new FED governors most likely getting added to the voting members this year, and that could also shift the dynamic into next year. So that's why I think the market is has a disconnect with what the FED is communicating.

When you think about some of the near term policies, how much are you thinking about a move in March if March is a live meeting or are we looking at a federal reserve with a very very clear distinction between ending the taper and then a timeline before that

we get to the right height. So before the Army cron surge, I was thinking March could be a live meeting because they're already communicated the end of tapering and they could turn around and hike right away because they have very clear um, you know, conditions that have to be meant to hike. I would say, with the Army cron surge, and you know we are asking frictions in the travel industry, in leisure, I would argue service consumption is going to be a bit slow at least to

start the year off. I think the FED, or or our view is that that March meeting is not really live, that the FED will want to retain optionality, flexibility, stress, on uncertainty and therefore just wait for the data after the omicron spike is behind us in the US, which is probably only by the end of the first quarter for the country, so which is why we think it's more in the second quarter that they can evaluate how much did domicron impact growth and whether their conditions to hike,

which is both inflation and on the labor market, whether those are met. So that's why we're looking for the first hike only in June. Um But I would say that it's really a function on of how the economy shows down. All right, prea, thank you so much for joining us yet again, Pa Miserable, Managing director and Global head of rate Strategy at t D Securities. Otherwise on as Toronto Dominion. Did you know that I did? I did know that. Okay, there shortening up these names, trying

to get a little bit cuter, I guess. But teacher Curities there premus record. Well, we've got markets at or near all time high. So when I was in my investment banking days, I would just tailor pick up the phone and call my clients and say, Hey, your stocks in an all time high. Let's go issue some stock. How how creative was that? How was that? Is that adding value or not? You know so? But the question is and a lot of those phone calls were made in one and the question is what do we do

here in two? Um, let's bring in our next guess he's got some thoughts here he's going to share with us. Greg Flasnik, CEO of m Z North America. Greg, thanks so much for joining us here again. A good, great, slash really lucrative year for I p O slash spank

spack bankers in twenty one, how about two? Yeah? You know, I think you know, two thousand twenty one was a record year for I p O s And I think if you look back at the beginning twenty one, you know, the start of COVID vaccines were rolling out, at global rebound of economies, We've seen a lot of liquidity accelerated by government stimulus and and all of this has resulted in quite a bit of optimism for the global IPO

market um with with investor sentiment at peak UM. But I think if you look at you know, the next year, the year where now I guess two thousand twenty two, Um, you know, I feel that that momentum should continue at least into the first quarter of twenty two. I think that the spack vehicle is is um a great way of our companies to go public, and I think it's something that's here to stay. It certainly doesn't have the kind of risk that investors perceived, you know, maybe ten

years ago. UM. And I think you know, if you if you look at the back market in twenty one, there was a lot of this bad of celebrities back sponsors, right, So I think you're gonna see less of this um and more from the serial spack sponsors sponsors eventually, but in the near term pullback from the serial spack sponsors, allowing what's already in the market. They're they're waiting for time to source and executed transaction UM as we are

seeing a prolonged the spack process. So UM. You know what I mean by that is, you know, it could be completed in the little or three months, it's now taken closer to six months on average um UM. But but I think you know, for I p O candidates, undoubtedly they're up against some higher market volatility and and I just think it's important to remain flexible with with companies capital raising plans um in the event in I p O timeline is the way due to a shift

in market conditions. But bottom line, I think high valuations and market liquidity are going to keep the I p O market hop as um we worked in the two twenty two and as Paul mentioned, you know, good for these companies taking advantage of some of these high valuations, but for investors maybe not so much. I'm taking a look at our spack index in our I p O index both ridden down. We have a speck index we do it is the I p O X Stack Index.

Very cool. Spack index go on the terminal. Those were down last year ten relative to the SMP which is up. So how do investors start to perhaps maybe differentiate or start to be more discerning with what stacks or what

I p O s they should be in. That's right, and I think there there was a time where, you know, we saw that again the the investor sentiment, the rise of the retail investor, where you know, in my business, I saw you know, people just basically buying anything that was an I p O or anything that was back,

and certainly that is in a winning strategy. So I think just just having discipline in your investment criteria and deciding kind of what you know, really what you know, what is meaningful to you, and what you think ultimately would work. But um, you know, there is going to be a lot of annoys. There's always going to be

winners and losers. And I think, just especially as it were ways to the retail investor, typically we see the sort of work best where people kind of have some sort of uh, I guess relation to the company about going public. I mean, what does it do for me? Why can I relate to this? Hey, Greg, thanks so much for joining us. I really appreciated getting your thoughts here on the new issue market. I p o S

SPACs markets all time high. I'd be making a phone call to my clients saying, let's push some stock out the dork. Greg Lasnick, CEO of m Z North America looking at Tesla today to stocks up over ten it sounds like they're actually or looks like they're actually pretty good at making this, making these cars, that it's not just a tech story anymore. But let's bring in Dan Eys because he's been very bullish on Tesla and Tech

and he's been very right. Dan Eyes, managing director and senior equity analysts for web Bush Securities, also a product of Happy Valley. Uh Dan, thanks so much for joining us here. So it turns out Tesla was how to make a lot of cars, don't they And they know how to make them despite the chip shortage. I think

that Paul I didn't. That's the big day. I mean, the chip shortage probably took thirty thirty five cars off the quarter, So you start to add those, you're looking at something close to three and did this was it was a trophy keys quarter for Tessa in terms of what we're seeing demand and a lot of it's China. I mean, we think China loans worth about five hundred dollars per shared of the story in terms of everything

we're seeing going in two thousand twenty two. Interesting when we talk about this, where is Tesla relative to some of the other competitors, Because you've talked a lot about some of the other big tech companies coming in maybe being able to compete, But who is a Tesla competitor at this point? Yeah, I mean tell it's a great question because the competition now is starting to expand, not just some auto players, but even technologies and We expect Apple to get into the e V game over the

next few years. I think Amazon, Google and others because it's a five trillion dollar green tidalwing. But when you look at the core competitors or Tesla, it's really Ford GM in the US, and then of course VW and Europe and in China you've got Neo x Pinion others. But it's important because you look at the scale that they have, it's unmatched, and I think that's something that

still is underappreciated by the street. Once you get Berlin in Austin and they'll have capacity of over two million units going in two thousand twenty two, Dan, how do you think Tesla wants to position itself from a marketing perspective? Once we have the vw is and the Fords and the gms, you know, with a full array of e vs,

how does Tesla want to position themselves in this marketplace? Yeah, I mean they definitely were on the high end as we saw the sn X. But but but the core winchpin to Tesla growth is going to be in that forty to fifty k range with probably additional software on on top of that. It's a cachet that they've built, remember without any formal marketing, because Tessa has become synonymous with EVS and a lot of that is related to Musk and everything that him and the team have built.

And no doubt competition is going to significantly increase. But what's important today, I mean E d S is still only three automobiles in the world when that goes at ten by two thousand and for test of the big opportunity now they can get card into consumer's hands. That is ultimately the key, and it's something where the average consumer when they look at EVS, they're looking why should I not buy a Tesla? And I think that's something they put themselves into the same situation as the Apple

when it comes to iPhone. Are you talking about the US consumer or increasingly a Chinese consumer, Well, the China is the winchpin. That's the key to the bull thesis. I mean China, we can that would be about four percent plus deliveries for testing two thousand twenty two. And that's why China is so key because also the profitability on these vehicles. Now test is a profitable story. They can have thirty dollars earnings, how about two? Wow? That

is China driven. And if it sounds familiar because that company and Cupertino, what's been a key part of their growth. It's China for Apple. So you look at what Apple and Teslam and Musk is really taking a playbook out of Apple. Dan, I'm looking at the Bloomberg Ternel right now. They a and our function an analyst recommendation. Of course, we have an apperform rating on the stock and I see a fourteen hundred price target. What's the catalyst to

get us from you know, eleven sixty six here too? Well, I think the key catalyst is as we get into the earnings season over the next call at three or four weeks, it's really must talk about chip shortage because if chip short just starting to moderate, which we believe it is, then all of a Sudden's street numbers and they could go up two h thousand units, you know for the year. That means profitability could be up thirty relative to what the streets modeling. That's a cattle. The

second catalyst is around battery technology. That's a big part of their mood. I think improvements they are specifically on costs side or significant to the Tesla story, and I think those are some of the catalyst. We'll have some white knuckle periods that we always do, and there's always gonna be some side circuits shows. But if you look at the fundamentals, that's really what I think stood out When you look at what Tesla din is que for. Take us outside Tesla as well other big tech because

you cover it all. What are you looking for to be one of the best performers or a better stock from a fundamental basis as we head into this year. Yeah, I mean, we could talk about fed raising rates, risk off valuation until it blue in the face, but it comes down to the dynamic streets, underestimating his growth. And know why that growth I think is in software and cyber security. You look at names of software besides just Microsoft, which you know, I think will be a three trillion

dollar mark AP two thousand twenty two. You know, I look at some of these names in terms of cyber secure names like g Scale or Tenable, pow Out though among others. I think you also gonna have a lot more m n A with the cloud cyber security, and that's why you can't lump them all into the same bucket. Work from home e commerce, you'll start to see some

of the frost come on. When you look at Cloud, cyber Security five and some of the core names like Apple, the spending is actually accelerating, not decelert And that's the important Dan. You mentioned Coupertino, So I gotta ask you for your call for Apple. Look, I mean for Apple, it's right now we're about twelve million demand outstrip and supply and units. Because of the shortage that that holds me alongates the March in June growth that will see

for Apple. I still think this is an iPhone cycle. Underest my aby the street it would be too forty million units for the year. And then I think they finally released Apple Glass by the summer that could add twenty hours per share the air of your headset. And I think Apples one where it's all about monetization, and we think the services business saloon is worth one point

five trillion. That continues to be the rerating. Like we've said, Paul, they hate, They hated a trillion, despised two trillions, and they're just screaming at three trillion. What caters will hate it is what it is, all right, Dan, What we love about you, consistent and with great conviction on your calls. We appreciate that and appreciate getting your time. Dan ives he's a managing director senior equity analysts at Wedbush Security,

is proud alumnus of the Penn State University. I wrote a lot of tuition checks the pen Penn State University, so I have a particular affinity, uh for there. But Dan has been not just really good here on this Tesla story. Uh, and it's really been amazing to watch it. Just the tech analysts get it. The auto analysts by and large have not historically but really shown that they can make a lot of cars there. Thanks for listening

to the Bloomberg Markets podcast. You can subscribe and listen to interviews with Apple Podcasts or whatever podcast platform you prefer. I'm Matt Miller. I'm on Twitter at Matt Miller three. Put on fall Sweeney I'm on Twitter at pt Sweeney. Before the podcast. You can always catch us worldwide at Bloomberg Radio.