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But we're also going to talk about jobs and the economic fundamentals and all that fun stuff. And for that, Michael McKee is joining us. Bloomberg Economics. No, you're not Bloomberg Economics. What your policy correspondent?
Well, economics.
It is a.
Title like that's the.
Thing red Sox analysts for I mean there's that too.
I gotta ask, are you surprised about the depth of the reaction, like people trying to talk about a fifty bases point cut in September, terminal rates being revised, lower the bond rally.
I don't.
I don't ever get surprised by market reactions. I love it said this. I've said this before and I'll say it again. The fat has a reaction function. The markets have an overreaction function, and they always go too far, too fast, and then they come back a little bit to sanity at some point. Because you get a hurt instinct when some kind of news breaks and the markets were leaning towards a bad report, and so this just you know, pushed them in a direction they already wanted
to go. And I'll leave it to smarter people like just to tell you why they want to do that, but and whether or not lower rates are going to be good for equities or not. But at this point, I think it's today you just kind of look past what happened in the markets, and Monday.
You come back.
Can't do that, this is the fun part for us.
But go ahead, well Monday, Monday, you come in and you start thinking about what does this mean for the overall economy. I'm telling everybody takes Saturday and Sunday just.
Well.
Have actually Austin Goulsby will be on Bloomberg Television noon. I believe that's on our Eco go page here. So when it comes to someone like that, who's obviously on the federal reserve, what are you looking to potentially hear from him? And what do you want to kind of gauge here now coming out of obviously the Fed decision, and because he at the beginning of July, he was kind of one of the first people that really, we know he's dubbish, but he started indicating that he felt
like cuts were coming pretty soon. Yeah.
Well, the chairman was very certain during his news conference that everybody was in agreement that they should pause, and I'm wondering if that's exactly true or if he was maybe seeing what he wanted to see. And obviously, the market is saying today that the FED made a mistake, So do they think how do they defend themselves to the idea of a mistake? And does this lock in September? And obviously what do they think of a fifty basis point.
I don't think it's something that they want to do, so I don't think that'll be a big deal.
I mean, I know that the markets overreact and the FED onder I get all that, But if the market has to price in a fifty bases point cut or even an intermeting cut, then the FED has the enviable job of having to walk back expectations to kind of get that out of the market.
How did they do that when they also have to acknowledge like things are going to beeker.
That's why they don't want to do that. They they wouldn't do an intermeding cut unless there was some real collapse in the economy. And we did get one hundred and fourteen thousand jobs. It's what the Fed had been looking for. They'd been looking for a more gradual ratchet down. This was a fairly dramatic move, but it's not out of It's not an abnormal result for the economy. And the unemployment rate is four point three percent and that's
still historically low. So yes, things deteriorated, perhaps more quickly than they anticipated, but they're not going to panic at this point.
Okay, Mike, Actually stay with us, Hank tight for this segment, we're going to bring in Jonny Bailey. She's chief workforce analyst at employee Bridge, joining us now from Florida. Jony, give us your take on the numbers, Like they weren't terrible. I understand the job market's slowing, but what's your take.
If you can see that we have a cooling job market, you know, and it's been coming for some time, you know, over the last really even eighteen months. Most of the job growth has been in the healthcare sector, in the government sector.
And in leisure and hospitality.
But there's been many sectors that haven't been adding that robust job growth. Manufacturing, professional business services has been struggling. The temporary help sector has really been struggling. So I think we're seeing more of the same. But this report showed some signs of real weakening when you look at the unemployment numbers. That is certainly what concerns me the most.
That we tipped up to four point three percent. We're up to seven point one million unemployed people in the United States and right now, I can't tell you that that's going to change very quickly. I think we're going to see more of that for the rest of this year.
What if any When it comes to inflationary costs or driving people to go back into the workforce.
Oh, I think you are spot on when it comes to that. We are seeing people enter back into the workforce, so that that is a good sign. Even labor participation tipped up to sixty two point seven percent, so people are coming back. They have to come back to work, and that is due to inflationationary costs. You know, we're seeing people not only you know, need both parents maybe to work in a family, but some taking second jobs, looking for part time work or maybe gig work to
kind of supplement their incomes. So yes, unemployment will continue to grow as we start to see more people participating in the overall workforce. And unfortunately, job openings are starting to decline month over month. I think we're down to about eight point one million job openings and now we have seven point one million unemployed workers. So you know, there's still more jobs than there are unemployed people, but that gap is really narrowing, and it could reverse that.
We will have more unemployed people than we do have open jobs in the US in the next couple months.
One thing we saw in the report today that would be ordinarily even a red flag is a drop in temporary health services hiring. Basically, are you finding that companies don't want to add anybody at this point?
Yes, you know, unfortunately the temporary help sector has been hit the hardest over the last two years.
We've been seeing declines.
In you know, job growth for gosh, I think since March of twenty twenty two, so again this month is concerning. There was a loss of twenty two thousand jobs in this sector, and you know, it really points to employers are going to let their temporary workers go first and try to hold on to their permanent staff before they need to lay them off, and it has a profound impact on the overall temporary health industry. Has been a softness across the board. Certainly, I see it at Employee Bridge.
I'm also the chair of the board for the American Staffing Association, and I can tell you the entire industry is feeling it across the board.
We're hopeful, you know.
As we look at coming into the holiday and the peak season, that employers are going to start adding to their payrolls and hopefully twenty twenty five is a much better year, but it would point to a challenging economic climate right now and certainly concerns because employers are not adding temporary workers, you know, to their payrolls.
Where are we still seeing bright spots within the labor force?
Jny, Well, you know, bright spots, I will say, can still be in that healthcare sector. There's a tremendous amount of job growth in healthcare and I expect those trends to continue.
You know, we have been seeing construction jobs start to come back, and.
If you look at the horizon, I do expect that we will see a resurgence in manufacturing. We're just not seeing that right now, but many plants are being you know built across the country and those jobs will come back in the US. I also think if you look at the breakdown of unemployment, certainly having education, college degree, you know, put you in a much better position.
My concern in this.
Month's report was actually those lower wage jobs, you know, really not coming back and being eliminated. And when you look at unemployment, we saw the largest jump in unemployment in twenty five years of age and older. For individuals that have not completed their high school diploma. It went almost it went up almost a full point. We saw that up to six point seven percent. So those low
wage jobs are certainly being impacted. College degree it's still down to about three and a half percent unemployment, so certainly lower than that four point three percent, So education skills experience, those jobs are still out there and in demand.
Is this something the situation we have now with employment that a FED rate cut is going to fix?
It will certainly help, you know.
I think most employers right now are being very focused on you know, cost containment and where they're investing, and with where interest rates are right now, you know, their
purse strings are just a bit tighter. So when when we talk to our customers at employee Bridge and certainly employers across the board, you know, they are saying that they are waiting, you know, for the FED to cut rights and that they're hopeful that when that happens, things will start to pick up and they will start to make those hiring decisions.
Again and move forward.
So I would say, from everything we're hearing on the front lines, yes, that will help.
You know, Jenny willly have about twenty seconds left. But we've seen when it comes to women in entering the labor force coming out of COVID, it's been a bit of a struggle, more so compared to prior to that.
But what do we sing on that front?
Yeah, you know, I think that there's more flexibility for women in the workforce right now than there's probably ever been before. Employers want to hire, you know, a device workforce, they want women to come back, and they're offering more flexibility. So options are out there, and I do think we're seeing women enter back as well.
Great to hear Jenny Bailey, chief Work Analysts here and apparently the chair of the American Staffing Association. Of course, Mike McKee over our own at Bloomberg.
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Intelligence Radio, Alex Steele, Paul Sweeny's off on the beach just mentioned is here, as well as John Tucker. Yeah, we haven't seen those chunky moves in the bond market in the front end since guess when, oh twenty twenty three March, the less VB action there, So let's for a perspective on like the type of sort of panic buying if you will, coming into the front end.
Also, the Atlanta Fed GDP now for the third quarter coming in around two and a half percent, and then the ECFS you function in the terminot's where you can see the economic forecast for GDP annually as well as quarter over quarter, still seeing strong growth here. So I know people are potentially spooked by this job number coming in below one hundred and fifty thousand, But again, when you're looking at some of the economic projections here, still pretty strong growth here overall for the US.
It's such a good perspective, which begs the question, then when you have a sell off that's triggered by that growth scare, what do you do then when the underlying data is still okay? Well Matt Stuckey is chief portfolio manager of equities at Northwestern a mutual Wealth Management and he joins US now, So to that point, when you see the NASDAC off three percent, do you buy the dip?
Well, good morning, thanks for having me. Look, I think before you rush into any kind of buying and selling activity on a day like today, revisiting kind of where you're at from a risk allocation is probably where you need to start. And so if your way underweight risk assets,
maybe today's a better entry point. But again, I think it's it's important to always kind of center whatever trading activity you make based on kind of your long term risk tolerance, because that's likely to be tested in the coming months.
So how are you advising clients to position? What are you suggesting that they buy? What are you suggesting that they sell? When it comes to equities.
With inequities, Look, I mean we we have been somewhat vocal about our concern about concentration building in the S and P for the last year or so, and and to kind of counteract a little bit of that growing risk, you know, we've recommended clients kind of use a little bit of a value tilt within their portfolio in the S and P space, maybe an equal weighted exposure as
well to mix in some diversification. You know, we also have been somewhat positive about the optionality that we think exists in US small caps and midcaps, where you know, from evaluation perspective prior to July, you know, things were fairly compressed and dislocated versus the S and P, and we thought it could work in a variety of economic outcomes, one being a mild recession which kind of catalyzes some aggressive FED rate cuts, or you know, a soft landing
scenario which still allows the FED to cut maybe just by less that broadens out the economic participation into its economy.
You know.
At this point now, though, you know, I think we got to have longer term horizon for that to play out, because it does look like incrementally the labor market is accelerat to the downside, and we're likely to be in some chocolate of waters here for the next few months.
So you mentioned the Russell, and now we're looking at the Rustle down over four percent. We haven't seen this kind of slide since June of twenty twenty two.
I mean, I appreciate that it's looking for value. Is interesting. How do you manage? Then we had a minor run up.
And then here we are down again, the most in two years.
Well, you know, we're talking about our within equity allocation. I think it's important for your listeners to understand that within the global context of our portfolios, our aggregate equity position has been underweight with a preference for high quality fixed income, and so we're thinking about a little bit of offense in that part of the equity portfolio because we have a defensive position in fixed income, which is in a day like today, you know, really proving it's
worth from a diversification perspective. So, you know, our message to CLI clients on days like today is that this is likely to be the environment we deal with for the next few months of volatility back and forth, especially in areas like small caps, which not only have higher cyclicality, but also higher beta associated with them.
Matt.
Something I'm curious about is whether or not, especially because PAL did signal that rate cuts could come as soon
as that September eighteenth rate decision here. But Bank of America actually had some interesting data that they put in their flow show for Michael Hartnett this morning, where the S and P five hundred has advanced more than thirty percent in the past nine months, compared to an average gain of just two percent and a dozen prior occasions since nineteen seventy nine leading up to a first rate cut.
So I'm kind of wondering when you have such a big run like that in risk assets, how much of that was they sell the news, especially because of small caps, and that run up to what FED was signaling there, Matt.
You know, I thinking through kind of prior cycles and kind of connecting that to what the FED has been doing. Look, it's not uncommon prior to the first rate cut for for markets to corrally and make new all time highs. However, to your point earlier about you know, the sell the
news kind of message here. You know, rate cuts when they happen for you know, a response to a decline macroeconomic situation which looks like you know, indeed, if it starts in September, that's what the FED is going to be using as the rationale have a very different equity outcome versus rate cuts that are company with the soft landing, and so we'll have to wait and see which economic outcome we get, but it certainly kind of ratchets up the risk profile and the skew of outcomes if we've
had so much for a run up into that first cut, And from my perspective, it is somewhat of evaluation driven rebalance there.
When you mentioned fixed income, where on the curve do you think still provides the most value on a price appreciateciation basis?
Sure, I mean this is kind of the more recent kind of area that we've changed our fixed income allocation. You know, for the last four or five years, we've been under rate duration wise. During twenty twenty three, we moved our duration back into kind of alignment with the Bloomberg Barclays Act in between that you know, five and six kind of year range, and most recently a couple of months ago, we extended even further to an access
duration position in our fixed income portfolios. With a very high credit rating of double a plus in that position. And we accomplish that just with a small position in TLT in our model portfolios, which moved our duration out
a year or so. And you know, the thought there is is that, you know, as the Fed is starting to ease policy, as inflation is less of a headwind to fixed income pricing, you know, this is a position that's a really nice diversify in an environment like we're dealing with today.
All Right, Matt, thanks so much for joining us. The great getting your perspective, especially on a volatile day like today. So Matt Stucky, chief portfolio manager and of equities at Northwestern Mutual Wealth Management, joining us on zoom from Milwaukee, Wisconsin.
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So let's get to the economic part of this.
Bill Lee is chief economist in Milkan Institute and he is joining us. Now, Hi, Bill, the market is taking this job. Support is like a total disaster, like a complete growth scare, is that the right way of looking at it.
I spend my entire career warning people not to overreact to one data point, and it looks like the markets that continuing to do that market is never disappointed and always overreacting in right now, all I can say is that how can you have a recession when the entrepreneur rate is between four and four and a half, which most people think is where the natural rate is supposed to be.
The second thing is that the.
Numbers are showing that the unapployment rate has gone up because the labor force has grown more than the population. The layoffs are starting to mount up this month, but this is the first month of layoffs that we've seen, So for me, I think the recession calls and your fears in the markets are way overreaction.
And I'm glad you brought that up, Bill, because Alex and I earlier were talking about the latest alien fed GDP NOW number for the third carter coming in at two and a half percent, and as you know that those numbers can be volatile, but still, when you're looking at kind of the trajector you're here for, economic growth still looks pretty solid when you're talking about the dynamics within the labor market and particularly the participation rate.
How much does that plan into.
Especially when you see a number drop like that, as far as who's coming into the workforce and who's leaving it, that's.
Really critical, Jess, And I'm glad you brought that up, because as much as people point to the SAM rule and the unopplanneer rate rising as being a recession indicator, a lot of indicators and historical relationships like that have just not worked so well long as the you'll curb been inverted, for example, and people have said, oh my god, that's always a good indicator that in a receect. So so I think we have to look at carefully at
that composition of the labor force. And what we see is that immigration and other factors have and people just wanted to work now because it's easier to get to work uh, and there are more jobs readily available, so people are encouraged to participate and try to try to try to get more jobs.
Now.
The bad part about this is that consumers have been spending like crazy, as we know, uh, and savings rates have been dropping. Now the rich people have been dipping into savings. But you know, median worker and the lower half the population have really been resilting to a lot of credit in order to make ends meet, and and and part of that making ends meet is getting a second and third job, because most jobs that are available right now are leisure, hospitality, and sectors in the economy
where they just just aren't that high. So for me, the real problem out there is the growing bifurcation in the population of rich and poor. And I think we're going to start to see more and more of that as we go toward the election.
I mean, yeah, that shape recovery. Your economy just keeps getting more ca shaped. Your old Alma mater a city group I came out with their call. It's one hundred and twenty five basis points for this year in terms of cuts fifteen and September fifteen, November twenty five for December. That feels like one of the more dubvish calls out there. Do you think that's an economy that needs that kind of move?
Well, I'm glad we're not there anymore because the need to attract client attention is something that I don't need to worry about anymore. And I feel sorry for Andrew Hollendhorse, who's still in the business of trying to distinguish themselves from every other economists out there. I think that's a bit overboard from my experience at the FED. I think the reaction at the Board and among all the district banks,
they'll be saying, you know, we're normalizing the economy. The need for large number of rate increases is really not there, and if we were to do it, it would signal to the markets that there's some thing to really worry about and that we're panicking. And the need to panic right now is avoiding the impression of panicking right now is at the paramount for the FED.
So I think we're going to see twenty.
Five basis points in September, and maybe if the data continue to deteriorate like this, they'll talk about a more continued set of rate increases and probably hint at three. But if the data starts to turn around a bit and stabilize and normalize and we don't see an acceleration in the worstening, I think they're going to say, you know, possibly too.
Where do you see average job growth coming in over the next twelve months? With the expectations that the FED is going to begin its rate cutting cycle.
Yeah.
I think when we look at where the payrolls are weakening, it's exactly in those sectors where the FED wants it to weaken, the intrasensitive sectors. In fact, one surprising part of the numbers is how strong construction continues to be. But I think the FED is going to start saying, if we are successful in normalizing interest rates and normalizing the economy, we'll see payrolls and household employment growth somewhere in the one hundred thousand, tw one hundred and twenty thousand range.
That's normal.
And so everything we've seen up until now at the two hundred level is way above normal and not sustainable.
Here's my broad question. Also, how it relates to tech.
Hyper scalers are spending gazillions of dollars that's a technical term in terms of spending for AI. Can we have a meaningfully weaker economy with that kind of capac spend?
Great point, because as we see in the numbers this month, one of the surprising sources of job of job decline payroll decline is in information systems. Now, fortunately, most of that almost half of that is because of broadcasting and
newspapers and publishing. But there is a component that talks about where the hyperscalers are and that also shows a small set of job the payroll declines, and I think what we're seeing is that companies are having to rationalize their finances and to say, if we're going to spend a lot on capex, that means that we're using capital, AI and other types of innovations to substitute for labor,
and especially labor that's very expensive labor. So right now, if you don't have the right skill set in the IT high tech industry, your jobs are on the line because you can have to prove to the employer that you're you're going to be a value added producer going forward in a world where AI threatens to take over a lot of the skilled jobs, skilled jobs like you know, entry level programmers, where software itself is being written by the AI software that's being installed.
So with Jackson Hole obviously coming up at the end of this month, so we'll have a lot of different FED speakers between now and then in LX a few weeks.
I know Alex is excited about that obviously. That September eighteenth, decision.
Being the next meeting for the Federal Reserve WIL to decide on rate cut expectations. But how many rate cuts are you really forecasting, either for this year or over the next twelve months, Because, like we've been talking about so much, Alex and I, the economy is still strong.
I mean, it doesn't seem like this is going to necessarily need to be an aggressive rate cutting cycle like something you would have seen during the pandemic or the Great Financial Crisis or coming out of the dot com bubble bursting here with the economic growth still pretty sturdy here, So what are you for seeing here?
That's a great question, because I think the real boat onus, on shairpal Now is at Jackson Hole to calm Lamarks and say we're not in a recession, we're not panicking.
We are in a normalizing situation.
That has to be as primary message, and in doing so he will try to hint more at the expect two cuts possibly three for the rest of this year, and nowhere near the levels of fifty pace points initially, and we'll front loaded with two the COVID of two cuts, and we'll have to continue with two more for the.
Rest of the year.
That would be the wrong message to said, because right now markets are way over excited about the possibility of recession. I think his job in Jackson Hall will be calm to the markets and calm expectations, and to restore a sense of historical perspective as to what is normal and what is a normal FED reaction to what's going on, which is moderating interest rates because they are restricted right now, there's no question, But we don't need to panic and cut them so aggressively.
All right, Bill, we appreciate it was great to talk to you again. It's been a while for me, Bill, the chief economist at Milk and Institute.
Really good to get that perspective.
So sort of walking that tightrope then of having to work back some expectations now for more FED cuts, but keep showing that the economy does need a little bit of support. That is another kind of tight rope balancing that the Fed's going to have to do over the next few weeks.
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This is Bloomberg Intelligence Radio.
We bring you all the top news in business and finance and economics, and we are live from Interactive Broker Studio right here in Midtown Manhattan. Also check us out on YouTube. All right, you just heard a market check there. It is ugly out there. I go back to Cameron christ Macroman. He writes her Bloomberg that says, who's going to save the market?
Help me be one? You're my only hope.
Who's the only hope? Is it going to be Nvidia? Is it going to be Powell? Is it something else? Ben Emmons is chief investment officer and founder at fed Watch Advisors. He joins us, Now, Ben, what saves the market?
Yeah, it would be the feth if I say feed Watch Advisors, because you know, this is clearly a Loucal for fifty basis boys right now, right because of this week Bayrold data. Then again, you know, drilling the report, it's a lot about technology jobs. I guess this is what Powell really said. It's like the leags are showing up in the economy, right. The variable lags of policy and technology gets hit but at the most and guess what,
that's social down the most today in the market. So I think alex is a fifty base boy cut that the FED would have to deliver. Of course it's not going to do it, but I do think that this report sets us up for the September media for sure, as Powell's sort of signaled it, so Marcus will eventually rebound from this. It looks like to me it was obviously overshooting to the downstrom both yields and stars, and.
Especially coming off the back as you know, beIN from how signaling that those rate cuts are coming as soon as a September Here, I mean, how much of this really changed from the last forty eight hours, because obviously
we did get that manufacturing data yesterday. Of course we had the jobs dated this morning, but we already saw this decline really ramping up yesterday after a huge balance at a huge rally with the NASDAC up around three percent on Wednesday, and obviously the S and P five hundred posting it's best FED day in about two years here, So how much of this is kind of like a re rotation here moving into other corners of the market when you had speculative areas like small caps really get
ahead of themselves, especially in July and now moving maybe toward these kind of divid in paying corners of the market here.
Yeah, I think it's totally right. Yes, you know, there's a really nice rotation function on the Boombook terminal that shows exactly that you see precisely deportation playing out the sextici you described. So it is also about that people look at this like, you know, there's an election playing out here too. You know, Harris catching up really quick to Trump in the polls, raising a lot of money.
So the Trump trade that's fading, and that Trump trade was very associated with small caps against the backdrop of an economy that's just softening. I don't think this is the two thousand and seven suddenly we're in a recession moments right with the back then the idea, But I do think the yuk of steepening indicates, yeah, the eclumns on a much slower path and you're getting lower payrolls. And you know, small caps don't do that great initially
on that type of news. So there's a combination of two. I think that rotation will continue. That's why I think that the shell of the tech stocks is probably getting overshot to the downside, makes these stocks over sold, and that's why I think you can expect the rebound coming in once they settle out there.
When you mentioned this is a clear call for the FED to cut like right now, gun calls for fifty basis points now from City JP Morgan, you also mentioned that, I guess my dumb question here is why.
I mean, I understand that the report wasn't great.
There's obviously you can look at some potential seasonality, like the permanently unemployed people. A lot of them are temporary unemployed. In terms of the overall number. You could also make an argument there is a weather factor, even though I understand some of the headlines showed no, but why the urgency?
Yeah, And that's the puzzle of it. Alex like to know why that sentiment shifts suddenly. But I think that people are looking at maybe the accumulation of data and so claims are steadily rising, The full we gaverage is steadily rising. We're closer to that Zamble trigger, not exactly. You know, Mike and kea at a nice spreadsheet this morning on the show, and it says like you're just
a tenth of whatever percent away from that trigger. But I think that's that it's a psychology ultimately, even the Poul says that that rule is just a statistical measure, nothing else. So it's psychology here that plays a role. And you know, ultimately it's about like the fat can really cut rates one and it could move more of
the restriction. And if you're drill the reports, you say, there's definitely reasons why you don't have to cut with like slashing rates because espaceally, you also have strong job gains in healthcare and construction and financial activity and leisure, which which have been engines of growth in the economy the last several years. So that's not by the weakness systems really the technology jobs in itself. So I think it's more about psychology that we're fed, you're behind the curve,
you got to move. Why people are trading the fifty base point cut, which as we know, is unlikely to be delivered September more than twenty five. So it's more like the Fed now gets enough evidence to remove the restriction of this policy, and this report just cements that that that goal for the to.
Alex's point, JP Morgan City seeing basically these FED dealing two half point rate cuts, but then also you have Goldman Sacks over there they added a third quarter point
rate cut in November to their prior forecast. Also Bank of America, who had been holding out for rate cuts in the beginning of December, they said they now see to look for the first move in actually September here, So when you're looking ahead over the next couple of weeks for other indicators when it comes to the economy, next week's a little bit lighter on the economic calendar, but we still have some services related data coming out
as well. But then the week after that, obviously we'll have another update when it comes to CPI on August fourteenth. So what are you looking ahead between now and then, because next week's also a huge earnings week still on the back of coming out of these big tech earnings, because you have a lot of consumer focused names that are going to be reporting.
Yeah, I would look at those because that's where I think the issue is currently. Right, if you look at the current sell of today in the S and B, what's the worst performing as sectors The consumer discretionary, right, So I think that's where the economic pain point is currently today in the markets. So these are earnings from these consumer companies are obviously key to watch for any
kind of significant demand slowdown. Neil McDonald's was I think it kind of a wake up goal earlier this week that it showed, like, you know what, these consumers aren't so out there, you know, eating left and right everything, and are more conservative or getting more conservative, so that I think it was the first precursor for what the consumer sectors really showing that it is this slowdown that we've been anticipating, against the sentiment that you once again highlight.
It's amazing, right, all of a sudden, we're getting a repurported Every bank jumps all over one another to add more raycuts. Well at first they were reluctant to put out ratcuts, right. So I think it's that combination of that that bit of the you know, exaggerated sentiment that we know over all these years of aline oshaps after favoral reports, against the true economic environment, which is slowing.
I don't think this is the recession moments, but we definitely have to concefen is probably overtightening here, therefore they can change.
All right, Ben, we gotta leave it there. Thanks a lot.
Ben Emmons joining us there from fed Watch Advisors. He's the founder and CEO of that.
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All right, let's get to Amazon. Isn't a tech company? Isn't an e commerce company? I feel like this is always a question. Putam Goyle is joining us. She's senior US e Commerce and retail analyst at Bloomberg Intelligence. Amazon stock is down by about twelve percent. I know it's a tough tape, so it's hard to really parse out, but put them help me understand why the decline in Amazon.
The decline is largely due to the operating margin guidance, which came in below street expectations, as they're investing more in Capex, which is really on the AI site to support the cloud business. Now, you could argue that they did also talk about the consumer and it being weaker
and it trading down. But I think you know, when the consumer trades down, Amazon can still do well and take share because they press the pedal on price and convenience pretty hard, which draws them the attention that they need.
So when you look at Amazon and mov function, maz and is the ticker symbol on this. So, like Alex was talking about down twelve percent, it's actually the worst performer in the S and P five hundred and also dragging down the com communication the consumer discretionary sector down over five percent right now.
So when it comes to especially when you think.
Of spinders that feed into in video, because that was something that when it comes to those customers, because we won't hear from Nvidia until August twenty eighth, so a lot of people coming into this week we're looking toward in Vidia's customers because if you looked at say Amazon or even Meta Alphabet and others who you know, if you combined their CAPEX spending over the prior four quarters before this earning season, it was around one hundred and
fifty billion dollars. So the thing was, well they pull back or not. For the most part, we still saw a lot of spending. So I'm kind of wondering from that equation, Punam, what are you seeing there as far as what this could potentially mean for a stock like in Video because obviously this is more of a discretionary type company when it comes to Amazon. But when it comes to the spending, how do you parse.
That sure stuf? For Amazon?
The one thing you have to keep in mind that there were behind the AI wave, right, so they're investing more into AI than maybe some of their peers, and we think that's the reason that you're seeing a tickup in the second half from the thirty point five billion
in the first half. Now, when it comes to some of their counterparts, they've been ahead of the curve and they could, depending on where their sales come out and where consumer demand is, they could continue at a steady pace or even pull back a little because they are somewhat ahead of the curve.
This is a super basic, dumb question. As they ramp up their AI stuff, how does that help them with e commerce? And so that's such a huge chunge of their business. Like I know that the AWS is a sexy growing part, but when you look at revenue, whether it's e commerce or online stores, it's still double what AWS brings in.
How does AI help that?
AI is actually a big big deal in the retail space and the e commerce space. So when you think about AI, what it helps them do is it helps them across all facets of their e commerce business, whether that's search, right, So you go into the Amazon search for and let's say you know you're used to typing in I want to black dress, but now you don't have to. You can say going to black tie event, right, and they should be able to populate addresses that gover that.
So conversion is one of the biggest pain points in e commerce. You're going online to browse more than you are to buy, whereas you're going in store to buy more than you are to browse. So I think as what AI can do in a meaningful ways improve conversion because you can get the results that you're looking for faster, you can improve the shopping journey, you can get customers
to find what they want more easily, and not just that. Right, they're using AIA just for the search, but they're using it in customer service, they're using it for inventory, they're using it and they're automated shopping platforms like the Roofs or the Alexa. So there's a lot that's happening with generative AI, especially which we think will help drive retail higher for a long time.
We only have about a minute left here, but you've talked about also how when it comes to the margin equation for Amazon, how you're seeing that expanding over the long term. And as you know, Alex, when you think of the discretionary sector margins coming out of COVID, that was such a big issue because of the inflationary pressures. So I'm wondering Punin when you're thinking about that, because if you're not an Amazon, or maybe like a home durable like a home depot, a lot of those other
retailers are struggling. So what are you seeing from the margin aspect maybe more broadly, or what can Amazon tell us kind of moving forward what that means for discretionary type of companies in the retail space.
Sure, so remember Amazon is a retail company, but it's also a tech company, right. The marketing opportunity for Amazon really comes from the tech side. So the cloud business, which is about one hundred billion dollars, we estimate that going into two hundred billion dollars with a forty percent margin.
There you go.
You just added another forty billion dollars in profit. And then when you look at the AW, when you look at the advertising business, fifty billion dollars run rate going to one hundred billion dollars, which we think carries higher margin than AWS, you're looking at adding about another fifty billion at the minimum or more operating income. So right there alone, you're reaching about one hundred billion dollars in operating income in the next five years additionally to what
you have today. And that's the profit driving part of Amazon. And you can argue that ads are supported by the growing retail business.
Punam, we got to leave it there up against a break. Thank you very much.
Putnam Gooyle, Senior EUS Commerce analysts for Bloomberg Intelligence.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple car Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa playing Bloomberg eleven thirty.
This is the Bloomberg Intelligence Radio. So the latest right now is that city adjusting its fed rate call. They see a fifty basis point cut in September and November, and twenty five basis points in December. So things are moving fast and furious. What's also being fast and furious is Intel stock. I just want to start there because it's whenever you have a company like Intel mentioned something like liquidity very high up on their earnings, that's never
really a good sign. That stock is now plummeting twenty eight percent. I want to bring an anarag Rana Bloomberg Intelligence senior technology analyst.
You can also hit on Apple as well, but anarag I just what happened here?
Yeah, I mean.
Mentel is going through restructuring right now, so I mean this is just a fallout from that, because remember right now, data center is where all the investments are going in and in Vidio GPUs is what everybody wants. So that's really not playing in the you know, sweet spot of what Intel does, big turnaround story, and you know, it seems some issues there.
And as you know, that stock has already been under tremendous pressure.
This year alone too.
So usually when there's cost cutting efforts, when you hear those kind of magic words, usually investors will gravitate toward that, especially when you think of say, as you know, Hona rog Meta at the end of twenty twenty two when it first announced, it's a big tranch of job cuts and cost cutting efforts. But with this and especially the intricacies that you were just talking about, what exactly is it that investors need to see in order to have more conviction for a stock like this.
I think sales growth needs to pick up because at the end of the day, unless you see that, you know, that's not going to translate into.
Cash flows and bottom lines.
You know, in the case of Meta, you know there was exus spending, but at the same time, you know their digital assets were still being used very aggressively by public, you know, whether it's Instagram or WhatsApp, and mean, there's no shortage of assets over there. So two different and distinct stories in the tech land.
What do you make of Apple?
Then it wasn't terrible at all if you're taking a look just at the opening market, considering the selloup that we're having, and Apple stock is actually up two point four percent best stainer as today in.
The S and P five hundred, Yeah, it was.
You could say that tech is right. I mean Apple is right now the cleanest story in techland only because they are not spending billions in capex. They are seeing some improvement on their top line and with the promise of potentially a refurs cycle on the iPhone coming over the next twelve to twenty four months, So things are looking good for Apple from a on a relative basis when you look at companies like Amazon or Microsoft.
That's right, and especially because Apple in the first quarter it was worst performance relatives to the S and P five hundred one of it is worse since the dot com bubble burst. But if you look at where it was from mid April to now, up almost thirty percent in that span.
So even though there were concerns.
About China and is the latest earnings report still there's more optimism on all the other side of that. So what improvements when it comes to China?
Have you seen there?
Yeah?
I think April is when the company came out and said that there, you know, numbers in China are not as bad as news agencies and analysts were making it out to be. And I think that led to a reversal of the stock at that point, and since then they did a very big AI event, which surprisingly went very well because Apple's been criticized over the past few years of not innovating enough. So I think those two factors really changed the investive perception of Apple in terms
of as a company and its fundamentals. And now we are waiting for the iPhone sixteen you know presentation, which is going to be somewhere around the September time frame, and with that will come the next level of you could say, hardware refash cycle. So things are looking good for Apple, not so much for the other tech players at this point.
Before we let you go, I mean, I understand you said that Apple's not spending boat loads in the same way on AI, but don't we want them to do that?
Like at some point are they going to be behind on that then?
So think about it this way. People are dying to have their large language model on the Apple distribution network. They don't have to spend the money opening I can do all of that spending. They will just license it and to have it on their phone. This is another way for them to say, why do I need to make data centers when I can rent the data centers whenever I need them. So they have a fairly different strategy when it comes to capital allocation as compared to the other companies.
All Right, I super appreciate it.
Thanks a lot on our ground up Bloomberg Intelligence senior US technology analyst joining us.
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