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Gotta make sense of it all exactly.
We can do that with Cam Dawson, chief investment officer at New Edgewells.
She joins us here in our Bloomberg Interactive Broker studio.
Cam, what did you make of the trading activity yesterday? It was really a whip saw.
Yeah, yesterday is an was an outside reversal or what we call in show business a bearish in golfing, So when you have price action like this, it usually does proceed more volatility, which just means that we should get used to seeing some more of this chop. We're looking for the sixty five hundred level where we're trading right now to hold.
That's really important.
That's your one hundred day moving average. If that doesn't hold, it brings sixty one hundred in play your two hundred day moving average, which would also be the peak back in February. So if you got to those levels, you'd certainly see more oversold conditions. Notably, today the market is not over sold yet externally on something like an RSI. It's also not oversold internally, meaning breadth hasn't been totally washed out yet, So all of us put together probably accept more chop and churn.
So yeah, because the S and P five hundred finished yesterday well just below it's one hundred day moving average, we haven't seen that happen in months. I think the last time was when President Trump announced the tariffs back in April, right.
Yeah, And I think it's fascinating that just a couple of weeks ago we had had the longest streak above the fifty day moving average since two thousand and seven.
Wow.
So we were in this environment of incredibly low volatility, which, of course we know low volatility tends to breed complacency, and we saw complacency in many places, with fineral margin loan balances surging higher by thirty five percentiment retail traders were going all in adding leverage. All of this suggested is that people were thinking that the good times were
going to keep on rolling. But of course, as we know, what's the law of perversity, is that the market will work to make the greatest fool out of the greatest number of people to the greatest possible extent.
Yesterday was a day.
You know, we had the Nvidia numbers Wednesday evening, setting up for good trading on Thursday because it seemed like the AI play was still very.
Much in play, but then it wasn't.
Yeah, so how important is that AI theme as a growth driver for the overall market?
How important is that?
Still?
It's still incredibly important, And we think that there's an important nuance to the Nvidia numbers, which is that In Video's strong earnings actually makes the questions around AI overspending even louder. Okay, because the AI questions were not whether or not companies were spending.
We knew that.
We knew that by the Capex guidance, so we knew in Video results would be good. The big question was are the people who are spending on AI Capex are they earning a return on it that is justified to different shareholders, not just their equity shareholders, but now all of this death that they're raising as well.
So then what's it going to take for the market to feel better? I guess about all the capex spending and AI.
Yeah, it's an interesting question.
If you were to see somebody like Meta come out and say we're reducing our capex spend next year, potentially because the stock has done so much, how would.
The market react.
Would they be supportive of that or would it cause a further unwind of all of these earnings expectations as well as valuations that are built on this idea that you're going to see trillions of dollars of spend. So I think that that is the big question as we go into twenty twenty six, is that do they continue to wraphet up capex expectations in the face of a market that seems to have lost its tolerance for it.
So we did get a lot of economic data today, We're going to get some more today with some pmis. We're going to get the EU mission data as well. Here, how do you think the FED is kind of ingesting all this data we're starting to get?
Then?
Yeah, well the data is now so backward looking, and important to note that when they meet next in December, they're not going to have the October or November jobs report, so they're still going to be in this flying blind, which means that it's likely that they lean towards this hawkish side of things in the unknowing of what the
jobs market is doing. I would say, though, is that if we see this equity market volatility continue, it actually likely pushes them more towards a rate cut, because the best argument that you have for not cutting rates was
looking at broad financial conditions. But if broad financial conditions, which include equities, include credit, and include volatility, if those move to titan, that actually could push the FED to delivering a cut because of what it could be implying about the underlying economy.
So I'm just curious how much of this aggressive selling that we've been seeing is really about technical dynamics.
I think it's a large part of it because when we look at the trading in September in October, it really wasn't justified for as much as high as things had moved, you had over a thirty percent rally in the socks in those two months alone, the semiconductor index, So there was a frothiness, a speculative nature of the way that we saw things trade back in those two months.
So we've effectively now reversed.
Most of that of that rally higher, and the question is do you have to shake out any further hands because you saw so much leverage being added and you saw people really trying to add on to risk.
Some of that is just getting the air taken out of it.
Earnings, we had a good, solid earnings this season. We have still have some more retailers to go here, but double digit growth in the third quarter, double digit growth in the second quarter. How do you feel about the earnings power this market? Is it enough to support this market?
Yeah?
We continue to come back to looking at Ford earnings expectations and say, look, twenty five and twenty twenty six estimates are still moving higher. That is usually broadly supportive of risk assets. The caveat to that is that earnings do lag overall prices, meaning that the street consensus will
always be late to the game. We've been using the song the Deep track from Britney Spears first album, Don't let Me be the last to know, because earnings usually are the last to know when you see a turn.
Go back to year like twenty twenty two, you had a.
Peak in the market that was actually four to five months before the peak and earnings estaments. So what we continuously have to do is really test earning sestments to think are they continuing to be revised higher or potentially are their rooms for revisions lower.
You read those tea leaves. This is what we try to.
Do, all to a soundtrack of Britney Spears.
Yes h Hi, Cameron, thank you so much for joining us. Really appreciated.
Cameron Dawson, Chief investment Officer, New Edge Wealth, trying to get a handle on this market today with us.
More from Bloomberg Surveillance coming up after this.
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We know we got that much delayed September job support yesterday. It was a mixed bag at best, and it was just part of the story that we saw that volatility yesterday in the stock market. So let's talk econ data, which now we're getting more and more of it now
that the government shutdown is over. We've got Lena shul Yativa, senior economist at the Conference Board, with us here live in studio Elena, what did you make of I want to ask what did you make of the reaction to the job support yesterday, given the fact that it was two months old.
It's two months old, but that's what we have. It was so exciting to finally have the data, right. Well, it's kind of the last clear data ahead of the shutdown. So and already you see a pickup in the unemployment rate even before the shutdown. Is probably going to affect the data on the private jobs, right it will also we will probably also see a pickup in the unemployment rate given that a lot of federal government employees are
running rolling off from the payroll in October. So that's a signal that the risks to the labor side of the dual mandate for the Fed are actually rising. So to me, the market reaction yesterday makes a lot of sense with the odds of a cut rising, right, But I think it's still very undecided territory. You know, there's a lot of discussion about you know, payrolls itself. The reading, the headline reading was pretty solid, so whatever you want.
To make of it.
I have a follow up on this unemployment rate though, going up second month in a row, right, Well, we're talking about September now to four point four percent, highest in four years. What do you make of some people going but wait a minute, it rose for the right quote unquote right reasons because workers who were on the sidelines came back in and were actively looking for work. And I guess that's when you're considered unemployed, right, is
when you're actively looking for work. You're part of that survey. What do you make of that?
I agree that you know, unemployment rate rising because people cannot find jobs and they're looking is better than outright layoffs. But you know, permanent layoffs also increased in the report yesterday, So again there's a lot of mixed signals there. And yes, the unemployment rate increased since it's droughed back in twenty twenty three, has been driven by long term unemployment people
not able to find jobs. At the end of the day, whatever the reason is, right, the increase in the unemployment rate is a bad thing, and if anything, it increases the risks that things could deteriorate. So I think it's still unclear what's going to happen on decemb tenth.
Elena, Is there an unemployment rate?
Is there a headline rate that the Fed says, oh boy, we got to do something here in terms of maybe getting a little bit more aggressive. Is there a rate out there they think is a trigger rate?
Well, they do have a summer of economic projections, right so I'd say that that should be our kind of like goal in terms of seeing what they think is better and good. And if unemployment rate continues to rise, and probably in October and November it will rise for the reasons that I mentioned, that would go above the projection of what they see as a predicament for three rate cuts this year. So that should be our guide, I think. But in terms of like an absolute value, there is no such thing.
It depends on the supply side.
Right now, as we start to get more economic data, we're going to start to get reports where the government shutdown you can really see it play out in the numbers. My question is how much should we hang our hat on those numbers because the government shutdown was just a moment in time and now it's over.
Well, you have government federal government employees leaving for all kinds of different reasons. Are they going to be able to find a job that easily in the private set that when the hiring rate is so low. So yes, okay, I understand the shutdown is over. I don't think that the rebound will be.
You know, because you don't think you'll be really quick. You don't think it's going to be a full one. So you think we're going to take a big hit to GDP because this was the forty three day shutdown.
We estimate half a percentage point in Q four, so it's lower than say CBO's estimate. You know, we still have some time in the fourth quarter to recuperate some losses, so probably half a percentage point, which wire is significant by historical standards.
It appears in this labor market there's there's some layoffs, but there's not like a mass layoffs, but there's certainly not a big hiring out there.
Is that Is that a typical.
Environment for a labor market or they're not letting people go, but they're not hiring them.
It's quite typical. Well, when the economy is kind of a full employment, so you know, it's a good spot to be. It doesn't mean that things are deteriorating, but it's a risky situation because you know, what's the next step for a company. If you need to cut costs, if something you know happens, some exogenous shock happens, you don't have that cursion when you can kind of like slow down. You're hiring to cut costs. The next step
is layoffs if something happens. But so far it's been relatively healthy.
Were there any signs in this job support that raised inflation flags for you? I know, wages went up, not buy a lot, and you know, is it keeping up with inflation? I don't think.
It's still elevated. It's still elevated, but it takes time. And I always look at Atlanta FED numbers. You know, job switches, job stairs. There's no big margin between those two right now. So to me, it says that labor market wage inflation is subsiding, so it should not be a big source of inflation going forward, which actually Chia Powell mentioned a few times.
You know, it's one of the greatest functions I think on the Bloberg terminal, and again there's a gazillion functions.
FED go FD GO.
It just gives you everything you need to know about the FED and the data points in the next meetings and the news and all that kind of stuff. So wherever did the FED go had on the back there? December tenth? It tells me is the next meeting? What do you think the FED will do?
They'll wait till the last minute. The basebook even matters like the one that we are getting ahead of the Thanksgiving holiday. So how bad or how good it is? It?
Is it?
The state of the labor market? Where is it? And what a company is saying about inflation and passing the cost onto the consumer?
Elen, know where is it written in stone that the Fed has to have a meeting on a particular day? I mean, if the government saying, look, we're going to put out the November job support, which is going to have a little bit of the October job support December sixteenth, why isn't the FED just going, okay, well we'll move on meeting into like December seventeenth.
Well that's going to be a havoc in the markets. Okay, So that's probably not a good idea to do. There are a lot of different things. You know, the FED is data dependent, but they don't have to be like literally data dependent. There's still a lot of alternative data. And you know, you guys have this al t go thing on the terminal. So there's still a lot of good data out there to for us to understand what's going on. I think the thing is that the risks
to the labor market are still elevated. Is still true, and that's why the FED cut to time in the fall.
So all right, so we've beaten this labor thing to death. Just give us your quick call on the inflation environment out there.
Oh so hard to tell without the data. We do have good data on the labor mars, it's very difficult to kind of try to gauge what's happening on the inflation side. Stephen Myron, the Governor, was on Bloomberg TV just just a few minutes ago, yes, and he was saying that, you know, this housing inflation is probably a reflection of what happened in the past. So we cannot really look at three percent inflation and say, okay, this is the true state of affairs. Housing inflation is subsiding,
the data is not reflecting that. The labor market inflation is probably also subsiding. So this sector inflation is moving in the right direction. We probably have a little bit of a tariff inflation in the goods prices, but that will too subside. It will just take some time. It will be a temporary increase in inflation. But I think in a big scheme of things, inflation is probably going to subside next year.
All Rylena, thank you so much for joining us.
Alan issues Tiava, senior US economists at the Conference Board, one of our favorite former economists at Bloomberg.
We appreciate getting some of your time.
To stay with us.
More from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from seven to ten am Eastern. Listen on Applecarplay and Android Otto with the Bloomberg Business app, or watch us live on YouTube.
Let's go to a professional here when we think about these markets. Jeff Crumpleman, and he's CIO and head of Equities at Mariner Wealth Advisors, located in Cincinnati, Ohio, one of my favorite towns. I used to go there all the time to see a couple of institutional investor accounts.
We try to go see a.
Ballgame when I was Thereolute for you, Jeff, thanks for joining us here. What's your call here? We've had a you look back on twenty twenty five. Equities it done well, Yes, it's been volatile. Fixed income has done well. We've got some solid high single digit returns there. What are you thinking about as you think about twenty twenty six.
So our thesis going into this year was clear air turbulence, which I think pretty well describes what's going on. I think that's still apropos as we go into the end of the year, and you know, as people try and prophesize and they're trying to find reasons for what happened yesterday with some mixed news. You know, the thing about clear air turbulence is there's no radar systems to detect it.
It just happens in clear sky.
So in terms of what we do think will play out, we had a target of sixty six hundred on the S and P four calendar year twenty twenty five. I think we're going to be, you know, pretty close, and that's that's a pretty nice outcome, albeit with a bit of air flocking in there. Our kind of theme and thesis as we think about twenty twenty six is the year of risk awareness and diversification two point zero. So
I think you want to avoid concentrations. I think you do want to be a little more balanced than we've seen this year, and I think that we're going to have healthy result, but the market's kind of tired as we go into the year.
We would be just fine.
As people talk about bubbles and troubles, which we don't agree with, but to see the market kind of rest and digest the strong earnings for a quarter or so I think would be very realistic.
Probably a healthy thing, I think, yes, So let's talk valuation because a lot of what the volatility we've been seeing has been centered around are these stretched valuations we're seeing, particularly an AI But you say valuation is a poor timing tool for investors, Sure, what do you mean by that? And then what would be a good timing tool?
Well, you know people, it's funny they're all wiggy about valuation.
Now.
We've been at twenty two times earnings for a long time. We were twenty two times going into this year. We're a little less than that right now. So the advance has been earnings growth, not valuation. I think the AI trade has made people more old this is like two thousand and just more sensitive to valuation now.
It's always been there, and it's a terrible timing tool.
So whether you talk about Alan Greenspan irrational exuberance in ninety six before it doubled in one, or you talk about questions I've been getting going all the way back to twenty seventeen eighteen when people said, hey, Jeff, twenty two times is rich.
How can we go up from here?
And you have double digit targets on the S and P five hundred, So it's just a very terrible it's fundamentals and valuation can remain elevated if fundamentals are strong. And I'll add this, this is not your grandfather's index when people compare this to the fifty year average of fifteen sixteen times earnings. You know, back forty years ago industrials, financials and energy were fifty percent of the S and P five hundred market cap. Today they're twenty percent. Return
on equity was sixteen today it's twenty two. Margins were nine percent profit margins that profit margins today they're fourteen. It is not your grandfather's in dex So, yeah, that's a good point.
Yeah, thirty seconds left. Here is there sector out there that screens well for you?
At this point?
Yeah, you know, just to kind of shift gears from all this tech stuff. First of all, I appreciate your comment about Walmart earlier on the show.
Well, thank you for listening, Jeff hey Man.
You know what you learn.
But healthcare would be a selective consumer. And healthcare and I think energy could be a surprise as usually that is.
A surprise because we got oil at fifty eight dollars a barrel here.
Yep. But if you look at the charts, we're starting to see some interest as people diversified from just a tech trade.
Yep.
I'm just going to interject them in a budget with Walmart, is they're going to move their stock listing from the New York Stock Exchange to the Nasdaq?
Is that?
Am I missing something? Is that a big deal? Because talk about this is not your grandfather's market anymore. I don't know if I could remember a time when I think, oh, yeah, sure that that move makes sense. Does that make sense to you?
Well it does because e commerce was up twenty seven percent. It's so much more of a technology company. So you know, think about it. When you search for something automatically, you go online to Walmart, you know.
So yeah, for the NYC.
I would not have allowed that to happen.
I would have done anything to keep that name there.
Jeffrumplement's CIO and head of Equities at Mariner Well Advisors based there in Cincinnati, Ohio.
Stay with us more from Bloomberg Surveillance coming up after this.
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Talking about the FED. Can't stop talking about the FED as we lead up to their two day meeting December ninth and tenth, And in an environment where we're thinking perhaps we could be in for some interest rate cuts, lower rates for longer. What does that all mean to commercial real estate? Let's bring in an expert to sift through it all, Rich Hill in our Interactive Broker studio with this global head of real Estate Strategy and Research,
Principal Asset Management. Rich, good to see you here in the studio.
Good morning, Thanks for having me in.
So just paint the picture for us as we head into this FED meeting where there's a big question mark as to whether or not we get that third interest rate cut of the year. What is the commercial real estate landscape looking like heading into that meeting?
Yeah? Sure, Well, first of all, I think it's important to level set.
Commercial real estate is one of the few asset classes in the world where valuations have significantly reset. Private real estate valuations are down twenty to twenty five percent in the US and Europe.
Public valuations are down around the same amount.
We think this is a cycle going through an normal reset. That's hard to understand because there's a lot going on and a lot of noise. But let me explain what I think that means. List it reads trough first, because they're leading indicators in both downturns and recoveries. List it reads trot in not October of twenty twenty three, and they're up more than thirty five percent from those levels.
Private valuations trough twelve to eighteen months later. We've now seen five consecutive quarters in the United States where total returns are higher.
It's six quarters in Europe.
There's actually something that happens though on a lagging indicator that I think confuses a lot of people distress in the commercial real estate markets. Doesn't peak out until after private valuations trough. Why is that happening, Well, it's part of the grieving process. Banks don't like to sell distress loans and to distressed markets. They like to sell distress loans and too stabilized markets. So that's where we think we are. You bring up a good question, though, what
about interest rate cuts. You hear a lot of commercial real estate professionals saying we want lower interest rates. That's not our review. We want stable interest rates. And the reason I say we don't want lower interest rates, and I'm really talking about long term interestrates because commercial real estate bar ersk financed themselves with long term interest rates. If you have meaningfully lower interest rates, be careful what you wish for. That actually might mean a weaker economy.
That might mean tighter financial conditions, wider credit spreads. That's not good for any risk asset, including commercial real estate. What we're really rooting for here is stability. That's what we think the market needs to see. That's what we think commercial real estate investors want to see.
Explained something to you. But I've learned about commercial real estate business.
Yeah, it's controlled by these Morgan Stanley guys They're everywhere. The Morgan Stanley commercial real estate business is based their best on the street.
But it's a good ball.
They and they leave Morgan Stanley and they put their tentacles all around the commercial It's a total scam. They're everywhere and nobody's better at it than these Morgan Stanley folks. Rich in the US. Here have we troughed in let's say, office, Have we trofed on office here? Because I'm here in some positive murmers even about like New York and San Francisco.
Yeah, sure, So it's really hard to and I'm your super cliche here office with a really broad brush. And the reason I say that is JLLL has a great statistic that ninety percent of vacancy in the United States is concertated in thirty to thirty five percent of buildings. New York City really strong, it seems really strong rebound. San Francisco beginning to see some real signs of light.
And if you're a long term investor, yeah, you're you're pretty bullish on San Francisco because of how beaten down it is. I think the market is still trying to figure out what the high quality buildings are from the lower quality buildings. We actually don't have an office problem in the United States. We have a Class B and C office.
Problem because those older buildings you mean.
One hundred percent And if you were renting a Class B and C office property prior to COVID, you probably didn't value the office experience. Here's my ultimate point with office. I don't know when at bottoms. I'm not really good at picking bottoms. Other people do better job of that than me. But I do think over the medium to long term, we're going to look back and we're going to say the office sector is one of the sectors
that performed really well over the next ten years. Usually last cycles losers aren't the next cycles loss.
Okay, So if Class B and C is sort of not the place to be in terms of office, is it the place to be when you're thinking about converting office to residential, which we've seen a lot of in some of our major cities.
Yeah, highly attractive investment thesis really hard to do in practice. There's probably one hundred and fifty to two hundred buildings across the United States where you can actually do it. Why is it working so well in New York City? Well, it comes back down to how you think about affordability in the United States. Morally, big believers that you don't need to regulate what you have, you need to build
more of what you don't have. We don't have enough housing in New York City, and frankly, we don't have enough housing across the United States for various different reasons. So I'm a really big proponent of converting office into multifamily.
It's just not for the faint of heart, and it's a lot harder to do and.
Probably pretty expensive to retrofit.
Is it not, Yeah, it is. In many cases.
It's actually easier to raise a building right to bulldoze it and build from the ground up, because it's not that much different. But if you could be view with the right floor plate in office and converted to multifamily, really lucrative investment thesis, that's true.
I don't know thought about it because when we raised and built a home, I was shocked at how cheap it was to tear down a home. The guy could have quoted any ten x what do he quoted me? And I would have paid it because I had no idea.
Because it's really about the land it's sitting on, right in location location.
Okay, dude brought in like a back hole and just knocked it down in like fifteen minutes.
Crazy.
I mean, it was unbelievable. I didn't understand about that, all right.
So where rich is the best value out there in the broader commercial real estate these days?
Where are you guys seeing it?
Yeah, there's three things that I want to talk about today.
The first point, we can't be talking about commercial real estate and you can't be talking about markets if you're not talking about.
AI and data centers.
Okay, so we think data centers are really interesting, but with a nuance. First of all, I think it's important to unpack AI demand from data set demand. Data center demand is constrained by land and power.
Right now.
You actually have way more demand than you have the ability to create data centers right now. That's the first point. The second point is when you're investing in a data center, you're actually investing in infrastructure, the land, the ability, power of the land, the fib that goes to the land. The third point, which I think is a nuance that the markets just now beginning to understand, is not all data centers are created the same. When we think about
data centers. We think about cloud data centers. That's when you and I are on Bloomberg right now, uses cloud. There's AI inference, which is when you and I go on chat g GPT and prompt chat GPT, and then there's generative AI. General of AI is training models for future AI demand.
We're really quite.
Bullish on cloud and AI inference. We're much more cautious on generative AI. But we think focusing on cloud and AI inference, which is actual existing demand, that's a really interesting asset class. We're a developer in the United States and we think we can develop these that unless IRRs and call it the twenty percent range, which ends up being really attractive.
So A'll pause there. You might have questions about data centers, and then we can do to move on.
I just I don't think we've hit a topic where we haven't talked about AI. It is infiltrating just about everywhere. Real quick rich, where within commercial real estate can can can they benefit most from AI?
Yeah, data centers number one, but it's actually helping the entire world in a lot of different ways. I'll come back to what you were talking about office. There's a lot of questions about how AI is going to impact office. The reality is, I think we're still early dings about how it's going to impact office, what workers are going to be upskilled, what workers are going to be downskilled, what workers are going.
To be outskilled.
But there are going to be markets that benefit significantly from AI. It is changing, It is changing the world, and commercial real estate is a big beneficiary of that.
So we think there's going to be a lot of efficiencies that are driven by AI, which thanks so much.
Appreciate that.
Richell, Global Head of will Say Strategy and Research at Principal Asset Management.
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