Bloomberg Audio Studios, podcasts, radio news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at seven am Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Claudia Sam on Fire with us a few days ago, and she has written up a storm of brilliance. We're thrilled that she could join us. Some new century advisors or definitive work at the FED and at Michigan as well. Claudia, of all your charts, to me, the most emotional one is, unlike past expansions, the unemployment rate is rising. Are we in an expansion? Are you on the acclaimed some recession? Watch now?
I mean we are in an expansion.
It is very unusual to have a jobless expansion at this point, you know, on a gradual rising.
The unemployment rate is still a rising.
The unemployment rate, it is a problem for some workers, but it doesn't the economy does not have right now that kind of recessionary dynamic, those rapid increases in the unemployment rate, and it's been a feature of the economy for two and a half years now that we've seen this, so it's very unusual.
So cloudy. If we do have an economy that is growing, but a workforce that is not necessarily growing along with it, does that mean we're more productive?
Not necessarily I mean the.
Low higher or maybe we'll see today no higher economy that is really rough on people coming into the labor market for the first time or maybe coming back into the labor market like this is. They are really facing a tough labor market and that loses all kinds of potential, particularly for people at the beginning of their career, to get off on the wrong foot. We're seeing a lot less movement of people from jobs to jobs, So maybe that makes it productive because they've been on the job longer.
But I wouldn't you know, maybe frame it quite that way.
Doctor somillby with us after the report. Let me squeeze this in, Claudia if I could. You've got a brilliant three month moving average chart, which is the way I roll in the negative intigran This is calculus talk, Paul, Stay with me here. The negative into grand is late spring last year. We're basically on revision potentially into negative non farm payrolls back to when the Red Sox were gonna win last year. Is it that grim? We've really been that saggy since April of last year.
Yeah, I mean, job creation really hit a wall.
Now we can argue about whether it's grim in terms of how worried we should be about this, because again the unemployment rate has been rising only gradually, not dramatically. But yeah, no, I mean, and we could see the last year when all the dust settles with the revisions, that no jobs were on net created in the US, and that is very usual outside of a recession.
So we're going to have that one time kind of I guess payrolls revision here.
Explain to us what that means, right.
Well, every month when we get the job's day numbers, these are based on a survey of a stab of businesses. I mean, it's a large survey, but it's not all
the businesses in the country. So once you're at the benchmark revision, the buyer of labor statistics uses what's administrative data Unemployment Insurance System, which is basically a census of the eleven million establishments in the country, and so then we true up the level of employment because the survey just isn't you know it can miss things the first
time around. I mean, there's a lot one can say about this, but really these revisions, they're probably going to be big today, but it's a sign of us getting better quality data so we can have this conversation about what is going on in this labor market.
Claudia Sam stay with us again, commercial free for you across this nation. Diane Swack and Eric Winnigrad later Carl Weinberg in the nine o'clock hour. You're in timor of Fidelity. We'll join us in the nine o'clock cover is, well, where are we in the last five minutes? Futures lift a little bit? Up three, now up eleven. Don't want to make a big deal about it. Vix comes in nicety seventeen point eighty five. The yields for those keeping score, keep your hands on the wheel for those driving four
point one two percent. Yields are in a solid two basis points price up, yield down. Into this jobs report and the dollar fractionally weaker, it is time to look at the labor economy.
This is what we've been waiting for. January jobs figures and the change in non farm payrolls much stronger than expected. One hundred and thirty thousand jobs added to the economy last month. The whisper number was for thirty five thousand. We've got the unemployment rate ticking down to four point three percent. Four point four percent was expected. And the big one, the final benchmark payrolls revision. We're still waiting on that. There was an expectation for a loss of
eight hundred and twenty five thousand jobs. Want to look at average hourly earnings month over month, up four tenths of a percent year over year, right in line with estimates three point seven percent. The market reaction not much. We've got S and p DAL and Nasdaq futures a little changed following this report. Again the economy adding many more jobs than expected last month, one hundred and thirty thousand. The expectation was for sixty five thousand.
Guys, Thanks so much, Alex. I really appreciate that we were up eleven on futures now up twenty as well. A nice lift to the market. NASDAK up six tens of a percent. VIX comes in as you'd expect, Paul, the yield space, what do you see.
I'm seeing a big movement in trash exactly right. Look at the short end of the curve of the two years up nine basis points three spot five to four percent, so a big, big move there. The ten year up about four and a half basis points four point one nine percent, So the short end of the curve tome really reflecting this better than expected nonfarm pay well.
Higher yields and priced down across the entire spectrum of death. The ten year real yield was a one point eight zero now out at one point eight five. I wanted two part this discussion to go back to doctor major shoutout Andrew Hollendhorse City Group just just nailed this thing. We're going to try to get doctor Hollandhorst on the phone. You know, I look, Claudia a one thirty number, but with a negative revision. I don't want to oversell it.
You need a three month moving average, as you say, non farm payrolls three month moving average seventy three thousand is our first quick look at Bloomberg. But then I got the actual final benchmark revisions rounded up almost negative nine hundred thousand translate a negative eight hundred and sixty two thousand revision.
Well, and I'll say the benchmark revision that goes to last March was almost nine hundred thousand down There are other revisions from the birth death model that come in the months after that. By December of last year, the downward revision was over a million jobs. Yeah, so now we got the best possible outcome today. We knew these revisions were coming, and again we can talk about what's behind them. But to see the most recent readings, we've
got some lift in the payrolls in January. It's just one month, but we got some lyft and the unemployment rate ticked down. So like we want to say a labor market that's stabilizing and coming out of this, but like, these are huge revisions.
Doctors, Thom, I'm sitting in the back of the class at Michigan hiding you and the smart people are up front. Okay, my fancy math is one million jobs lost for whatever, Claudia Sam Diane Swank reason divided by twelve is eighty three thousand and three hundred and thirty three jobs evaporated every thirty days out of our belief our fabric of the American labor economy. Do I have that right?
So?
The revisions actually go back further.
The first month that will be revised down because the benchmark was April of twenty twenty four, right, they take the annual benchmark revision is wedged in over the prior twelve months, so we're that million down. That's happening over a span of time. But if you look at the monthly changes last year the new estimates, there's a lot of red I mean, there's a lot of months where we were dipping, you know, into the not you know, destroying jobs.
So these are big numbers.
It is spread out over a period of time, but there's something here for us to understand about what exactly is happening with job creation and how comforted should we be by the latest numbers. Have we turned the corner or is that just an aberration and we're going to get back into these really low low numbers.
How do you think the Fed is going to react to these numbers? Claudia, Again, they change non farm perils coming in for the month of January much much better than expected.
Yeah, so the FED knew about this.
We you know, your Labor Statistics published its preliminary estimate of the benchmark revision back in September it was for a negative nine hundred thousand.
My goodness, it was almost you know, right on the money.
And this is certainly you've heard FED Governor Waller mentioned this in his descent, but also FED cher Powell talked about, you know, revision. So these numbers aren't surprising. I mean, really, the news today maybe the most recent months.
This you know, the January.
Again, not to overplay it, but you know it's good news to see that kind of number and the unemployment rate taking down. So this is not a surprise to the FED. Right, we knew this was going.
To be in the data.
But you published a chart last night, folks that was in English, unlike anything I would do. And Claudia Sam, I mean you said within the dynamics of the labor economy that the dearth of immigration plays into this. I mean your chart's a little spike up, a little line up. Are we at four point three percent because if immigration dynamics where we ought to be at say five point percent?
So I think the immigration dynamics and we've seen a big swing, a lot more immigration than had been.
Typical, and then a big slow immigration.
That certainly is important and understanding what is with these jobs numbers that just really hit a wall. So that's but it is not the only factor behind it. Like we have still seen the unemployment rate drift up. We are not like labor demand for workers is not keeping up with the supply of workers, right, But so the unemployed rate is giving us a much better picture of this kind of gradual problem that's building the payrolls because it has the supply of workers has just shifted so abruptly.
The message from the payrolls looks a lot scarier than it is. But I don't want to write it off, right, Like we still see wage growth slowing, unemployment rate drifting up, and certainly for groups like you know, people new to the labor market, this is a very tough job market.
Tough job market.
Just real quickly that eight hundred and sixty two thousand final benchmark revision just put that into context for us.
It's big, Like no, it's it should be about six tenths of total payroll employment something like that, five to six tenths, and a typical before last year typical had been more like a tenth of the level. Last year's was pretty big too, So you know, the average over the last ten years hasn't been about two tents, so this is like three times larger, and we've had two of these in a row. And again I want to stress this is not a signed the Bureau of Labor
Statistics is asleep at the wheel. This is just we have some major dynamics happening in the economy and it's really tough to measure them in real time, and so we're kind of catching up and it should help them with you know, people try and understand the labor market. Still a lot of puzzles, but we've got better data today and that is a really good starting point for understanding where we're going and what policy makers might want to do.
So Claudia helping are for folks studying SWAT coming up and Eric Winnegretti in a moment with Alliance burnsting. So Eric Winnigrad's up in darkness freezing. I'l like the cushy ann arbor weather. Claudia sam he's taken the sevens. He's taken labor economics. Is this you're brilliance Claudia out on Twitter last night. The academics right now of our labor economics is this in the textbooks, Eric Winnigrad.
Studied, I mean, every session has its own dynamics. But ever since the pandemics showed up, the labor market has been doing things that are just unusual, if nothing else in their magnitudes. We've just had some really abrupt swings. And so like, I think this cycle, this business cycle really does stand out right, and it may.
Stand out in good ways.
Maybe that gradual rising unemployment rate without a recession, maybe that's what a soft landing actually looks like. Like we don't ever get those, So this doesn't have to be a bad news story. But there's certainly tensions, and I just want people to do just because we avoid a recession doesn't mean it's good enough.
She's you know, I mean, we lost a million jobs in summary vider stand and she's telling us it's not a bad news. Sorry, Claudia, can you stay for five more minutes?
Of course?
Okay, thank you so much. Joining us now, Eric Winigrad with Claudia. Some I think that the two of them, Eric has a much more international feel, maybe, but the two of them are the market economics at Alliance Bernstein of Eric winnigred with the academics of doctor, some I think it really dovetails here. Eric, how do you translate Claudia SOM's brilliant work on the labor economy, not on recession.
But she's been on fire the last twenty four hours about these odd Newtonian dynamics of our labor economy.
It is a very strange economy. And to answer the question that you asked, No, none of this was in the textbooks that I was looking at a dartmouth. But I think you want to put this in perspective. You just said a minute ago, Tom, we've lost eight hundred and sixty two thousand jobs as a result of this revision. That's not true. Nobody has lost a job. We're just counting it better, right, So so that is not the case that people lost jobs.
It's just that the data.
Helps we counted weren't there.
That's correct. But again, what are we really interested in? Are we interested in the statistical minutia or are we interested in the way that people in the economy experienced this. We're more interested in the way people experience this, and nobody actually lost their job. I agree with Claudia one hundred percent that the true signal in today's report is
the unemployment rate. Because the revisions to the headline series are so complicated, there is statistical artifact the unemployment rate is balancing supply and demand in the economy, and it's telling us that things are okay, not great, right, but okay.
Does it reaffirm doctor some the idea of two rate cuts? I mean, how do you go to four rate cuts with a four point three percent unemployment rate?
My base case is still two rate cuts this year, But we're going to get a lot more information and the Fed is going to watch the labor market extremely carefully in terms of how they adjusted going forward.
Eric, how do you think AI is impacting this labor force here? Because people say it's really tough to get a job, and maybe that's the entry level job, and maybe that's the job that's being impacted by AI at least initially.
Does that factor into your work at all?
So it's just one of the ways in which this labor market is confusing and complicated. And I would actually refer you to a speech that the Governor of the Bank of Canada made last week, Tiff Macklin, where he said that if part of the reason the labor market is so tough is because of these structural changes, because of artificial intelligence, for example, it isn't appropriate for central
banks to respond to that by cutting interest rates. You can't boost labor and demand with interest rates if the problem is AI. I think it's premature to draw that conclusion. Claudia has said, and she's right that there is some evidence that entry level workers in particular are struggling. But we're still very very early days on this.
One final question, Claudia SAMs, I know you have to publish for a new century. Claudia, I want you to speak to the huge body of the nation that's not worried about their stock options on a mag seven equity holding. They're not part of the profit machine of technology in America. How flat on their back is the rest of America.
Right Well, for that group of Americans, I mean, their jobs are so critical to their well being. And for people who have a job and like their job. Right now, things are really pretty good, right Wages aren't, you know, going gangbusters. Workers are not sharing in all of this productivity that it seems to be out there necessarily, but it's pretty okay.
But it's the.
Ones who are on the margins who don't have the job or want to switch job like, they are a lot more stuck right now. And so I think, really the labor market it has always been and will continue to be central to people, particularly those who are not plugged into the asset markets.
Claudia, So I'm thank you for your commitment to Bloomberg Surveillance. Doctor Simus of the New Century advises, I can't say enough about a workout on Twitter and LinkedIn, just hugely informed. 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 Auto with the Bloomberg Business app, or watch us live on YouTube.
So when you get this huge report coming up and you get the data, what do you do well to impress Lisa Shallat, I go to the ten year real yield, which is sitting at two standard dv sits under one point eight one percent of breakdown there in the ten year real yield would be a big deal. And then she knows, I go to Swiss Frank That's what you
do with Morgan Stanley and I'm sorry. I got a Swiss Frank at the CUSP along with Yeana one fifty three fifty nine joining us on Lisa Schellet at Morgan Stanley, probably on a plane heading for Tokyo here at some point chief investment officer at Morgan Stanley, let me cut to the chase.
Yes, sir, Brad hints my old buddy, is.
AI going to replace Brandigins?
So look absolutely not. You Know, what I can tell you is that, like every other technology, we fundamentally believe that AI is an enabling tool. It is an enabling tool for expertise. While there are many things that we do that can be automated in terms of a process that are repetitive, that require us to capture and intake information and summarize it, the real beauty of expertise is
creativity and interpretation. And as far as I can tell, at least thus far my interactions with the technology, is that we're far, far, far away from being able to rival America. You know, an analyst, a human beings.
It's tough to see you because we saw in just this year, let's several weeks, last couple of months, this AI story's evolved a little bit from how much can we spend, how big can it get to be? Who's at risk from the deployment of AI technology, and then over the less several weeks, we really hit a lot of these software companies.
Yeah, so the software sell off on one level doesn't surprise me in the sense that some of these business models are ultimately you know, going to be disrupted. But what I think people have to remember is a lot of the enterprise software companies in particular, what they have done with companies is they've come to dominate, organize, optimize data. And you know where we are in terms of AI
implementation in most companies is you need the data. You can't train these tools to do anything without the data. And I think it's going to be really hard to do it without some of these enterprise software companies participating in a major way.
So twenty two was a solid year for US equity investors, solid returns, solid returns in the fixed income market. Here, I don't know what's the call here for twenty six that we more the same?
What are you looking for?
So look, I think our tagline for twenty twenty six was simply, you know, price to perfection, which means the window for upside surprise is narrower. So our view is, you know, this will be a good, solid average year in stock markets that means seven to ten percent total returns. But it's going to be a little bit more of all. It's going to be a little bit more idiosyncratic. It's going to be about fundamentals. It's going to be about earnings, achievement and surprise, and that stuff's hard.
Lisa show it with us with Morgan Stanley, and this is breaking news, and it's absolutely perfect for mischell with all over decades of work of working out companies, of deciding what not to own, all the focus. And I'm as guilty of this lease as anyone else is. On two stocks. I'm an idiot. And what I'm fascinated by is the rest of corporate America left behind that's not getting it done. Craft, Hinds, kool Aid, Cello, I think they owned Vilvida, I can't remember. They're going to stop
with They're split into two publicly traded companies. Organic revenue last quarter was a stunning negative four percent. I'm going to put that seven hundred beeps, eight hundred beeps by nominal GDP well, how should our how should our listeners and viewers interpret companies, big blue chip companies that just aren't getting it done?
Yeah, look, I think that you've got to be come to them with an extraordinarily critical eye and ask yourself why for a lot of the consumer staples companies, they have been, you know, the victims of you know, currency movements, they've been a vic of some of the you know, consumer impacted tariff related issues, and they've been you know, victims of demographic and behavioral shifts in terms of how much staples are actually consumed at home.
And in a portfolio. You say, just say no, right, you just don't own it exactly.
You got to go go through name by name by name and make an active decision. Am I overweight, underweight or no weight?
Brilliant Paul Pe of Craft Times nine. Yep, it's traded like international paper years ago. The dividend, we'll talk about a broken dividend on the Bloomberg.
You got six di you're living for the dividend.
I guess, yeah, Lisa, were constantly wealth management. How much alternative assets to your clients want to own? What's the what's an allocation there? Because I'm always shocked that it's much higher than I would have thought.
You know, yeah, so our recommendations, and I h sit atop our Global Investment Committee, which derives this set allocation advice. We've routinely, you know, talked about truly private liquids at roughly you know, ten to fifteen percent of your portfolio, Hedge funds maybe at ten. So you think about just those two categories, you could get as high as twenty five for an ultra high networth client. Now that's very aspirational, it's very theoretical, you know, it's Harry Markowitz an efficient,
you know, frontiers and the like. The reality is is that today, within you know, the Morgan Stanlely Wealth Management book, the penetration, the actual average allocation to alternatives is much closer to five or six percent than that twenty five percent recommendation.
How about a long way to go?
How about fixed income? I mean, you know, now you can be clipping some nice coupons. I'm not sure we're going to get price appreciate like we did last year, but is it okay to just sit there with a nice diversified fixing come portfolio and clip coupons.
Saying yes, We yes, absolutely, but you want to be very very careful about where on the curve you are. We expect there to still be some front end volatility and those rates to come down, and on the long end, we think that there's still a bias higher to rates, and because of the long duration, that could produce some volatility.
So we're focusing on the the what we call the belly of the curve, or somewhere between four and seven years of duration to truly have just clip coupon, don't don't get too aspirational about what you're going to make on price. Just try to try to try to focus on the coupon.
Clip.
But in the rest of fixed income, you know, credit has become extraordinarily.
Richly value and so there.
We're applying a similar lens to the one we're applying to stocks, which is, let's start being a little bit more discriminatory and decide to all to all of these bonds you know deserve these tight spreads.
Lucky you. I got twenty seconds. Did we place the one hundred year Google yesterday into Morgan Stanley portfolios?
That I don't know, I don't know where we were on the tear sheet when all is said and done. But look, it's an extraordinary moment. And you know this from prior bull market cycles.
When you see these one.
Hundred year type of events, they tend to get you know, marked on it.
On the walking into the interns at Morgan Stanley, the gifted few chosen to sit in the class. You going to the piece of chalk and you put perpetuity up on the chalkboard and say read it and weep. Lisa, Thank you. Lisa Shallotte with us Morgan Stanley Wealth Management. Your stay with us. More from Bloomberg Surveillance coming up after this.
You're listening to the Bloomberg Surveillance Pod. 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.
Your leadership of the National Association for Business Economics is noted with KPMG. Diane Swank joins us right now. Diane, just a sixty thousand foot question for our listeners, those with the job, those with Google stock options and the Google one hundred year piece, and those flat on their back across America. How case shaped are we this morning?
Well, we are as much as we've been since the data started on corporate profit share versus wade share in the economy going back to the nineteen seventies. What we're seeing is a record break between the share of profits going to wealthholders versus the amount of going to wages. And I think that's where the bulk of this is. You're seeing the productivity gains a crew to the owners of capital as opposed to workers, and that's why we're
are not very happy about where things are. Also, when you think about wages, I think it's very important to understand that we are seeing this labor market looks like it's now healing after getting cratered last year. That's important, but it's healing at a pace as Claudia and Eric pointed out, where we just don't need to generate many jobs be able to bring the unemployment rate down, which
could push wages higher. That's great if it does not also be accompanied by information and we know that much like stock returns compound, also inflation compounded over the last five years, leaving too many prices out of reach for too many Paul I was just going.
To say for your weekend reading, it's not Friday it's when.
I am I know we've got a waste to go tom or red headline crossing the Bloomberg terminal traders fully priced in FED rate cut by July versus June previously. So the WORP function kind of we're seeing it right there here on this strong labor print, Diane. We know that FED like to look at this unemployment right and boy, you ticked down from four point four percent to four point three percent. That's full, full, fully employed America, isn't it.
Actually it is.
It is even better under the hood. What we saw was the U six rate, which is that sort of underemployment rate where you get discouraged workers and those having just cut part time for economic reasons. That fell to eight percent from eight point four percent in December.
That's an important move.
It's still well above the six point two percent we saw back in twenty nineteen, but it is a move down and an important move down for those who were really struggling to get a job. What we're starting to see is some of the ice melt in the labor market now and things beginning to shift a bit. We need to keep up that momentum for workers on the flip side of it, it keeps the fed on the sidelines longer.
We're not seeing, you know, what does economy, This labor economy has been described as a kind of a low higher, low fire type of environment. How about some of the industries that rely historically upon immigration, such as housing, agriculture.
Are we seeing any problems there?
Well, we are seeing a major shift in things like leisure and hospitality in terms of quit rates. Quit rates in that sector have soared even as they've cooled and sort of come to a near standstill across the economy, and the job openings and labor turnover survey, we saw those quit rates really soar. That has not been accompanied by a lot of wage pressures in the economy that was very weak last year, and in fact, vacations actually went down a bit over the course of the year.
We saw only the affluent households continuing to spend heavily on vacations, and that showed up in the breakdown in terms of people paying to go to the front of the bus in terms of the planes and luxury hotels continue to do extremely well, but the rest of the economy side of vacations did not. In twenty twenty five.
That bringing you here, folks, I believe is doctor Swank. That's that's Kevin Worshy seeing Diane swanking right now, Like Kevin Warsh is saying to Dan, we need to talk right now, Diane. One of the things here, and you know, I'll pick on. You know a city that I know is really having trouble Alexander County, Illinois. Six percent unemployment right, this is kro It's you know, southern Southern Illinois has
really struggled. How do you synthesize, Diane with all your decades of work the easy gloom path versus observing the vibrancy of the American economy. I mean, the media and Tom Keen are really really good at going out and finding a six percent unemployment rate and saying, OMG, the world's going to end. But there's an America that's vital out there. How do you balance that? After this report?
Well, I think the important issue is is that we know that fewer firms and fewer households accounting for more of the economic gains in the US economy. And that's where you get to the k shaped economy. We've talked about it a lot, but it's showing up and just about everywhere and every strata, even with higher income households now trading down and going to big box discounters trying to get more value because they're feeling strained as well
unless they have a large stock portfolio. So there really is this delineating thread that goes through the US economy in terms of wealth versus non wealth, and it's not just housing market wealth. Equity in your home cannot be as easily tapped, but wealth in the stock market has moved up dramatically, and that is important because it's not filtering down to workers and the dichotomy of those two
things happening at the same time. The hard part is that it keeps inflation void as well, and I think that's something that the FED is going to be watching for, and we know that as you heard earlier. I think Eric pointed it out. If these losses that we saw in jobs last year were more structural than cyclical in nature,
than rate cuts don't help them. If they are more demand driven and the rate cuts actually helped to reignite employment, that's great, although they don't usually work quite this quickly, so I have my doubts about that. I think you are working through some big uncertainty issues that finally abated a bit, but measures of uncertainty move back up again in the month of January.
Dayane Swack, thank you for your work Dayan Swanck is KPMG. Here 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 Atto with the Bloomberg Business app, or watch us live on YouTube.
This is an honor. I'm going to explain this as carefully as I can, and Fidelity was very very kind to me over the years. And one day I was at the old building up a number of floors just pass where they keep the Red Sox tickets, and there's a circular room with cloth walls and on it with perfect mit pins is the chart room. Urine Timer this week put out the chart of the Dow Jones Industrial
Average at fifty thousand. I've been waiting to talk about this to get the Urine Timmer, director of Global Macro at Fidelity. Urine is irresponsible to extrapolate the bullmark, a trend that we are in out to sixty thousand or dare I say out to one hundred thousand down points?
Well, good morning. Well certainly that chart will show you that it is safe to extrapolate, because you know, just like life, growth is it happens, but sometimes it happens slowly, sometimes happens quickly. So we will get there eventually. But you know, the dial can spend many years at one of these milestones, or it could spend literally a minute before it goes to the next one. And this one, of course, you know, we are in year at least by my estimation, we are in year seventeen of a
secular bull market. And the milestones come fast and furious during secular bull markets, and they come very slowly during secular bear markets. And so I think the drivers of this secular bull are still intact. But it is long into tooths. You know, they generally don't last more than eighteen nineteen years or so, so we do have to
keep an eye on the clock in that sense. But it's you know, I found it very pleasing last week that when we're worried about the SaaS stocks getting commoditized because of AI programs, and you know, are the hyperscalers overspending on capex that very quietly the Dow just in
the week at a very major milestone. So it's nice to see that the market is broadening, and it's doing so in the best way possible, which is not as a zero sum where the max seven you'll fall from grace and drag the index down even though most stocks are going up, but in a way where the pie actually gets bigger. And now we'll have to see if it blasts, but it's a win for.
Now you're in.
We've seen I guess a rotation over the last three four five months, maybe a little bit of rotation out of some of those high growth, high multiple tech stocks, maybe a little max seven into or cyclical sectors, maybe in some small and MidCap Is that a longer term trade?
Is that a short term trade? How do you think about that?
I think it's a longer term trade. Right, So, if you line up a bunch of Paris trades, growth versus value, large, small US versus international, financial versus hard assets, the commodities in general, they all follow like a thirty year cycle, like a very long wave, almost like a condatif wave type of formation and on a ten year rate of change basis, a cager basis, all of those paris trades have been sort of waiting in the wings from a
duration and a magnitude perspective, and we're just waiting for the catalyst, right, So as long as the Max seven are dominating, all those para trades have to sort of wait. But one by one they're springing to life. Right. International is now outperforming US, which is very nice to see because we want the market to be as broad as possible, right,
we want to fish from the biggest pond possible. Commodities are moving and like you said, even small and midcaps are now starting to wake up, and so I do think that once that happens, it's a long term trend. That's like a five year plus strategic allocation type of plan. The question is, you know, again, does it come at the It always comes at the expensive growth, But does it come at the expense of the beta that the growth sector produces? And if that's the case, we're going
to have less beta but more alpha. But that's to me is the big question.
You're in timor with us folks, to help us get smarter with Fidelity or Carol Weinberg later on in the hour, we welcome all of you around the world on YouTube. Subscribe to Bloomberg Podcast, Sweete and I Shaking down the new Bloomberg Hub a set of videos here out at Bloomberg dot com. Look for that building out each and
every day. And of course the way you listen to us, especially good morning to ninety to nine FM in Boston, Land of Fidelity, and you're in Timber, you're in which of your wonderful charts that you give us on LinkedIn and all of Fidelity? Which charts the most informative for people in their fe own case. They're inequities. They believe in the American experiment, which is the chart that matters most.
I think, well, there's so many, but the one that explains the market's lofty valuations. Right, So we all spend a lot of time on like, Okay, the US stocks are so expensive, you know, thirty two x five year
cape ratio, twenty five times trailing earnings. But you have to take that into context, right, if you regress those pes or equity risk premia against where investment grade or high yield credit spreads are and where operating margins are for the s and P five hundred, they actually make sense, right, So you know, the market's not stupid. It's not going to price itself at a at a level that doesn't
make sense. It's very efficient. And so if you think equities are very expensive or too expensive, or even in a bubble, which I don't think they are, then by definition you have to think, in my view, that credit spreads are too low and are going to rise, and margins are too high and are going to fall. Otherwise, equities are just pricing in in the same fundamental scenario
that all the other markets are pricing in. And so I think that's an important thing to keep in mind, because it's easy after a long up trend, you know, and the cyclical bull is now forty months old, the secular bull is now seventeen years old to say, you know, I'm afraid of what comes next, so I'm going to get out. But if you get out, you're not going
to compound, and that's a major drawback. So looking at the market holistically and look at why valuations are where they are, what do they assume, I think is an important piece of context. Otherwise it's easy just to say Oh my god, we're in a bubble. I'm going to run for the hills.
You're in twenty twenty five and in year to date so far in twenty twenty six, the US equity markets doing just fine, but rest of the world doing a lot better than fine, outperforming the US.
Talk to us about US versus rest of the world these days. What's your view?
Yeah, it's a it's a really great story. It happened last year, of course during sort of the tariff tantrum. But what's happening is that the global economy is waking up. You know, we all know the story from a year ago with NATO having to pull its own weight and seeing more of a fiscal impulse in Europe, and of course in Japan we're seeing that, you know, commodities are becoming a national security type of resource. So in a fragmented,
multipolar world, I think commodities become a strategic asset. And so then you have you look at commodity centric countries, mostly in emerging markets that are now you know, being competitive. So when I divide the world into developed and emerging so versus e M, they both have interesting stories. Right. The companies in Japan and Europe are becoming much more shareholder savvy. They're unlocking or monetizing their balance sheets in order and by buying back shares in order to reward
shareholders with a higher payout ratio. And it's interesting that the payouts, so dividends plus buybacks, is rising faster on a five year basis in both Europe and em than it is in US, which is maybe counterintuitive because in the US you figure max seven art are the engines for that story. But the payouts are competitive, the payout ratios are competitive. Yet they trade at a fifteen PE as opposed to a twenty two PE. And that's so you know, it's easy to fall into a value trap,
but you have the value plus a fundamental catalyst. Boy, you got some magic and that's what we're seeing over there.
Okay, I got to ask Paul was just on a rube and he's decided to move there. You're in Timor I'm there right now?
Why did we know that?
I I mean, I mean Urian Should we slide into the Dutch Caribbean Securities Exchange? I mean, is Will Danoff looking at every stock in there? Yeah?
Well you know it's Carnival a week in a rubab and that can only mean one thing, and that is that I've got about a dozen extended Timmor family and friends right at my brother's house, and that means I get to cook. So I cooked the great twelve people last night. I'm cooking for fifteen tonight. So this is our annual tradition and.
Good for you.
And you know this is my ole king.
We got enough Carnival.
Is Abby Johnson ever Grace a Timmer household in her room but for this festivities.
Uh, not that I know of, but if she, if she calls me, I would certainly makes some room.
Very good, Urian. We appreciate your work. I can't say enough, folks. Literally. A reason to get on LinkedIn is to see the brilliance of fidelity in Urine Timmer. There as well Twitter as well. Urine Timmor driving everything in charts, technical analysis and macro analysis at Fidelity.
This is the Bloomberg Surveillance podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday seven to ten am Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also Watch US live every weekday on YouTube and always on the Bloomberg terminal