Bloomberg Audio Studios, Podcasts.
Radio News.
We begin with our top story, It's Share Pale Day one, the Fed chap heading to Capitol Hill, where he's expected to reiterate the Central Bank's call to wait and see on rate cuts. Black Ross Kate Moore saying this where prices continue to moderate, inflation is still running above target, and we believe the Fed needs to feel a higher degree of confidence before rushing to cut rates. We view rate cuts will likely be appropriate in twenty four and we believe that a June first cut is realistic. Kate
Moore joins us now for more. Kate, great to catch up with you ahead of this testimony from Shairman Powell. We've pushed out the time of the call, We've reduced the magnitude, and stocks have done Okay. A thing for us this morning is just how important, how relevant is monetary policy to this equity market as we speak.
I think people are still fixated, of course, on inflation and on kind of the messaging and tone from monetary policy decision makers. That said, I look at the internals, John, and what has been performing within the equity market. It has been fundamentals that have been driving stock prices much more than just expectations around inflation.
So when we initially got excited.
About inflation coming down a disinflationary trend and rate cuts in twenty twenty four, there was a pop in some really kind of lower quality stuff that was getting hit hard on higher rates for longer. But what is performed today and what is performing right now in this market are companies that are putting up good numbers on earnings, that have been raising guidance, and that have very strong fundamentals.
So we're going to talk about it to we're blue in the face.
Inflation and FED policy and parsing all of the speeches is going.
To be what we do for hours on end.
That said, we really have to focus on what companies can perform in this economy in order to make money.
Okay, for years you and I were talking about price and power when inflation was high, they had this ability to kick up prices and boost marchins. Have you impressed by their ability to preserve margins given the bank drop currently?
Yeah, I don I think you're asking this question because you know, I have great faith and confidence in the US corporate sector to continue to maintain margins even through lots of last year, where prices were rising and where there was a lot of strain, we saw companies continuously focus on maintaining margins and think about strategies that would allow them to expand their.
Margins in twenty twenty four.
I'm actually very optimistic, and I think this is the consensus of a lot of analysts on the street that margins will gradually expand over the course of this year as prices come down and as companies continue to focus have this laser focus on maintaining and expanding margins.
This is going to be critical for.
The fundamentals, and as I said, the fundamentals are going to underpin equity risk and sentiment I think for the balance of this year.
So your overweight risk assets strongly overweight risk assets piling on shrugging off all the bubbletalk. Are bonds a good diversifier or right now? Are they the toxic ones at a time of concern about deficits and inflation being stickier for a longer period of time.
Yeah, Look, we have a significant portion of our portfolio and bonds, but we're not massively overweight when it comes to say treasuries. You know, we're seeing a more opportunity in the credit side. I think the fixingcum plays an important part in a balanced like allocation portfolio. That said, there are lots of parts of fixed incum that are more attractive than others, and we've.
Used cash as a tool aggressively. Over the last you know, twelve to eighteen months.
We're seeing more alternatives and currency opportunities as well. So I think we need to think holistically about the acid class opportunity set. Even though Lisa, you know this, I'm very constructive on equities for the balance of the year. We're going to get this periodic pullbacks, but I think that is where you're going to deliver the bulk of your returns for a multi assid portfolio.
Kay, I've been putting together a project where I'm trying to collect all the worries and put them on a list and then take them off as people basically shrug them off.
Do you have any to put on the list?
Of course, I mean I barely last night thinking about all of my worries. No, Lisa, for sure, there are a couple things that really concern me.
You know.
One of the things I'm focused on, and we were paying attention to this with target reporting yesterday was what is the true health of the US consumer? Some of the data gets amasked by the higher end or kind of well, think about the upper two quintile of earners and you know, does low end consumer continue to show cracks and what does discretionary demand look like?
I worry a little bit about that.
I'm frankly worry a little bit about the election cycle having an impact on overall spending. We've seen in previous election cycles that companies pull back or hold back on non essential capex as they're waiting for you know, trying to figure out who the next administration is going to be and what that policy will look like. So I worry that that could have a dampening effect on overall economy.
And then I worry a decent amount around the impact that geopolitical risk and geopolitical tensions could have on multinationals in terms of their overall operations. Does any of this like take my enthusiasm out of the SMP and NASDAC not fully, but I think these are things that could be risks for certain sectors as we look through the year.
Okay, it was going through year old coves at the end of last year credit where it's too top favorite markets US one Japan the other US up by six point five percent, MIK two twenty five, twenty percent this year. What was it that you liked about Japanese equities? What is it that you still like about Japan.
We've seen a bunch of small green shoots, I would say, across the Japanese equity space, and there was also a large positioning and.
Technic technical component.
John, you know, the Japanese equities have been underloved for some time. We continue to see you know, stronger growth across Asia and with some of the trading partners that we thought would bolster earnings across the Japanese corporate sector, and we, like a lot of people, remain hopeful that we will continue to see a change in BOJ policy over the balance of this year, which will change sentiment for the overall ASSAD class.
I will say US is our largest.
Overweight by a long stretch, and that's where we're taking our concentrated equity risk. But I think Japan continues to bear some food and will continue to have an overweight there through coming quarters.
Some pretty decent fruit, that's for sure. Kate Moore of black Rock. Congrats on a call, Big call Japan. Just massive out performance year today so far,