Bloomberg Audio Studios, Podcasts, radio News.
This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business App. Here's an update on
the Book of America Global Fund Manager survey. It captures a big bullish shift and investor sentiment, showing the biggest jump in investor optimism since June twenty twenty and the largest jump in global growth expectation since May of the same year. To dig deeper into the results into the survey, Elias Galuo of Bank of America Securities joins us now for more. Alius, Welcome to the program, sir, this is bullish. My first question to you is it little bit too bullish?
Hi?
John, Look, I mean this was really a global fund manager survey for the Books. As you just said, you know, one of the biggest rides ever in global growth expectation. Look, this is a series that goes back all the way to nineteen ninety four and we saw the in fact, the fifth largest monthly jump in a growth expectation in the past thirty years. So yes, definitely a bullish survey.
And for the first time in the past three years, positioning is also equally bullish, and I would say that yes, the bulls are very much in control and have clearly led the charge in the past month.
Elias John pointed to this before this idea that Max Ketner over HSBC actually sees pretty neutral positioning and you're talking about pretty bullish positioning. Which is it.
You just need to look at a few different metrics across the glos for Manager survey to just see bullishness is very much spread across the different asset classes. The most important, I would say is the FMS cash level, again a series that goes back all the way to the late twentieth century, and that FMS cash level dropped below four percent to three point nine percent for the first time since June twenty twenty one. We use it as a contrarian indicator when investors are under invested in
the market, hence the cash level. Above five percent, we think that you should buy the market, and when it drops below four percent, we think you should sell the market. And at this stage, our FMS cash rule says that at this juncture, positioning is becoming a headwind. You also look at the cross asset allocation. Equities allocation rose to net thirty one percent overweight, and that's the largest one
month jump in equity exposure since November twenty twenty. On the other hand, we saw a big decline in bond allocation, in fact, the largest one month decline in bond a location that we ever recorded. And the velocity of the rotation was also quite exceptional. Across markets. EM equities were the big winners, with a twenty point rise in exposure to em stocker location. And that's really related to the China stimulus.
That's what I was going to ask. Was it really just the China stimulus that ignited this rotation, this unleashing of truly bullish spirits, or is it a combination of things.
It is definitely the China stimilus, but it's really the combination of three factors. Number one is that the conviction regarding global soft lending remains very much intact. Seventy six percent of FMS investors still believe the global economy will experience a soft lending. Note that the balance of risk has shifted to the upside because now the alternative scenario is no more hard landing, it's no lending. The second big reason LISA is related to a big FED cut expectation.
FMS investors expect roughly one hundred and sixty BIPs of cuts from the Federal Reserve in the next twelve months. That's pretty much in line with market expectation. And lastly, of course, the China stimulus, which really is seen as a GameChanger because when you and I met a month ago, China growth expectation had hit a three year low. Fast forward to today, than now the highest they have been since April twenty three.
If you're one of those contraris taking on the hard landing or no landing scenario, what does that mean for trade? These individuals, these investors want to put on.
Yes, definitely, Who are the contrariants today that would believe hard lending is their main scenario and also those that would expect a no lending to happen in twenty twenty five. But if you are a hard lending believer, then definitely you should go a long the thirty year treasury. You should pivot into defensives, you should pivot into cash, and you should really slash your location to equities and risk asset in general.
Oh yes, we just I want to get your thoughts on what are investors, given how bullish they are, what are they nervous about?
We always ask in the FMS the main tail risk for according to investors, and this month it was a geopolitical conflict. They are still a little bit worried about inflation, but definitely less worried about US economic hard lending. So yes, geopolitical conflict. And I would say, on the other hand, what would really scare investors is that if central banks do not deliver the big easing that they are expecting. A month ago we said that investors were nervous bulls.
Now they have just become bulls that are leading the charge. I mean, it would definitely still be about geopolitics and about inflation.
Alas you can see that bull as shift big time in the Fund Manager survey. Appreciate an update from you as always, Sir Alis Kalu, the Bank for America Securities, the Bridy, and Julia Coronado joins us now for more. Julia, welcome back to the program. It's been far too long. Let's talk about the next job's report, not the last one.
Governor Wallas all come out already and set the bar just a little bit lower, given some of the effects we could get from hurricanes and a strikeover a Boeing, how much low would you think the bar needs to be reset going into November.
Look, I feel like a twenty five basis point rate cut by the Fed in November is pretty much I would I don't want to say a lock that's too strong, but the bar is very high. To deviate from that. The data is going to be messy. We all know that it's going to look weaker than it actually is, and it's just going to take some time to sort
it out. I think the Fed has seen ena in the backward looking data that the economy is solid enough that they don't need to worry about it falling off a cliff, but nor is it overheating in a way that they need to maybe consider a pause. So I think we're still look, we're still one hundred basis points at least from any concept of neutral. They don't need to be in a hurry, but nor do they need to be overly cautious or reactive to any inflation print.
Well, it did put a number on it. He said it could be around one hundred k. We could take off one hundred k from the number. Are you in a similar ballpark with you in the team? Is that what you're looking for?
Yeah, I mean it's hard to calibrate right now. Honestly, we're still gauging from jobless claims and other reports about how much disruption there's going to be. It's very limited ability to see that in advance. So again it's just going to take some time. But one hundred k, I mean, certainly, given the Boeing strike, which we can calibrate, that sounds about right somewhere in that ballpark. It could be bigger, it could be small, and then it'll wash back and
in the November jobs report. So we're just going to have to see how that sort of nets out over time.
Julia, what are you looking for in retail sales tomorrow? And I see this especially after bank earnings that demonstrate just how solid consumers are and the ability that they have to actually continue to lever up.
Yeah, lever up is an interesting term. Consumers really aren't borrowing excessively debt to income. Actually, in the latest flow of funds report went down, so this is not a consumer that's necessarily relying on debt to finance its spending. I think what we have is a dual consumer sort of increasing divide in the consumer sector, where you've got people that maybe didn't get as big a raise this year, they've got a tailwind from inflation, but they're very budget conscious.
We hear that from retailers, so they're spending but very cautiously. And then we've got the upper end of consumers who are feeling really good because network is very high, financial conditions are easy, and there may be spending a little bit more, but they also have the means to do so. So on balance, you've got a median consumer that's probably a little bit more stretched than they were a year ago,
maybe a bit more cautious. But on the other hand, you've got high end consumers that are doing just fine, thank you very much, and that's enough to power the economy forward. So we've had a string of very solid retail sales reports. There's no signs that were of some sort of imminent collapse. I think expectations for the holiday season or that it'll be fine, not a blowout, not a disaster. So I think the economy is kind of in a good, solid zone, which.
Is certainly what we're hearing reflected by a number of Fed members who want to keep it that way and want to keep cutting rates in tandem with inflation coming down, Which really brings me to this question of why do you think that people are so confident about the path of disinflation now versus say a month ago. What has changed to make the prospects of inflation remaining at this level or actually to go higher. Why is that now off the table.
I wouldn't say it's off the table. I would just say the chances of that keep going down the composition of inflation, and I think President Daily noted this yesterday. One area that's really improved this year is supercore inflation, particularly in the FEDS preferred PCE measure, really has kind of come off that stickiness. It was in the sticky zone. It wasn't clear how quickly that would moderate. We are seeing progress there. We are seeing progress gradually in the
shelter component and housing inflation. So just the composition of inflation looks a lot better, a lot healthier, a lot more like it did before the pandemic, and so the risks of it getting stuck too high are just going down. And then if you think about things like commodity prices, look at how many global shocks we are absorbing, one after another, and yet commodity prices really it's the dog that hasn't barked this year. It's gone up and it's gone down, but really we're still in the same zone
on energy prices we've been all year. So yes, there's risks, always risks, but I think a cooling China has really taken the edge off of what we might have otherwise seen in terms of input costs coming through from from those global shocks.
Julia, we are less than four weeks, about three weeks away from the US election, and a big question is US is on solid footing. How different are the scenarios in terms of the policy frameworks after November fifth? What are you looking for? How different could these two economic scenarios be according to your models?
Yeah, it's an unusual divide for you know, most presidential elections. It's a little bit around the edges, right, a little bit more tax cuts versus spending. We're talking about a very different scenario in a Trump two point zero. A Trump two points wouldn't look like a Trump one point zero, The staffing wouldn't be the same. The blueprint for policy is certainly a lot more extreme than what he was able to do in his first term. I see it
as a pretty disruptive scenario. It would see. His plan is to invoke a global trade war from the get go and to be you know, turn off that flow of immigration that's been quite a tailwind for the macro economy, and not only turn off the flow of new immigrants, but even mass deportation of current immigrants, and that really has been the saving grace of the US labor market. So under a Harris administration, I think we keep rolling along. It's pretty much status quo. The composition of Congress is
going to matter a lot under either scenario. But I would say, you know, the Trump two point zero scenario is a much more uncertain scenario, much more disruptive, not just for the US but for the global economy.
Judia, I appreciate you. If you it's going to catch up. Jidda Karananda of macro Policical Space. We begin this out with stocks looking for a firmer footing as earnings from ASML spook Tech Investors, the manufacturer of the world's most advanced chip maker machines, booking only about half the orders analysts had expected and cutting its guidance for the year ahead. Joining us now to discuss is Keith Learner of Truist. Keith, Welcome to the program, sir. This market was spook yesterday
by that one name and by those earnings. How spooked were you?
Well, first, great to be with you.
I don't know that I'm spooked.
I think listen, it was a bad print as far as earnings. But you know, this market keeps changing narratives. You know, you think about the border market. You know, one month we're growing too slow, heading to a recession for the for the US. Next month we're growing too strong,
and then we're the chips. It's kind of similar, right, I mean, about two weeks ago we were talking about Micron talking about how much the man there was from memory and upgrading their forecast, and then in the stocks jumping, and then also context wise in video, you know since early September that kind of after that sell off is up over thirty percent, semiconductors up over twenty percent, and then you have this print and we all know now
that is ML's biggest customer is China. So listen, I don't want to be complacent about it, but I'm also trying to put it in context, and I think longer term, especially on the AI side, they stole a lot of demand, don't forget remember more. One more comment is that a couple of weeks ago we were all talking about Elon Musk and Larry Ellison fighting over in video chips. So again just some context.
In case you're right. In order in video themselves have talked about massive demand, and I think you're right to identify China because speaking to that is OUTVMH OLVMH and it's big downside surprise, their sales no great, particularly in China. So Keith's people start to get excited about investing in
the rest of the world. When you think about where your buss is and I'm going through some of the details of your positioning overweight stocks, underweight cash, and you maintain a bus to lot caps, so that use launch caps in America.
Yes, I mean we've been a team USA. Talked about this on this program for several years now, Jonathan. So we're still there, I will say, on the margin, we're still you know, emerging markets. We moved out of emergent markets completely over the last couple of.
Years, and that's been the right move.
Emergent markets have been the performed by a fair out fifty percent. We upgraded emergent markets one not to here recently. Still not overweight. But I will say, I mean, if you look at the rhetoric out of China, I think that they're going to still continue to support that stock market. It got overheated. They don't want it that overheated. So you went up fifty percent, now you're down about fifteen percent. I think we're going to get more news and I
think I think that they will support their markets. So on the margin, I think a little bit better. But again, bigger picture, we are still team in the USA. I'm just making a reference to a subtle change.
Keith. We were talking earlier about the Bank of America fund manager survey and the three pillars that were really supporting the incredible bullishness that has seeped into the market for the past few weeks. One of those prongs was the China stimulus. And yet there's a really concrete question here about how much any kind of stimulus will even trickle into the global market versus just stay in China. How much can that be a pillar of optimism for US stocks.
Well, you know, we didn't need, we haven't needed the growth there for the US markets to be in this great bull market. So I don't I think this recent stimulus is a defense move by the government, but I do think it is. It is the most massive stimulus we've seen since you know, the pandemic. And I will say I think people are looking for like, you know, shifts already, like the stimulus acts with the lag mostly,
so I don't think you'renna see it over night. And I don't think it's gonna be this big global stimulus that's going to help you know, Europe to the same as sense. I think it's much more focused on stabilizing the local economy, helping the local stock market as well. So I think when people think about the stimulus, I don't think it's the stimulus that we've been accustomed to over the last two decades for China and the way that seeps into the rest of the globe.
In the meantime, Keith, we were talking about some of this. So we've seen overnight not just an ASML, but also in Nvidia. And the fact that you're seeing a one hundred and sixty billion dollars move on any given day, not necessarily on anything related to that specific business, gives a sense of how jumpy and volved all specific names have been. How do you play that, especially if you have a bullish take on it, at what points become concerning? At what point is it a buying opportunity for you?
Yeah, So speaking specifically to Tech, I mean we were overweight Tech most of the year. We downgrade in June after it got extended, and then in August on the pullback we added we added back to it. I would say, so we're still positive on Tech. We still don't think we're in a we don't think we're in an AI bubble.
And then with semiconductors specifically, like I said, they had a big move in a short period of time, So we're staying with that primary trend, which we think is up as long as the earnings continue to support meeting. We focus a lot on the forward earning estimates for the broader sector and also the industry. So far they are still stronger than the overall market. Where we would change our tune is if we see that rollover. I haven't seen it at this point, and I don't think
ASML is enough to change it. But again we'll keep an open mind as we head deep into this earning season.
This bullish has just hit a bit of a wall in the last twenty four hours, and I have to say I've identified a lot of bulletners just around the table from some of the guests we've been speaking to. Lisa. You hear it from Jonathan gallib over at UBS. It's a move to the upside in terms of their outlook, their price targets. This is from the Bank of America Fund Manager Survey. We were sharing it just yesterday on this program. The biggest jump in investor optimism since June
twenty twenty on FED cuts. The biggest jump in global growth expectation since May twenty twenty. The biggest jump in global equity allocation since June twenty twenty Keith. This came from Jonathan Krinsky over at BTIG fear of downside has left the building and fear of missing upsiders front and center. Yet we think now is the time to look tactically
at downside risk into month end. Keith, I know it's a very short time horizon, but going into the end of the month and particularly into November, how are you thinking about how to position?
Yeah, so I think I think kime frames really do. Mad of our clients aren't training for the next two weeks. But I will say I agree that sentiment is a bit of a risk here short term because you know, markets are all are all about how things come in relative to expectations. Those expectations have increased. You're also seeing that in like the put to call ratios, which are at the lowest levels since July. I will mention that
Global fund survey. You know, June of twenty twenty ultimately wasn't such a bad time to invest on a short term basis. You had a four or five percent pullback around that period. But again, remember that was the early stages of a bull market. I'm not saying with the early stage of this bull market. So I think the way I would think about it is on a short
term basis, maybe a little bit extended. Maybe you get at least one or two more hiccups around the election, but I would think that would be contained within that five maybe to ten percent. Max Side and Keepe focus on the underline trend, which is positive. I al say, in an election year. By the way, this is the strongest election we've seen for the stock market since the nineteen fifties. Normally, if you're if you've been up more than ten percent heading into into the fourth quarter, you've
been up every time. Small sample was only seven times, so I just want to be clear, So I would just say stick with the primay trend. Then we get some hiccups along the way. I would use that as an opportunity.
To add how much, Keith, does the gain of stocks come on the pain of bonds at a time where there's sort of an inflationary question mark underpinning a lot of this, and whether we're in a structurally higher inflation kind of a regime.
How much are you.
Betting on that in terms of the allocation of stocks. Really is because bonds look less appealing.
To you, well, you know, bonds have actually acted pretty well this year. They've been acted more like a diversifier. I think for the stock market to do well is really bonds could be stable because what we've seen recently is, you know, our work suggested that the fair values are right around where we are in the ten year treasury right now. So I think I think there's still some value in bonds from a diversication standpoint, There's still decent
income there. But you know where we would get more concerned is if if we started seeing yields move back up, you know, say above four fifty credit spreads start moving out as well, that would be the concern. But where they are today I don't think is a major problem. And I still say we still see relative value in the equity market just because if the economy stays more resilient, that should lead to corporate profits continue to move up.
And that's been the most stable thing we've seen in this market, right all the narratives have shifted, the earning trends for corporate America have been the most stable part of this market.
Keith, They have to say, there has been a lot of bullishness around this table, and it has been growing over the past few weeks.
This from Barry Banister just to give a.
Dose of cold water and some contrarian thought over at Stefault basically saying that the S and P could gain another ten percent this year, but then we'll plunge by some forty percent by next year, just simply because as he said, there is a cost to so much winning that basically, when you take a look at valuations, they're starting to look pretty heady. At what point do you get concerned just about valuations and enough themselves.
Yeah, listen, I think that is a tremendous analysts respect his work went out in that camp. To be frank, I mean when we look at like say ten year rolling returns or five year rolling returns, not extreme, maybe more on a short term somewhat extreme. You know, valuations are a tough thing, right because you know, valuations have changed over time, because the text sector is now you know,
thirty percent of the market. If you look back to nineteen ninety, the SMP tech sector was about six percent, right, And that's where the valuations have really expanded. On the same token, that's where the cast flow and that's where the profit margins are. So in our view, as long as the economy continues to move forward, corporate profits move forward, we can sustain somewhat of higher valuations. I think the way to think about valuation is it likely caps the
upside in some of our long term work. We actually think long term returns are actually below average on a short term basis. I think it's really difficult to use valuation to say where the market's going to be, at least in the short term as far as the next you know, six to twelve months.
Keith appreciate it, Keith Lennard of Truist. This is the Bloomberg Seventans podcast, bringing you the best in markets, economics, an gio politics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am EA, and subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app. Mm hmm