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Terminal and the Bloomberg Business App. J Pilowski of TPW Jay remember when summer was boor and wasn't that great? There is nothing boring about this right now, is there?
No? Not at all? John.
It's been really a crazy market just in the last couple of days, going back the last couple of months. I mean, when you talk about just as the crescendo about a narrow market in bad breath reaches its peak, right boom, massive reversal.
Huge move in small caps that we can talk about throughout this morning, needs to talk about the politics as well, Ja, So let's get into it. The former president addressing the Republican Convention a little bit later, we need to talk about the pressure building on Joe Biden. The dam is breaking big time, and I'll go through just some of the reports we've had, not in the last twenty four hours,
in the last twelve hours. This from ABC News reporting that both Senate Majority Leader Chuck Schumer and Minority Leader of the House at King Jeffries have indicated to the president it's time to step aside. CNN reporting the former House Speaker Nancy Pelosi is basically told President Biden the same thing in private conversation Semophore yesterday afternoon as well, Jay reporting that the campaign funding is essentially drying up. Has the pressure ever been greater on this president?
Yeah?
It's interesting, right, John, because I think Joe Biden is a fighter, and this is all making him dig in.
Seems to be the case so far. And what's really surprising to me is you have this massive push, but on the other side of it, you have things like five thirty eight and they're pulling on the electoral college, which suggests Joe Biden today if the election was held today, Joe Biden would win with two hundred and seventy seven electoral votes versus two sixty three for former President Trump, and yet that seems to get lost in the perspective.
The other thing that I think is really powerful, and I know we're going to talk about it over the course of the hour here, is that the economic policy mix between the two candidates is night and day.
And one of.
Them is very constructive for the United States, is I believe, and the other is very destructive from an economic point of view.
Would you like to tell us which one's destructive and which one's constructive.
Well, it's not just me, right, I mean, if you look at Goldman Sachs, if you look at Moody's, if you look at the Peterson Institute, if you look at sixteen Nobel laureates all have come out and said that Donald Trump's plan is bad for the United States. It means lower growth, it means higher inflation.
Right.
You have mass deportations that throws a wrench into the labor market.
You have tariff hikes, you have.
Extension of fiscal of tax cuts, you have essentially fiscal and continents. And I think it's sets up the real risk of a dollar crash, which sets the stage for a reversal of what has been a fifteen year run of massive US financial asset outperformed it.
Donnar weakness appears to be the objective of the incoming administration if they win. Are you saying that US exceptionalism dollar dominance is going to be questioned come November if Donald Trump wins.
Absolutely, that's I think that's the case, And you're already starting to see it a little bit right now. It hasn't really manifested because I think, notwithstanding the kind of the frenzy around Joe Biden, the polling.
Is not at all a suggestive of the same. Right.
Polling is extremely tight within the margin of error across the swing states as well as nationally, and so that's why I think the market hasn't quite moved in this. But it really does set the stage for things like, Okay, does this small cap rally have legs? Does this broadening out of the equity market is it sustainable?
Or do we run kind of hard.
Into the fall and then get smacked in the face with a from victory that leads people to question the policy mix of the United States and the FED gets put in a box, right, because the Fed is going to be cutting I think that's pretty clear. But if we get this situation, this worry, the dollar starts to fall, the Fed has to raise rates, the dollar continues to fall, rates have to go higher. And look, we're in a bond market that has not broken out. Equities have clearly
broken out. And by the way, it's global, right, it's not narrow. It's not the magnificent seven AQUI all country world all time highs, IFA all time highs, aqui xus two year highs, emerging market two year highs. Okay, So we're in a situation where the other countries are starting to do reasonably well, and here we call them to question the policy mix of the United States and a massively over owned asset. Right, everybody is overweight US equities,
everybody is overweight US treasuries. Okay, So you have things like the yen fair value is considered to be one hundred, it's now at.
One fifty six.
You look at the euro fair value is considered one twenty, it's at one o nine. You work at emerging market currency's absolutely bludgeoned. So I think there's it's not yet percolated in the minds of folks, but we got to be careful what we wish for if we wish for a week or dollar and we get a weeker dollar, then I think that suggests that the US is not going to be the place to be for the next several years.
We've got a stronger dollar on the screen this morning, were Firmer by tent to one percent on the Dollar Index. We've got a lot to talk about this morning too. Through the hour with Ja Piloski, you recording market on the s and P five hundred just to touch Firmer trying to crawl back inchin Kai by just two points on the SMP up my zero point zero five percent in the bond market, yields creeping higher back towards four twenty four, eighteen twenty seven. We can talk a lot
about foreign exchange. The Euro a little weaker going into that ECB decision a little bit later, Euro dollar at one on nine thirty, coming up this hour, and Marie joining us as Democratic leadership pushes Biden to step aside. Shila Coolu, Jeffries as deep discounting hits the airlines, and Louke kickmore of Aberdeen looking for a super September for global rate cuts. We begin with our top story, Biden can't catch a break. Just as illness forces the President
to leave the campaign trail, the damn breaks. ABC News reporting both Senate Majority Leader Chuck Schumer and House Minority Leader Haqem Jeffries have indicated to President Biden it might be best to step aside. Am re joined us now from the R and C in Milwaukee, Wisconsin, and Marie, before we get to the events of where you are, we need to talk about what's happening elsewhere. How great is the pressure on President Biden to make a move.
It's intensifying, that's for sure. Over the past twenty four hours. He had a really rough twenty four hours. Not to mention that the White House came out and said he tested positive for COVID nineteen. It is not just Senate Majority Leader Chuck Schumer going to Rehoba Beach over the weekend telling him we think you need to step aside, or the fact that Hakeem Jeffries as well, the House Minority Leader, saying to the President, if you stay in this race, this is going to hurt down ballot. This
might mean we can lose the House. But then you have former Speaker of the House Nancy Pelosi. According to CNN, according to Politico, also having a direct conversation with the President saying, look, you're polling shows that this is going to be a loss against former President Donald Trump, and you are going to really ruin the ticket for House members.
So these are three top Democrats. Now they're not saying this publicly, although if you read their statements of denials, these are not exactly straightforward denials to the press that these conversations took place. But what you are seeing is top three Democrats, especially Speaker Pelosi, who's very close to the President, telling him directly face to face that we think you need.
To step aside.
Now.
The President is now isolating. He's back in Delaware, and I think the next few days we should note who he is meeting with. Is there going to be a family powwow? And could this potentially can he heed these calls and step aside at the moment, though it does sound like he is defiant. When you ask the White House what is going on, they say, this is his race. He's sticking with it. He has the delegates, and he will be on the ticket November fifth.
Je Marie, I think that's really interesting. Jay Puloski here, I know, we like to talk to geopolitics.
You know, it's funny. I think that Joe Biden.
Is a fighter, right, and all this pressure is forcing him to dig in deeper.
You talk about the down ballots.
It's interesting, right, because when you look at the Senate races in the swing states, Democrats are pulling considerably above the Republican candidates. So in the Senate, which is arguably more important for the Democrats to hold than taking the House, they actually seem to be doing well. Biden, truly, as you note, is not pulling as well as those candidates. So I wonder if we're not getting over our skis a little bit and talking about Biden stepping away.
Well, you're one hundred percent right that Biden is a fighter, and this is a man who's fueled really by the complications in his life, and he talks about the trial tribulations of his life and then he's always able to overcome it. He thinks he's still in the best position to beat Donald Trump when it comes to some of these swing states. This is where he's really struggling. But you're right, a lot of this is in the margin of error when you look at some of the different polling.
But that is why you see the concern of individuals on the ballot, whether they're running for Senate, whether they're running for Congress, they think that Biden is actually potentially going to hurt their chances. There's something else that I think we should take it to consideration. Biden has changed his message three different times. When asked what would it take to drop out when he sat down with ABC.
In that interview, he said he could only be convinced if the Lord Almighty came down and said, Joe get out of the race. Then the NATO press conference about a week later, he was pressed on this issue.
I was in the room, This was.
All anyone cared about, and he said, no, there's nothing that can make me get out of the race, except maybe they came back and they said there's no way to win.
The polls.
He says, if his team came to me and said the polls show there's no way to win, then In an interview with Beet that was on display last night was broadcasting is supposed to be this counter programming to the RNC, He said, if he had some sort of medical condition that emerged, if someone if doctors came to me and said, you got this problem and that problem anyway, he said that would potentially be a reason why drop out.
So I do think there is a little bit more of wiggle room now because Joe Biden himself has changed the reasoning why he would get out of this race.
And right after we saw those comments about the potential of a medical problem taking him out of the race, he gets a COVID diagnosis. Can we just look at
the compare and contrast. It could not be staker Saturday evening, an attempt at assassination on the form of President of the United States walks away from it with this fists raised, American flag waving in the background, compared to say this and re I understand this brutal, But look at the pictures of yesterday evening, Yesterday afternoon, President Biden contracting COVID no musk, struggling to walk up the steps of Air Force one a little bit later on this evening, This
president won't be able to count a program the former president of the United States when he addresses the RNC. How stark is that contrast going to be?
It's incredibly stark because you also have a Republican party that's trying to tone down the rhetoric at this RNC, and they're trying to unify really the Maga wing of the party, this trump Ism that many Hawks and many fiscally conservative and more moderate Republicans were hoping potentially this would basically no longer be the brand of the Republican Party unless Trump was top of the ticket. But yesterday and that speech from JD Vance that just showed that Maga and trump Ism is.
Here to stay.
The populous wing of this Republican Party is now the majority of the Republican Party with this ticket, and this evening, we're just going to see that tonight with President Trump coming to the stage and formally accepting his party's nominee to face off against potentially what will be Joe Biden November fifth, and he's probably going to put his fist in the air and say fight, fight, fight, like he
did after that former that assassination attempt on Saturday. And then in contrast to President Joe Biden, who cannot counter programming because he's self isolating in Delaware. And then it's just a drip treat of reports that members of his own party, senior members of his own party, and some of them who really love the president, like Nancy Pelosi, are telling him, we think it's time you step aside.
Let's get into that address a little bit later. Let's talk about that and finish there. I want to talk about policy on Wall Street. For a long long time, we've always thought of the Republican Party is pro business. And you and I have been talking about this now for a number of weeks, been talking about how pro business this Republican administration may actually turn out to be.
What is going to be in the address a little bit late to maybe settle that school on that front, Well, it's very different.
I think if you hear what jd Vance has to say his VP pick and what President Trump has to say. So jd Vance last night said this is no longer the party of Wall Street. This is the party of the working class. He called out auto workers in Michigan,
factory workers in Wisconsin, and energy workers in Pennsylvania. Donald Trump likely chose him to park him in these three states to try to win the election, because if Joe Biden cannot hold the Russ Belt, if he cannot hold the Blue Wall, then he is not winning re election. To see the White House again, but Donald Trump is going to go to the stage today after an interview with Bloomberg business Week, and he said he'd actually like the corporate tax rate at fifteen percent. So I am
struggling in all of my conversations here. And I had this conversation yesterday with Virginia Governor Glenn Younkin, who they think Virginia is definitely in play when it comes to Republican Party about which Republican Party is good for business? And honestly, Jonathan, I still don't know the answer. It really depends who you ask, because someone like JD. Van's wants to see a higher corporate tax rate, while the top of the ticket wants as low as fifteen percent. So we're still struggling to.
Figure this out.
One thing that I'm continuously told when I ask about some of the rhetoric from Jdvans about the business community, everyone says the same thing. It's Trump's party. Jdvans is going to.
Get in line.
I might on the lights said the Republican Convention. I'm Marie, thank you.
Jay.
That's a question we keep asking just how business friendly is is government going to be if they get back into power.
I think that there's a queer distinction between the two candidates and their economic policy.
Ms.
Biden has been probably the most successful president in terms of economic policy and outcomes in.
Fifty years or more.
Right and President former President Trump, I think is his policy mix is basically fiscal incontinence, where you're talking about mass deportation that destroyed the labor market, You're talking about raising tariff sixty percent, you're talking about extending tax cuts,
you're talking about cutting taxes even further. So I think the situation is setting up for really it could be a significant shift, in a significant surprise in terms of the dollar, because if the dollar weekends, when we blow out the physical deficit here, the bed is in a box. I think people start to get worried about policy confusion and chaos, which was kind of the motif of the
Trump first administration. Then I think you have a situation where you have a massively over owned asset, which is US financial assets represented.
By the dollar, that could roll over. It's at one oh four to one oh three.
People target ninety as a reasonable place if it really does start to sell off.
J Piloskiv TPW Advisory is still optimistic. Rights In this they say rotation is the lifebud of Bullmark, and it sure seems like a broadening gown in rotation to x Tech would go a long way to sustaining the bull Jays. With us around the table through the rest of this hour, Jay, I want to talk about one name in particular, before we've broaden out ourselves. I want to talk about Taiwan Semi time on Semi gets Hamma yesterday. But this is a company putting up real numbers just this morning. This
is what we learned. They now expect sales to grow more than the maximum mid twenty percent it had guided towards previously with things that buy yesterday for you, Yes.
They were, John, I think you know markets that really extended. You live by the sword, you die by the sword. Right, So when you're up twenty thirty percent in a matter of a month or two, you come you pull back eight percent a day.
That's just kind of normal.
But the point you're making is fundamentally, these are solid, fast, rapidly growing stories.
Which are unique in the world.
Right, You're talking about forecasts that were made a couple of months ago, and they're already beating them and raising them.
And this is a story we've seen with.
N Video and other chip makers that are involved in AI for a year now, right, and so you've had massive moves, but the stocks are actually cheaper now than they were a year ago because earnings have outpaced the stock price appreciation. And so we have been and continue to be big believers in AI and big believers in the idea of the pick and shovel.
Right.
The pick and shovel for AI is the semiconductor space, and so when you have pullbacks, those are opportunities to.
Add in our views.
So this is what we've been rotating away from in the last week. Let's talk about what we've been rotating towards small caps. I've had questions around this table, conversations about whether we're going into a small cap presidency with Donald Trump the president in the White House, heading up the United States and driving small business in America and punishing big business big tech in particular. How do you frame that one?
Yeah, I look at it differently.
I look at it that small caps are big beneficiaries of lower interest rates. Right, fifty percent of small cap debt is floating rate versus ten percent for large cap, So they are big beneficiaries. And so we've seen this movie. We saw it in the fall. Right, small caps at are twenty seven percent move in three months October to December. I think they're set up for something similar. Small caps today trade at ten times twenty twenty five earnings on
a medium basis, That is extremely cheap. They're massively under owned. Right, there's a massive short which is why this is moved so fast. Right, This is always the case. Right, it's a massive short covering, but you have fundamentals again like DSMC to support it. The other thing that I think is really really interesting, John, is that things are broadening out right. We just updated our model portfolios at TPW Advisory, and I go through all the positions, all the indices,
and all the things we're thinking about. And what's interesting to me is that thematics are breaking out right. You look at biotech, you look at things like robotics, you look at things like security, cybersecurity, they're all breaking out to new all time highs. You also look at things like infrastructure and cap X. Right, we saw the industrial production numbers yesterday. Infrastructure pave all time highs, XLI all time highs, which is a smart energy for the grid system,
all time highs. And so to me, you're looking at a situation where there's multiple parts of the market starting to move in unison higher and it's not just the Magnificent seven anymore. And to me, that's a much more robust, much healthier market. Now, as we talked about it the open whether with a Donald Trump, should he win, whether that sustains, I think is a very real question.
That's a good thing, so long as we are going into an economic answer, just cyclicals for an example, Let's take the likes of Delta United in the last twenty four hours. They're warning about discounting, they're wanting about driving down prices going for the summer. That shouldn't be happening if this economy is hold enough, should it.
Yeah?
It's so interesting, right because we ran airlines and jets for quite some time as a reopening play coming out of COVID.
And they really just didn't work.
And they still don't work, even though you read about tourism US citizens going abroad in record numbers this year, and yet it obviously doesn't seem be enough for the airlines to make money. And so I think it's it's it's interesting, but I think it's an anomaly. If you work at broader issues like you look at retail sales
the other day. Consumer is still strong, right, you have real wage growth, you have record loan unemployment or close to it, you have disposable income rising, and so consumption I think is fine. And what's interesting is are we having the manufacturing sector starting to catch up and give us another.
Leg to banter japerslk Gen writing this well, recent data is supportive of rate cuts sooner than we anticipated. The market might be getting ahead of itself, pricing more than three cuts by January and nearly six cuts by the middle of twenty twenty five. Stres with us for more Sabatric and Morning Good Mine the official house called at salt Gen was no cuts yep this year. It feels
like September might happen before we get there. I want to talk about the biger you from you and the tea challenging really this view that once you stop, they keep going. What's the pushback to that?
The fact that the data has been relatively strong, right, it's it's something that the FED has to kind of recalibrate as we go along. If you listen to what you know. Fed Chair Williams. I'm sorry, Williams, the FED president said. He basically said that, you know that they're trying to move into less restrictive policy, so they're not really talking about embarking on a very aggressive path of rate cuts or even any sort of a you know, a cadence of once a meeting or once a quarter.
So they're going to be very very data dependent once they start. So you know, kind of drawing the analogy with the ECB. They cut rates in June, and some often rightfully called it a data independent rate cut, so you know, again coming into the end of the year, they're going to be faced with questions about unit labor costs and how the data is progressing. So it's not certain to us that the ECB is going to be
cutting every meeting. So the FED might very well be in the same situation where they're going to have to recalibrate as we go along, as they move away from from restrictive policy.
There might be something else they need to consider as well, And Robert Kaplan talked about it. If you're a current FED official you want to touch this subject. Former FED officials can dance around it a little bit more. I guess if new policies come out, it'll take some time for them to digest those, and that may affect their next decisions. How important is November as a date for how you think about twenty twenty five?
So the November elections I think are very very meaningful. I think that after they cut in September, it'll be interesting to see how they message their policy path from there on. You know, the market I think is aggressively pricing in for several cuts between between now and January. That feels like it's a little bit too much, But really the outcome of the elections I think are going to be very key on how they think about policy
after November. So the you know, the the Trump administration is talking about, you know, higher tariffs, you know, the debt and deficits picture is something that they're going to be very focused on as well. So, you know, it's something that the power, the the the FED is going to have to be more attention to. Is not just a monettery side, but also the general trajectory for the for the fiscal side of things.
You know, it's interesting because both the ECB and the FED have had calls of being political different flavors. For the ECB, it's that by cutting, you're acting as a king maker. You're letting these governments come in run really high deficits and again you're saving them by cutting. If we're in a position we're in November, we get a Trump presidency and we know that's going to be the policy, we know the deficit is going to be higher, and the Fed is still cutting.
Is that a problem?
Are they doing the same thing that's accused of the that the ECB is being accused of doing.
So, you know, the trajectory for debton deficits is quite dire regardless of who gets elected, whether it's it's Trump or Biden. I think that that's something that the next administration is going to have to address. So it's not really the purvey of one, you know, party or the other. And I think that that's why I think it makes it very tricky for the FED to be able to
cut rates. You know, in an environment where debton deficits are and long end yields could potentially arise of the market and the bond vigilanties start to kind of push back on the narrative that's coming and coming put forth by the administrations that come to power. So I think that they're going to be very very careful about policy adjustments. It's going to be more about moving away from restrictive
policy as opposed to embarking on several rate cuts. I mean, the last leg of inflation is going to be kind of tricky. Again. You're talking about, you know, infation getting from three percent to two percent. That pathway is probably going to be a lot slower than people anticipate. So the first rate cuts, you know, will kind of signal that they're willing to do more, but whether they deliver on that really depends on the data.
That idea that you mentioned that the bond of vigilantes are going to come in if there's government spending that they don't like. To your point, we already know there's going to be a lot of spending, and with that backdrop, sure there's been some curve steepeners, but we still get a twenty year auction yesterday that's absorbed really well. There's
clearly still demand for duration. So how big of a risk you actually think that is that at some point this bond market might try to punish too much spending from the government.
So at an environment where the data is starting to weaken, you are going to see the market rallying and bondiles
coming down. If anything, I'd say in the last you know, three to four weeks, what we have seen is the market kind of getting ahead of itself, pricing in the Trump trade, the five series part of the curve steepening out quite meaningfully, and in the last week I'd say there's been a little bit of a rethink and profit taking on those trades, and as the market positions for Ray cuts, you're going to see that decline in yields heading into the elections. This has been our call all
along is that TENNY yields will start to decline. We'll get TENNY yels around four percent by the elections or the end of the year, and then after that is when you'll start seeing the selloff led by the back end because of debt and deficits. There's really not any willingness on either party to really address the debt and deficit issues, and there's not really that much room, i would argue, for cuts and spending. So it's going to be very very interesting to see how the next administration
deals with the issues. On debton deficits and how much the bond market is going to push back on that narrative.
That's an important phrase and deficits, So let me get this right. Rallianto November, yourself coming down in November. We've been trying to work out if we get higher yields, is it because of a better growth profile, higher inflation, or because of supply. Do you think it's just about supply or do we get a higher bump of inflation as well? Do we get higher interest rates from the Federal Reserve too? How do you think about those other parts of this?
So I think it's going to be a combination of factors, John, and I think you're right to point out that part of that could be because of the stimulative effects you're getting from rate cuts. So if the market starts to look towards you know, especially at a time when the economy is relatively strong, this is a very unusual cycle, at least in my career. I haven't seen one where the Fed is cutting rates to get policy out of restrictive territory and not cutting rates because we're heading into
some sort of a crisis or a meaningful recession. So in that sort of context. They have to be very very careful if they cut too aggressively, that could again lead to frauth in the market. We've already seen an easing of financial conditions. You know, if you look at the equity markets, it's extraordinarily you know, it's performing really well. Credits are very very tight, so you're looking and the dollar is very strong. So all of these metrics lead
us to believe that financial conditions are easy. So they have to be careful about cutting and not causing financial conditions to ease further. And if that would happened, and if growth actually starts to pick up, and we see what we saw in the first month of the year, the first few months of the year, you could actually see you yields rise.
Super unfair to once for number. But I've got a once for number. So we run it down to four percent on tens, what do we sell off to. We're threatening five again on a ten year in America.
Probably at least our forecasts are foretelling it's getting back towards four and a half percent by the middle of next year. Again, it's you know, the policies put forth by the administration to come is going to dictate how much of a selloff we see, and it also depends on the trajectory for the economy. So a modest sell off from here on makes sense for us to get
from four and a half to five percent. You're going to really need to see a perhaps a further degeneration in the outlook for a fiscal policy.
Sabanthra super thoughtful. It's going to say thank you, Sabata Jampether of selk Gen. Chris Harvey off wels Fargo saying this what looked like a popped last week has indeed become a rotation driven by Trump's polling and policies. We are confident regulatory pressure has crested, and we upgreat banks to outperform. Chris joins us for more. Chris is good to see you. It's good to see this is a change for you and a short amount of time as well.
It is a change, right.
We didn't expect what happened this weekend to happen, and what that did. It made the probability of Trump taking the presidentship from likely to highly likely. And then suddenly we weren't talking about the fundamentals anymore. We were talking about policies. We were talking about tariffs, we were talking about taxes, where we're talking about regulation. And when you talk to people, and I'm sure you've had lots of conversations, get you have ten different ten different conversations, you get
ten different answers. Rates are going higher, rates are going lower. The curve's going to step, and the curve is going to invert. We're going to have inflation. We're not going to have inflation. The only thing that we're confident in is that we've crested on the regulatory side.
Right.
It was already occurring with some of the things with Basil III, it was occurring with Chevron, But now that it looks like the Trump Trump administration is going back in it is something that we think is long and exploitable, which was a.
Catalyst we needed to upgrade banks.
How broad is this bank's co Is it launch caps and regional is one or the other.
It's starting with large cap, But really we like the banks, we like the financial space, and the regulation is going to help the group across the board. It's going to help multiples, right. Ultimately, I think it's going to help earnings as well.
But the issue is that.
It's multiples and you can start to price that in and it's already beginning.
We can talk as much as.
We want about trade and tariff, but the regulatory environment is already changing.
So having a vice presidential candidate who talks about Wall Street barons saying you won't cater to Wall Street? Do you just write that office campaign rhetoric.
I wouldn't.
No, I wouldn't write that office campaign rhetoric. Right, there's going to be a lot of push and there's going to be a lot of pull. Jd Vance is new to the platform, and so there's going to be some I think there's also going to be some growing pains, and he has some very strong opinions. I don't dismiss that, right. But what they talk about and what I think is going to come through and is coming through, is it's America first, right, and so it's domestic companies over global companies.
There's a talk.
About being pro cyclical, and so it's more about economically sensitive names, at least in the short term than your growth names. And also with the regulation, it's more about the capital markets, whether it's companies with M and A or IPOs or just multiple revow valuation across the financial and banking space in that.
Trade of American companies versus abroad. Full on display yesterday where you get the TSMC's the world. Those chip makers are falling, and Intel does find it kind of trades Water does that kind of rally have legs.
So yesterday was a really interesting one because you're right, everything went down and so there wasn't a whole lot of discrimination. And if you look across tech, there's certain tech, more so on the hardware semi side that you would punish or weigh on a little bit more than you would on the services and software side. But everything went down, and I think it's just going to take a while for the market to really discriminate. And the other thing
is we're going we saw this last time. We're going to have a number of iterations. There's going to be a number of things out in the public that we talk about. It's going to be ten percent, it's going to be these companies, it's going to be that come this industry, and it's going to change over time and the markets reacting. But what the market is saying is, hey, we went from a likely change in administrations to a highly likely change administration. And the views here are much different.
So we need to price those in just to get a bit of nu ones fo you from you and pin you down a little bit. What is the difference between sort of this traditional rotation and a pure Trump trade. What's the difference between it's.
So traditional rotation. So I think there are two things. So last week what we were saying and we were wrong about this. Hey, the rotation is not going to happen because it's not fundamentally driven. The fundamentals just aren't there, right, Because what we're seeing is if you look at surprise indicies, they're rolling over right. If you look at the reaction to bad news, companies are reacting poorly to bad news.
But then you had the weekend and all of a sudden, the political environment just changed, right, And this week it was all about almost all about the political So I think the only thing that's really long tailed nature are things that touch that regulatory environment. As far as the fundamentals, we need to start digesting the fundamentals, and I still think the fundamentals favor your larger cap and your growth.
Your names we'll see, right, But until we see the fundamentals change, I'm still not entirely sure that you're going to see the broadening out that a lot of people hope.
So let's park the banks right dory story that you've got confidence on. I'm not just in your recession. I think it's a fact character by some what you've just said as well, a little bit nervous about incoming gaining so far. It likes a doubt set what we had from United yesterday pepsi as well. What do you say in in those stories?
It's not great?
Right, So the economy is not as strong as I think people expected. And what you're seeing is, you know, if you look at the beginning of the year, a lot of economists I think that the forecast was for like one or one, one, two, and it doubled, but economic strength did not double. And what happened was people took out the recession.
Forecast, right.
It wasn't oh my god, the economy is so strong, it said, and we're not going to have a recession.
Right.
And now what we're looking at is, hey, we didn't expect the FED to be as strong or as tight as they have been, and that that's starting to eat into the psyche. What's also happening is you're having inflation fatigue, and you're also saying that companies have been pushing price and individuals are beginning to push back, right, and so now you really can't have And what we say is the economy is not going to value out. People think the economy is accelerating, I just don't see it, and
so we need things to slow down. And what we've had is we had a bump because of the Trump trade, but it's really not supported by the fundamentals.
So there are people who say, it's not the economy that's going to save us, it's the FED that's going to save us. And we're going to get some Fed FED cuts rather, and that means that for these small caps that have floating rate debt, they're all going to be saved.
Yeah, fair point.
Right, So we were oversold, we had an oversold bounce. Now, this is probably the oddest easing cycle I've ever seen. Right, Typically when you enter an easing cycle, things are really bad. The Fed's cutting because either there's a liquidity issue or the economy slowing down. Here, they're just saying, hey, we're going to start cutting. So how are they going to cut twenty five basis points here twenty five basis points there? Is that really aggressive enough to change the economy?
I don't think so.
Is that enough to change an oversold condition to something a little bit better?
Yeah? I think so.
But until you see the economy is starting to reaccelerate, it's really hard for these smaller cap companies that have a tremendous amount of balance sheet and operational leverage to outperform for a sustained period of time recap growth.
You've heard some of these simplastic sort of commentary we've heard over the last couple of weeks as well, which is sort of buy everything else, leave big techet behind, buy everything else? Can you tell us not just what you want to buy banks? What wouldn't you touch? What would you tell our audience this morning as everyone gets wrapped up in the everything house rally?
What should they avoid? Yeah, so we're still not fans of commoding commodity related stocks. If you're going to a period where inflation is lower, I'm not really sure how that works. Also, we don't think the economy is accelerating. Those are places where where we don't want to be. So we're still underweight energy and we think that's going to be a difficult spot. So anything commodity commodity related, you know, in an inflation or non inflation or environment, I just don't see how it works.
Chris, it's going to see I've bred in the banks. Thank you, sir, Thank you, Chris Harvey.
There.
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Mm hmm