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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amerie 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. Stephanie Roth of Wolf for Research right in this data this week has been disappointing. The labor market has decelerated, but it's not clear it's getting worse. Stephanie joins us now for more. Steph goodmonic, Good morning. Any signs of stabilization.
Yeah, I mean we saw ADP looks better than where it's been. Of course, we're all now focusing on Tier three data because that's all we have to focus on.
The challenge.
Numbers have swooped a lot of people, but I have to say that is is based on headlines and we knew that ups for example, that was a big driver of the warehousing number that has happened throughout the course of this year, largely through attrition. We knew the Amazon number had come out, that was part of that the October data.
So our sense is.
That the land market has decelerated, that's what we're picking up here, but it doesn't appear to be actually necessarily getting worse. And then the picture for the economy on that go forward basis is actually pretty decent. We have likely tariff and certainty is fading to some extent.
We know that we kind of.
Have a floor in terms of tariffs. We have financial conditions have eased, we have fiscal stimulus is going to have a supporting impact on the low end consumer.
So even though we're in.
A place where the economy is kind of sluggish, the factors are looking pretty decent For twenty twenty six.
You said something about the challenger job announcements or layoff planned cuts, and I think that it's really important the idea that a bulk of this could come from UPS and Amazon, both of which were reported, and has to do with warehousing on the UPS side and artificial intelligence on the Amazon side. How much are we conflating a single name story with a broader market trend where AI has already taking people's jobs.
Yeah, I mean, I think that's the case of someone and the Amazon numbers aren't that large relative to the size of its workforce. So even though we've seen some of these layoff announcements that are tied to AI, some of this ends up coming out through attrition like the ups, and it's not entirely clear that AI has really been
taking that many jobs so far. Looking forward, it might be, but if you look at a correlation between AI usage by industry and the slowdown in payrolls growth, you don't see much of a correlation outside of tech, professional services and then a little bit of finance. So it's not necessarily the explanatory story.
Yet in the absence of non figm payrolls data, a lot of people are thinking big, asking large questions, filling
time with other things. I'm just wondering how much people are trying to understand the AI growth story and how much it's propping up and frankly masking the weakness that we're seeing in other pockets, particularly from and we keep talking about fast casual restaurants just simply because that's the data that we have, but you know, it sort of speaks to a really lopsided economy heavily weighted to the AI story.
So I mean, I think the case shaped economy story is right, but it's not necessarily the bottom part of that k is getting that much worse. We're just hearing a lot of company announcements related to that, and we don't have any other data to the up to the other side, which tends to capture the broader picture of
the consumer. And then the AI story is driving a decent portion of growth, as R estimates or that it's nearly a quarter of the growth of not maybe a tiny bit less than that, but it's certainly not half of the growth, and it is part of the economy. There are a lot of people who are employed and investing in CAPBAX and that is a support for growth that is durable.
Stephanie, I want to pick up here on your point that the market has kind of an investors have kind of moved past the tariff story. What if IEPA, though, does get struck down by the Supreme Court.
Then they'll recreate it.
So we're really talking about here is about one hundred billion dollars windfall to companies potentially depending on how this all plays out in terms of Terraff refunds.
They might be eligible to get.
Otherwise, on a forward looking basis, the Administration is likely to recreate the Terraff structure very similar to how it stands today, which is why the bond market doesn't necessarily have to react so significantly.
But it will take a lot longer to recreate that structure using two thirty, twos, three or ones. When would the hit beyond consumers if they have to recreate that structure.
I don't know if it will end up being that big.
Of a hit on consumers in the sense that companies have raised the prices, they're not going to lower the prices as the worst. We're not going to see much volatility depending on how the terra structure works. So companies have slowly moved their pricing mechanism higher. They know, especially if it ends up getting struck down, they know that
it will largely be recreated. The Administration will certainly communicate that, in which case the pricing effects will continue to kind of be the case, and then companies will maybe more slowly pass through the price increases. Our estimates suggests that about sixty a little above sixty percent of the tariffs that we that are implemented and expected have been absorbed by parts of the supply chain, so it's the exporter, the retailer, and the consumer. So we've already gone through
a lot of it. There is certainly more to come, which is why we should see upper pressure un prices for the next six months.
Was oktober Chairpound's last right cut?
No, I think he'll probably do one more, Yeah, just the one. I think he'll do one more, and then we'll probably get an additional one to two beyond that.
You see a difference between the leadership.
Once he's gone, we're gonna have a more damage fed after may or do you think it's going to be just as conflicted, just as readlocks, just as goodlocked.
I think we'll see, of course that the chair may be dubbished themselves, but that doesn't mean the committee is going to go alongside that. We've seen a committee that is certainly divided. That's been quite clear over the past
couple of months. So our expectation is they're not going to really change policy that much as a result, and yes, they probably will want to cut a couple more times beyond that, just to get to something that they think is closer to neutral, and the economy will probably be in a decent place throughout.
Much of next year.
Stay with us, mul Bloomberg saving up after this. Bran Gandra Stifel rights the following. Some Democrats will likely see Tuesday's election as a validation of that shutdown strategy. The chances of the shutdown last thing it to the next week and be umed have increased. Brian, Welcome to the program. Are you suggesting that those wins are more relevant than the potential chaos across the country's airports.
In the minds of some Democrats? Yes, I mean not all Democrats. I don't think, Jonathan, that you can paint with too broader brush. I think there are some more aggressive Democrats, some more firebrand type Democrats, who see Tuesday's results of a validation of their strategy and they think they have the wind at their back and they are going to double down and push for more.
Then you do have some moderates who want a solution.
And look, I think you can argue that you know, Tuesday's election results gave us a split view of the Democratic part nationally. Uh the firebrands one in New York, but the more moderates one in Virginia in New Jersey.
So there is a bit of.
A split among Democrats about what their strategy is going forward.
And in Virginia, the exit polls said that the shutdown was weighing on the workers, those individuals that went out to vote. Obviously, they house so many of these federal workers. Can you see Virginia senators signing up for clean resolution?
You know, it's a great question, Amory.
I mean, because Virginia is, you know, among the two one of the two states that's grand zero along with Maryland in terms of government workers. But the two Democratic senators have have pretty much held strong. I haven't detected that they're breaking from the rest of the group yet and joining the more moderates who are are pushing for a reopening.
I may be missing something on that, but they are. Those are two.
People that I would I would look to very closely to see if there's going to be a break among Democrats, if they're is going to be real progress in these talks.
You would think that Senators Kine and Warner would be front.
And the center wouldn't just be enough as an off ramp for the Democrats to get a vote Senate majority Leader Foon put a vote on the floor for the enhanced expiring healthcare subsidies or do they actually need a plan to extend them.
That's the big question again. I think it shows the split in the Democratic Party. I think this.
I think for some Centrists they would be okay with it, but the firebrands for now are pressuring them not to not to give in on that. And so so far, I think the louder voices in the party, the more aggressive voices are in the party, are winning out, you know, in terms of party unity and keeping everybody on the
same page. At some point, though, if we get into the weekend or next week and we have those those airline delays and the cuts in social safety net programs really start to get to the bone, maybe then you'll see a change in uh in tactics and strategy among the Democrats. But I gotta say, I mean, it's been impressive to watch them stay unified, whether you agree with their policy or not. Their their sense of unity has been pretty impressive throughout this.
What's your sense about the reduction in flights that we are seeing right now in the mandate coming from the FAA. Do you think that this is actually a safety issue or do you think this is trying to raise the pressure to get some sort of conclusion sooner.
Oh, I wouldn't be that cynical, Lisa. I mean, look, and I'm somebody who you know.
My flight was in canceled last night, but I ran into a bunch of delays, So I mean, I think travelers are really going to start to feel it. But no, there's politics going on here. You know, let's go back to Casavlonica. Shock that there's gambling going on. I'm shocked that there's that there's politics going on here. I'm sure there is a level of safety uh at work here, but there's a level of politics as well.
So you're not that cynical, but it could be true, right, I am curious, but I am curious. You know, there was this move yesterday that I thought was pretty telling when senators, Republican senators push back against President Trump, and after that breakfast they signaled that they were not going to nuke the filibuster akin to what he was looking for.
How big of a deal is that?
In longer term, it's a big deal because it has ramifications for both parties going forward in the short term.
You know, I think it's starting to signal that and we have to read this in the.
Context of Tuesday's results, that some Republicans are going to start to look in terms of self preservation and they're not going to be as locked up with the White House as they have been, and they probably are going to feel a little bit more looking longer term to what's in their best interest, not just what their relationship is like with the White House at any given moment.
Brian, if you go to hotel, it's the one on the Canada.
No.
I mean, Jonathan, I could, I could give you, you know, Monday or Tuesday. But you know, I was so wrong at the beginning of the shutdown when I really thought it was going to be a shorter uh stalemate than it has.
Proven to be.
And I think, not just me, but talking to people up on the hill, I think they've given up on trying to handicap this as well. I thought it, you know, after Tuesday, I thought it would go into the weekend. I think maybe we get into early next week and there's an out, but you know, who knows.
At this point.
I think I think a lot of us have been I have underestimated how long this.
Would go on.
Stay with us multiple IMPERG surveillance coming up after this. Not the level of you Bes Global Weath's management rightting well Alephated valuations continue to raise concerns and could lead to increased volatility. We believe the underlying fundamentals remain strong and consider market pullbacks as bank up two Now they get joined us now.
For more Nadia, good morning, good morning. What happened to the year? Und mounts up? Where did it go? What went wrong?
It's only been a week, John, We think that it's still there. Right of course, investors are again confronted with this wall of worry. Just we have the government shut down, we have concerns around AI spending. We have hawkish you know, rhetoric from the fad but that could cost some volatility in the near term as we know it.
But we do think.
That that wall of warry will be climbed because the fundamentals are there. When you look at the urning season, you know, above expectations, even our elevated expectations for ten percent EPs growth through the quarter. When it's all said and done, we could get something in the midteen. So we think that that will continue to support the market
once we get through this shoppiness. And now, so why we think that there's not going to be any sort of significant pull box because we do think that, particularly on the institutional side, we'll step.
In and buy. I'm with you.
It tells you something about the market when you get to three percent move on tech stocks and the best not pumping champagne. They've had a tough year, particularly off the loads of April. Let's talk about the move into year end and the subtle science we're getting from the price section in response to earnings, Lisa's going through a range of equities that we've seen report earnings, decent earnings, and this market is pushed back.
That's new.
We haven't been seeing that over previous quarters. They've been rewarded for decent earnings. What's changed.
I think what's changed is that you know, evaluations, people are focused on the valuations. Also, you're seeing some weakness in tech and that's causing some nervousness. And it's fair for you know, tech investors to start to say, where's the monetization of this? But realistically it will take some time to get there, but I think you're starting to see evidence of that. If you look at the earning seas and particularly around cloud growth, right that's where you're
seeing the monetization. You've see a AWS printed twelve twenty percent year over year growth on acceleration of two hundred basis points from the last quarter. You've seen a similar acceleration from Google thirty four percent, and then micros off also, you know forty percent in terms of the Azure revenue growth. Ultimately is a supply constraint that's holding back even those
high growth. So we do think that investors will come back, you know, and reassess some of these fundamentals and realize that they actually have been quite strong.
Jonathan, you can dismiss the pullback that we've seen over the past week is just saying, okay, it's just been one week. That said, you have seen a shift where momentum and that whole.
Trade has been unwinding.
We've seen that meme stocks, We've seen that with bitcoin, We've seen that even on the peripherez of gold. We've seen that with a number of some non profitable techniques that also got bid up.
What do you think is behind that look.
Reality is, did the market run fast too fast, too quickly in the last month. You can make that argument, yes, and so taking.
Some off the table.
It's a natural sort of course in terms of, you know, a pullback. We haven't even gotten to five percent, and I think once you get to that five or six is or even seven percent, which you don't think you're going to get to, then you're going to see money start to come back into the market. So I think it's just sort of a reallocation and looking for those opportunities where particularly some on the laguer side, even in healthcare, I think the money will start to flow into that.
And so it's taken a little bit all over the table on some of the winners, and then I think in the year end you start to see some of the laggers get a bit.
On the index level.
It hasn't been that big of a drawdown, and you take a look at an index of MEME stocks. It was down five percent yesterday, it's down seventeen percent from the peak. At what point do you think that some of these losses will affect retail appetite and retail psychology.
Given what a big role they've played.
Maybe not in the overall total market cap, but certainly when it came to comes to trading volumes.
Yes, you're absolutely right. The retails of investors have been a big buyer of this market. But again, I think it goes back to reallocating some of those resources to other parts of the market, the main stocks. At the end of the day, it's going to be the earners that is going to drive this market, and so I think that you are going to see those quality names start to get a bit again. Taking out some of the front of the market is a healthy part of
the process, Lisa. In our view, we don't want this market to run up too quickly. As we were discussing earlier.
It's given those people who have been waiting on the sideline and an opportunity, and there is a lot of cash still on the sideline, particularly those institutional investors that has missed some of this rally that we think that we'll make up just kind of close that on the performance gap into year end, that we'll come back into this market, but again focusing on those more quality areas, and that's sort of the mean nonprofitable areas of the market.
Nadia, the government shut down continues to drag on any of this. What's going on the market being driven at this moment a little bit right by policy uncertainty in Washington.
I think, so particularly around what it could do to consumer sentiments and what it could do to spend spending going forward. Reality is people aren't getting paid and if that weighs on the sentiment, particularly into the holiday season, you could see some pullback, particularly in some of the consumer names, So that starting to drag on the market
on the margin. But I think, you know, as we've been discussing this more in that as we approach the holiday season, particularly Thanksgiving, you're likely to see the government start to take this a little bit more seriously in terms of what is doing to the American consumer and reopen the government. I mean, I hear from my mom who runs our church pantry that the reality is you're
seeing long lines there. So people are suffering, right and I think that there are will there are calling their representative just sort of reopen the stuff.
I think the.
Government reopens before Thanksgiving.
I do, I do.
We do think that it's not a guaranteed. Look, you know, nothing is ever guaranteed, but it does feel that way that momentum is building to reopen this government in the next couple of weeks.
Stay with us.
More Blomberg surveillance coming up after this.
Infest.
The struggling to reach consensus on the state of the economy with alternative dake to sending mixed signals. Premiser of JP Morgan writing, we remained in a self lending but I don't see any scientific economy reaccelerating and resuscue to the downside. On the labor market, Prayer joints us now for more preaking Monic Marning. No payroll dates are eight thirty Eastern times, so when they're talking about challenger job cuts.
Now typically we dignore challenger job cuts. How much is that takes are actually worth?
So I mean a.
Lot of this ADP. You have to look at the totality of data. I do miss payrolls. Let's spend a second saying it was good data. I just never thanked it before, and now two months in hero we haven't had It's not just the header we asked, well, we have a lot of data. Like somebody asked me the other day, you probably have nothing to do, I said, I have more work because I'm now looking at the totalities.
You have to look at ADP, the details challenger. We always looked at it, but you had like the king of all data with payrolls, and we.
Don't have that. But we are looking.
We're looking at earnings releases. We're still in that soft landing, and I think that's why.
The Fed's been cutting and now the FEDS saying.
Well, we need more data, so you know, data dependent FED data dependent market is now looking at more creative ways of data. But I think there's a fairly consistent picture of there are these structural positives, right you talk about the soft landing. Companies are solid and they're adapting to all these macroshocks, tariffs, immigration, they're managing and that's why earnings have been rock solid. We haven't even seen the you know, like leverage go up, so it's not
as if they're they're borrowing to make ends meet. The margins are strange, staying strong. Consumer spending is strong, but we have that case shape consumer, case shape corporate sector and that's the consistent theme. But the labor market is slowing and we're still in that low higher low fire. But how long can that last? As the labor supply grows. You know, people graduate from college, you need jobs. So I don't know if it can last forever.
For now, we're in a soft landing.
I think owning credit fixed and comes doing what it's supposed to do. So I think you know that's how we're sort of position.
You mentioned a feder reserve. The consensus view of the FED at least a month ago. The bias of the FED.
People believe if the spies existed anyway, is that they wouldn't deviate from the top club, even if they didn't get the economic data. You mentioned the FED and maybe that view changing. Is that just usting goes to be at the Chicago Fed, or is that the core of the committee?
Now? I think there is no core. I think there's a huge division in the FED. And it's not just in terms of risks around the labor market, risks around inflation.
It's also on the neutral rate.
I mean, I was concerned about this debate that we're having at the FED maybe six months from now.
It's happening a little earlier.
But if you look at the neutral rate, there are people saying it's two seventy five and four.
We're right at four.
So I think what Chapao said, because we need data to tell us which way to lean. I think both sides at the FED the division both are equally vocal.
There are those that are highlighting.
That the labor market's slowing, and then there are those that are single inflation.
Still above target and we don't know what's neutral.
Financial conditions are easy, and so you can almost argue will FED cuts make a difference. They do make a difference, particularly if that neutral rate is at three. So I think that to real action function. I think the chip out said there is no clear reaction function. I think there was a slight shift the data. Lack of data. You can tell that the FED might be on my camp like Stott of data and missing it. So if we don't get data, I think they might even pause.
But I do think economy outlook matters as much as the reaction function. We got a sense of a more hawkish reaction function. But if the economic data continues Challenger as part of it, If the layoffs start, this is not a job market where layoffs will get absorbed quickly, and I think that's where the FED. Then maybe they don't cut in December, and then they cut more aggressively next year if the economy continues to slow.
I put a put into chatchipt write a poem about non farm pails, and I think it broke chatcheapts. It still hasn't come up with the poem, so hopefully we can get.
That for you.
I am curious, though, do you think that if the Fed does not cut rates in December because of a lack of data, that it will prompt you to want to go into longer term bonds On the margins, it will hamper growth more significantly and tamp down any inflation risk.
I do think if they don't cut, and they suggest that this is it, then you can have concerns around maybe long end bonds we're supposed to price in a weaker economic outlook. You'll get some froth out of the market. People who have only bought an acid because they think the Fed's going to cut rates, then they start to move away. But I do think if they don't cut, they're still going to keep that put alive, meaning they're going to say, look, as the economy slows, now we're
data dependent, we can cut aggressively. This FED has not been shy under Chepaul. They've hiked at seventy five increments. They cut fifty last year, but they are a data dependent FED.
How much of an unwined do you expect in say, some of the riskier assets, whether it's riskier credit or certainly what we've seen with memestacks. I know you're not focused on that, but I wonder how much that's a direct response the FED might not be cutting as aggressively and.
Might be closer to dumb than people had expected.
I mean, there is a lot of liquidity in the system, and the FED stopping QT was part of that as well. Now they are not increasing the size of the balance sheet, but I wonder do people look at the size of the balance sheet growing, which I think is going to happen either it's December or next year because of reserves. I think reserves are close to neutral. We talk about neutral FED funds. We should talk about neutral reserves as well.
Worth there.
So I wonder if okay, the Fed's not you know, cutting, but the FEDS growing the balance sheet, so you might get you know, liquidity staying high and it can.
Sort of propel more of that.
But I think in general, we talked about remember cockreatures, just not that long ago, I mean there are excesses in I would say every market, and our job is to find them and make sure we minimize the cockroaches. And that requires a lot of credit work, you know, where you have to understand the company, and I think it's people who maybe not doing that that might be then at risk of some of that froth coming out because you know, we don't know what neutral is.
I mean, I think.
It's closer to three, but what if it is closer to four because financial conditions, liquidity is high and so you may not get a big decline in interest rates. That's when you want to make sure you own the companies that don't need lower rates to make their payments.
Prayer you talk about this in your notes. How are you thinking about the risk of what's going on at the Supreme Court in terms of AEPA.
There was a lot of discussion. I think the bond market got really nervous. And you know, these are large numbers if the Supreme Court does rule these tariffs illegal. We're talking ninety hundred billion of tariff numbers.
That's a large number.
But look at the you know, the Treasury has the cash cash balance has been growing, so I don't see a case where they have to suddenly come out and issue a lot. I think interest rates rose. Saying the deficits are problem. The deficit is a long term problem.
I mean, or at.
Seven percent deficit of GDP, that's going to go to seven point two. I think the bond markets slightly overreacted the president. It's the signature policy of the president. He said, it's the most beautiful word in the dictionary for him. So if it is struck illegal here, they've got section one, twenty two, thirty two three or one. I mean, I'm no constitutional lawyer or lawyer.
But I think they're going to find ways.
It's going to be harder and maybe not as blanket, and Congress needs to be involved. But I think you're still.
Going to get those tariffs. I don't see the tariff number really going down.
So I think if the market overreacts, I think that's an opportunity on any Supreme Court.
Headline.
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