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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hortern. 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 Apples to Shanada Morgan Stanley
right in the following. Markets have been extremely active over the past month as traders have duced up the already a brilliant scenario baited into equity valuations, adding improved odds of a Republican sweep to the list of goodies already discounted. Lisa joins us, now for more. Lisa, that's quite a quote. Good morning to you.
Good morning.
Are you suggesting this market's gone a little bit too far and things stretched?
Absolutely? I mean, you know we've been talking about for a while that on a valuation basis, this is a very expensive market, on very ambitious earnings expectations. Let's just take a step back and think about what companies have reported. All right, if you look at the twelve month trailing earnings for the quarter end of June thirtieth year over year s and P five hundred profits, including the MAG seven, we're growing at about five percent year over year in
the quarter so far. What's been reported in the mag seven haven't all reported.
Yet, we're up three percent.
The expectation for full year twenty twenty four is we're going to get to a year over year compare up nine to ten percent, and then next year we're going to accelerate to fifteen percent. So these are ambitious reacceleration numbers. And so you know, when we think about what's baked in and why we said there's a lot of goodies here, there's a view that we're going to get that reacceleration.
It's going to be base on margin expansion profit margins that are higher, but it's going to be so called immaculate. We're not going to cut jobs to get there, which means, you know, you've got to get productivity gains. And with all of this wonderful news happening, the Fed's going to keep cheerleading from the sides and cut you know, twenty five BIPs a quarter at least, and so and then the you know, the latest is, you know, all goes well, we get a red sweep in Washington, there is no
more regulation, we get goodies like taxes. None that tax is a and yeah, and the world is a wonderful place. And so I guess you know, from where we sit, we just look at risk premiums, and so, you know, as Lisa was just talking about the importance of this move in the treasury markets, why are stocks shrugging it off?
Right?
I mean, typically this kind of move on the long end of the curve, particularly as underlying real rates approach two percent, which historically has been that obstacle for stock valuations. I think it's a bit dangerous for the stock market right here to be shrugging this off.
This is a significant move.
We've seen moves in the real rate, in inflation expectations, in term premiums, in auction performance, and so I'm very focused on watching these moves in the yields.
And the bond auctions, which is the reason why we will always welcome you on this show. So there's a question here about whether yield's rising for the right reasons will actually be supportive to the equity market. And that's been an argument that a lot of people have made, and we've gone over quite a bit on this show, and there's a question of why you think that the yield rise that we're seeing right now is for the
wrong reasons, or if it doesn't matter. It has reached it has breached that threshold where it needs to be something that stock investors start to pay attention to.
Look, I think that the bond market has this right.
I do think real growth has been better. I do.
I am in the camp that says inflation expectations and the potential for an inflation boomerang next year is actually rising, especially if you bake in the part of the story about a red sweep.
You don't get the red sweep with again all the.
Goodies but none of the collateral damage, which as we know, you know, tariffs and closed borders could be inflationary. So, you know, I do think that the bond market is anchoring on you know, some hypotheses that's very anchored in the data. And I do think that the stock market is going to have to wake up and pay attention at some point.
So what do you do with that?
I mean, you just sort of go into gold and go into a bunker and hope for the best.
So what we're what we're doing is we're really focusing on value and diversification. We're saying, valuation in this market matters. So we're playing in the parts of the stock market that are somewhat you know, cheaper, quite frankly, and so that has included some of the value Codhord, It's included financials, it's included a handful of industrial as a handful of healthcare stocks. And that's really been our approach is to say, let's even it out, let's not take very big bets here and and aim.
For some diversification. Financials is a trump bet. And yet you're saying it's actually a very different bet.
I thank you for pointing that out. Yeah, our preference for for financials is not premised, uh necessarily on some big deregulatory push. We think you know that that basil two endgame easing of those capital requirements is going to happen regardless. We think that that's already you know, kind of been.
Signaled by regulators.
What cas Us excited about financials is not just the potential for cost cutting and operating leverage, but the capital markets activity really looks like it's going to come back over the next two years, as you know, financial sponsors and the private equity guys finally get off the sidelines with these kind of market valuations and start transacting and doing deals.
Lisa, what the red sweep.
You get the goodies along with some of the potentially the bad things that can hurt the financial markets.
But what if it's not. What if the.
Polling and the betting markets are underestimating the support Kamala Harris and some of these democrats have with issues like abortion, How are you going to think about the next few years.
Yeah, so, look, I think that there's you know, a Harris when at this point, I do think markets would be surprised.
I do think we.
Got somewhere between you know, two and five percent pullback on that because I do think that there's been you know, some pretty big rotation. But I think you get a lot of status quo type moves, right. I think we continue to get a continuation of the fiscal stimulus programs that we saw under the Biden administration. But we you know, we don't get necessarily, you know, some of the issues
and the inflation threats. So we continue maybe on this soft landing trajectory as opposed to this no landing trajectory. So I think the bond market comes back in as well.
But oh so you think the bond market. I think yields come back in.
And that's all about fiscal spending.
Yeah, I do because because her plans if you actually, you know, do the analysis, and our team has done it. Fiscal deficits under her current plan to be are going to run about half what he's proposed so far.
So hard to game this out if you think about twenty sixteen, and we always go back to this. Trump was parished for markets. Yeah, up until the night of the election, and then we woke up two, three, four am in the morning and all of a sudden it was bullish right to twenty twenty. Throw the scenarios out the window. We got the vaccine FC data in November twenty twenty. Everyone seems to forgotten about that. It had
nothing to do with the election. That's all the markets Lisa absolutely rip that month.
Yeah, So here's the question, how much is it the setup going in versus the actual candidate themselves and this time around, and we've talked about this. If he can implement the tariffs but he can't get rid of some of the regulations and the taxes unilaterally in the same speed, does that change that dissonance the reaction function of markets.
Lisa, this was a clinic. It's good to see you.
I appreciate it as a thank you for coming in, Lisa. Shan At there of Morgan Stanley, John.
Leeper, if you write your group joins us.
Now, John, let's just start with the Harris campaign accusing the former present of being a fascist during parallels with Nazi rallies of decades ago. When you look at the polls, when you look at where things around a week away from the election, is any of it landing.
No, it doesn't seem like it. I mean, nothing's moved in this race except for one big event, which was Joe Biden dropping out. Otherwise it's been pretty steady. You have seen some movements among subgroups, particularly independent voters, which were shifting towards Harris and now moving back towards Trump. But you look at kind of any of the big set pieces of the campaign, the DNC, the RNC, even Trump's assassination event attempt. You weren't seeing big movements, and
you're not really seeing them in the closing days. In fact, one of the big markers of this campaign has been how incredibly steady it is and how most people's views of both of these candidates are totally baked.
In, you know, and John I was thinking a lot about this last night, how a lot of this is cultural works kind of coming to the Ford. It's the reason why we're seeing a massive gender gap. And on one side you have the preeminence of cancel culture and sort of people who are really looking for potential issues, and you have other people who say anything and it doesn't really register.
That's why I think it's notable.
Has this incident at masis the Square Garden broken through in a way that some of these other comments really haven't.
Well. I think the risk is that it's a really close election and you've got about half a million Hispanic voters in Pennsylvania, many of whom are from Puerto Rican origin, so it's entirely possible that it doesn't take a big movement in the polls or even a big event that's going to be the thing that decides this election. I mean, it would be extremely ironic if it were a unfunny joke from a no name comedian and an unnecessary rally in Manhattan that ended up costing the Trump this election.
But an election where the two candidates are going to be separated by as few as ten or twenty thousand votes, that is completely plausible in this election cycle, which is why these Puerto Rico comments and the other comments from the Manhattan rally are resonating so much. And has Trump trying to do damage control?
John, what do you make given how close this is of the fires for the ballot boxes that we saw in Washington State, some of the supposedly only one hundred or a couple of hundred different ballots were destroyed. But how much is there that risk going forward of this type of activity increasingly?
Yeah, I think there's a lot of risk of that. And you have to acknowledge that the Republicans have been convincing themselves for the last four years that the election was stolen, and in doing so, have basically studied some good techniques of how to try to steal an election. So I think that's a big factory. I mean, I don't think it's a big going to end up being a big factory here. But the thing that I think we should keep our eye on are is people's trust
in the system. So one of the problems we're trying to tampering we're trying to tamper with the ballot box is you don't know whose ballots you're burning, so you can target different neighborhoods and have you know, try to go after different demographic groups who you think are have a higher propensity to vote one way or the other.
I mean, Washington State is not going to vote for Trump, we know that, but you know, I do think that this is going to be an issue where people lose faith in the process if they see that proper safeguards aren't in place to protect the sanctity of every single person's ballots, and that long term, has a really negative effect on people's belief in the fairness of the system. And it's how you get a majority of Republicans believing
the last election was stolen. And I think that's a very dangerous and disturbing trend.
Washington State's not going to vote for Trump, but where this ballot box was. It's in a congressional district where the Democrat incumbent is facing a very tough challenge from Republican Just when you look at the map, John right now, the Harris campaign thinks they can hold the blue Wall. The Trump camp they thinks they can at least take one of those states. When you look at Wisconsin, Michigan, and Pennsylvania, which one is most ripe to flip?
I think, to me, it looks like Harris is the weakest in Michigan. She's got big problems with Arab American voters, and she's been a little bit weaker with white voters than she's been in other places. And so I think that's the place where the Trump team had things They have probably the best opportunity. Pennsylvania is obviously the biggest and most important state and the one that is very very close in the polls. Wisconsin seems like it's shaded
a little bit towards Harris. So if I had to choose one, I would say Michigan is going to be the big battleground in this election.
It's easy.
It's interesting you chose Michigan because in Wisconsin and Pennsylvania, those are the two Senate races that are now looking more like coin tosses when they were leaning Democrat. Do you think those Senate races could go red but the top of the ticket and those states go blue.
Yeah again, I mean, it doesn't take much in this cycle for you don't need a lot of split ticket voters for something like that to happen. I think all three of those races are competitive. In Wisconsin, Baldwin and in Pennsylvania, Casey has the benefit of being incumbents, and incumbency brings high name recognition and that does help incumbents survive even very good challengers in a decent year for the out party.
Hey Jump, good to get your thoughts. As always. John Leber there of Jurasia Group The Cook Political Report, writing Trump's closing argument his campaign says is this Harris broke it. Trump will fix it. And yet even with all these advantages, the race remains locked in a dead heat. The reason for this, of course, is Trump himself. The Cook Political Reports. Jessica tay That joins us now for more. Jessica, welcome to the program.
Thank you.
I was good to see you in person. There is this stat in your research, and I'm going to share it with our audience. There is no Trump policy that comes without his polarizing behavior, style and approach. And this timber Coook Political Reports, Swing State Project poll just thirty four percent of voters that they like Trump's policies and his leadership style.
How much of a problem is that for the former president.
I mean, I think that if this was sort of a generic Republican, this race would probably be over. It's voters have to make a choice of Okay, you liked where the economy was under Trump, but you get all of these other all of the rest of this baggage that comes with him. So that's where we're seeing Harris's closing message. You know, he's he's an authoritarian, he's a fascist.
This is the chaos trying to remind them of people, and I think some of the things that came out of that, you know, Madison Square Garden rally, he's he's having to answer for them.
Today.
He's going to Pennsylvania, Allentown, where there's a large Puerto Rican Hispanic population, and that is now the story in this final week before before the race. It's not focusing on, you know, how he would be a change. He's trying to make it a focus on how he would be a change from a Biden Harris administration. But Harris and Democrats are arguing, yes, but he was a change, and you're going to get all of this chaos, You're going to get all of this sort of insanity back again.
Just are you seeing anything in the polls that Trump is going to be able to go past that ceiling that he's basically been capped at.
Yeah, this is the real question, and this is why, you know, I think the polls. I think that's the thing at the back of our head is that the Poles were wrong in twenty sixteen, they were wrong in twenty twenty, but like they're still capturing about where he was at. They sorted this forty seven forty eight percent, and that's what we haven't seen. We really haven't seen him grow his coalition. So the question is, I think with these undecided voters, did they sort of go over
to him, did they stay home? Does Hairs get them in her coalition? I think that's the real question as we're looking at some of this swing state polling that's just very deadlocked, and.
Cook Political Report now has it as a toss up race.
For presidential Yes, all of the seven swing states we rate his toss up, so it is as close as it can be out. I mean, the poles I continue to see out, private and public.
All are within just one or two points. Basically.
The financial markets, though, are pricing in a red sweep. Part of that has to do with the Senate map, and you've done some great work on actually senators are defending seats Democrats in Wisconsin, in Pennsylvania but actually might be toss ups.
What does the map look like today? The map is favoring Republicans. And that's why if we're looking at a Republican trifecta that's more most likely to flip has always been the Senate. That's because Democrats have a fifty one to forty nine majority, but they're already we already know they're going to lose West Virginia. John Tester in Montana is the underdogs. So that gets you to fifty one
for Republicans. Right then, then the question is, as you mentioned, the races that we've seen tighten up in the past few weeks have.
Been those blue wall states. Wisconsin.
Ohio is the next, probably with shared Brown that's still a very difficult state and a state that Trump won by eight points. But I'm seeing tightening polls in Wisconsin with Tammy Baldwin and Eric Covevey there. In Pennsylvania, that's the race that we moved last weekend to toss up with Bob Casey and David McCormick there. Michigan still remains closer. I would probably still rather be a slightly Ilissa Slotkin in that instance, but they're all very close.
We've seen those races just close.
So I think as the presidential race goes, probably the Senate races go Because in twenty sixteen, every single Senate race went the same way as the presidential race. In twenty twenty, only Susan Collins managed to win, even as Biden carried her state. So I think we're seeing a delta of just a couple of points. I think we could see split tickets in Arizona, for instance, where Trump is favored there but the Democrat Ruben geyego is so well, how.
Can you just walk us through what a red wave looks like, what a red sweep looks like. Given the fact that not all Republicans are the same, not all Democrats are the same, how much are we looking at Trump truly having a clutch over the Republican Party in a way where he could get through his policies very easily, even with just a simple majority.
I think that's why you see Republicans that are wanting to get to, you know, fifty three to fifty four seats, because if it's just a very narrow fifty one to forty nine majority, the most important people in the Senate become the moderates Lisa Mkowski of Alaska, Susan Collins of Maine, who's up for reelection in twenty twenty six if she runs again. They have such a favorable map they want to take advantage of this, especially if you see Trump
winning and I think the House is very deadlocked. You only need four seats one way or the other. We see that as a toss up. And you know, there's some places where in here, in New York and in California that are more democratic areas that Republicans need to run ahead of. But then we have seats in Michigan that are I think going to be very very close
as well. So you know, I think that probably is the way the presidency goes, Probably the House goes as well, But that's why Republicans want to sort of get that bigger majority.
Gives President Trump a possible cushion.
When we talk.
About what's going to potentially change the outcome, everyone talks about turnout and potentially who has the better ground game, who has the better around voting game.
What are you seeing on that front?
Democrats have a very sophisticated operation that is sort of their bread and butter, getting those people out, knowing where to target them, and that I do hear some concern among Republicans because the Trump campaign has largely sort of farmed us out to Turning Point USA to Elon Musk. But then we also are seeing some encouraging early voting signs in places like Nevada, wherects typically have a very strong ground game. There Republicans are having much better turnout,
you know. But I think it's a question of have Republicans sort of learned to love early voting or encourage their people. So is this sort of cannibalizing their early their election day voting that we typically see is more Republican or is this indicative of just more Republican enthusiasm than Democratic enthusiasm. We sort of won't know until that election day turnout. But Republicans banking votes early because in the Vada, for instance, we saw that Senate race decided
by just a few hundred votes. That you know, if they'd sort of emphasized early voting early on, they might have won that Senate scene and that could have been the They would have had it much closer, you know, Senate this passed.
Rump gave a nod to this at the garden, and you have seen the R and C do a lot more work to say early voting is safe.
You should go out vote early. Just make sure you vote your best case.
In terms of when do you think this election will be decided, I mean I'm preparing.
I think we can know the Senate pretty early on based on what happens in Montana, Ohio. We get those notes if we get those results, but I mean I think Friday, Saturday, it just you know, Pennsylvania is not going to be able to count some of their absentees. If it's a sort of a wave one way or
the other. If we're seeing you know, North Carolina, Georgia go one way, Trump picks off one of those sort of blue wall states, we might see I think earlier results in a place like Wisconsin or Michigan, or if it goes Harris, you know. But I think if it's very close, it may not be for several days. And I think we sort of need to steal ourselves for that possibility.
And this is what a lot of market participants have focused on. How long it takes to get this result.
Well, the Maricopa County election officials, I keep going back to this because it dragged on in twenty twenty, they're saying ten to thirteen days. Now, Yes, they want you going into this with a low bar that potentially they could get out of this a little bit quicker. But ten to thirteen days, I mean we're talking about weeks.
Not days.
Nobody wants to repeat if that mess, that's for sure. Jessica is good to see you. Thanks for Thank you, Jessica tight of there of the Cook Political Report. This is the Bloomberg Surveillance 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 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.