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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. Naila Richardson of ADP
joins us now for more. Following the lowest ADP we've seen, I believe since March twenty twenty three, Neil, good to see you great to see is almost behind it. How much weakness are we actually seeing?
First off, I think it's important to underline the prominent trend in the ADP data, which is a slowdown in hiring momentum that's been from January through this year. That has been consistently valid every single month. What we did this month, though, was a statistical regularity.
We do it every year.
We announce it in February with the January release, which is to do an annual benchmarking. Normally this does not make news this month, it did. But what it does is it reattaches the ADP numbers to the source of truth that we have in the United States, which is this benchmark that comes from state Unemployment Insurance data, this kind of data that we see weekly with the jobless
claims numbers. And the importance of that is, if you really want the perfect data set, you would have the comprehensiveness of the state UI data covering ninety five percent of US employees and the granularity of ADP data. We don't have that, So we make this trade off of ADP estimating that state data that comes out with a six month lag, we reattached to it every single year.
So was it as bad as it looked yesterday? I mean, that's really what people want to know. This all sounds very complicated, and it sounds like, you know, there are a lot of things at play, But the granular data.
Does it display the same kind.
Of negativity if the bond market took notice of it yesterday?
Yeah, it does.
This is our best estimate of what hiring was in September. Negative thirty two thousand. That is our best estimate. It is our most robust estimate. It's rigorous, it's tied to the QCW. So no, you don't need to dismiss the number. Now, if you look at the series, we don't fully rebnchmark the year until February with the January release, but that September number is the number. So what it tells you Even if you look at the pre benchmarked series, which
I did, of course you see the same trend. And this is what I want to underscore to your audience, because the takeaway is qualitative and the takeaway is firm validated that hiring momentum has slowed since the beginning of the year to a point where it is a week labor market in terms of hiring. It is not a week labor market in terms of layoffs. Very important to hold these two ideas together. The stock of the labor market is strong, the flow into the labor market is weak.
The flow out of the labor market is weak.
So is the market breaking or is it just an ongoing stagnation of the low fire, low higher that still has not broken in one way or another.
We have a stagnant labor market.
And all of that consumer spending that fueled Q two a three point eight percent growth rate we just saw was built on the backs of the labor market, because the labor market is supporting the consumer. So in that way, it's strength. But that strength is not strong enough in terms of consumer spending to create new jobs.
That's a different level of.
Economic productivity that we still need to see in the economy. That's missing the dynamism that leads to consistent job creation.
We don't have it in the September number. This time tomorrow we.
Would be debating and looking at the data. When it comes to the BLS report, we're not going to get it. What do you make of the shutdown? How much of an impact is it's going to have on the economy.
You know, it depends on how long the government stays shut But what I will say is that the shutdown doesn't just affect federal workers. It does affect federal workers, but not just. If you think about all those private contract workers, the ones that operate the cafeterias, the ones in the national parks, the ones that drive government officials here and there, they are also without work as the
government shuts down. So it's these reciprocal effects that I'll be watching in the private sector data to see if this leads to even more weakness and hiring because of all those private contractors in.
The past, did you see it bleed into the private sector.
Yeah, but it was always temporary. We know that the longest shut down that we've seen recently, it was thirty five days. That's a long time to be without a paycheck. I don't care who you are, it's a long time to be without a paycheck. And so that is going to have an effect in the labor market. It's going to have effect in consumer spending. But if we can get a reopening that's much shorter than that, we won't see such a strong pushback in the labor market when
it comes to hired. I also will note that this just adds to the malaise of uncertainty that we've seen all year long. It's not just the data, it's not just the conditions. It's the fact that companies are going to operate through fog. If you're a private contractor, do you hire right now? And how much do you hire? That's the question before them. As the government is.
Shut the entire morning, we've been talking to people who say that the US economy can keep running at this very slow pace and we can still see the incredible dynamism that's reflected in equity market pricing. Do you see the same relationship or do you think that there is a greater warning flag in the labor market and the dynamic that you're seeing there for the other side of the equation.
You know, I feel like we are at this traffic light right now that is out You know what happens to traffic when the light is out right, You fall back on this, You take your turn.
I'll take my turn.
Sometimes we get that confused and we go at the same time, and once we're past the light, we're fine. That's where we are in the economy. We don't have the data we're used to seeing. There's some uncertainty about who goes next. We won't get the flow. There's bottlenecks. That's what comes up economic activity. But if you can get pass that into some clarity, we have all the ingredients in this economy to push forward with strong GDP
growth as we saw in the second quarter. So some of this is just getting the lights literally back on and the data is still flowing. So we can keep that dynamism flowing.
That's the data.
But when it comes to hiring plans, if there is a greater degree of mergers and acquisitions and certainty at least from the economic trajectory, maybe not in the tariffs, do you expect the hiring to reaccelerate. Do you think this is going to break to the upside rather than further to the downside.
I think there's a potential, but right now it is not clear where that trigger of dynamism comes from.
For employers to hire, what do they need.
They need clarity, they need strong consumer demand, and they need the ability to invest long term. So they have some of those elements in place. I think we're still missing the clarity, and that's a really important component of whether or not you can add to your headcount, which is a long term people investment. Now, one thing I'm hearing employers say is now, if we can't hire our workforce, let's make sure those workers we have are more engaged.
And when I talk to big companies especially, there has been more attention on how to upscale their workers, train their workers, engage their workers, have more connection to get the most out of the people they have right now, even if they can't add to the headcount in a significant way.
Keep your payper happy. That's what it's all about. A place are getting back to that.
That's good.
Yeah, did you hear it? Keep your people happy.
I will get more out of them and milk them for all you can.
And you can keep them happy.
Whichever way you do it.
Happy people are more productive.
Are you there?
Yeah?
Stay with us. More Bloomberg Surveillance coming up after this. With stocks rising after closing at record highs, John Stolfis of Oppenheimer calling for a street high seventy one hundred on the S and P by year Rent, writing this economic resilience, along with revenue, earnings growth and innovation across the sectors, remains key in our view to the market's ability to continue climbing the proverbial wall of worry. John joins us now for more. John and Mornig, good morning.
It's that government shut down just another brick in that wall of worry.
I think it's another brick in the wall, to quote Pink Floyd. But that said, we've seen the markets really overcome at traverse hurdles all along this year, and it is indeed it's the innovation, it's the rezillions, and it's a different structure in terms of the market itself. We believe in terms of participants.
You know, the market is.
Not just the guy with the monocle from the Monopoly game. You know, it's all kinds of people. And in the US it's multi generational people investing for longer term goals. So the disturbances that are caused by the potential for a short term or intermediate or longer term shutdown of less concern to them right away as opposed to getting money positioned for goals that maybe three, five, seven years.
Can I build on that, John, Do you think some tension between different generations and how they have this market should be valued, Some tension between the boomers and what they think the appropriate multiple is for this stock market with a different sectimics.
Most certainly, I think you know, when you look at people who've been the Boomer generation, stocks are cheap at the sixteen forward multiple. As you go forward in generationally, people are willing to pay higher multiples for growth. And I believe the reason why a lot of it comes from Ed Yardini, who's for years said that the what is it the Wilshire five thousand. There aren't enough stocks
to really qualify that are publicly traded anymore. For that indicaes anymore because it's what is it about thirty five hundred stocks at thirty four hundred that you actually have to choose from? And the thought is here is it's supply and demand. It's the basic thing of economics, the demand for your technology, your hyper growers, the ones who are well established, deeply embedded in the lives of both business and the consumer, where we're all on the upgrade.
Cycle whether we like it or not.
As I always like to say, this is what's driving this market in many ways, and it differentiates not just generationally, but the difference between traders who are looking at at risk to capital a capital put at risk on a day to day, minute to minute basis, and intermediate to longer term investors. When I started in this business forty two years ago, hard to believe. It's not that I
didn't think I'd lived this long. I didn't know how longyr would happened, but it was the retail investor would always come into the market, usually about once the market was up twenty percent and everybody knew it, and the cab driver was asking you for a hot tip if you saw you had a copy of the Wall Street Journal under your arm. Today people are very well informed by the financial media.
They have all the arguments.
You get to see the players actually express themselves and you see what is it the body language that people are using, you know, and it makes it it's actually it's remarkably more intimate than it was ever before, and people are better informed and better able to work. We'd like to think with financial advisors who are working as fiduciaries.
They also are better sold in the story of the hopes and dreams of just how much AI can do. And there is a lot of truth to it. And history doesn't repeat, but it does rhyme. Back inthe dot com bubble boom and bust, there was aol you've got mail.
We don't do that anymore. I mean some people still do, and you know, go bless you.
But I'm just wondering going forward, how do you identify all of the money that's going to be wasted at a time where there's a lot of projections and not a lot of data, and what ultimately will happen or how it's going to be applied.
Well, I think, for.
One, is if we just go back to if we just go back to as recently as the tech bubble, things were practically primitive versus where we are today.
I can remember working at another well.
Known firm headquarters on Broadway in nineteen ninety seven, and suddenly you would find the internet would go out, you know, and when you would go home to connect to the corp, you'd have, you know.
Sometimes a little device would be and all that stuff.
Today's we still have problems with technology, but it's very well established and the ideas you know, well, I can remember putting dimes in a payphone.
People don't even know what a payphone used to look like.
I can see sometimes I see an old architecture in our building which another firm had before us.
There's actually a group of things and no phone anymore. But what are these things for.
They're for the press as they exit exited, to write things down. But where we are today, I think a lot of the stuff will likely prove disappointing, but the core will be it's already being invested in and utilized to create greater efficiencies.
I guess you talk about the babies being.
Thrown out with the bathwater.
I don't see any babies, and I don't see any bathwater being thrown out either.
Nothing's being thrown out.
So how do you identify what that means?
Well, I'd say actually, on a day to day basis. You know, I'm not solely a strategist.
I also manage money for the firm, both ETF portfolio with passive indices and then individual stock portfolio. And we've seen a considerable broadening of the rally that has suddenly rewarded sectors like industrials. We've seen better attention played to utilities, both on as it looks like the FED is going to be cutting rates going forward, not necessarily enthusiastically, but on a down payment kind of basis, to show.
That the rate hike cycle is over.
What you have effectively is you've got utilities are no longer considered as much of a risk as a bomb proxy because it looks like interest rates are coming down. Healthcare has caught a bid as a result of one company's efforts to reduce prices in the last couple of days. I'd mentioned the name of the company because I manage money. The firm doesn't let me.
I want to be pitching stocks that I might or might not own.
Saying on the FED, how difficult is the end of October's meeting going to be? If this government shutdown is prolonged. We know we're not likely going to get tomorrow's perils report, but then what about CPI on October fifteenth as well? They might not have all the most relevant up to date data.
I think, you know, I think it's close enough to the September meeting that I think we kind of got a fairly good idea that the the dot plots showed that there would likely be a cut in October, and I think we're close enough in terms of the data. I think the question would be to December, what's going to happen there? And hopefully by then this will be behind us, this whole question of the shot.
Jo'll never mind the Bathwart said, this has been a pool party now for six months, and it's getting wilder. I think spring Break don't want to go there. Look at the valuations we're seeing in private markets, five hundred billion dollars on the startup now, John, I'm just trying to work out, you know, never mind the risk a version. I don't see any I saw a bunch of dead issuents in September, and people start to get pretty excited
about the future. Still on top of that, when do you start to get concerned?
Well, you know, I play in the public markets as opposed to the private markets, so one to inform the other. That's well, I think to some extent with the selectivity there and what is chosen to move into the private equity market is not necessarily everything that play, I think that's something to look at as we go forward, and that, as you mentioned, the money that's being thrown at this one particular deal is like the valuation is rather worrisome,
except if you consider how much is already developed. This is much, you know, This isn't the primitive stage of people saying someday we will have a million eyeballs on our website. This is companies that know you need billions of eyeballs and you need to be well capitalized. And there is it's not just well capitalized, but the likelihood of cash flow generation pretty quickly from here to there.
Because this week I was at a due diligence.
Meeting in an ETF firm management firm that has ETFs right and they're technology people just talking about all the investment that's being made here, but by smart people who are educated and deeply involved in tech for maybe forty or fifty years.
Stay with us, Multilinpex Savannas coming up off to this, stocks reaching record highs despite the chaos on Capitol Hill. Sarah Hunt of Alpine Saxon words, writing, the government shutdown may or may not impact a raft of data for investors. This may be the trickiest part, at least in the net term. Sarah joins us now for more. Sarah, good morning morning. Do you think this will hold back risk appetite this month? No sound of that just yet. Do you think it will?
It depends a lot on how long everything takes and what kind of data comes out in the interim and sort of and the kickoff of Q three earning season, right, so all these things are going to be important. Earning season is going to take on even more importance if we have a lack of government data because people want to see what companies say. But I think this morning the news on chat TBT was one of those open ai. It was one of those things that certainly helps the situation and doesn't hurt it.
It just built on that a little bit more, Why does it how the situation sitting here this morning and understanding that you've got this private company staying private worth five hundred billion dollars, what is the help?
Because the question has been all along this AI has been fueling this rally. Right, you take that out and all of a sudden, the statistics do not look nearly as good. And if you see cracks in that story with the other problems that are going on, I think you have issues the fact that you saw a.
Data point that's positive.
Take it as you want, whether or not that's too bubbly, or whether or not it's anything else. The bottom line is people are willing to put up some serious money to be a part of that story.
And that's still the case.
That is going to help the equity markets just because it underlies that foundation and it gives it more confidence.
So don't fight AI.
Is there increasingly a feeling in your mind, don't fight the FED in terms of supporting the rest of the non AI universe that hasn't fared as well well.
I think the FED had a very tough has a very tough job going into the next couple of months. A lack of data doesn't help it at all. And to your point, the ADP numbers, people are going to look at that, They're going to look at any non government data that comes out, because until we get government
data out, you don't have enough information. But directionally speaking, I think that that one of the reasons you saw that happen yesterday is that people thought, well, this is another excuse to cut rais whether or not that actually solves any problems or does what it's supposed to do is another question. But the idea that it's coming is still positive for equity markets.
I just wonder how long you can turbocharge growth before inflation becomes a problem.
A lot of people have said it's not.
And at the same time, you start thinking, if we're already above that two percent target and you add juice to it, already is a strong economy, albeit concentrated in AI.
Doesn't that become a real concern later this year?
Well, I still don't think that we've seen the true dynamics of the tariff pricing in pricing right, So whether or not that's going to come in as the price level raised or it's inflation, I don't think that that's really come through. You've seen big waves of inventory every time there's been a pullback in timing on those tariffs.
So the companies have been absorbing a lot. There's a point at which that flips, that script flips, and I don't know where we are with that yet, But as that sort of comes in, I don't see.
How it can be beneficial.
So what are you worried about now?
Because you don't sound like you're that worried about a bubble when it comes to AI, you don't sound that worried about a government shutdown.
I worry about a lot of things. I wouldn't go so far as to say I'm not worried about a bubble. But the problem with that is that bubbles can go on a lot longer than we can think about whether or not they should. And if there is enough real money chasing that right now, as opposed to the whole argument about debt and debt or financing that came back around with that big.
Deal right So, as long as there is, as long as.
People are putting up money to help solve that problem, I think it's less of an issue. I think it becomes one when people start to worry about whether or not there's any actual productivity that's going to come out of this efficiency that's going to come out of this, and I think that that's still one of those questions that.
We're struggling with.
It's a good point the end of the nineties when Greenspan talked about rational xuberances. We had a bull market run for four years.
But how do you time it?
That is a great question, and that is the problem because you only see that in retrospect when people finally start to look back and go, you know what, we were wrong at X point, at why point, at Z point. Right now, we're still looking at that and saying there's
still a lot of promise. We collectively as investors. I'm not speaking about us just generally personally, but the investment community is willing to look at that and say that there's a whole wave coming and even though you know they will be inefficiencies in that way, if people aren't sure where they're going to be yet, so at some point it starts to be cluegy where you don't get some people coming out and saying this is helping our margins,
this is doing that for us. We need to see that come through and that's still a promise right now, and market loves a good story.
There seems to be some great division over the balance of risk. I think the Fed's got one view and the market's got another. The Federal Reserve believes the biggest risk right now is downside risk to employment, and a lot of people in markets are coming around to the idea that the biggest risk might be upside risk to inflation, and they're chasing that because the Fed's going to respond to one and not the other. This is what Tawson's
lack of Apollo said just yesterday. Upside risk to inflation are growing, particularly if the FED continues to cut interest rates, and he believes his whole profession continue to underestimate this economy and the resilience of it. Are you coming round to that side of things as well.
Well.
It's interesting because the resilience of the economy also bakes in a number of things, you know. So Kelsey Vera was just talking about the difference between big corporations and small corporations, So it bakes in a lot of positive movements across the entire strata. I don't know that the entire strata is performing that well but from markets perspective, it doesn't really matter. Lower and consumers aren't doing that well, stock market doesn't mind. They don't spend the most money anyway.
If you can continue to see cash flow in those big companies, it's less of an issue than if Main Street is struggling on the smaller side.
So it really does depend.
But I do think that inflation is an issue, and I do think that it could be a.
Bigger issue going forward.
But if we're not going to get some of that data, it makes it easier to ignore. On the other hand, I think that it is definitely something that continues to flow through, and that's going to be tricky because what happens with that is you fix margins by getting rid of people, and then the labor question becomes even more problematic, and then the FED is in a very difficult place, which I sort of think they are anyway.
I'm looking at where to buy gold bars right now, and I'm one s There's crossco. There are places though they limit how much you can buy. You have to be a member, and then it's only one bar per person. I'm looking at this, how much is that sort of the solution increasingly for people I know that you say that personally is one thing, but increasingly how mainstream is that type of investing really becoming?
Well, I think that gold and to some degree bitcoin, and I wouldn't call gold a bitcoin, you know, digital gold or anything else, but they are ways to express an opinion that the system itself is going to have some problems and that government all currencies are going to have to value against something. Right, So gold is one of those things that people look at and say, I can buy gold. It's going to It doesn't matter if it's a year US thing or if it's a japan US thing.
I know that if currencies.
Are going to be devalued, i've got something that should rise in value. And whether or not that's a truism or people argue it, or it's just you know, people are chasing it. Central banks are going back to buying gold to some degree. They certainly seem to have been
on the non oecd side. So I think that there is room for that to move because it hasn't moved in so very long, and we just topped inflation adjusted gold prices in the seventies and eighties, and that is one of those technical markers that people look for.
Well, is that something where you're starting to credibly look at that as a real slice of the sort of more risk averse side of portfolio in a way that you hadn't before.
Well, I think the tricky thing is that after it's had such a big run, it almost seems difficult to say, now this is the time to go ahead and say that this should be a part of your portfolio.
If it was before, you're feeling pretty good about it.
If it isn't, now you're looking at that going can I jump in here and buy something that's elevated so much? And I think this goes back to all risk assets are going in one direction and whether or not that can continue. And it's difficult to jump in and say, yes, I want to put a chunk of something in the
asset that's run that much. But you could certainly layer in a little bit and see what happens so that it gives you a chance to layer in a little bit more, just because it's an opposite to larger financial systems.
Stay with us more Bloomberg surveillance coming up after this, Sticking with Marcus Spinky shadotoutsche Bank is one of the most polish on the street with a year rend target of seven k.
He writes.
In our reading, however, equity positioning is only moderately overweight, and we see gross not rate as the primary driver. To focus on banking joints us now for more banking.
Good morning, good morning. Let's get into this.
A lot of people would look at this market and say, well, everyone must be very, very long and overweight.
What do you read?
What are you looking at?
That's howsually something different.
So overall equity market positioning in our reading.
Is clearly overweight.
So if you think about it on a Z score basis, normally we are in a range between minus one and plus one, or read in round numbers, would be that the market's position basically at plus a half foero point.
Five, So clearly overweight, but not extreme.
But the related point that I would make is that that overweight is coming in our reading entirely from the positioning of systematic strategies. So if you think back to April, then well there's April the second, which is lead into April the ninth, and you have had basically on April the second, you know what I would describe really as a volved shock so you have the victim the fifties, and then you have the relent on policies on April
the ninth, and vol starts to basically come down. You get a strong recovery, and so the trend and volve basically coming down is pushing up by rules the positioning of systematic strategies. I would say the much larger part of the investor base the discretionary investors as opposed to systematic investors, and discretionary investors you want to think about
as basically fundamentals based investors. Their positioning is basically at neutral by early July, and in our reading continues basically to hug neutral.
So I would argue.
That actually positioning today despite the run up in the market, is a source of upside because if you look at the positioning of discretionary investors and what drives it historically, it's exactly what you would think it.
Is, which is earnings growth.
And so if you look at the relationship between discretionary investor positioning historically and S and P five hundred earnings growth, it's a pretty compelling relationship. There are, of course, disconnects from time to time when other things are in focus. And if you look at their neutral positioning today, it's positioned for growth in the very low single digits one two three percent. It moves around we and their positioning. Like I said, you know, it's been this way since July.
That's when we were getting second quarter earnings which came in at ten percent year and year growth nine and a half percent. And if you think about what we're going to start getting in a couple of weeks, our.
Take or preview would be that we're likely.
To get, you know, actually somewhat of a pickup in growth in earnings growth closer to sort of eleven percent, and so the pressure is on. I would argue for discretionary investors to buy in basically to this recovery, where they haven't. They've only been focused on the risks, is what we would argue.
So this is the reason why you upgraded your target for the S and P four year end two seven thousand, that was earlier in September. I'm just wondering how much you see that continuing through twenty twenty six to lead to some of the real ball cases that we've heard of seventy seven, seventy eight hundred on the S and p.
Five hundred.
Yeah, so you know, our target for this year end is seven thousand, and the way I would put it is, actually it's a reinstating of our target. At the beginning of the year, we cut our numbers, our earnings numbers, and our market view. We remain sort of constructive that we would get a relent on policies and we would go a lot higher. But at the end of the day, I mean, I think the simple fact is, and as some of the guests earlier were saying, basically, you know, you just don't.
See a lot of stuff with the data.
I mean if you think about I mean, the reason for cutting the tariffs, and they look to be having, you know, a much more modest impact than.
We basically thought.
If I look at earnings, you know, so you started with macro growth. I mean, we got the second quarter of recovery. We could say the three point eight percent is partly a recovery from you know, slow down in Q one, but we're in Q three now and the Atlanta FED at last read was pretty close to four percent.
So on macro growth, you know, not much is showing up.
And I would actually argue that a lot of negativity and sort of the macro consensus that we would get, you know, pretty significant slowing. That's that's a that's.
A positive catalyst.
And it's a mini version really of what happened in twenty twenty three, when the macro consensus, you know, persistently looked basically for a recession that didn't come. And so what you've got is basically fifteen months of positive macro data surprises, and markets are not necessarily go down when you're getting continuously positive surprises. We're having a mini version
of the same thing. If you look at the City Group data surprise index kind of went vertical late last week, and so, I mean, you know, discretionary investor positioning is exactly actually in line with the macro consensus of a slowdown in growth and a slowdown in earnings growth.
But we're not getting those things.
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