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Let's just set the stage here. Kind of mid December SMP of fifteen sixteen percent, NASTAC up twenty twenty one percent, some pretty solid results out of the bond market as well, high single digit returns. Where do we go from here? Because that was a pretty solid year, despite some volatility in the beginning of the year. Ross Mayfield joins us.
He's an investment strategist bear a private wealth and management. Ross, let's set the stage for twenty twenty six here, what are the conversations you're having with your clients these days?
Yeah, I mean, with the market at all time highs, a lot of the typical warriors that we hear from investors have been tossed out for the moment, and the main worry is just the strength itself.
Right, are we have things been too good?
And are we being set up for a disappointing twenty twenty six? I think expectation management matters, right. Obviously, we can't keep printing high teens twenty percent plus years year after year, and this would be the fourth year of gains of twenty twenty six is positive, but in a bawl market that's not in common, and there are a lot of tailwinds for the market as we turn the page on twenty twenty five. So we're pretty optimistic, but just managing those expectations.
I also think, guys, what's kind of encouraging about this market is yesterday we were able to hit records on the Dow, a squeezed out one for the S and P five hundred, but we did it largely without big tech names, without those big AI names. So, ross, do you think that this rally is broadening out and we could see I don't want to say a change in leadership, but at least a broader rally in twenty twenty six.
Absolutely. I mean, for most of this rally, what has been one of the.
Main concerns, the concentration, the potential narrowness of the rally, the focus on the AI trade and the mag seven and the reality is different. Under the surface, You've got things like financials working healthcare has staged a really nice comeback after a lot of years underwater. Industrials have held their own discretion areas breaking back out, So you have a lot of other kind of you know, real economy cyclical rate sensitive names working.
Obviously, the rate cuts have helped.
Spur some activity in those corners of the market, and the fundamentals are expected to brought out too. You know, even this last quarter we saw the SMP four ninety three with double digit earnings growth, and if you look at the earnings estimates for twenty twenty six, the expectation is that continued broadening in the fundamentals. So I think it would make sense for that to continue in the price action as well.
Hey, Ross Corporate America has really done its part here to support this market. Earnings have come in really really strong for the last several quarters. The earnings power for twenty twenty six is enough to support this market.
Yeah, absolutely.
I mean we had the early part of a bullmarket rally built on multiple expansion, which is really typical coming out of a bear market low, and then earnings have taken the baton and really carried the day here in twenty twenty five, and I think that that will be the case in twenty twenty six as well. Earnings growth you know, expected broadly to be in the thirteen fourteen percent range. Even if that comes down to something like ten percent, that's more than enough to carry a bull market through.
Again, maybe we manage expectations.
Maybe maybe single digit returns, low double digit returns is kind of where we.
Set our base case.
But again, after three years of high teen or twenty percent plus growth, that's more than enough. And that's pretty typical for what a fourth to fifth year of a bull market might look like. So I think the earnings growth, the profit margin expansion, the breadth of that earnings growth is more than enough to carry the day. And I think it's the main one of the main pushbacks against
the argument that we're in a bubble. The fundamentals have kept up with price by and large, and that's not the case in most real bubbles.
But ross as we look to maybe rejigger their portfolio, as we you know, near these final days of the year, is it time to buy the laggards? And if so, what's sticking out to you?
You know, I don't know if you need to buy the laggards. I think you can just broaden out.
I mean, as we mentioned earlier, there is strength, nascent strength in some of these non tech areas. The place that I am, you know, shouting from the rooftops for investors to consider their portfolio positioning, and it's international, which has not been a laggard this year, but has been a laggard for most of the last fifteen years. And so I think a lot of investors have thrown in the towel on international and the reality is that this bullmarket.
We mentioned the breadth within the US, but it's really a global bull market, and in a lot of ways, the leadership.
Is outside of the US.
You look to Japan, you look to Europe, you look at some of the emerging market names. A weaker dollar has been a catalyst, but there is a fundamental strength coming from abroad as well. I think a lot of investors are structurally underweight international and can do you know, could do a lot of work just to get back to kind of a marketwaight or and neutral weight international. That is one of the main things that I'm talking about with investors as we close the book on twenty five.
Here russ Let's follow up on the international play there. Do you feel more comfortable than developed markets or emerging markets, because we've heard folks talking up in emerging markets more in the last three four or five months and a half in a while.
Yeah, absolutely, I mean there is I think it starts and ends with a week dollars story, right, and if you look at this year, it's been it's been a week dollar story.
But if you look at twenty.
Twenty six, you know, you think about the FED continuing to cut rates, you think about what a new potential FED chair might want to do and continue to ease, and then you look around the world and you see global yields headed higher. Japan and Europe, Australia can a lot of central banks are talking about their next move being great hikes, and so if you think about interest rate differentials, you could really build a case for a continued weakness and the dollar that does tend to boost
emerging markets more. I think I'm a little more comfortable going to some of those developed markets. You know, Japan has been an incredible story breaking out after thirty plus years underwater.
But by and large, I.
Think you can if you're just a typical long term investor, you can probably just buy, buy the bulk of it, you know, the MSCI All Country x US, and call it a day, because I do again. I think the main thing is you've got a home country bias and you've had fifteen years of underperformance. I think a lot of investors probably probably owned very little, if any international at all, So just a blanket ownership of a broad international index will.
Do the job.
Ross, thanks so much for joining us. Really appreciate it. Ross Mayfield, investment strategist at BAIRED Private Valve Management. Stay with us or from Bloomberg Surveillance. Coming up after.
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Prea.
Mister Joints is here Core plus a bond etf portfolio manager at JP Morgan Asset Management Pria. Thanks so much for joining us here in studio. It's a little chilly at so we appreciate you leaving the confines of the brand new JP Morgan Tower on Park Avenue.
Which is just awesome.
I walk by it every day the Penn Station. They did a phenomenal job there. Love to get your thoughts on the FED here. We're seeing some comments from mister Goldsby, who was at the center, but he says, I kind of need more data, but boy, rates can come down more, he says, if the data warrants it. What did you take away from the FED meeting this week?
Sure, so thanks for having me. Always enjoy the conversation. So I think what the FED did brilliantly was to retain optionality.
So we have a lot of data coming up next week. We're also going to.
Get another payrol report before the next jan meeting. So they created the optionality that if the data is weak, particularly on the labor front, that they can absolutely cut more. But they did sort of signal that the bar to cut any further is higher. So, you know, and I think, and you know, you you reference President goals B. I think there's a division of the FED because the risks to the labor market and the risk to inflation are both high, and different FED officials are putting more emphasis
on one risk versus another. I think President Goalsby is probably in the inflation camp, you know, sort of worried that inflation has not seen much progress this year. On our end, we think that inflation, if you look at the details of inflation, service inflation is heading lower. Wage inflation is heading lower. So in our base case, we do see a couple more cuts, you know, by the time the Fed actually reaches neutral, but there's no urgency so they can cut this, you know, over the next
six months. Of course, if the labor market is weak and that unemployment rate, and that's what we're watching, if that continues to move higher, I think this swead is going to be a lot more aggressive.
Yeah, and Powell even signaled that right that the labor market he was saying, in not so many words, is probably weaker than we think it is. Also, we're dealing with backward looking data at the moment, so we're still waiting again for that more data to come in. But pria, we know that credit spreads are tight, but you say they're justified.
Yes, If I look at fundamentals of company balance sheets, companies have not really levered up. That would make me a little nervous if the debt levels kept increasing, large debt issues done by companies that didn't have much debt. So we're not that concerned about the fundamentals of whether it's earnings or leverage or even interest coverage ratio.
But spreads. So I think spreads are at the tighter end of the range right for good reason.
We are a little cautious that there's going to be a lot of supply in January. There typically is, and this time if the rest of the corporate sector, beyond just the AI CAPEX companies are deciding they need to raise.
Money either for investment in EI, in how.
They're going to incorporate in their business, or MNA related financing, we think there could be a lot of supply and that is an opportunity. It wouldn't be worried, but we are keeping some cash on the sideline waiting to buy when that supply comes.
Interesting, so does the bond market broadly defined? Are they concerned about some of this AI spending and the debt associated with the AI spending. Because I look at some of these issues, I'd buy their bonds. I mean, these are great companies, great cash flows, clean balance sheets. I mean i'd be as much as you got, I'll take it.
Yeah, I think you.
Know, when you come in with a very large deal, it has to be priced, so there was some I would say supply in digestion. You've got a lot of that supply in September. Look at all the posts deal pricing. What has happened to the market. All those spreads are tighter, So I mean Oracle has had their CDs widening. I think there's concerns around how much more debt they're going to need to issue, But broadly, I don't think the
credit market is nervous. There's a valuation question and do I want a little bit of a new issue concession to take.
Down a large part. I think there's some of that.
Look at the spread curve that has not really steepened. I think there's a lot of demand for long end corporate paper.
It's there all in level of yields. Those spreads are narrow, but look at all in eields.
If you're getting six percent five six percent high quality investment grade debt. I think that's why we're seeing continued demand, and I don't think the supply will be an issue beyond just that week.
Maybe there's a little bit of spread widening.
CRIA.
What's your thinking with these companies, all these big buyouts and so many companies taking on debt. Because we know that Netflix is deal to buy Warner Brothers. Discovery includes fifty nine billion dollars in bridge loans. Are you concerned at all that companies are getting these deals done by taking on such massive debt.
I think that's always a concern.
I gat bo activity or if there's worsening of the credit I think, you know, obviously there'll be some cases where maybe it's over down. On average, So far, we haven't seen too much of debt fueled sort of bubbles.
You know, do we get there next year?
If the credit markets are open and the Fed's easy, I would still say all in neils are not that low for companies not getting free money, and so we are.
Not that concern. But at certain pockets.
Remember the cockroach hunting a few weeks ago or months ago, we were all worried.
I think you really want to minimize cockroaches.
Do a lot of credit work to know that if a company is taking on debt, will they see the productivity gains? Can they see the economies of scale and MNA. That's going to be a big issue. We're going to be analyzing two companies merging. Do we think that they can keep margins, they can make those debt payments. So far, we haven't seen things that would worry us, but we have to stay vigilant.
So I think a lot of folks they are fairly constructive on twenty twenty six, And it all starts with I think the economy is in pretty good shape. I think we're going to see some decent growth out of the economy. Is that kind of where you guys are of a JP Morganism management?
We are.
We think we're in a soft line. I think we've been in one for the last two years. A lot of that is based on bottom up company fundamentals as well as consumer fundamentals. On average, balance sheets of the corporate sector and the consumer look very strong, and I think that's why the economy has been resilient.
We've had so many.
Shocks this year right right from tariffs, immigration, geopolitical, and yet the economy is sort of powered through. In our base case that remains the case over the next year. I am a little concerned about the labor market, right I'm not hearing companies saying that they're going to increase hiring, so maybe this is a jobless recovery. We have to see how long does that continue to power the consumer.
Layoffs, is what I'm watching.
I think that would unravel some of this, but I think the FED then aggressively starts cutting rates.
All right, Priyamysra of JP Morgan Asset Management, Coreplus bond ETF Portfolio Manager, thanks for taking the short walk over from JP Morgan's headquarters here to.
Stay with us or from Bloomberg Surveillance coming up after this.
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Let's talk about M and A because we've been talking about this big Warner Brothers trade for the last seven weeks, but it's been a pretty darn good year for M and A. It feels like and I think banks for talking.
About twenty twenty six as well.
So let's check in with somebody who does this stuff for a living, Samir, seeing he's co head of M and A North America for City. Samir, help just frame out how twenty twenty five has been for M and A. And then kind of how you guys are thinking about twenty twenty six.
Sure, happy to do it. Thanks Ball for having us and looking forward to the conversation. Look, it's been an interesting year, right, it's been just set the stage twenty twenty five. This year is going to be the second largest year in M and A volumes after twenty one, which had a lot of spack volumes in it. Let's also keep in mind, by the way, they were a couple of months where we were in the old rooms from an M and A standpoint, right around when tire
its came out. So all of this momentums really happen if you think about it in the last eight months. I think back when I say to myself, you know, since twenty twenty we had like six megadeals fifty billion plus right over the last four years. This year, in the last two quarters, we've had four. This momentum is not going away. It's been incredibly busy. And why is that. We have a kind of confluence of some perfect factors
of here. Right, You've got rates coming off, growth remains strong, there is a significant amount of investments that's coming in from an AI and thus a data center infrastructure perspective. I don't discount that that's a big driver this time, and then I combine that with how strategics are looking
at deals. There is greater clarity on how to get regulatory approval for the first time in half a decade this time, and I think you're going to continue to see this momentum build because people are able to think about this as deal makers. We're able to look at the landscape and say we can get an answer as
to whether something's going to pass muster. The administration's much more open to looking at remedies as a solution, which was not something that was available to the buyers, and thus able to find the right way to navigate these complex environments.
All right, So a more friendly regulatory environment in which to work. So we know we're seeing a lot of consolidation in media, we know we're seeing consolidation in AI. We're else outside of those sort of expected areas. Where else are you seeing consolidation in the new year.
It's a great question. You know, let's talk about AI, and when we talk about AI, everyone talks about LMS, But let's actually talk about what else happens beyond AI. Right, AI is causing massive amounts of spending that's flowing into data center infrastructure that impacts industrials. You think about let's call it picks and shovels, but you think about the volume that's coming in of spend over the next five years that is having a big impact from an industry perspective.
So you're going to see a lot of flow on over there. You're seeing a lot of flow on in real estate as a function of that. And then let's also consider the fact you're coming out of COVID. We've had a change in human behavior that was forced on people and as a function of that, companies have had to adapt. You take those impacts, the need to fix supply chains, you take the need to think about tariffs.
I think the other place. When you combine those two factors, you're going to see a lot of changes in the consumer landscape as well. That's not going away. So in my mind, like I see it happening across the board. Let's also consider you know the GLPS, right, you think about healthcare and some of the impact that that's having. I see this happening across sectors. So AI has a flow on on industrials, real estate in a few other places.
I see a lot of change in consumers, and I see a lot of momentum in the healthcare franchise as well.
Smyr talked to us about the private equity clients or sponsors out there. For you guys. You know, based on my thirty year career on the street, it's easy to raise money, and it's really easy to invest money. But man, it's really hard to monetize those investments. And that's been pronounced really over the last four or five years. What are you hearing from your sponsor clients.
It's gotten much better. Yes, there was a lot of noise last year because you could not exit some of these assets because of what was happening in the market. So the markets have helped, I'll tell you this year exits are at a significantly elevated level. And by the way, if you look at the sponsor wallet of exits, forty percent of the wallet is coming from one billion dollar plus exits. It typically runs twenty to twenty five percent.
That's a forty percent. Well, the other thing that's happening, you talk about capital coming in. You've got strategics who are now in a position to act, but you've also got a lot of let's call it sovereign wealth fund money right, and these funds have moved away from being passive LPs and they're starting to think much more aggressively about being direct investors. With the GPS, that has helped
in a big way as well. So what you're seeing in auction processes, I am seeing situations where processes are getting preempted for quality assets. I'm seeing situations where strategics are showing up before sponsors going to exit and saying this is what I'm willing to do. This is an asset I'm very focused on. We know there's a wave of assets that are going to come. I don't want to be distracted. I want certainty. I'm willing to pay the right number, and I want to get the asset
that I want. That is something you are seeing in a way that is surprising relative to where things were twelve months ago. It is becoming much more than normal today.
And I think part of that is the friendly regulatory environment that you're discussing. So do you think that this cross border I guess approach will call it an M and A will continue into the new year.
Yes, I do.
I do believe it and I'll tell you it's interesting again because what's happening is crossboard of volumes that are again running at record highs. And it's like seven hun than fifty billion in North America last year, but sixty five percent of that was into the US. The US is the bastion of growth in global markets today. And you see this now both with foreign strategic acquirers who understand the need to capture some of that growth and
localized supply chains. But you're also seeing it with the same concept of sovereign wealth funds who see assets national treasure, assets that could be very interesting to have ownership in. You're going to continue to see that built for.
Your strategic buyers, financial buyers. What's the capital markets like these days? Are the banks lending? Are you relying more on private credit because we see in just in this Warner Brothers Discovery deal, big bridge loans being quoted, big financing packages being thrown out there.
It seems like it's pretty solid Westing.
It's a good market. So the banks are leaning in, the banks are leaning in on the right situations. They're thoughtful, We're being very careful about where we'll lending. You have private credit available as as well as as a credible alternative, and it is showing up in some large deals. We've obviously seen it in this one. We talked about it.
We're spending a lot of time advising the folks at Paramount, and what I'll just say about this deal is, look, I think the offer, the aggregate offer that's being provided to the Warner Brother shoholders, we think our offer is superior and that our client will prevail, and hopefully Shoholders will see the value of the separate deal this is the whole thing, and see the aggregate value they could actually get in this and not have to take the risk.
I don't want to get too political, but it's interesting to me that an administration that is very much about America first and an isolationist in many ways is open to sovereign wealth funds and money coming from across the border to be involved in a lot of these deals. I mean, I just I find that curious.
You know.
The way I kind of think about it is that I think what's going to end up happening is they will be guardrails. Put look at what happened. We advised Nippon Steel and US Steel there were some very clear guardrails that were put on, not exactly your sovereign word fund, but still we had a golden shar being issued for the first time in the United States, more common in Europe. I think the general theme over here is there are
global alliances being formed. There is an increasing emphasis on the Middle East, and I think when you think about it in that context, there is a view that this capital that's coming in is going to benefit both the American consumer and also the national interest because it's providing capital and places that is, you know, it's investment is needed, and it's providing that capital at some pretty interesting cost
of financing. That makes this attractive in the context of the global alliances that the administration's trying to form.
Samir, what's different for one I was in your seat, is there's a lot of boutiques out there that are really good. How do you City, with the diversified financial offerings of City and Goldman and JP Morgan, how do you, guys, I guess, set yourselves apart versus some of these boutiques.
Look, I think it's you know, every every sector, every industry has competition. We welcome competition. I think from our perspective. We believe in the long term relationships that we have with our clients, and we also have an ability to
provide a very holistic solution. So we've got very good advisory functions are seen in the incredible year that we're having an M and A at city this year, and then I combine it with the broader balance sheet that we can bring and by the way, a lot of these deals, we'd start to get very complex other things that we're spending time on that the team is going to be working on through the holidays. For better or worse,
there's there's there's complications in these deals. And what you want from an advisor is the ability to provide a holistic solution and not bring in seven different providers and then you worry about confidentiality. That becomes an issue. But I think clients value the advice they advise, they value the relationship, and we don't. When we look at our advice, our advice is fairly holistic. Across the bank. We don't have to sit there and say we just worded about one pocket of of UH.
Because you have a deeps a deep bench. That's the pitch.
Yes, you do it with all Samir, thank you so much. Really appreciate taking some of your time. Samir Sek, he's co head of M and A for North America. For city Name with us or from Bloomberg Surveillance. Coming up after this.
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It is that time of day, folks. You wait for it, it's here newspapers Lisa Mittail at least.
A half hours. All right.
So we're talking about a new growing trend in the housing market. You have more luxury home buyers. They're looking for fully furnished homes. I'm not just talking, you know, furniture. They want the sheets, the mattresses, the pots, the pens, the utensils, like everything's to nuts. The question is how much extra does something like that cost if you want it?
So the Wall Street Journal they talked to a seller in Fort Lauderdale, Florida, tacked on an extra one hundred and seventy five thousand dollars on top of the price at the home to get all of that, and this is luxury, so just.
Gave it in mind. Wow, she even stocked it with toilet paper and paper towels for them. Did we wear that in for good measure?
And when we bought our Carmel house, we did exactly that you did. We loved their style, we loved everything was perfect, like, hey, we'll just take it as is. When we sold it, we sold it at with all that stuff, so that this good stuff, I mean.
That brings turn key to a whole new lab mess.
Of course, and it's better because it can It's both for both sides, you know, like you can sell it faster and then the person comes in and you just walk right in.
We just walked and plopped down and just take your luggage, I guess with your clothes and off you go.
I guess an extra money to.
No in nor did I feel like we were paying for it. You know, it was just you know, it's just kind of it's already stupid pre expense about there anyway.
No, it is.
It is.
But they're saying, like what they're saying is that it started to increase after the pandemic because in the pandemic there were a lot of you know, people were trying to get furniture, and everything happened supply chain, so trends kind of stayed and they just like to come in with everything. They don't have to worry about waiting for a couch or waiting for a bet or anything.
It's all there.
And oftentimes these folks are brought in designers and whatever, and so the house is beautiful.
It's like a show palace. You're like, I'll take the whole thing.
I would do it.
Okay. So we've talked about this before. Remember when a couple of provinces Encounada, they stopped the imports of US alcohol, right, they took it off the shelves, and response to President Trump's have so, business Insider was saying, a few of those provinces are actually planning to sell what's left in inventory, and they're going to donate it to a good cause. They're going to donate the money they make two food banks.
They're going to donate the alcohol to the money.
Yeah, selling it, yes, yes, yes, yes.
So for example, Prince Edward Island, right, they put their alcohol back on store shelves yesterday. The government anticipates a profit about six hundred thousand Canadian dollars from the sale, So that's going to be distributed to food banks all across the island.
I wonder what Canadians did they stop buying Jack Daniels and Tito's and stuff.
I guess.
I mean they're saying they don't intend to place any further orders for American ALcom.
I mean, I have some Canadian friends.
They are upset.
Yes, it is deep, and it is across the board.
I mean they are not happy with us.
So, but they're buying the homemade stuff now, So I guess it's good for Canada.
Okay, Yeah right, that's the Canadian stuffy stuff up in Canada.
Ye all right, I want to take you to Okay, so we talk about AI, right, and how it's being used for different things, even to find a soulmate. Yes, AI on dating apps. It's going to cost you. I'll get to the cost in just a second. But it's business Insider. They spoke the CEO of this company called Keeper. It's an AI matchmaking startup. They say they can find you soul mate. If they can't, they'll let you know.
You'll get rejected. So it uses out sorry for you exactly.
They use like algorithms AI models to match people. But you have to go through this lengthy process, right, I mean there's you have to fill out a questionnaire with your age, academic test scores, like your SATs, career ambitions, your salary, net worth, all that kind of stuff.
I don't think dudes care about that too much, but I'm just speaking SAT score.
It's funny you mentioned dudes because they're the only ones who have to pay. Oh okay, So if you're a man and you do find a mate and you wind up getting married, you sign this marriage bounty and you have to pay fifty thousand dollars. So if wow, find out if you get a date, you have to pay five thousand dollars for the date.
So it's it's for certainly pleasle I mean, I don't know about this.
So it's it's just taking tender and match dot com to the next level. Yes, so it's more than just swiping left or right.
Yes, okay, it's curated through algorithms.
At least they're matching you with a real person. I thought you're gonna tell me, like the AI jack becomes like your soulmate, you know, which would be very scary.
I think just going into a bar and you know, figuring it out, that's not still still the way to go, exactly.
With cocktails at like thirty bucks a pop.
Right last, exactly, Lisa Mitteo.
That's your newspapers, folks.
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