Market Outlook Post-CPI and a Tech Breakdown

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This is the Bloomberg Surveillance Podcast. I'm Tom Keene along with Paul Sweeney. Join us each day for insight from the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg Podcast channel on YouTube to see the show weekday mornings from seven to ten am Eastern from our global headquarters in New York City. Subscribe to the podcast on Apple, Spotify, or anywhere else you listen and always I'm Bloomberg Radio,

Do you agree?

I agree on equities, but I'm still really nervous on.

The other asset classes, so that I'd say yes and no.

What's it is not a radio answer?

You say yes on TV on radio and yes.

I agree for equities.

Yes, I mean I think there's still a moderate and sort of given what happened last month, signals abated, volatility came in and dissipated some of the strength that we saw earlier this year, and we're going to continue to see some sort of we've seen some recovery, so we're some somewhat moderately long you know, long views and equities.

But when you look.

At the other asset classes, that's what's been making me nervous.

Because you've seen.

Strong fixed income long signals, you've seen short commodity views.

You're seeing long gold and short.

The dollar has been under pressure too, so that that's a little defensive.

You mentioned the dollar, Kdie, I mean again, we've seen weakness here in the dollar here. I mean I've always asked my FX folks here, is there ever a case a bear case for the US dollar? Is this a bear market for the US dollar or is this just some short term trading pressure.

So I think there is definitely a case right now.

With monetary policy going in with cuts, that's naturally going to put pressure on the dollar. And that's been the key theme for the last two or three months, and we've seen I'll just be honest, with you. Currencies has been the toughest asset class this year to trend because the signals have been much more volatile, and so you've seen a lot of back and forth, which is not you know, has not been an easy trend to trade. So the signal noise ratio has been low, but more recently.

Especially the last two months, definitely with.

The theme of you know, US cutting rates, that has put pressure.

On the dollar, Katie.

From a CTA standpoint, people that follow trends, is it a good time? Are trends efficacious now? Or is it still what the pro say, folks, it's so stochastic that you just can't get conviction.

I think I actually think it's a good time because what happens a trend is as we go through a period of inflection. So when signals reduce and then pivot and you see a positioning move from one theme to another, that's when you have this opportunity.

To break out.

And so what we've been watching is some of the key things that have been building in our signals, and that's been a focus on potential for a harder landing, potential for economic weakness, and that is seen outside of the equity markets, and I think for me, when you look at past reversal periods, those other asset classes is where you have something to you know, to edge opportunities if we should find some difficulties this fall.

Do you have a belief on gold? I've never asked you this, does Katie Kaminski look at gold? I mean, what was it, Paul record high yesterday? Where are we twenty five? We're almost a twenty six hundred on gold?

On gold?

So gold is I mean, it's amazing. I think the recent rally may be attributed to the dollar being weaker and real rates going down, but you know, really, if you look at that trend, it's just, you know, we should just be buying gold this year. You know, it's it's really it's been very strong and it's been very resilient throughout the entire year, So you know, it's the one that kind of sticks out versus other commodities that are more demand focus, like energies and metals.

Well, I don't know much about commodities. I'm pretty proud of that butt, by the way. But the function I do know is BCom b COO and the Bloomer Commodities Index and BOIL US down ten percent just over the summer. I guessed, I mean, what's that telling you, Katie.

So that's part of what this defensive narrative that I've been concerned about. It feels a little bit like the trends right now are hedge. So there's still long equity views and trends, but that's coupled with short positioning and commodities. What I'm worried about is what happens after cuts next week, once we start having cutts.

Does the market pivot again or do we continue?

Kay, this has been wonderful. Our theme today, Catherine is Notre Dame got they were? They lost, And in my agreement with Bloomberg, I.

Have to talk of Purdue football.

So today we're looking at like, you know, pro football, like what they play out in South Bend and West Lafayette. I noticed Katie Kaminski that the fighting Mit Crew they beat Bridgewater State Football, and I was looking at Carson Phelps of Wichita, Kansas.

I mean, this kid, Katie, he's a math major.

He's like he's like real Mit Like, Katie, like, you know, this kid never would be in his in his life, Katie.

Is there a fight song at M I t is there a fight song there?

It actually is, and it's basically a math fight song and it has like E to the X pie I wish I remembered it.

But it's got math team go go go k.

It's a lot of Does does it have oilers function in it where the minus one stuck on the right side?

I think it does. Actually, it's it does.

It does have to the x y co sign sign something like that, but look it up.

It's really it's it's it's a great math chance.

Runs Ka Kaminski, Thank you so much from the shores of the Charles River, Eve the pie I.

Or whatever it is.

It all sorts of different views, starting with Michael Purvis's lyft of fifty.

Eight hundred NSPX this morning.

But they have the.

Quant of mathematics, the epsilon, the Greek letters.

Of Katie Kaminski.

Let's get real this weekend, over a beverage of your choice. Maybe you're at the beach, Maybe you're at a kitchen table trying to figure out what to do about the rent increase.

You want to listen to Emily Rowland.

Co, Chief investment strategists for a small shop up in Boston, they have. They have two toes. They have old Johnny Hancock and new Johnny Hank. I like, yeah, there's a lot of and all that. Emily joins us this morning. Emily, you have nailed by quality by America.

Try to push aside all.

The noise we've renoised after the first week of August.

How do you reset for twenty twenty five?

We continue tom to have our eye on the ball here. We are continuing to emphasize high quality stocks. We think in this late cycle environment, where the lagged impact of FED tightening hasn't tipped us into recession, we continue to spend like crazy in the United States. Not a political statement, by the way, It's just happening, and that's extending the cycle. We want to be careful of reaching too far for risk.

What's the for you guys at State Street? What is quality legging into the quality part of the market. What does that mean for you guys?

Yeah, so it's companies with great balance sheets, they have a ton of cash, great return on equity. Think about a company with the limited need to tap the capital markets in order to grow, and with the cost of capital still elevated. You know, companies are now contending with margin pressure. Revenue growth was awesome during the height of that pandemic, as companies could pass those higher prices along.

Now record revenue growth is slowing.

Margins are compressed, and the companies that are going to do the best are the ones that can defend those margins. And we're finding a lot of that in the quality factor and most notably in technology.

Emily.

It's a way from your remit, but let's keep the theme going. I need to have trick right now, and that is we had two opinions earlier this week separate into screete reaffirming double digit earnings growth. I assume you're there, but can you state to us that you see persistency of quality margins that lead to double digit earning growth.

Yeah, I think it's you can find it, but it's going to be concentrated.

In those companies.

Luckily, the quality factor has concentration in megacap tech, and of course those names are dominating the market.

If you look at earnings growth, just this quarter.

Half of it was driven by the communications services and technology sector. Revenue growth is coming from those areas of the market. So as long as you can see that holding up, I think you can get there now.

Tom. The great news is the bar for Q three is really low.

Analysts are penciling in three point eight percent year over year earnings ago. So I think we should just enjoy it while we can, Like you guys are enjoying the Yankees right now, beating the Red soxing.

Enjoy it.

Armela, you're killing me. Stop it.

You know, we might get better.

I mean you could.

See from the new John Hancock, if you go up higher, you could see the lack of offense. Oh but it's like a cloud over Fenwick Park. Paul in Nvidia, Paul, you were on this.

Yeah, so from the peak down twenty one percent, I know.

And Tim rays a great question, Emily. If you think about Nvidia, think about AI. That's been such a driver of the stock market performance for the last almost two years.

Here, if the AI.

Trade has kind of played out, does that bring some risk into the marketplace that we need to account for.

Yeah, it does because of that concentration.

And look, we're bumping up on thirty times forward earnings for the US technology sector. That's about as high as we've gotten over the course of this cycle. Now, of course it's not the fifty times forward earnings we saw in the late nineteen nineties, but certainly there's been a lot of multiple expansion there. The good news is if you do the math. You guys seem to be doing a lot of math this morning. So let me just get in on the party to look at the PE ratio.

It is not earnings. The earnings are there.

The fundamental case for AI is there. It's just the love affair with it is probably.

A bit extent.

Paul, in Vidia, fifty six times PE forward PE only to January of next year is a forty.

Two yeah, and it gets to a thirty handle on the following year. So this is a company that's earning its way into its multiple. That's what the bulls will tell you here exactly exactly. So I mean this Federal Reserve, Emily, it seems like it's ready to begin a cutting cycle. How does that kind of impact how you guys are thinking that stocks, bonds, commodities, all that kind of stuff.

Well, Paul, it comes down to what's already priced in to the bond market. You know, the bond market is putting pressure on the FED right now because we've got five rate cuts priced in for this year. So if you start to hear the Fed coming out on next Wednesday as even a little bit more hawkish than what's already priced in the market, I think you might see a repricing there. You'd see bond yields backing up. That

What are you doing with cash?

I get thirty seconds cash five percent, it's going to be four point ninety nine percent?

What happens, Emily Roland?

Yeah, cash is subject to massive reinvestment risk.

Here.

We would go out into the belly of the curve, lock in higher rates there. The AG is yielding above four percent, Still still get it? While you can and income income income get paid to wait.

Emily Rowland, thank you for the brief. Really love it.

That's what we love to do in surveillance. Folks have someone like Katie Kaminski and is doing total Greek letter math nerdfest and they go to Emily Rowland, who's talking really basic block and tackle believe for the three.

Year holding pattern, five year holding pattern. It's okay.

The way it works at Bloomberg, folks is man Deep Sing and a Agarana can't be in the same building at the same time. So Mandeep Sing's working from ame legit because an Igarana darkened the door of our world.

Headquarters here in New York.

Use me based out of Chicago to say he see the tech analyst barely describes it the oracle.

I'm looking at the phone service now. Good things come to those who wait.

Demand is high right now, Please hang tight in this waiting room.

When it's your turn.

To shop, we'll redirect you automatically.

Does everybody need a new iPhone this morning?

It happens a lot the first day when it goes to up sales. I've been waiting for the last few hours for them to open orders. Which started it at eight am Eastern time, and I honestly, in the fifteen minutes I was able to get through. I'll pick it up next Friday. I'm very happy about it.

How much memory should we get in our phone? You're a pro, You're downloadtle secret files and all that. Now much in our iPhone sixteen?

I go with the basic because I have the premium iCloud prep plan, so it doesn't matter to me.

So what am I getting again?

The sixteen pro?

Okay?

Thank you? So hon Rock, he's got a day job being like the tech gurul for Bloomberg.

We on a side job.

Is my personal iPhone shop? Right, Just get my credit card and he goes.

So you may have the iclouds so you don't have to spend up for all that RAM. Yeah, Like if I want to get the complete season of Slow Horses on there, all four seasons, I'm not going to use up all the RAM and the phone.

Now, you I have never in the last fifteen years, I've never seen any storage issues. You go with the basic model, it's not a problem. But you want to get the iCloud premium plan so that you're not looking at things at LISTA do you have the iCloud.

But here's the thing, I'm paying these extra dollar ninety nine to ninety nine a month for all this extra extra storage. Did I do it the wrong way? And was I supposed to go your way?

No?

No, he's my personal iPhone real.

So when you really buy a I don't know, a Rolls Royce, you don't worry about like you know the price of oil and these things. So I really don't like you need to get the premium plans for these things to just work seamlessly. You don't want any headache, you don't want any time anything not sinking properly.

So some of this intelligent conversation, this is the most important conversation we've had today.

With the phrase a I. Where does this.

Madness fit in to your day job? The future of this AI world.

So one of the things that we have said that when you look at Apple, it has probably the most valuable distribution arm of any kind of device at this point because it's usually very rich people who would own this particular product. Over the next two years, we will see a lot of AI applications come in and you would need a phone like an iPhone sixteen for those

So talk to us about what's going on. If I want to get exposure to AI. I mean, Tom's own in Nvidia since day one, so he's fine. But for the rest of us, we want to get exposure to AI in a software space because I like the software space. I'll add the recurring revenue that you've always taught us about where do we go in software?

For AI experts?

You know, we think it is still the biggest cloud players because you are not going to see companies do a lot of this in house. They will be using either Microsoft, Open Eye Relationship, Amazon and Thropic Relationship. Oracles also benefiting because it's getting the bypass of all of these companies. Google has Google and Gemini, so it is all of these big companies, And I mean as much as you dislike, But these big companies are only going to get bigger over the next five years, much bigger.

How about this?

I guess one of the issues with AI just come into the marketplace maybe over the last three to six months, is Okay, we've got through the efuria of people spending money on A and getting exposured to AA and that drove and Vidi and drove a lot of other companies. Now the discussion has become wa, wa, whooh, what's my return on this investment?

Again? What's the how do you?

How's that?

What's that discussion go?

Like?

So when you look at somebody like an Nvidia, they are all these cloud players are buying chips from that something over like forty percent of the chips are bought by the cloud providers. The cloud white is are then going to companies. They're going to healthcare companies, banks and saying will help you develop an AI chat, bought an AI application that would help you drive productivity.

Barclays with a brilliant report, just like the serious work you're doing in a Bloomberg intelligence on the electrical usage the electricity utility build out. To make a long story short, folks, in three cups of coffee. It's going to be at least nine percent of the nation's electricity. A sentence from Barclays Northern Virginia Good Morning ninety nine one FM, which currently accounts for over twenty percent of US data center capacity.

I think that is going to be the single most important thing, the capacity to run a lot of these AI applications. My call it omit just did a very brilliant podcast on tech disruptors for Schneider Electric CEO. Highly recommend people listening to it. It was phenomenal in the way the world's energy needs or electric needs electrification is improving, and how much they are doing.

To solve the drownouts in Texas. So the Texas has got their whacko utility structure. I mean when John Tucker logs on in the Lincoln Tunnel Staten Island dims, are we ready for this?

Santa Rock?

I think money will need to be spent at a federal level to help the cause because transmission lines are not there. The electricity generation needs to be there. Nobody wants to build the nuclear plants the Center.

Warren at the Commonwealth of Massachusetts and a few other Republicans are going to say, you guys are making all the money, you build the capacity. Why shouldn't Microsoft and their brethren build out the electrical capacity.

Bill gets very big on nuclear plants. If they allow him, I am sure he won't have a problem building one. But you know the country is not ready to build nuclear plants anywhere.

And you mentioned this, Tom. It's a great topic here about a derivative top about AI and the energy demand. Bloomberg Intelligence has a forty page deep dive AI driven energy demand outlook, solar gas and batteries, race to power, AI revolutions.

What's the sum of that inner ruck?

Wow, it's the etsy at the end of the day, that remains one of the biggest bottlenecks for US, both the GPUs shortage as well as electricity and power. And I think that's I'll tell you one thing. I go back two thousand and eight nine. Everyone is talking about how the world is going to run out of oil and everything in the next two years. The US capitalists

Okay, can you call Journal's year up and figure out what to do here? I got to order. You know, vet Bill had a tantrum last night, almost big canalty. I know vet Bill needs a new sixteen Promax.

You know, Well, you're getting ears and a watch next week, right, so you're doing your which watch?

You get the pro with the what is the ultra to the black with the titaniums shiny one?

Does it even tell time?

I actually have never used one of those watches, but this is the first time I'm going to experiment with the bigger one.

Jesus.

Okay, what do I mean? You don't see? How do you respond? Anerog rana to the gloom? The breath of gloom? Right now? On AI.

It's healthy, right, it is always healthy. We went through the same thing and the Internet bubbled when we had the two thousand crash, and after that three years nothing happened. But Internet is still so much bigger, So we're going to go through massive amounts of ups and downs in the stocks going moving up and down. But I think the buildout is real.

The market lifted when interrugrs is great, Rana with This is Bloomberger Intelligence.

For those in the terminal, go to Bloomberg Intelligence. Good morning, if you won the day.

To look at the front page, it's a Lisa Matteo our Lisa, what do you have?

All right?

So we report on business here, but we also report on politics. We talk about politics here. There's a new poll out from the Associated Press that says, well, Americans, they're getting some political fittigum, so some of them want to tune off a little bit. So they're saying about half Americans say they do follow political news extremely very closely, but six and ten said they have to limit it how much information they consume because they feel a bit overloaded.

On the debate, they have like sixty some million people tuned in more than Biden drunk.

I kind of like this short little season that we're having. Now love it elections like a snap election exactly, we should do this.

I like this that's working on.

But it's a break down, like women more likely to feel that they need to limit it more than men. So that's the difference there. But yeah, a little bit of political fatigue.

They're allowed.

Yes, we're not in the Swing States.

So we're not in a city because every single ad on ever, it just there is.

Yeah, it's everywhere.

Yeap.

Next, prep schools. I know you love education, So prep schools not just for the elite. The Wall Street Journal is saying that more are offering free rides for the middle class. So the latest example Deerfield Academy, it's a Massachusetts boarding school. Yep, it's going to start giving a free ride to any admitted student whose family earns less than one hundred and fifty thousand dollars a year. The school costs seventy five thousand dollars a year, forty eight

So more elite schools are starting to do that.

These are the elite elite schools, and the question is down the food chain do they have a luxury to do that and they maybe don't have the allowments.

Of exactly right time, it's all about the Lawrenceville and Lawrenshall. We have a seven hundred million dollars dowmon at Larncell, so they're able to be very helpful to a lot of families.

So we'll have to see what's a challenge next week.

Continuing with education. Okay, so we heard about the Wall Street Journal's top Colleges.

List, right it's about after Thoughts grades.

We heard after thought might like this list. I'm not sure, but this is the school about the best party colleges. Oh, thank you, Lisa, Are you taking notes? Where's Rutgers? Where's Rutgers? Rutgers is not on the list, unfortunately. Who do you think is number one?

Okay?

Most of them in the South and the Midwest, they hold those top four come on come.

Onshill Lane to Charlotte, New Orleans and Ian Bremmer.

Good morning from Party School, Norland.

Number one party school according to the Wall Street Journal. Number two University of Dayton.

They're actually one.

Of two schools in Ohios that made the top ten. Another private school. When you get to public schools. Number three Florida State University.

We're talking, it's on.

My daughter's list.

I don't know about that. I'm crossing it off, crossing it up.

But they did. They surveyed a lot of kids. They asked them about student life, career prep, classroom souting halls, but they also asked them about the party scene.

So if you want to know about Tulane, here it is.

Two out of every three students said that they can find a party on campus.

Five or more nights of the week.

If they looked, forty percent said that it was true seven nights a week.

Wow school on.

The Listen, it's parennially on the list. From mister Tom Keane University of Colorado at bord.

I'm shut and my son's alma mater as well.

Bolder collars, a brass plaque at the sink and we'll leave it.

Yeah, you have one.

More for us. I do this is a record.

Okay, an American woman has cycled around the world.

The people, okay, and you're one of them.

You do need planes though, because you know you take your bike, you need the planes.

Okay, let's be open about that.

Eighteen thousand miles around the world. She's thirty eight years old. Lale Wilcox. One hundred and eight days. That's what it took her to do it. But Guinness laid out these rules. So basically, she hopped on her bike in Chicago and May she rode east to New York, flew to Portugal, crossed over to Europe, then traveled to Australia, New Zealand finished with a ride from Anchorage, Alaska, back to Chicago on Wednesday.

I can't believe she did all this.

She did have a lot of people though, going along with her because she was posting on social media where they were going and they joined in.

So Lisa Matello with the news today. Thank you, Lisamtez. This is the Bloomberg Surveillance podcast, bringing you the best in economics, finance, investment, and international relations. You can also watch the show live on YouTube. Visit the Bloomberg podcast channel on YouTube. To see the show weekday mornings from seven to ten am Eastern from our global headquarters in