Markets Cautious Ahead of Jackson Hole

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All right, let's direct to Michael McKee's out there in Jackson Hole. Hey, Michael, as we get into FED Chairman Pal's speech tomorrow, how have expectations been changing. What do you think is going to drive his commentary tomorrow.

Well, probably people are starting to change their expectations based on the minutes that were released yesterday of the July thirtieth meeting, because it emphasized the fact that almost all of the members of the Open Market Committee, except for Chris Waller and Mickey Bowman, were more focused on inflation than they were on the labor market. Now, that was before we got the bad revision to the July payroll report.

Hey, Mike, as far as what is the market betting that Powell will say versus in reality what we will likely cure him end up saying.

Well, right now, when you look at the WRP function on the terminal, you see we're in the eighty percent range. Eighty and higher. Depending on the headlines of the moment that people think that the Fed will cut rate wants twenty five basis points. The fifty basis points has probably

Hey, micro starting, we do have some dissent on this FOMC. Talk to us about that. Historically, should we care? When does it become problematic? How should we think about that?

Well, there's a lot going on, it's not necessarily problematic for a while. You'd have to have a significant turnover at the Open Market Committee to have anybody really be concerned. There is what we've called the Tinfoil Hack conspiracy theory, but it's a little bit less of that than it was that because the Board of Governors has the power over the FED presidents, they can dismiss them at will.

Along with that.

So Trump just getting a majority on the board doesn't mean a significant change in policy. Also, I think our friends down on Wall Street would have a conniption fit over something like that, and that might cause the President to back off. What he may get out of it is more people on the board who are more inclined to lower interest rates, but once you get in there, you are very afraid of inflation, and I think that culture will hold for a while.

Mike, or there are other members on the board beyond Mickey and Chris Waller that you think potentially could also be a descent voter at that's September decision.

I don't think we'll have any other descents unless you get a Steve Myron world record confirmation from the Senate and get him in there by September seventeenth. Pretty much what we've heard from everybody is even the ones who are looking to the possibility of September based on the data, if the data suggests that there's no cut in the offing because inflation is rising, those people aren't going to dissent.

Mike, what's the latest scuttle butt out there in Jackson Hall about President Trump's campaign to ask for a Reserve Governor Lisa Cook?

Well, there's nothing really new. Overnight. Cook put out her statement at the end of the Day yesterday saying she will not be bullied into resigning, and she noted that she is gathering all the documents necessary. So unless the President tweets something again, we're all keeping our eyes on his truth social account. It's probably gets moved off to the side for a while until we get some more information.

All right, Mike, thanks so much for joining us. Appreciate it out there. Let us know when there's a Tom Keene citing. That would be a thing to see, a psyche to see. Michael McKee, international economics and policy correspondent for Bloomberg, whose.

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Well, let's get the latest what's happening down in Washington at DC. And for that we always turned to Wendy Schiller. She's a professor Brown University. Wendy, it seems like the White House is turned its attention at least for the timing over the last couple of days on the Federal Reserve with some allegations against Governor Lisa cookel what do you think is going on here?

Well, I mean, I think this is just part of Trump's sustained attack on the Federal Reserve and trying to sort of exert more executive and direct power over the Federal Reserve. And in some ways for pr purposes, He's got the advantage because I think most Americans don't know

And talk to us about the motivation here, because to your point, of resignation would create another opening for Trump to fill the FED board as president because basically piling on that pressure for the Central Bank to lower rates.

Yeah, and it's just curious he's targeting this member and not any other member. And I think that's sort of part of the Trump administration strategy.

When they go after people.

They tend to try to pick off the weakest links in a lot of the organizations that they want to exert more influence over. You know, he went after Powell, but it was clear even though he tried that in general he can't probably can't fire Powell, and that Powell stood his ground.

But Powell essentially only has a year left.

So I think that's this is part and parcel of what the Trump agganization does.

And you know, Trump is.

Exercising executive power and people can like it or not like it. But for twenty twenty five years, Congress has allowed presidents to do this, Democrat or Republican. It's not just Trump, it's other presidents as well. So you know, Congress either has to step up or other branches of government have to step up and say no, you're you're overstepping your power.

But so far we haven't seen that.

You know, it leads me to the question I always ask you, Wendy, and I think we kind of get the same answer. But is there anybody in Congress that, at any point in time cares to stand up against President Trump for any of these types of issues? Or is it just or we passed that well?

I mean, I think if you were, if you're a remember of Congress and you're in a comment and you're planning on running for reelection, if you're a Republican, you're all in on Trump. That's just he's taking over the Republican parties, and most presidents do try. Obama was a little bit of an exception. We didn't do as much in terms of taking over the messaging of the entire Democratic Party, which is more diverse in general and harder to sort of become more uniform.

But Trump has done that.

So you are tagged with Trump, whether you like it or you're not, as a Republican congressman going to twenty six.

So they're not going to revolt.

But the Democrats have to figure out something other than we're not Trump because it didn't work for them in twenty twenty four. And we're going to see in Virginia and in New Jersey coming up relatively soon. You know what those meanssages do and how well they play and if it looks good after November for the Democrats in those states, and I expect the national Democrats will pick up on some of that messaging.

So what's the next big thing that you're obviously keeping a close eye on here when it's related to these types of issues and how this plays out on a timetable basis?

Government shutdown?

I mean, you know, I think I said on this show, you know, the election has already started for twenty twenty six.

We know that with the redistricting efforts.

And by the way, you know mid ten year redustering is not new and original. A lot of states did this in the nineteenth century and always bringing up history, so it's not unprecedented for a state to decide mid course that they want to redistrict. So we'll see what the courts do with that, especially the Supreme Court. But really I'm looking at the budget shutdown about the government, right,

You know, what does Trump want? And then the government.

Still has to get US budget done by September thirtieth October first the fiscal year, and we'll have to see if they can do it keep the government running. And if there's a shutdown fight, then that's when the Democrats have an opportunity, as Clinton did against Gingridge, to make their points about the way the Trump administration is operating.

So we'll have to see which side blinks on the shutdown.

Question real quickly. Ukraine Russia, what's the next steps here? From your perspective, well, I mean, you.

Know, you have to say to yourself.

Trump gave Putin more time to do more damage in Ukraine, which puts more pressure on Zelenski to give some territory up for peace.

And that's what Trump did. I don't think it's indefinite.

I don't think Trump will just sit by and wait indefinitely for Putin to do, you know, destroy the country. But certainly he gave Putin the opportunity to go in and keep pounding, and that will continue to exert pressure on Zelenski if he wants to save Ukrainian lives, And you know, is there an opening for a compromise. I think the President is still committed to that he wants to be the guy who ends this war.

All right, Wendy, thank you so much. We appreciate that. Wendy Shoulder for us are at Brown University. Stay with us.

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Let's check out with the next guest we always love to speak with to get sense of kind of where these markets going, where valuation may be, how we should be thinking about both equities and fixed income market. And that's Karen Murphy. She's a CIO at Kestra Investment Management. Caro, we've had just a phenomenally crazy ride so far here to date in equities with that twenty percent sell off in April. Then, boy, that was quick on the way down, but it was even quicker on the way back up here.

First of all, I.

Would agree with you that it's been a wild ride in the markets this year and We've described Q two as the Rip van Winkle quarter, where if you looked at your portfolio in the beginning of the quarter and then went to sleep and woke up at the end of the quarter and looked at your values, you would have been like great.

Great, and pat yourself on the back.

But we all know that it didn't feel like that as we went through it, and interestingly, like after this massive rally, we have many of the same risks that we started the year with, namely, you suggested a very high valuations really concentrated markets. But what we've seen, especially coming out of second quarter earnings, is that many of those companies continue to deliver and that's really been able

Pretty good.

Yeah, those guidance momentum scores from Bluebird Intelligence for the current third quarter for companies that are putting out quarterly guidance, it's a basically the heist in a year and second highest in a couple of years. There, So that look a little better than it was coming into this year. I'm kind of wondering your thoughts on when it comes to a lot of people arguing about the run we've

Of all of the rally this year.

I mean, how could people argue about anything being bubbly when some of these big tech naus weren't necessarily all a part of that.

Yeah, And I think you're right.

The market has distinguished, right, So in some ways we've seen what we would call an everything rally coming off the bottom, and that you've had really wide range of types of stocks that have been rallying. But as you suggested, some of the big winners of the last couple of years haven't participated in the same way.

So I think in.

General what you're seeing is the market is reward like going back taking risk off tarifs aren't going to be as punitive as we thought. That kind of raises everything. But then the clear winners are those who are able to demonstrate a benefit from AI and that's you start to see some differentiation.

Is it valuation concerned for you here?

Yeah, absolutely, but it has been for a long time and it doesn't mean that the market's going to turn down.

So what it is is we're constantly looking.

For is there some sign that there's going to be a chink in the armor of this like forward earnings picture, and so far the momentum is pretty much up as those like all that cap X mending that's being put to work now. As that starts to come do in the next year or so, I think that's when you start to have the market take a much harder look and saying, are we actually getting returns on all this cap X? But for now, there's so much money going into this, we need to give it time to actually

We are speaking with Kara Murphy, CIO Kestra Investment Management KRA as a recovering equity analyst. Earnings matter to me, and I think Corporate America is doing a great job, better than expected. Talk to us about kind of what your takeaway was for second quarter earnings that we just finished up and kind of maybe the outlook.

Yeah, I am also a recovering equity analyst, so I know exactly what you're talking about. And they think when we look at the earnings reports that are coming out of the second quarter, they're quite different than what we're hearing on like Main Street, right, So particular, as we look at the largest companies, we had I think earnings expectations bottom for the second quarter around five percent.

They came in around twelve percent, so more than.

Double kind of where they had bottomed at the worst of the tariff fares. And these companies are also doing it on better revenues, better margins, So we're seeing really really good reports out of these. But then that stands and start contrast to some things like we're hearing about, you know, more cautious consumer spending, more worries about a title labor market, and of course a housing market that remains quite frozen, partly because of affordability.

So it's very much a sort of like tale of two cities.

But if you're a large company today, chances are your earnings picture looks pretty good.

So, Kara, what companies are you telling investors from a stockbas is to buy or sell at this point.

So we've been calling twenty twenty five the Year.

Of the diversified portfolio, which is not terribly sexy. But what we've seen is that for the first time in quite a while, even with the mag seven doing really well and having this great rally, owning things outside of those that area has actually.

Been beneficial to your portfolio.

So, for instance, like non US stocks, it's been years that the S and P five hundred has sort of trounced non US stocks. Now so far this year we're seeing much much better goes outside the US.

And how much is of a week dollar, right?

I was going to say, Also, when you have indexes like the S and P five hundred coming off of two back to back years of twenty percent gains, I mean, even though it's up you know, eight nine percent this year, is it just kind of just a smaller cooling off period before potentially more gains from here?

I mean, I think that would be very healthy, right.

We can't put up twenty five percent gains every year, And even given that, as you suggested, like the returns that we've had in the S and P five hundred this year are.

Still pretty good.

But I think what happens is that when you have a single asset class like the S and P five hundred doing so well year after year, a lot of investors then sort of forget that they need to have exposure elsewhere. And so often when we talk with investors is like, remember these sort of like long term approaches to investing where you want to be able to have exposure some of these areas outside the world.

Fixed income, what's the play here, stick when the belly of the treasury curve or takes some.

Credit risk, a little bit of both.

So when we look at, for instance, like high yield, if you go pretty far out on the credit curve, I think there we would have like a little bit of concern only because you're not being paid to take that much risk. Right, credit spreads are really really tight. When we look at corporate credit, that's where we have some really nice absolute yields. Yes, like you know, spreads are tight, but it still feels very comfortable, and we don't see a lot of stress within corporates. So I think,

Cara, thanks so much for joining us. We always appreciate getting a few minutes of your time. Caraen Murphy. She's the CIO of Kestra Investment Management, a lot of experience in the investment game. We always appreciate talking to Carolyn. Stay with us.

More from Bloomberg Surveillance coming up after this.

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But Lisa the best, Lisa, what do you have for us today?

Okay?

This is actually a look into the struggles that older Americans are having because their savings accounts are starting to deplete. So they're like, how are are going to make money when I'm win my eighties? Okay, So Business Insider they spoke with one couple who are in the eighties.

They say they only have.

About twenty thousand dollars left in their savings. They only get about two thousand dollars a month in Social Security. It's not enough to cover expenses. They have a roof repair that they need. So they've both been looking for work. You know, the husband is a truck driver, he was a truck divery. He's eighty two. He can't get hired for the long haul jobs and no one wants to hire him for the short haul jobs. And then his wife is eighty five, so she's having a similar issue

Now, I mean, I know it's gonna be more and more an issue. Yeah, that's why my personal strategies. I'm never retiring.

You said, Walmart greater right now, Walmart crea.

I can see that exactly, such a friendly blues collared shirt on I know, I mean, are awesome. Yeah, you got it. I think that's going to be the story for a lot of people going forward.

Going and going back to work. Have you guys heard of this viral ballpark challenge? It's called nine nine nine.

Okay, I have no idea, Okay, so here we go.

It is eating nine hot dogs drinking nine beers throughout an entire game, nine innings.

Okay, nine nine nine?

Can you do it? Okay?

This has been around actually, but social media, of course, brought it back. Some are saying it's going to cost about two hundred and thirty dollars if you add everything up, you know, to complete the challenge. But it's even going into other sports like golf. You can do nine beers, nine club sandwiches, and nine holes.

Okay? Is that more your gym?

A little bit?

Okay?

But the Wall Street Termalmporter gave it a try. It was a tough start, but they finished it. They actually got a good deal. Did you know what city field You can get hot dogs and beers for five dollars a pop on Tuesdays?

Yes, yes, I heard about this.

I didn't know that, but apparently this is like the thing, the nine to nine to nine challenge. So next time you guys go to the ballpark, get ready and go an empty stomach.

And the writer says, you know, in the aftermath, I lost the desire to eat for the next two days.

Wow.

That that sums it up, okay, and last weight.

So back when I was younger, right, we would go to the Limelight in the city, was right, and it turned into a nightclub and it was a rave and you know, you have a couple of cocktails and you get home like the wee hours of the morning.

Okay.

But apparently that's a little bit too much for gen z and millennials, okay, so they can't handle it. So now business inside are saying they're joined.

This new trend. It's Macha raves.

Okay. So the go it's a sober, you know, daytime clubbing event.

People are on a caffeine high. That's their high.

Okay, still the best music, right, smoke machines, everything, but they get to be in bed by ten pm because the party is from four to eight, so they get to get up and feel refreshed, no hangover. And there you go. Try Macha and it's just no terrible for you are it's it's too bitter.

I have had sweeter versions of it, and it's I like that but I'm all about I have to have so much sugar with it. Even if I have coffee, I wouldn't even really consider it coffee because I put so much like the straw cream, and right, I need to have something really sweet in there or else I'm just I'm not into it.

Do you do? Would you go out and do the late night raves jest?

Or would you?

Are you not the good.

I'm not the gen z Court.

I'm in that generation right before it, so we don't really.

Six floor, right we do?

And you have to do like the dirty one where you mix the coffee with the macha and it's idea a matcha machine, a matcha machine. It's on tap. You just pull it back like you're poring a beer.

And I have seen upstairs on the sixth floor.

Yeah, I.

Like different recipes sometimes posted out there. It's I'm telling you, Paul, you've got to.

Try it again, all right, I'm again give it another shot. That's the Newspapers with Lisa Matteo.

This is the Bloomberg Surveillance podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday seven to ten am Eastern on bloomberg dot com, the iHeartRadio app tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal