Bloomberg Audio Studios, podcasts, radio news.
This is the Bloomberg Surveillance Podcast. Can't just live weekdays at seven am Eastern on Apple car Player, Android Auto with the Bloomberg Business App, Listen on demand wherever you get your podcasts, or watch us live on YouTube.
I just go to our first guest here, Robert Teeter.
He's a chief investment strategist Silver Crest Asset Management joints us here in our Bloomberg and Directive Brookers studio. So it gets a double gold star coming in on right and early exactly. Robert again just mentioning the lack of participation may be in this marketplace when you look at the SMP up twenty six percent, the SP equal Weighted Index up twelve thirteen to fourteen percent, So big divergence there is that a concern for you.
It is a bit of a concern. I think most of it is tied to moves in interest rates. In my view, we've had a lot of the head fakes where you've had enthusiasm over rates coming down more quickly.
That's led to a broadening out of markets and once again, you know we've had that rug pulled out from under us with you know, rate expectations for next year now being dialed back pretty significantly, and with the ten year heading higher, and is the rate on the ten year heads higher, people get more and more concerned about smaller companies, and you have that narrowing of the market where the winners keep winning and the laggards keep lagging by quite
a bit. The tide could turn for twenty twenty five, but that's been the strongest relationship that we've seen for that relationship between large and small has been where rates are and where they're headed.
So how are you advising clients to position going at in next year.
We're pretty enthusiastic about small caps for next year. One of the key reasons is the M and A works. It is it's almost for a long time not working. Yes, but we do see a couple of new catalysts and those are really with the change in Washington. So M and A backdrop, you know, that was a very slow environment for most of twenty twenty four.
Everything we're hearing is.
That the backlog of deal activity is picking up. People are pretty enthusiastic. That tends to accrue to small caps. They tend to be the acquisition target and that gets you a premium there, and that helps a bit. We think the broadening out will continue slowly as rates heads slowly lower over the course.
Of twenty twenty five.
I'll probably say slowly three or four times, but we do think that's headed lower. That alleviates a little pressure as well. And then lastly, we see some of this profit margin expansion that's been mainly in large caps broadening out to the small cap space as well. Of course, there are a lot of non earners in indices like the Russell two thousand, but we do think there's potential for profit margin gain as AI and productivity spreads to a broader segment of the market.
I just pulled up in my g where I have a lot of my charts saved. It's the Russell two thousand relative to the S and P five hundred year to date. So if you look at this year, it's underperforming the S and P five hundred by fourteen percentage points, So that would be the worst underperformance since actually nineteen ninety eight, in the fourth consecutive year in a row that the Russell two thousands under performed the S and
P five hundred. So when you look at an index like that versus the S and P six hundred, better earnings potential in the six hundred obviously than the two thousand because of the zombie companies in the two thousand. Which way do you play that?
Yeah, Absolutely towards the S and P six hundred, the earners. Sometimes when you get these these quick turns, it accrues to the whole index and some of the quote unquote garbage rallies faster. But I think for the full twenty twenty five, the reason we're enthusiastic about small caps it is the higher quality, profitable companies in small cap narrowing the gap against their large cap competitors.
Which ones do you think are more competitive and more profitable in particular industries?
Yeah, I think it's really a stock by stock situation, not only in small cap but in large cap as well. So our view has been that the driver going forward will be, you know, less from the economic side, less from the multiple side, and more from the earnings growth side. And the earnings growth side we see really coming from
profit margins rather than the top line. And so it's just this case by case implementation of you know, technology enabled efficiencies boosting margins, and that can come in any industry or any company at any time.
So it's a harder market.
We think it is one that lends itself more to stock selection, understanding management teams, understanding you know, how the environment might shift from the creators of AI to the users of AI, and those users of AI really deploying in an effective way to boost margins.
What are we doing in the bond market here?
I can sit there in a two year treasure and get four point three three percent.
I don't have to be a.
Hero, do I take you credit risk here? We have not been big fans of credit risk. You're absolutely right.
You get a pretty good yield without taking on that illiquidity premium or in private and the credit risk premium in the credit space. So we've been pretty cautious there. You know, we've missed out obviously. Those are areas that have done quite well, but pretty easy to sit at the short end of the curve and get, you know, close to five percent and be pretty content there.
So when people want to talk about especially the annual gains in the S and P five hundred being up once again more than twenty percent this year, second consecutive year in a row and the first time we've seen that since the late nineteen nineties. How are you thinking next year can shape out? And can that continue to where we'll still have double digit maybe even more than twenty percent again for potentially a third consecutive year in a row.
I see that as a pretty low probability.
So our base case is really nine percent gains, just tracking earnings higher, holding multiples where they are. Street consensus is more like, you know, fifteen percent fourteen percent earnings, where at about nine you could see a case where enthusiasm builds. We've got pretty high multiples here. You know, most of the twenty twenty four gain, about two thirds of it has come from multiple expansions, So we think
we've kind of pulled forward some gains. Unlikely to see that happen, but you know, you could always push higher to those nineties type of multiples. I think that's that's unlikely. And the big key for us is really the economy. If there's no recession, we think that earnings backdrop holds and the gains continue, but only at the high single digit level, not not much more than that.
Why did you, I mean the street, I think one of the risks.
Perhaps in a market in twenty twenty five, is the earnings risk because I think I've got to fed it's going to cut maybe a couple of times, so that's.
Not really going to be a catalyst for me.
Earnings really have to come through for this market to move higher. And again thirteen fourteen, fifteen percent earning shots, which seems to be dialed into street consensus, that seems pretty I'm not to say aggressive, but boy, that's a heavy lift.
I would think I think it's a heavy lift as well, especially when you look through at at a sector level. You know, some of the cyclical sectors are expected to see pretty high earnings gains. I'm not sure how that happens unless the economy reaccelerates, and I don't see that happening. I certainly don't see a recession. But if you're tracking along at two two and a half percent GDP, I'm not sure how you get an acceleration in some of
the cyclical space. So that's one reason we're a bit more conservative on the earnings front than street consensus.
We'll leave about thirty seconds left, But what's the top advice you'd give your clients going into twenty twenty five.
Yeah, I think it's stay the course.
You know, Paul was mentioning about the long term, you know, compounding effect, and I think, really stay the course here. There's no immediate you know, big recession. There's no giant imbalance in markets right now. Economy looks okay, earnings look okay. Just keep compounding that earnings growth going forward.
That's a message I give to my kids.
Three or humor in the working force, match your four one. That's right.
Yeah, and I thweek they're doing it.
And I think that's going to be it. So good thing.
Robert Teeter, thank you so much for joining us. Robert Teeter, chief investment strategy is Silver Cross Asset Men and Management, joining us here in studio on Friday, December twenty seventh. I mean that exactly. I mean definitely. So we appreciate that.
You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am Easter Listen on Apple car Play and Android Auto with a Bloomberg Business app, or watch us live on YouTube.
I know, as long as I can remember, you probably know this better than me, But it just seems like tech has been leading this market forever and I can't imagine a market where tech does not lead.
I mean, is you know it doesn't lead.
Us hard all different acronyms. We've gone from things to Matt seven's. Now people want to call it batman if you throw in break data.
Now.
Our next guest has been on top of all this, Melissa Auto, head of TMT Research at sp Global Visible Alpha Joints US. Here in our our studio, Melissa, what is your call on what are some of your.
Top picks in global tech?
Because again it feels like if this market's going to move higher, another leg higher after two twenty plus years in performance, technology has got to leave us yet again? Do you think technology can lead this market yet again?
Good morning, Happy holidays twenty twenty five.
Here we call yep.
You know, I think there are a couple trends that we're really looking at for twenty twenty five. First and foremost, are we going to start to see an upgrade cycle? We were looking for that this year it didn't really pan out. Apple and Dell look very well positioned to benefit from an upgrade cycle based on visible African census. We're seeing that analysts haven't really taken their numbers up
for an upgrade cycle. But if we do start to see a catalyst there, that would be an interesting theme enterprises coming in and saying, Okay, we need to upgrade our employees laptops, our employees iPhones, and we saw that in mass in COVID and so you know, we haven't really seen that cycle kick in yet. So over the next say, six to eighteen months, that could potentially be a window where that kicks into gear and would be positive.
It's interesting looking at Apple specifically because the stocks up about thirty five percent year to date, and if you think back to the first quarter of this year, that was one of its worst underperformances relative to the S and P five hundred since the dot com bubble bursting there. But since made a bottom in the middle of April, it's just continued to taken off and to fight a
lot of those expectations. Obviously, in early May it announced that another historic buyback program that still needs to execute a lot of that on. But when you're thinking about more of the fundamentals versus the technicals, where do you this is pointing in the direction when you have other stocks like Nvidia and a very different type of chip company. But when you're thinking about how to position into that next year.
Indeed, we're an interesting point with Apple. They were a bit late to the game around the whole AI theme. They came out in June at WWDC and revealed their Apple Intelligence and the market got very excited about that. It drove some upside in the stock, and then you know, it's sort of petered out. And I think we're coming into twenty twenty five potentially with this upgrade cycle in mind and the idea that AI may start to drive more of an enterprise adoption, and that enterprise adoption could
potentially lead us into a broader adoption. And I think that's what the market is, that there's some market consensus around that theme. There's a lot of debate.
Though, AI.
How much are you buying into this AI thing? I mean everybody's telling me. You know, Gene Munster, you know, he put it into context of it's it's bigger than the Internet potentially. How do you think about it? How does that factor into your kind of your thematic research AI?
The challenge with AI is that in building AI application, So we've seen to your point, we've seen a lot of innovation in the chip and in the model. Where the challenge is the is in the application layer. And part of the reason for that is that the application layer requires deep domain expertise, and in order to have the application really resonate with the user and really be useful to us, it requires a high degree of accuracy.
And I think that's where it's becoming challengeing, is that when you have an agent or you have some sort of generative AI bot or tool, it's not as smooth or as streamlined or as accurate sometimes as the user
needs it to be. And so I think that's where you know, you're getting some pushback, particularly in enterprises, where companies are saying, hey, if we're going to have our salespeople, if we're going to have marketing, if we're going to have you know, the business side really leveraging this, it
needs to be very high quality. And I think that's where you know, if you're looking for a hotel, for example, and it's a little bit off, that's one thing, But if you're having it write an email for a customer, that's a different thing. So I think having the domain expertise in the application layer is probably making it a bit slower than the market had initially expected.
So, Paul, who do you think is the best performing stock in the S and P five hundred this year? Because there's one stock that comes in mind, so you would think it was, it's actually it was for most of the year.
It's Vistra.
Actually, so it's the power producers that are tied to the AI play and utilities.
So actually that stocks up.
Gosh, if you look at that f VST is actually the ticker symbol on this up two hundred and seventy four percent. So when it comes to more of the data center type plays, I'm wondering what's your view on that when it's beyond even just what you think of the cohort of the mag seven if you're thinking about those sort of data center plays that people are investing in. Because Nvidia actually up one hundred and eighty three percent year today.
Right, Yeah. I mean SMP Global four or five to one research has done a lot of work on the energy side of it, and Vistra fits right into that. With the potential merger of Energy Harbor, they are likely to really benefit from the AI data center energy consumption.
I mean that it's.
The reality is that all this computation and the velocity of power that is required for a data center is going.
To increase real quick thirty seconds. Microsoft what you call there?
You know, Microsoft's interesting. They recast their accounting lines. They now have an AI services line, and what's amazing about that is that we can start to really see how AI is dropping into their P and L. And Microsoft last year did about four billion dollars in that line, and then based on Visible Aphric consensus, that's going to eighteen billion dollars by fiscal year twenty six, So some real acceleration there.
Yeah, it's just been extraordinary here. So I guess my takeaway is AIS like a thing, and it's impacting a lot of companies.
And we're gonna be talking about it more and more and more.
But I remember it just you know, a couple of quarters ago, every company, yes and P five hundred talked about.
Great Kroger was one of them too.
Yeah, I mean mcconnald's Yeah, I don't know. Melissa Auto, thank you so much for joining us. Melissa Auto. She's out of TMT Research, SMP Global, Visible Alpha, joining us here in our Bloomberg Interactive Brokers Studio.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on applecar Play and Android Auto with the Bloomberg Business App. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa playing Bloomberg eleven thirty.
Jennifer Lee joins us.
She's a senior Congress She's a managing director at BMO Capital Markets. Jennifer, as we think about twenty twenty five, I'm not.
Even sure where tot. I mean, let's just start.
We've got a new administration coming in in the United States. Uh, We've got a new Congress about to be seated in the new year. What do you expect from again the new sheriff in town. From an economic perspective, I don't know if it's you know, tax policy, if it's if it's you know, tariffs, if it's uh, you know, changes in immigration policy. There's a lot of moving parts. How does that impact your outlook for this US economy?
Well, good morning, Happy holidays to both, and thank you very much for.
Having me on.
You know, this is a it's that key word uncertainty. You know, expect the unexpected. There is so much unknowns as we're heading into the new year with the new Trump administration. He's already talked about what he plans to do with everything that he wants to do on is to do list. Whether or not he's going to be checking them all off on day one, Uh, that will be very interesting to see. But certainly tariffs are the key uh, or is the key measure that he's planned
to play out to roll out. He's already talking about the ten twenty percent blanket tariff on all three trillion dollars worth of goods coming into the US, and that will be already significant compared to what he did back in twenty seventeen, which was, you know, targeted tariffs on about three hundred billion dollars worth of good So this is a bigger impact. And of course twenty five percent tariffs on Canada and Mexico, an extra ten percent on China.
Maybe this is on top of the sixty percent, So I'm not sure what the figure is going to be. So there's a lot of unservedy I think heading into into this new year. But terrorists is certainly or certainly
the key factor. Taxes corporate tax, targeted tax cuts, I think, which would be great for corporate America, and of course different tax relief measures for those who are you know, are reading overtime, Social Security, and of course all those other other issues like the biggest deportation effort ever in the US, cleaning out all all the extra stuff that you know doesn't need to be spent. That's where doage
comes in. And so a lot of things on his to do list about how that is going to play out remains to be seen, and I think this is why we're expecting a lot of uncertainty as we start the new year.
The latest estimate for the Atlanta Fed's GDP NOW model for the current fourth quarter actually above three percent Paul. And of course we were talking about earlier the economic growth projections. If you look at the ECFC function and the terminal that can pull it up for you on
a quarterly as well as an annual basis. So, Jennifer, I'm curious because year after year, especially coming out of COVID, there's so much doom and gloom even for the expectations in twenty twenty three, twenty twenty four, that a lot of economists ended up being on the wrong side of that and getting it wrong. So what are people getting
wrong about next year? Because I feel like once we wrap up a year and look ahead, we always have these kind of anticipations that never quite come to fruition when you look a year out.
That is true, and we have been, I think on too low on our growth expectations. We were never in the recession camp, thankfully, but we're you know, I think everyone was always too low on their growth expectations. We've got about two about two and a quarter percent, just under two and a half percent penciled in for next year. Where I think where the myths has been is certainly from the US consumer. The US consumer continues to be the big driving force of the the broader US economy.
That and of course over the past few years was all the business investment and government spending as well. Helped with the Chips Act in the IRA that's certainly helped boost the economy of the US consumer continues to surprise, and we should always say, never ever underestimate the US consumer. Just the last November data for personal income and spending showed continuing spending. It wasn't exactly super strong, but it
was still spent. They were still spending. And also in those areas that if things are really tough, we wouldn't be spending on, like regret, recreational goods and services, recreational vehicles that area. There's a bit of a pullback on dining out, hotel stays, but overall still decent, consumer spending, still decent, consumer wages, savings great. So over four percent is still pretty decent as well. So I think that's
where the mistake has been. So we'll have to see how things go in the coming year, just given that we are expecting inflation to take higher.
So the dollar just in this last three months is up nearly seven percent. And for the tom Kings of the world that like the you know, vacation over in Rome or Parish or London, it's a good thing. What do you make of this strong dollar, Jennifer, So the strong.
Dollar has been at the beginning, it was a function I think of the stronger US E climbing like throughout twenty twenty four. The mistake has I mean, I think everyone has already underestimated the global growth as well. I don't think there was one G seven country that had back to back negative GDP reading, so nobody was in an official recession. Things got revised a lot, which I thought was very interesting. It's just on the data front.
But everyone ended up stronger, I think, than expected, especially in the US, so a lot of that US dollar strength was reflection of much stronger US strength relative to
everyone else. And now over the last few months it's been a reflection of I guess at FED expectations, at least over the last few weeks in particular, just given how everyone's expecting the Fed to not cut as quickly as originally had Anticipation is given again incoming Tearo's potential income impact on inflation, and now with the last dot plot showing only fifty bases points of rate cuts penciled in, which, by the way, I think, let's sort of have to
take with a grain of salt, that's certainly put a little little new fire underneath the green back, and that's been very, very difficult to make calls good calls on the currency market, just given all this volatility, So the FED not cutting as quickly or as much everyone else seeming to face slower growth as we're entering the new year, and more rate cuts coming like from the ECB from the Bank of England, maybe not the BAKE of Japan. The RBA is probably going to start cutting rates in February.
That is going to also lower their weekend their currencies and put more strengths underneath the US dollar.
I'm curious is the calendar flips to twenty twenty five. The FED of course will have new voters. Who are you keeping a close eye on for as we get closer to what people are arguing debatably that neutral rate? Who do you think is more of a close callum to cents here?
Well, you know what I think. I think I'm going to go back to just to see what i think. Fedhair pal is going to be the key FED policy maker of course, that makes the key decisions, and he's whatever he says sort of reflects I think the broader consensus. So I think it's just it's I'm going to keep listening to what the FED chair says. I mean, everyone else has their own opinion, everyone has their own dots, but I think ultimately it's going to be up to
the FED chair to make that deciding factor. So I'm just going to go straight to the boss and say it's going to be a feed schair.
Pal, Jennifer, you're up there in Toronto. How are our good friends in Canada thinking about this new administration? Maybe some terroriffs because last I checked, we do a lot of trading with you guys up there.
Yes, the US is our biggest trading partner, sending five percent of our experts head down to the US. So obviously, you know we are. We were already pretty nervous because the us mcas up from renegotiation in May of twenty twenty six, so we already knew that there is something going on on that front. And now with the new threats of a twenty five percent tariff on both of the US's trading partners from that deal, from both Mexico
and Canada, obviously makes us very nervous. And we're going to have to see if we are going to be able to do some you know, decent negotiations that will hopefully, you know, soften the blow and hopefully we won't see this play out even if it's you know, it's also going to depend on how long if he does do what he threatens, which is the twenty five percent tariff on Canadian imports, how long that's going to stick around for and you know, hopefully it's not going to come
to fruition, but they will be very bad news for a Canadian economy. But we've got about two percent penciled in for Canadian GDP growth this year or for next year at least. Ray kusters still have had a good impact, but all that could be erased if we do see a blanket twenty five percent tariff on all Canadian imports.
All right, we'll stay on top of that forever.
One.
Jennifer Lee, Senior e Commerce Managing Director at Pimo Capital Markets. You appreciate getting some of your time.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
I don't know.
Holiday shopping done. Feels like I spent about the same.
What do you think you did more or less the same?
I spent a lot on Black Friday and cyber money.
I'm not gonna lie. That's all right. I did all the the damage. The damage was done.
The damage was.
Done, all right, let's see how this thing's kind of shaping at here as we kind of get a little bit of a look back here, Julievan Allen, Chief Revenue Officer. Racketan joins us. Julie, here we are here on December twenty seventh. Any early sense of hell kind of how that holiday shopping kind of panned out in dollars cents?
Yeah?
Absolutely. First of all, thanks for having me again. This was an interesting holiday. As the whole year has been, it has been pivots after pivots looking at consumer behavior, and what we saw this Cyber was the developing behavior.
Of a very uncertain consumer.
I will say we monitored daily shopping pre brought Black Friday and throughout main cyber shopping days, and what we saw a shoppers came out very early this year.
They were really looking for the deal and not the day.
But we had done some research with Harris Poll earlier this year, and we knew that retailers were highly confident that they were going to be able to drive all of their sales during peak moments like Black Friday and
Cyber Monday. And I think unfortunately many of those retailers who took that tact missed out on a lot of this pull forward of early shopper demand in moments where they feel uncertain and are really willing to pull the trigger when they get enough of an incentive to buy, And we also saw them buying with much more specific intent.
I heard you both say that either you shop.
The same or perhaps a little bit more on those key days, and what we saw was something similar but much less browsing. So consumers were very clear about what they wanted to buy, and they came to the sites. They purchased in a very purposeful way at a very high average order value per trip, meaning that they were ready, they knew what they wanted, and when they got that incentive that they needed, they bought.
What were consumers buying more or less of.
That's actually one of the most interesting trends of this year that's certainly new to me having been in this space for a long time, where leading up to Black Friday, we saw a trend that I started calling first me than you, which was to say that consumers were buying from very non traditional gift giving categories, think things like pet care or personal banking. And as Black Friday hit
and we're monitoring trends. We continued to see that behavior happen, and we kept waiting for it to shift to more traditional gift giving, and fundamentally it just kind of didn't. And it wasn't until after prime holiday shopping, after Cyber Monday, really that the last minute shopping started to move back toward normal gift giving categories like gift cars, toys and games, sports and outdoors.
But really fascinating.
And I think continues that trend of an uncertain consumer who's using moments that they know that they're going to get the most value to shore up themselves and their families before they started to think about gift giving.
Trulie, how promotional were the retailers this season? What did they have to do to get people kind of in the door or clicking that mouse.
They knew that it was going to be a season of value seeking consumers.
It was no secret to anyone.
So it was very much a season of stacking and using whatever lever brands could, whether that's their own in house deals and promotions, whether that's things like free shipping by online pickup in the store deals as we got closer to holiday shipping cutoffs, and also of course other levers that will drive permission to buy things like cash back, especially for brands who maybe don't want to do as
much discounting. We saw a lot of that happening in the luxury space in particular, but it was really whatever lever a brand or retailer could use in order to be competitive in a market where they knew that consumers were going to be much more loyal to the deal than to the brand, which is exactly what happened.
Now that we're past the Christmas holiday, what other promotions could we see at the end of this year and going into January.
Well, of course, at the end of the year, you're always going to continue to see brands offering deals to
offload any gluts of inventory that they may have. We had a lot of interesting shipping moments leading up to Cyber Week this year, so you'll see those deals continue through the end of the year for certain But what I predict going into twenty twenty five is really that we're going to continue to see this developing habit of a very uncertain consumer and retailers trying to meet them in that space, which means that the deals and incentives
can't stop. However, brands and retailers need to figure out what works for them in order to give shoppers the most bang for their book. And one of the interesting trends we started to see even in Black Friday and Cyber Monday is this very delicate dance between direct to consumer brands and retailers. Where brands were offering in many is higher cash back than the retailers who carry them
because that's a lever that they have. They have potentially more margin on those products to offer to the value seeking consumer, and the retailer has other levers, perhaps things like free shipping that they have an ability to offer with better infrastructure to consumers. So it's really going to be this dance to meet the consumer where they are as they continue to focus on things like everyday items and essentials.
Julie the pandemic it seemed to bring forward by several years the percentage of market share for e commerce versus bricks and mortar, and e commerce really grew. Where's that relationship now? E commerce versus brick, bricks and mortar For most retailers.
E commerce did grow leaps and bounds.
We took what we saw about like a five year leap into the future in terms of e commerce growth, and it really does continue, but we are seeing a dramatic increase this year in terms of in store behavior.
Racketon has ability to give cash back in store as well, so we monitor these these trends, and that piece of our business has been one of the most dramatic areas of growth year over year, and I think we're going to continue to see that into next year, especially with that very highly coveted next generation gen Z shopper continuing
to grow and bring strength to the market. They prefer a very tactile shopping experience, worried about quality and sustainability, so I think that we're going to continue to see that that trend move more toward brick and mortar next year. But again that doesn't change the fact that this is still a value seeking consumer, so in store retailers are going to need to find those incentives to continue to drive shopping in store.
All right, Julie, thank you so much for joining us. I always appreciate getting a few minutes of your time. Julie Van Allen, she's the chief revenue officer at Racketend.
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