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the Bloomberg Terminal, and the Bloomberg Business App. With a brilliant summary of the history of index concentration in portfolio concentration. And I didn't realize, you know, the way we have the big techno, this has been normal this. You know, there's other times it's been like this, you know, the sixties or the fifties.
Yeah, I'm not sure that's necessarily a healthy aspect of the market. I mean again, this, you don't know this, you know, focus on a handful of stocks, a dozen stocks in terms of the market capitalization.
But that's where we are tap with big tech.
We bring it up because Sarah Hunt joins us right now. Sarah Hunt with Alpine Woods Capital Investors. The top ten stocks and are holding make up one hundred and forty two percent of the portfolio. Have you ever seen it this concentrated?
Good morning.
I have not, and I think that that is something that we were discussing last year. It is something that is going to continue to be well. But also we were talking about last year because you had the top seven right, they were a big percentage. They had to reboalac the S and P last year in the middle of the year, which they don't usually do because the concentration got so high. So that is something that we're going to continue to contend the lesson.
I mean, the fact is the index is the index. If that's the numbers, that's the numbers. So they basically made up fictional numbers because they thought the concentration was too much.
Well, I don't think that anyone anticipated the concentration becoming this high, because you didn't think that you were gonna have capitalization weighted that we become.
Like in video just reached a trillion dollars, So you didn't think that that was going to happen that fast.
There's been a We've just got the story out from Van Vasilika of the four hundred and seventy billion dollar rally in Apple. Are these things under owned? Is that really the shock here that in Video or Apple are actually under owned by American Wall Street?
Well, given the concentration in the SMP, relatively speaking, you could say yes about some of that. I think that even when people bought Nvidia as it was moving up, it was racing so far ahead, and it was getting a more and more side of the index where even if you owned it, you were underweight. And I think Apple went through somewhat of a correction and somewhat of a left behind era. And I don't think that people were holding as much Apple as the S ANDP is holding.
But there's a risk to that too, because when something like Apple has a downdraft all of a sudden, if you're eight percent Apple like the index was, that's a big problem for your portfolio.
So what, you know, what are you suggesting folks do these days chase those magnificent whatever number they are, or try to sign try to find value outside of those big tech names.
I think it's a combination of the two because I chase is a word that I hate to use, but the big tech stocks that are generating tons of cash, it's difficult to say I don't want them in my portfolio, even though the valuations continue to rise, because they're not in any kind of trouble. This is not the dot com era, where a lot of the stocks that were running were stocks that had to be financed by their vendors. These are companies that can pay for all of the Nvidios chips.
Right.
This is Google and Meta. These are companies that can pay for the stuff that Google that Nvidia is building. But I also think you have to look around and say there are other areas of the market that are under owned. I can look for good dividends, I can look for good cash flow, I can look for things like fivebacks, and I can look for areas where I don't have to worry as much about that multiple. And then I can see what happens with the FED, because that's a whole other iteration.
At the minute, right, Paul Downdrift the pandemic Apple down to thirty five percent into the October bottom. The ed YARDENI relp F income were a bottom. Apple down twenty nine percent.
Yeah, so those are the draw down. Those are the draw down there. So you know, Sarah, I mean a lot of things. How do you guys start off.
With just your allocations these days equity versus fixed income? Because I'm very happy sitting them into your treasure getting daring close to five percent.
It depends a lot on the investor themselves, and you know, we manage a combination of individual accounts and then also funds. So I think that you know, you're looking at what someone's where they are in their investment life cycle, matters a lot about what your fixed income allocation is going
to be, and also what their risk tolerance is. There are some people that even though bonds have actually now have a yield, which they didn't for a decade and a half, people got so used to not owning bonds that they look at equity returns and they say five percent is not enough. But then you have a bad year like twenty twenty two, and you think, you know, it would have been nice, although bonds had their own
problems in twenty twenty two. So I think that there is a good case to be made for having having an allocation to bonds.
It depends on who you are, where you are in that cycle.
And we also manage some balanced accounts so that also you want some of that fixed income. And finally it's helping you after years of not being available.
Do you see dividend growth? We just asked Cantopolis or Richard Bernstein this, do you see dividend growth? Is a yield equivalent? Is it competing with yield the Sweeney two year?
I think that it is.
I think depending on the sector and depending on what the company can do. I don't want to see a yield that's growing because someone's going into debt to pay that dividend. But if I've got if I've got growing cash low and I can increase the dividend, it's not necessarily going to give me what a two year is.
But I also have some potential capital appreciation.
On the side.
Say, the math of this is thirty percent of stocks succeed, seventy percent of stocks that don't. How do you choose that thirty percent winners? Right now? Looking out three years or five years, what's a key determinant?
Well, I think that that requires looking into what or having a discussion about where you think things are going. If you look at the whole technology space that's getting bigger and bigger and bigger, and has been.
For the last decade.
It used to be it ran on cycles that were attached to things like PCs and phones.
Now it's going on cycles of what is the car build? What is this?
The industrial absorption of technology and the absorption of technology across the board has been incredibly rapid. Is that going to change in the next three to five years?
I don't think so. Does it matter what you pay for these things? Yes? It does.
So you have to keep an eye on both what you anticipate to happen and sort of say where are industry is going to have problems? People right now think the energy industry is going away. It's going to be a much longer tail than people think. But it's a difficult area to have exposure to because people don't like it as much. But there is a longer term reality that we are going to be needing fossil fuels for a lot longer than people want to admit.
So, I guess, just setting back here, how about valuation for this market. We've seen stocks run here, We've had good earnings. I'm not sure if the earnings are good enough to support the moves we've seen in this market over the last twelve months.
How do you think about valuation?
Well, that's also it ends up being sector dependent as well, because you see that the value since the technology sector are higher. You've seen some of that come down as the ship as the spend has shifted from things like software to things like chips. Right, So there's a change there and you have to be careful because some of those valuations and technology are very high.
Do you care about Apple today? Are you going to acquire shares with this meeting?
We own Apple already, so do we want it to go? Well?
Yes, Am I going to add more to it at the moment? Probably not, because you just had this stock rally back another ten fifteen.
Percent less marketing.
It's an amazing it had, but it had a huge rally. So that was but you didn't sell it when it went down, right, because that's the participation that you can have to continue to have.
Sure, thank you so much, good stuff, Sarah Hunt, Thank you so much.
Lori Cavasina joins us now from the lawn at the University of Virginia, Head of US Equity Strategy RBC Capital Markets.
So LORII.
What happens if this feeder reserve says, you know what, the data does not support a rate cut.
What happens to the market here?
All right, well, thanks for having me as always, And look, I think that's a fantastic question if you want to just go purely by the numbers, when we walk through that kind of scenario, getting you know, just no moves, further moves by the Fed this year, no cuts, no hikes, STICKI er inflation than anticipated, and say tenure yields, you know, sort of settle out around the recent highs our Work says that knocks the pe multiple down a little bit below twenty one and pulls the s and P five hundred.
If you're looking on my earnings, which are two thirty seven, around forty nine hundred. If you're looking a little more generously at consensus earnings, which are around two forty five, you get closer to fifty one hundred. But either way, you know, I think we think there's some modest downside
from here. We do think at this point in time, based on our modeling, this idea of getting one maybe two cuts and you know, kind of inflation coming down to two six on PCE that seems to be fully reflected in stock prices around fifty three hundred if you use the consensus earnings numbers. So I think we're fairly priced for that rosy scenario now, and if we don't get it, not a ton of damage to the market, but some modest impacts.
Are you surprised, Laurie that the market has risen? I guess we're twelve percent or so somewhat this year, despite the fact that this market again went into the year discounting maybe five or six rate cuts and now we're down to maybe one or two. Despite that reduction in the FED dubbishness, the stock market's kind of risen here twelve percent.
Are you surprised by that?
Well, you know, I think it's surprising from a FED inflation interest rate angle. I think if you put it in the context of all these conflicting cross currents that we have the big tailwind that's actually I think responsible for most of that appreciation is the economic tailwind. And so I love these stats. But if you look at the ECFC data on Bloomberg, and I look at this stuff every Friday, and you can track the consensus GDP
forecasts on the street. If you look at the twenty twenty four number last summer, it was point six percent for twenty twenty four on real GDP on the annual basis. If you looked at that stat in January, it was one point three percent, and then I think it was sometime in February we saw big melt up and it crossed over the two percent mark, and now I believe it's sitting around two point four percent or so. Zero to two percent GDP is typically very weak for the
equity market. Two to four typically you get, you know, kind of a twelve to thirteen percent type gain, and that's about what we've gotten so far this year. So we've exited economic purgatory and we've moved into the idea that the economy is actually pretty healthy.
But Lourie, small cap and I don't know where mid cap is in this debate. I'm not informed are in purgatory. I yes, we've been here before. I really want to emphasize, folks, I can remember times where small cap was in purgatory. What's the catalyst of big cap south or small cap north?
So it's a it's a great question, Tom. I think small cap PA have been dealing with this, I mean for a long time, but really focused on you in this cycle. When are we going to get those FED cuts? If you look historically, small caps typically do do well in easying cycles relative to large but unfortunately they don't tend to pre trade it.
They tend to.
See the inflection after the cuts start happening. And that's why I think small caps, you know, they're not really making major new loaves relative to large cap right now. They're trying to defend their ground because there's still some of that optimism out there. But we really need those cuts to come through. I do think the economic tailwinds are also putting the floor under them under a relative basis.
But at the end of the day, it doesn't matter how many charts I show people on the balance sheets. Hedge funds think they're worse than large and want to beat them up as long as the Fed's entightened mode.
Good morning pleasant. In California, Paul I completely randomly off Russell two thousand, took Simpson Manufacturing fifty five hundred employees. They're at a nineteen multiple. Their dividend growth is Okaya rate four percent per year for a very small dividend, and what do you do in an Apple world? What do you do in pleasants in California? If Cooper Tino owns a high ground, I don't get it.
Exactly. Simpson Manufacturer, I hadn't heard of that would be never heard of the exactly good stuff exactly.
Hey Lourie, I know you recently were attended the RBC Consumer Conference. How do you think that consumer's doing out there? What did you hear at that conference?
So you know, I will say it was a fantastic conference. We had a really interesting cross section of companies. What one of the big takeaways that I heard was that the high end is still relatively resilient, but the low end in particular, and we've heard this on conference calls as well, is really seeing the impact of higher inflation. And then I heard a number of auto related companies and so really got an airfull about the interest rate
impact as well. And if I think about that conference, and I also kind of go back to this last reporting season, I think a lot of the themes on the consumer are still the same high end versus low end. All these press resilience YadA YadA YadA, value consciousness, but it does seem just like the tone has you know, gotten a little bit worse. I think the way our analysts put it in his recap report was that the negative tone around some of these issues just escalated.
Laurie is smart observation out on I'll get It Folks three two one YouTube the live chat, Chris thank you out on YouTube the live chat, and Laurie he says, where's the profits in Russell two thousand? I mean, are these people generating profit? Are they capital allocating? Are they on an EVA spread basis making money like the fancy people.
So look, if you look at gauges of profitability in small cap or earning's quality, definitely, if you look at the Russell two thousand, those metrics don't look as good as they have historically. They typically, you know, you have a higher percentage of negative earners in the Russell two thousand then the S and P. That's true, but that gap has exacerbated over time. Some of that is because
of index composition issues. You have a lot of biotech sitting in small cap, you have a lot of res sitting in small caps, so some of it can be explained by that. But if you do look at sectors like technology, you're also seeing more loss makers. You know, I think people do look at that to say, okay, it's a lower gage of quality. The SMP six hundred doesn't have as many of those issues, and it's still
underperformed large caps as well. So I don't think you can blame small cap underperformance entirely on that, but honestly, to people buy small caps for future growth, not necessarily present day profitability.
Laurie, thank you so much, Lori Kelvicina with our VC for blowing up the show. India modi yep, mccral's shoals. Italy is doing okay. Belgium, the guy resigns. I remember interviewing Mendavos years ago and I just said, get Terrence Haynes. I don't care about anything else. Get Terry Haynes with Pangaea. And he's here today. But the ramifications not for Europe, not for India, not for Belgium, but for mister Biden, mister Trump, Terry Haynes. There's a message here. What should
the Biden and Trump campaigns interpret? Forward to November?
Well, good morning everybody. You know, I think they had a look at all these all these results very closely, including Mexico, South Africa, and the Lights didn't mention it, and and Biden fundamentally, what Biden fundamentally needs to do is to is to actually double down on explaining, you know, both his domestic policy and his foreign policy, not just in a pithy election way, but actually get to what the stakes are and why we need to be doing
what we're doing. And this administration is bad at that, and I think frankly Trump's not much better at it. But they need to do that, not just you know, because he's president and because he's running for reelection.
So, Terry, what we've seen in some of these elections and geopolitics around the globe over the past several weeks and months is the far right. I'm not sure if we can call them the far right anymore. Maybe they're more of the of the of the center of where folks are thinking about. But again, if you're President Biden here, you know you've got to be concerned about this, don't you.
Well, yeah, I think so.
But you know what we're seeing here, I think both in the United States and certainly in Europe, so the West as a whole is kind of a bonfire of the vanities moment. You know, the politically entrenched don't seem to understand or really acknowledge their own roles in creating over the last generation policy and political cull the sacks that are that people are frustrated about. People want results, and you know, we started to see that almost a decade ago with Trump and you know we're seeing it
again in Europe now. Whether or not the EU elections, you know, produce a real change is arguable the EU elections ten to be more of a protest vote than anything else, which is precisely why a lot of people are scratching their heads about Macron's desire to hold go ahead and hold a snap election.
Terry just nailed it. Aster Green's always does talking about cul de sects of people in policy and society. Did George Herbert Walker Bush do that or James Earl Carter of the other team. I don't think they did that.
I don't you know, So, Terry, if you're president former president Trump, here, what's the play over the next several months? Is it staying with that playbook that worked for him the last time? Is that still the playbook going forward?
That's the playbook? You know, he'll run that he thinks he needs to run. But he's in a much big different situation Paul in three than he was in twenty sixteen, in three particulars. Firstly, you know, he's not new anymore. He's not the new, shiny, big alternative that people are so frustrated about they were willing to take a flyer on. Secondly, he does not have a United Republican Party. He's got
a split Republican Party. And if you don't believe me, watch how he's doing the dance with Nicki Haley to try to get her twenty to forty percent of voters inside the tent. And Thirdly, he's not winning independence. He's losing independence right now. So you know he'll do what he does. And at the same time, they have to do different things in order to prevail.
I think, Terry, I think the heart of the matter, we're going to see this, let's get out front, Terry. Of all the op edification in the evening news and the cable TV frenzy and all that Ian Bremer led with the inflation discussion off these elections in the harm to the middle class and lower class, did we see a shift today where there's proof of concept that all that matters is immigration, migration, and green climate change. Did that shift happen over the weekend?
You know, I don't think so, because but the reason why I think there's a shift happening, all right, But I don't think it's really those issues. Political people love to turn the dials and talk about issues, you know, as if the right calibration of issues can be you know, can help sell a candidate. This election to me is much more about what I call frame and you know, first, yeah,
and it's up to Biden to set the frame. The frame is Biden's got to show that he's did from now until November that he's up to the job every single day, and he's particularly in the June twenty seventh debate. And he's also got a show that he's the calmer, kind of more centrist alternative and as Trump, you know, kind of blusters. Trump had better messages, discipline, he probably do better. We can't count on that after a decade. I doubt he's going to start. But Biden needs to
do those two things. And if he does that, I think he's got a United Party and he's got a pretty good shot at getting most of the independence he needs.
Terry should Tom and I and Lisa should we pay attention to these conventions this summer?
Absolutely, you should not only tell you what you shouldn't pay attention to right now. You should not pay attention to polls. The reason why is they're all, I mean all registered voter polls. It's like talking about people who might go to the movies to see the show, as opposed to the people will actually go. Guess which one Hollywood's interested in the people that can actually get in right.
So same with poles. But the conventions, yeah, I mean, but everything's going to get thrown up in the air after June twenty seventh because Biden does badly. You know, the convention all of a sudden gets a lot more interesting and fraught if Trump does badly, you know, maybe same for the ours.
I mean, I got time for one more question, Terry. Judge within the history and the remembrance President Biden's trip not only to Normandy, to Paris to see mister McCraw and also ought to Martin Cemetery, the World War One cemetery that we saw.
Judge his performance, But I thought it was pretty much by the numbers and that's a small compliment. I don't mean that to distem I think it was pretty much by the numbers. There's no magic there. But you know he showed I think he showed it at route that he by and largely he met my frame test, so he did.
Okay, Verry, hugely valuable.
Thank you, Thank you so much. You look at the front pages on a Monday, les I mateo.
Oh, let's get to the cost of owning a home, because this one is eye opening. That's why it stood out to me, increasing twenty six percent since twenty twenty. This is from bank Rade.
Okay.
It says because of different things, not even including the mortgage payment. We're talking about expenses, including taxes, insurance, utilities, they've all skyrocketed. So they crunched the numbers. It says the average of what homeowners shelling out annually for owning and maintaining. That's the big thing. A typical signal family home h total just over eighteen thousand dollars in March. It's about fifteen hundred dollars more a month than four
years earlier. You know, during the pandemic, they got the figure. They factored in property tousands packed to taxes, home insurance, energy costs, all that kind of stuff. Two percent of the sale price for maintenance. So the states with the biggest jump Utah, Idaho, Hawaii, a.
Utah for Utah is the top, followed by twenty four.
It's crazy, and then Alaska and Teescas, Texas actually saw the smallest increases. But it just goes to show you how much it's costing just to maintain the house, not even to afford you know, the seven percent mortgage or whatever that.
I mean, people are And there's a great tread in her states were upkeep is typical? Is pricis the averaging United States is eighteen thousand dollars one hundred and eighteen dollars a year, but in Hawaii's twenty nine thousand.
But our good friends in New Jersey, we come in is strong. Look for at twenty five dolus.
Look at the new look at the New Jersey New York differential.
It's three grand I know, thank you, it's it's it's that much more expense. That's how I'm shocked his congestion report there.
I don't you know, Jennifer Epstein, thank you so much for writing it up. Really important story. And you know, I think there's a political tint too. I look at the states. Hawaii, I think that's Democrat. In California, I think that's Democrat. But all the rest of the other states are Trump country. So it's going to be you know, it's going to fold right into that inflation nings very much.
Next gen Z plumbers and construction workers who are gen Z. They're making blue collar work cool again. Okay, we're talking hashtag blue collar. It's attracting a lot of attention. The Wall Street Journal actually spoke with a female electrism She has like two point two million followers TikTok, Instagram, Facebook. She posts everything she does every day, and she's getting stopped by people who are saying, you know what, you spark my interest in this trade. I don't want to
pay this high cost of a college degree. I don't want to be stuck with all this debt. I'm thinking of doing what you're doing. I want to be my own boss. Those are things that they're telling her. Vocational programs that are on the rise, more people are joining them, and these people who are influencers. At the same time, this girl is making two hundred thousand dollars a year just from clicks on brand deals from like car Heart and Cline Tools.
That's just that alone.
That's not even including her salary.
Influencers.
I don't think we're influencers.
Two two million followers somebody can click.
Yeah, But I mean I think you make it's it's totally correct.
I mean, I think it's just the economics correct. Why take on that huge, you.
Know, college debt when you're unsure of what the payoff will be, as opposed to some of these.
Trades, which we know their command agent.
Yeah, I mean my friend has twins. One is going to college, one is doing the trades.
Is that right? Okay?
Yeah, all right, weleta's check back with those twins in like twenty years.
Can all right?
Be careful how you drive. I'm putting the warning out there because certain apps on your phone could be given your car insurance company information that could affect how much you pay. This is from the New York Times. It's interesting some of these apps that are on your phone, they're giving this information. Apps that people use a lot, like the one Life three sixty that parents used to keep track of their kids.
That's a big one.
Do you use I never heard of it.
Yes, it tracks everything you can see, like how fast you're driving on the highways.
I do track my kids.
I do, but he's a soldier, I know, but my daughter too. I got to find out where he is at all times.
But do they have to opt into it?
Yes, Okay, we have the conversation. But then when you have that Apple find my phone which does it automatically too? There's other options I would do well crack down. But also if you have the my radar, I mean it gives weather forecast, but it's also giving this data on how you're driving to insurance company gas Buddy that gives you tips on gas things on how you slam on the brakes, how how fast you're going, how much you're on your phone. Yeah, and it's and it's becoming an issue.
I think all Say was one of the companies which was there's a feature provided by an analytics company that was founded by all State. So that's how they're getting a pick. But not all insurers use it. Geico USAA they say they don't use this, but just keep you were aware, okay, be careful how you're driving.
Maybe following us Tom for all we know.
I could be tracking tracking US One more a big cricket tournament.
Over the weekend Island, thirty four thousand people packed that temporary stadium to watch a T twenty Cricket World Cup. It was India versus Pakistan, Indy actually winning one nineteen to one thirteen, but a lot of people flew in from out of town paid big ticket prices. So one guy paid twenty five hundred dollars per ticket for him and his son to.
Go to that game.
But it was the largest attendance at an international cricket match in the US.
And it's not over.
There's three more matches in New York. We have the final one Wednesday between India and the United.
States United States pakistanis yeah, yeah, and like apparently that.
Is just that's like the White Sox beat and the Red Soxes exactly.
But I've never seen a cricket match, Like, I don't know how they score it.
I don't know.
Nobody does.
I have scientific knowledge on this. I was exhausted from around the world trip for Bloomberg, and I'm in a hotel, braindead in London, and I turned cricket on and I was too tired to look at the screen. It sounds just like baseball. It sounds just like the audience. Sound is just like a sleepy July afternoon. It's a sixth inning. The kid wants a slush. I want to narro against lagger Beard. It sounds the same. But I've tried and tried. It don't get it.
You don't get it.
After John John writing of Green Capitals, helped me, I failed.
It apparently has quite a following.
Billian's watching, Yes, Yes.
And that's Lisa Mateo with the newspapers. 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
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