It’s a Tech War Now

editor on the Markets Team. This week on the show, from long shot to base Case, Wall Street is growing increasingly pestimistic, but a trade deal might not be reached over the summer months, and even as the Fed preaches patients, bonn yields continue to fall, with the ten year treasury yield reaching the lowest level since And of course, Sara, we will finish the show with the ever popular the Craziest Thing I Ever saw in markets? This week, at least this week. I hope you have a good one.

Do you have a good crazy thing? I will have a good one by the end of the podcast. All right, I've got a good one. No pressure on our guests with the mind's mind's pretty good. I'm just throwing it out there. That's it. I'm not trying. Well, that's one of our guests there, Emily Barrett, you better have something good. Uh. Emily is our correspondent straight fresh from the trade wards

covering the bonds and FX markets. That's exactly how it feels, and also joining us on the show, Gina Martin Adams, the chief equity strategist here at Bloomberg. Gina spent many years as a strategist, said Wells Fargo Wacoba Corp. Before that. But Sarah, I was looking at Gina's bio something I did not know about her. She's a Gator really, yes, you know that. I am from South Florida as well. I'm a Gator by birth. I know that's too Florida

women on the show. I don't know. Florida women don't make the news quite as entertaining as Yeah, but maybe we can change that. But don't underestimate that. But this week, we've been talking about US China trade for a while now, but it seems like we got a bit of a step up. We think about what's changed, for one being the Huaweb acliss. We've also heard talks that other surveillance companies out of China could be blacklisted as well. And we even have a fight song out of China and

for Gators. I went to school at Michigan. You know a good fight song can really rile people up. Gina, from your perspective is this becoming something that traders investors can really no longer ignore. Yeah, I don't necessarily think they have ignored it, but it did take a new step this week, and it took a step into a tech war as opposed to just a trade war. I think when you look back over the course of the last year, that's been the most dangerous aspect of the U. S.

China relationship shift. It's not the tariffs. The tariffs are a teeny tiny portion of GDP growth, They're a teeny tiny portion of earnings growth. You know, you've run through the quantification of tariffs and you find out real quick how small they are, which is why stocks could sort of bounce around in the one to three percent decline range up until this week, and we did see an elevated level of volatility this week. We've seen a lot more angst evident in broad market classes, with the rise

in gold as a good example. This week. Small caps really getting creamed this week, So much bigger risk off sentiment this week than last week. And I think the reason for that is this week it became about tech, not about trade. Gee, I'm curious, in uh your career, have you ever thought about politics? As much as as we have through these days, it seems like a very uncomfortable thing for fundamental technical analysts. Yeah, it's uh. I have thought about politics a lot over the course of

the last several years. I mean, I can distinctly remember sixteen as a year in which it was all you know, the popular sentiment on Wall Street was if Hillary Clinton, when stocks should do fine, if trade, if Trump, when stocks are gonna get pummeled, right, and the opposite, The exact opposite thing occurred right after the Trump election. Then the thing was stocks just climbed this walla wari because

everyone was really concerned about Trump. I think throughout my career I've always had to focus on policy in general, but more so on monetary policy than on fiscal policy, and certainly never on trade policy. And you know, even the smodest trade policy movements in the Bush administration weren't so meaningful for the broad market. So it's definitely a very different kind of policy that we were now focused on. Though policy is always important, it's just usually monetary rather

than than trade or fiscal that really matters. And you mentioned how and I think everyone's doing this now. You take the x percent tariffs on x dollar value of goods, and you get why you get a certain effect on earnings on revenue, But I wonder is there more to it than that? Or there's sort of unquantifiable risks uh to confidence, to sentiment, that sort of thing, and and how you know, how do you wrap your head around that as the type of strategist you are who is

deep into the numbers. Yeah, it's it's frankly, very very difficult because behavioral and nalys this is a huge part of markets, and I think the only way to really analyze the potential impact to this is through price itself. You know, we can all speculate as to what it means for GDP growth globally. We can all speculate us to how much this is either inflationary or deflationary, but

the hard truth is nobody knows. We could try to quantify it, we could try to pretend we know more than anybody else, but the reality is the market itself, which is an aggregate of millions and millions of people's opinions, is probably smarter than any of us in this room. Right. I've made a whole career out of pretending I know more than you and so I watch price very very carefully, and what price tells me right now is okay. So far the risk of this there's somewhat contained five percent

correction and stocks is nothing. These things come around every nine months or so on average. But if we start to work our way towards ten percent, we break that ten percent line, it becomes very clear that the market's impression of this is something much worse. Right now. Something I've been hearing as to why markets have been decently resilient. We're not too far off the highs, like you said, is that you look at the economic data, you look

at the fundamentals, and they're still largely strong. However, this past week we did see some weaker p m I numbers in the US, not yet contracting, but pretty close on the cusp. What could it take to really push us off the edge? Yeah, so historically you're not pushed off the edge until manufacturing pm I in the US is all the way down at forty three. I think the market will absolutely hesitate reach a point of very big insecurity if I s M falls below fifty. Uh.

That's one of the big keys that we watch. Initial claims is another one. Incredibly important to the direction of equities long term initial claims. If initial claims start rising, and especially if they rise more than fifty thousand, start to move towards seventy in a rise, you're pretty much assured that you're falling into recession. Uh. The other thing

to watch is, of course the bond markets. We you still haven't had that inversion of the two stents at least ust I checked, and that's a big key trigger for the equity market sentiment as well. So there are a lot of different things that I think you want to watch for the economic data. You know, frankly, consumer confidence, which is still near a fifteen year high, is still pretty supportive, So you need to see a big deterioration and consumer confidence as well. That's a good segue into

our next guest on the Bonds team, Emily. You had a story out UM this week talking about the market expectations for inflation. I just want to read one line

because I think it's it's pretty important. Uh. You write that since consumer price gains have been lagging the FEDS two percent target for much of the past decade, it's a little wonder that inflation isn't a hot topic in the market yet don't don't done, but it may be warming up, with the Fed actively debating how it can meet its inflation goals, including a June fourth the Fifth

Conference to discuss different approaches. I feel like the trade tensions are uh causing a lot of confusion about what we should expect for inflation. Obviously, the market is pricing in lower inflation going forward, um, but a lot of people are talking about the pure inflationary effects of the tariffs on the consumer. What is sort of the consensus out there or what's the smartest take you've heard about what we should expect as far as inflation in the

trade trade war? Right? Yeah, I mean this is the interesting thing. I think people trying to seggregate what's the shorter term issue in terms of the inflation impact, and directly I've seen some golden Sax golden Sax analysis saying, you know, this is the boost that we might see two c p I and the mean in sort of

the medium term. But people are really focusing on that longer term potential drag on growth, and as they're looking to that, they're sort of seeing if growth starts to slow, then you have more and more headwinds to that inflationary impulse, and so really that's where we're seeing this decline and break evens, which is the inflation premium that it built into treasuries. Um, we're seeing that just coming down and down.

And that's despite the fact that you know, we've had tariffs put on their other things that's been oil ice gains sort of uh in the year to date hasn't been reflected at all, and normally breaking evans would follow that pretty closely. So we're seeing this kind of really sort of counterintuitive moving inflation markets. And it's because you know,

people talk for ages about secular stactation. You've got bored of hearing about this, But it seems that the forces that are pressuring inflation lower and it's not just in the US, it's globally and so much stronger else where. People would argue, really our top of mind for most investors, and so that's going to be hard to fight. And this is this is where it comes down to people's

expectations for rate cuts. I mean, there's a sense in the market that the FED, if it's going to be serious about hitting its two percent inflation target, is really going to need to take some action on rates to lower them. Um. And people have gone so far as to say, a couple of people I spoke to, you know, it's not just one KUD. It's probably two or three if you want to hit UM. The thing that's interesting about where CPI is at the moment is relative to

the fed's target. The FED prefers consumption expenditure, so they'll look at a PC rate which is actually forty basis points below where CPI is. So um. So that's it's even worse really if you look at their fads preferred measure. I know a lot of people are looking at the FED minutes that came out this week and calling it

old news. UM. But I ran a little control fine just to see where the word transitory comes up, and transitory appeared twice as it relates to inflation, whereas the last time around we saw the word transitory once, but it was related to GDP and first quarter slower growth being transitory. What else did we possibly learn from the minutes, if it's possible to clean anything more from what we've heard from Fed officials, I think what people wanted to see.

I mean, this must be the shortest lived transitory impact on markets, ever, because after you know, when Fed, the Fed's Powell was really pushing that transitory message, you know, what's weighing on inflation is going to be very short lived. You did see a market correction that started to sell off a little. Oh right, Okay, we might come back if the Fed believes this is going to happen. But

that just got crushed. And what the it's gave us was this sense that at least among the f O m C, that the FEDS Committee, there is a broad agreement that these or at least they're on message, that people seem to think that, yes, this could be a transitory impact. But from the people I've spoken to, they're listening at the fact to the fact that the transitory effects don't quite make up for the short form inflation, and they really do believe that there are stronger forces

at work here. So what we learned from the minutes, it's a really good question. I mean, I'm not even sure that uh, you know, the trade impact wasn't factored in because obviously most of the trade fallout really happened after the minutes were released. Um, so the bump that we should have got, well, we've got no much more

hope of getting it back really at this point. Now you know, if the break evens are right and we're due for some weaker inflation going forward, what does that make certain sectors, certain factors look more attractive to you? How would how would you recommend playing sort of the low inflation in Well, it depends on if we are indeed in for a transitory or a longer term sort of disinflationary deflationary in trend first start. But if we assume that it's very very short term, more than likely,

it pushes you into more defensive sort of sectors. And I think we've seen that over the course of the last couple of months. Our sector strategy model even pushed us into defensive sectors as early as the end of April, and that largely reflects what's happening in rates. And rates are rallying so much, indicating that this inflation pressure is somewhat nil, at least in the short run, suggesting that

the downside risk to growth is still pretty evident. And at a time after stocks had already rallied tremendously in the first quarter, the valuation multiple started to shift as well. On the cyclicals versus defensives. Call I could tell you one sector it absolutely suggests you want to stay away from, and this is manifestings price performance as well as energy. There's one sector that is just constantly the inflation play in the equity market. It's energy and then, to a

lesser extent, materials. As much as this last month of weakness in the equity market seems to have been about tech, the energy sector is down four bases points more than tech stocks. I mean, it's just getting crushed. It's making new relative price lows in comparison to the SMP five hundred, and has been persistently for the last several years. So the equity signal is actually very deflationary. If not deflationary, then at least disinflationary, and has persisted through a long

period of time. At the beginning of the year, I heard the case being made a lot that we needed to see energy prices close the gap with oil prices because we had seen oil rally so much. Well, now clearly we're seeing oil prices roll over, we're seeing energy stocks roll over. Is the case for that for energy prices to move up to oil prices and close the

gap kind of disintegrating. Yeah, you know, that gap has been existing for the last three years, so you could even take it all the way back ton when the gaps started to widen. You know, I think that the terrible fate for energy stocks is unfortunately, every time oil prices rise, it's met with a new wave of supply, which constrains profitability and constrains the inevitent and constrains the oil price from continuing to rise. And that's very well

played out in energy stocks and energy investors. Investors just don't want to touch the sector on that premise alone. From a sentiment perspective, you gotta love energy for a long term sort of sentiment call. You're looking at a sector that's now less as a share of market cap of the SMP five than it was in oil prices were ten dollars of barrel. So nobody wants to touch

this stuff. But how do you jump in in the face of clear signals from the rates market generally sort of depressed economic signals relative to where we were at least a year ago, stock price signals that are still very very negative, and frankly, the dynamics of oil supply and demand are different today than they were ten years ago.

So it's a tough space, and there's just not a lot to suggest that that gap necessarily needs to close, because frankly, oil prices keep closing back toward energy stocks every time they try to rally, and that's just a

the fracking boom. I take it just to supply. Yeah, I mean, if you think about sort of how things have changed over the last decade or so, go back to two thousand seven, two thousand and eight, when oil prices were moving towards a hundred and fifty dollars and the sentiment was we're never going to find supply again. I mean, there's just just not enough oil in the world. And so yeah, over the course of the next several years, we found out, oh lo and behold, there is actually

plenty of supply. We just needed to use new technologies to get to it. That's created this massive downtrend and oil prices really since they peaked in twenty two seven and then again in and the result of that is just this this persistence of supply, or even the perceived persistence of supply, con strange your upward potential for price growth, and it's feeding through the energy stocks. Emily to get

back to the Fed minutes. There's this weird situation that happens where, Okay, the trade war escalates a couple of weeks ago with President Trump's tweets, and then he follows through and raises the tariffs. Then along come the minutes, which are reflecting a meeting that occurred before that. So yet people still seem to react to them. I mean, assuming this is the last best evidence we've gotten from the Federal Reserve on their thinking, but at some point

that people just to ignore them. You've talked to a lot of investors after the minutes. Presumably they're still reading these minutes even though so much has changed since then,

or did they discount them to some degree. I think this is the weird thing, And this is the thing that always makes me just sigh and kind of a scream sometimes when you look at the minutes, because like this is essentially stale news, right, and particularly at this point, because it's prior to all of the trade stuff that happened.

So I was actually really interested myself to see what the market was going to do to this, And it just it's funny because I don't know if people actually forget they're still they're so busy reading the Fed's ruins sometimes that any signal like this sort of smoke signal

is is going to tell them what to do. But I think the interesting thing that most people are trying to pause out of that document is how much consensus is there, how firmly held a belief is this in the ft and how difficult might it be to dislodge, Like how much they're looking at the data really and what what is their interpretation of the data, so people

are astant. The thing that I find most amusing is looking at how people understand the word few versus several versus a number of versus some, you know, as a measure of how many people on the committee actually hold a certain view. So that's that's one of the things you talk about stale news. If you looked at the staff economic projections in the minute, they actually talked about how trade the U. S and China coming together was

positive relaptimistic. So that's changed since ad minutes were actually written. I want to ask you, though, how far off does it seem like the bond market is from where the FED actually stands at this point in time. This is starting to feel as if that disconnect is actually widening again. I mean, we saw earlier this year there was you know, the market was really doubling down to say even as many as you know, sort of too high starting to

get pricing. We're getting closer to that now. I think that the interesting point from what the market is pricing in is there is actually now still more than one hike pricing by the end of the year, just a little more. The Fed, I think that after giving that message of transient, they're just sitting there with that for the time being, and it seems as if that that conviction among policymakers is really at odds with the markets

movements lately. Um, but it's hard to see. I mean, as as you Jina, you were discussing before, you know, the data are still reasonably strong. There's there's actually looking at it objectively from a dispassionate viewpoint, it's hard to see whether the FED would find a decent case to

cut rates at this point. And now that they're starting up their inflation review, this is going to become a really interesting topic to follow over the next couple of months because they're really going to have to look at what other kinds of strategies they might take to try and meet their mandate. Now, Gina, you have a lot of letters after your name, C F, A, c MT. I also have three names. I'm just trying to extend their business parts has continued on the part of the game.

So I was I was curious to see your technicals, putting your CMT had on Chartered Market technician and and looking at the technicals. Um so walk us through two things. I'm curious a sort of what levels you're looking at, but also is it the time right now where technicals kind of take a backseat to the fact that everyone's waiting for the next head line, waiting for the next tweet?

You know, are there times when you sort of uh discount technicals to some degree and don't give them as much weight as you normally would and and are we in a period like that now? I never discount technicals. I am a technician. I think they're actually always valuable at every market stage, and they're valuable in different ways. They give you different signals, either they're confirming or not confirming your fundamental case. That gives you a reason to

go back and look at the fundamental case. Nonetheless, I think you know right now what the technicals are saying is near term, there's just not a lot of reason for optimism. It's still markets, you know, maybe testing the early maylow's, which were support levels created by resistance points that we had matched on the SMP five hundred back in the October attempt at an advance, in November attempt at advance, and then during the rise earlier this year we sort of got stuck in this level in the

SMP five dred. We're back there again. If we can hold these levels, fantastic stocks are probably in pretty good shape. But it's really questionable because you're getting breakdown, some small capture, getting breakdown some semiconductors, you're getting breakdowns and transportation stocks. Just the near term weakness is evident. Longer term, is

there any evidence of the bull market is over? No? Right, I mean, even the line last year only confirmed that the bolt trend is still intact because it bottomed right at major support lines that have existed since two thousand nine. I use a fifty week a lot, but that really defines sort of shorter term bull trends and bear trends.

The fifty week moving average on the SMP five hundreds right around twenty seven, seventy seven, seventy six right now, Uh that if we crossed through the fifty week, then you're most likely going to continue to go lower and

see a fifteen correction again. But you have to go all the way down into the twenty three hundreds to really eliminate the long term bultr And so just thinking perspective wise, you could easily have another recession with the correction and stocks and you're still in a long term secular bowl market right short term, you're absolutely in another

barish condition like we were in. But you've got to have a significant dismantling of trend in order to eliminate the overall bowl trend that's been in place for now more than ten years. How about my personal favorite shampoo, head and shoulders. A lot of people are talking about a head and shoulders. People are talking about the size of the neckline. I know, I am. But the other the really strong, fundamentally like tenant of technical analysis is

you never call a pattern before it actually occurs. And that's what people are at risk of doing. Um I think you know, to call this a head and shoulders, you have to have a significant breakdown beneath the neckline. I haven't had that yet. To call it a triple top, you've got to have a similar breakdown, So I, you know, just I like to follow the rules, despite the fact that I'm from Florida or Florida. The rules of technical analysis say, don't get hasty to call a pattern before

it actually occurs. All right, Well, there's one role in this podcast, and it's a few shop. You have to have a crazy thing, the craziest thing you've seen in markets this week. So Emily is looking nervous. I don't think I don't think she prepared. Let her go, hang on, hang on, you have little faith. I actually I tried here. I don't want to go to last because then you're going to give you a great ones and then I'm going to kind of limp in with. So yeah, I'll

go first. Okay, this is this is a royalties thing, so it's not actually a markets thing to say, but it's about money, so it's tradable asset all out. But I was a fan of the Verve back in the nineties. So there's this song Bitter Sweet Symphony. If anyone knows that I was very fond of it has this lovely

string sort of intro to it. And it turns out that Richard Ashcroft, the lead singer of the Verve, lost the royalties to that song because he sam put a little too much of a Stone song to do it, and so the Stones ended up getting all the royaltists. At that time, it was huge, That album was huge, um and they just recently gave him back. So so they petitioned for Mick Jagger to handback the royalties. Mate without hesitation apparently said there just out of their good nature. Well,

I'm suspecting they may not have needed it. I thought you're gonna go Rick Astley there. I thought I was getting Rick rolled for a minute that I'm trying to think of the fact that about him next, alright, Gina Martin Adams. Yeah, So I'm afraid I'm going to disappoint everyone because mine is incredibly obvious. But it just has to be noted that we had a video go viral out of China with a giant gold fist and a nationalist populist message that suggests like the Soviet Union is

rising again, except for its in China. I see that video and I'm just blown away. If you haven't seen it, you need to go out and search the Chinese trade war fight song. It's it's just amazing and really, you know, and then you have all the just the amp up in uh sort of this nationalistic sort of message coming out of China this week has been extraordinarily aggressively. They're not backing down. You know. It also tells me this

is a lot about tech. This is not And then I go back to what I said at the beginning. Everybody's focused on trade. It is not about trade. It's about tech and who's going to be the global leader in technology development and advancement and dissemination around the world over the next several decades. So China is not backing down because they're taking this really seriously. We have to

bring back onto singing for US translator. He's sang the US bond Markets theme song last week, so pretty impressive. Also last week I have to bring us an update just because last week, for those of you who didn't tune in, we talked about how Steve Minusian's dad Um actually bought a ninety over ninety million dollar bunny rabbit. It was an art piece um on the behalf of someone and now we know that it was on behalf of point seventy two is Steve Colin Um so he

is now I think I can't believe we didn't guess that. Yeah, yeah, he is now the owner of a beloved over ninety million dollars silver inflatable bunny rabbit. Pretty amazing. Um. But another one that I'll bring forwards this week that I guess two is kind of obvious Tesla. I mean, we have analysts coming out one after another going as far as saying that the worst case scenario, we could see Tesla stock fall down to ten dollars to share, and we did see Tesla fall below two d dollars a share,

which we haven't seen in quite a while. So pretty amazing. I've got to say it is that is a soap opera for the ages. I think, yes, all right, I'll give you mine. Uh Now, Sarah, it was a pretty ugly day in the stock market on Thursday. You wouldn't expect to see a lot of companies rising. What if I told you there was a stock that rose thousand and nine percent on Thursday? It's this is why I love the penny stocks. There. Uh So, Rhino International Corp.

It's a Chinese company. Sounds legit right, designs, manufacturers, installs and services, proprietary and patented wastewater treatment, desultur ization equipment and YadA, YadA, YadA. Anyway, Yes, it rose to one penny a true penny stock from one one of a penny. Um by by my math, it required about seven hundred bucks to do this. The funny thing is the market cap of the company yesterday. It was only like two hundred and sixty eight dollars period, not millions. So um.

Congratulations to all the shareholders of Rhino International Core about there. Uh. I try to find out more about the company, but when you click on their website are web secure software prevented me from seeing I think you know? Yeah yeah. But with that said, Gina, Martin Adams, Emily Barrett, thank you so much for coming on the show today. We really enjoyed it. Thank you, Thank you. What goes up.

We'll be back next week. Until then, you can find us on the Bloomberg Terminal website and app or wherever you get your podcasts. We'd love it if you took the time to rate interview the show. Some more listeners can find us and you can find us on Twitter, follow me at at, Sarah ponzat, Mike Is at Rea Anonymous. Our guest, Gina Martin Adams is at Gina Martin Adams, and Emily Barrett is at Not That ECB. What Goes Up is produced by tofor Foreheads. The head of Bloomberg

Podcast is Francesca Levi. See you next time. The f