Record Stocks Amid Recession Signals

roughly one and forty companies delivered earning supports. This week, we'll break it all down, and of course we'll close out the episode with our tradition, the craziest thing I saw in markets this week, Sarah, I have a crazy thing I saw about both of our guests today. You know what it is. Neither one of these guys is on Twitter. I think they're the last two financial market professionals not on Twitter, which I think probably means that they're among the smartest out there. I admire that. I'm

pretty jealous, exactly. I'd know you could not be on Twitter. I'm gonna go delete my account, I know. But let's introduce these guys to all our Twitter fans out there. First. Sean Snyder, head of investment strategy at City Personal Wealth Management, thanks for having me. I appreciate it. Also joining us is Bloomberg's Stocks team leader, and he's the author of the Taking Stock column. If you don't subscribe to that

on the terminal, I I highly recommended. It's a great way to start your day reading about a lot of good color and the equity market. His name is Brad Olson. Brad, welcome to the show. Glad to be here. Sean. Let's start with you. What are you talking about with clients these days? I mean, obviously the stock markets near record highs, bond yields are low. Again, where's the opportunity? What are

people interested right now? You know, sort of what is your your elevator pitch if you run into a client, uh in the elevator. I think what most clients want to know is that they hear a lot about potential recession. They also hear record highs, and it's hard for them to kind of take those two views and understand what it means. So we try and kind of walk them through that. It's also one of those times where I think it's important to tell people about having a diversified

portfolio as opposed to trying to time the market. Anytime to our word comes out recession. People try and time the market, think in and out UM. If you would have got out in last December, you would have missed out on the plus games this year, right. So those are the types of things that we try and talk clients through currently. As far as opportunities, there's a lot

of different UM things out there right now. Maybe U S stocks look a little bit expensive, but there are certain areas like healthcare, things that have strong earnings growth UM even in a downturn. So there are areas of pockets that you can diversify into UM. Maybe it's not going to be the stock that makes you rich UM, but it does help balance your portfolio in these uncertain times. So it seems like we've been hearing the R word recession much less and less, especially less than we heard

in the fourth quarter of last year. Sure, we've got on some nice economic data. However, this week we did get some global p m I s and we saw weakness out of the Eurozone. In the US it hit fifty on the edge of contraction, lowis since two thousand nine. How do you look at the good data and the bad data, especially ahead of the FED meeting next week and kind of trying to think about what the environment

is going to look like going forward from here. There's not always a clear picture, right, And you can take the p m I s and discuss, you know, what's a good p m I a bad pm If you look at the manufacturing p m I, you would say that it's it's bad, right, manufacturing sector is in a slump. And then you could take the flip side and you could say you look at the services sector and it's holding up just fine. And that gives you this mixed picture. But you should kind of think about how they both

interplate together. And the manufacturing sector is not encapsulated into its own If you think of a company like a auto manufacturer, they make a car, right, but there's more to that. You think of the Super Bowl ads related to that car, the fact that that company employs an accounting service. It can eventually bleed into service sector as well. Um, it really hasn't yet. Um. And manufacturing is particularly you know, worse in Europe right now, UM, more so in the US.

But those things can bleed over into other economic activity, and that's what you worry about. Yeah, it's a great point because you often hear wall services or what's seventy some percent of the economy and their consumer you know, especially so you're you're thinking, is that that manufacturing weakness can actually lead to service sector weakness and and sort of be almost a leading indicator, canary in the coal

mine for the entire economy. Right, I'm not worried yet, but I think you have to watch that, and I think that that gives the FED some sort of case to make when it comes to do an insurance cut. So let's bring it to what companies are actually saying at the moment. Brad. I know you've had a an extremely busy week, the busiest of this earning season. I'm

sure you've hardly slept. But if you take a step back and you look at the executive commentary that we have seen so far through this earning season, is anyone actually worried about an economic downturn? We're not seeing it yet, at least as far as the numbers are concerned. Um, just through this week, we're sales are are still surprised into the upside. Earnings are surprising even further. Um, we heard a lot of crowing leading into this earning season,

amount of potential earnings recession that is yet to materialize. UM, So as far as the executive commentary, we're seeing a lot of idiosyncratic circumstances and all the way from you know, the maker of these snowmobiles, Polarists, I don't know if

you know. Earlier this week they reported and their stock actually rose after sighting the tariffs and the trade concerns, just showing that if companies were you know, strong enough and it definitely navigated the circumstances, they could still be successful. On the other side, on the flip side, we're still seeing some industrial weakness. We saw CSX last last week, which is still weighing on some concerns or some the cast freight index is lower, So to that extent, there's

no major thematic uh circumstances that are bleeding through. But so far, so good, I would say. I think the the interesting thing that jumped out to me just this this past week has been how semiconductors have have manned is to to navigate the Huahwei blacklisting um utilizing this loophole. Bloomberg wrote about it extensively in the last few weeks by using some of their overseas subsidiaries to basically allow them still sell through them to Hahwei despite those those

trade war concerns. So we'll see we're seeing that with the socks index at the session highs um. That was a huge lift to the the SMP this week, and you know, with the smp A pushing through three thousand, it's hard to make that case, you know, Sean, getting back to what what Brad's talking about, I get the sense that investors aren't really ready right now to abandon the stock market, but it seems like there's a lot of confusion, a lot of uncertainty about where that leadership

should be. You know, we saw this real strong rally in defensive stocks that is really made places like utilities look sort of like a crowded trade. I mean, a utility index in the SMP trading at twenty times earnings I think for the first time ever. Basically I saw a lot of action real estate companies. But then you'll have these days where it's seems like everyone jumps to the other side of the ship and says, oh, now

the you know, everyone's too worried. Let's get back into the cyclical the growth stocks that you saw, the bank's rebound um is that a fair assessment of sort of the mentality right now that people aren't ready to throw in the town in the stocks, but there's not really much clarity on what is going to be that leadership.

I think that's true. I think anytime you get the record highs, people are gonna be a little bit confused about what to move into because they all get to be more expensive when you get to record highs, and I think people are confused about whether we are headed towards the recession or not. There are indicators that point towards the recession, right The inverted deal curve is the most obvious. Everyone talks about it um that points to

potential recession in mid twenty twenty, maybe early one. They're also some other indicators to the number of businesses saying that now is a good time to expand may have peeked back in may have two thousand eighteen. The initial jobless claims, which is very very timely read on the US labor market, might have peeked in the week of

April nineteen. So there are some signs that maybe you could of a recession, and that's why I think the FED see some of those they don't mention it specifically, but I think they see some of this stuff and they worry a little bit about it. And that's why I think you see this move back and forth between defenses and cyclicals. If you think the economy's botting the bottoming out and you're gonna get a soft landing scenario where trade wars have subsided, the FED is now easy.

That argues for cyclicals. If that doesn't happen, trade concerns come back to the roost. The FED doesn't cut rates the way we want, It's maybe not fifty basis points or whatever, then you want defenses. That labor market I think is so key. I mean, it doesn't really start to feel like a weak economy until you start seeing uh nonfarm payrolls moved down closer to zero. You start to see that unemployment rate pick up um and yet it's very much a not really a leading indicator. It's

more of a lagging or coincident indicators. So what is the is job has claimed? You sort of go to way uh to to sort of figure out the outlook for for the labor market. And if so, do you look at a moving average of of four weeks or six weeks or something like that. We're do you look at some of the survey labor surveys, which what's sort of the best way for investors to wrap their head around what's expect for the labor market. By far, the easiest way is the Initial Jobless Claimed Teller comes out

every Thursday at eight thirty am. Now, one week's movement is not going to tell you anything, but if you continually pay attention to and it tends to trend higher over time, and it's been doing that a little bit since, like I mentioned April ten, again, super low levels, relatively stable, no signs right now that there is a recession. It's one of the things that makes me confident that there's not a recession right now. But again it leads by

maybe say twelve months. So if it continues to trend higher and higher and higher and higher, and then you get to mid two thousand twenty and all of a sudden, initial jobs seems right three thousand and you say, oh, maybe we're starting recession. So that's one thing you pay attention to. The labor surveys are also great as well. Um, if you look at the small business surveys n F by n F, I b they're a rate leading indicator. It's cooled off a little bit too, haven't they have?

Small business confidence has come down now again it's still at elevated levels, but you know that's what happens when you have a peak, right and before the recession, it starts to decline. So it maybe the beginning of that decline. It doesn't mean that we're there, doesn't mean we are at our recessions. Just like those initial jobless names. Maybe botting Mountain April doesn't mean we're at a recession, but

those maybe signs that you're headed towards the recession. And I will add that initial jobless GLAMs did fall this Thursday shirts just one week, but that does underpin that the case that we have a pretty strong labor market. I want to come back to the earning season as a whole sean because if you look at a benchmark level, shure companies are beating. The majority are, but they pretty much always do because they come in with low expectations.

But if you look further out, if you look at the third quarter, in the fourth quarter, we're now starting to see those estimates come down. Also full your nineteen estimates and also next year's estimates as well. Can the market continue to trend higher if we continue to see the at least at this point slight deterioration in earnings estimates for the rest of the year and for the two years ahead. It's a bit of a tricky question.

I guess it's my job to answer that. Sorry. I think the answer is they can go higher just based on the idea of all this stimulus coming into the market. It's not just the Fed cutting rates, but you're getting some monetary stimulus through that avenue through a rate cut which is almost guaranteed to happen next Wednesday. But you're also seeing increased fiscal spending by the government, right so that the new budget deal, if it passes, I think

contributes maybe. And you'd have to fact check me on this, don't please, don't quote it's an exact thing, but I think it's about forty four billion dollars of increased federal spending next year. Those types of things canned into the

market and increase asset prices. And the one thing you might see from the Fed cutting rates is not necessarily boost the economy, but you might see a boost of risk assets, which is essentially what we've seen since two thousand nine, right, the stock market has done better than the economy in general. I mean, now we're getting to the point where maybe the economy astro stock market. But and from what I've read cities sort of house view is that you're expecting a quitter point cut next week

at the end of July when the Fed meets. Everyone is using the catchphrase insurance cut, you know, meaning, uh, this might be one and done, maybe two cuts. What you're thinking on that, I mean is the market's going to sort of have a temper tensionum almost for you know, more than that for a continued using cycle. Where will one cut satisfy people, do you think or two cuts? Say, I think two cuts would probably satisfy the market. I

think they might even be looking deeper than that. But I think our expectations July and September, you know, I think you call it an insurance cut. In the idea of insurance is a great thing. We all have it. But sometimes you get in an accident and the fact that you have insurance doesn't uh, you know, negate the fact that you've got a horrible accident that changed your life.

I think the FED is somewhat the same way. I think there has been historical examples where they did an insurance cup and we had a soft landing and we moved on and we avoided resas and things were fine right exactly. But in two thousand one, two seven, we didn't avoid the accident and we when it fell into recession anyways. Um, And that's the type of scenario we

are clearly hoping to avoid. And I think that's also adding to the confusion that you're talking about people moving in between defenses and cyclicals and that kind of stuff. What really matters is what happens from here on out after the FED cuts. Do the data continue to deteriorate or do they stabilize and start to pick up a

little bit. Brad, I want to come back to you because not only does your team look at every single company that reports earnings, you guys also read every single Street note that comes out essentially, and I want to get your sense when you look into aggregate at the Wall Street chatter, just notes that are coming out, do they get the sense that the markets are getting fatigued at these levels? And is an insurance cut if we

want to call it that? At this point in time enough to help ease any fatigue that may be settling in Well, I think it's absolutely paramount that I kind of or just from what I'm just from when I'm reading, I think there's an interesting some interesting research about how credit credit sweez actually is taking this to the the Devil's Advocate view where they they've actually said every time

the rates actually fall the tenure. For example, I think in the song as yields full shares actually aren't responding and kind they actually there is no one to one corollary there, which I thought was an interesting view. I mean, the market needs the cut and it has to have the cut to continue to move any higher um, as Sean indicated. But at the same time, there is some research to show, at least on the short term basis, it's not always as cut and dry as it seems.

And you know, with S and PD around three thousand, that's either at or above a lot of the streets forecasts. I mean, are we any idea and Sean maybe you have ideas on this or we're gonna start seeing that, uh those forecasts go up, get get them in before the end of the year, I guess, or you know, I know, Sean, you don't have to, you're not responsible for an official forecast, but would you you know, if you where would you be itching to move it up

right now or would you be holding firm. What's interesting is our SMP five hundred target for a year end this year, and I don't set that. It's set by your chief US equity strategist, Bias Lefkovichift so we're so we're below that, So you could argue that it should be raised. But at the same time you mentioned this potential earnings we set where earnings for two twenty or potentially too high. UM consensus is looking for ten percent

earnings growth next year. We're looking for five percent. So we think eventually the market kind of realizes that and it kind of comes back down to we are that that's our view for now. That said, we did start the year with a target of thirty and lowered it after November December time frame win markets, So to get the thirty one clearly not out of the realm possibility. Given we thought that back in January yoked kind of

kind of bullish. It looked very it looked very aggressive when they put it out, and we've made it there a little bit over halfway through the year, and I think only in a couple more strategists. I think maybe maybe three strategists or so that still have to have targets above where we are, but it's not that we're very close at the top. I don't think people expected the FED to pivot like this. That is, that is

why their targets are due well right. No one seemed like they were ready for the FED to pivot as they did. Something that people were coming into maybe a little bit more prepared for this week was we also heard from the European Central Bank, we heard from Mario Draggy, and a lot of people actually thought that they could potentially cut rates this week. That didn't happen. They very much set up the case for September. Also the restart of QUI, also their tearing system, but it seems like

it's still didn't live up to the expectations. Why not Seohn I think that in outline the details the way

some were hoping for. And then I think primarily the fact that he said um dragging in particular said that the odds of a recession in that region are still low, and I think that set the expectation that may be expectations for UM what my comment September is too high, and I think that is also kind of playing through to people's expectations for the Federal Reserve, thinking that maybe we were going to get a fifty basis point cut

next week. But if Mario Drogg is not that concerned about Europe, which is looking worse than here, then maybe the Fed's not as concerned as they were hoping for. It sounds bad, right, you should be hoping pretty bad situation, but market different. Before we get to the craziest thing that we all saw in markets this week, Brad, I want to put the spotlight on you. If you look back at earning season so far, what would you say have been the big standouts, whether that means a good

standout or pretty bad standout. Boeing jumps out to me, it's still a story. We thought it was gonna pass for a while, UM, and then there was that surprise charge that we saw that they came out with right ahead of their earnings, which led analysts to scramble to adjust their their estimates. When their earnings came out. There was a little bit of indecision, you know from the from investors alike. You know, where we expecting this, where

we're not expecting this. The estimates hadn't caught up yet. Um. I think even with some of the airline's results and some of the I guess provisions that American Airlines has made and and Southwest, which is the largest user I believe of the seven thirty seven max. Um. You know, there we're seeing some some various impacts there. I think American Airlines is on the on the on the down

side of that, I think the Southwest is actually recovered. Um. They're making the special provisions to account for some of the seven thirty seven max grounding. That's the that's still a big story, huge impact there. That's you know, we

thought that was gonna kind of subside. UM. I think another interesting story was was was three M you know that one of the largest losses and investor capital in that name in thirty some odd years last quarter and you know, results on on Thursday actually sways some of those concerns. But nevertheless, you know, share still came under pressure. So there's a lot still you know, three M makes everything in the economy, right, So if we're talking about

the recessionary outlook. They have their their finger on the on the pulse of just about everything from post It's to the automotive market um to healthcare diverse? Does that mean we can get to the craziest thing I saw? Market? I think you missed it. What was the craziest thing last week? Did your anoint a winner? Did an annoint winter? That leaves the road wide open for you guys? Sehan? Did they tell you about our gimmick here that I

didn't know you could win? Sometimes we have Sometimes everyone's a winner, everyone gets a participation trophy. That's right, Sarah is a millennial after all. Yeah, it's true. All right, let's start with you, Sarah, What do you got so? Full disclaimer not for the vegetarians for vegans out there, possibly,

but I thought this was pretty crazy. Supposedly because it has been so hot over the past couple of weeks, or really just unseasonably hot, pigs across the country have been getting skinnier and skinnier, which means that if you look at hog prices, they've actually been rising. Um. Really weird to see a headline like that across the Bloomberg terminal, across the website, on the Bloomberg, but still something I hadn't thought of, and I thought that was a pretty

crazy that's the most alarming thing. Yeah, it's really alarming. Extra time in the mud. Yeah, I guess so, I guess so alright, Brad, that's that's tough to the top. What do you got? Yeah, that is that is challenging. I don't usually follow the hog market, so that's a little outside my my lane. Um, I guess to me,

the big story was Aligned Technology today. You know, given my given my position here in the markets team, we're looking for big moves in the in the in the market where shares are moving, and a Line Technology lost about a third of its of its market cap. It's a big move and it's a big company. I mean, I think they were worth about twenty billion dollars setting in the results. They're the maker of these, uh you know, the invisible braces that that you see so heavily advertised.

I think you could say the rutting was on the wall. You know, you're seeing some of these retail locations open up the Smile Direct club, heavy competition in that space. Not not I'm not going to say it is necessarily a client, but it was definitely surprising. I know it's worked for many many other people. UM, right, So you know, I think there are a lot of underlying issues their competition. I think they're embroiled in a lawsuit as well. But I thought that was the leader in the space taking

a huge hit out of nowhere. So I thought that was pretty interesting. And that's kind of been a sort of a sub theme of the starning season, hasn't it been that really big moves one one direction or the other, especially big, And I guess that's what we you know, that's what happens when we're at the highs, right, You're always going to get some of these huge down drafts that kind of take a lot of people by by surprise. So you can argue that's not a surprise, but this

was still a surprise to me anyway. That's pretty good. Alright, Sehn, We've got invisible braces and skinny hogs. I may have two craziest things. I'll start with one that ties in with there is a certain vegetarian meatless burger maker talking about. I can't mention specific stock names, but may be able to I cannot mention the names. I'm making that up that crossed two d a share this week, which is seven plus return from its I po in May, which to me is absolutely crazy. And I do not believe

that there's a plant based substitute for bacon. It is extremely crazy to me. The other thing I think is crazy is something I believe I saw on Bloomberg Television this week. May have happened little last week, but it

is going around on Wall Street this week. Was a Wall Street kind of analyst or veteran saying that the tenure treasury you could go to zero in the next couple of And I've gotten a lot of questions about that, and I think that is a very interesting thing to think about, because if you'd have told me back in two thirteen that German boon could go to negative zero point three seven percent or whatever today, I would have said, now when when skinny pigs fly right exactly, but now

here were talking about it happening in the United States. I too have two crazy things, uh. The first one that was one of the rules, that's right. That one, I'll make it up for last week. One being that we now have Greece Greek tenure yields, uh, if not lower, pretty close to treasury yields. I'm not gonna make that my official crazy thing because then every currency guy on Twitter will point out that you gotta just for the currency. That's why you gotta get rid of Twitter, right exactly.

That's why I'm the leading it tonight. But my official craziest thing this week is I'm sure we're all familiar there. There's very handful of sort of legendary investors out there. I think we'd all agree Bill Miller is one of them. Uh beat the SMP five D for like fifteen years straight, running a very plain vanilla mutual fund Big one. Though the leg Mason Value Fund considered one of the most famous value investors in the world. This hedge fund he's

running now is a different animal. Um It rose forty six percent in the first half of the year, and they're attributing it to from one thing Bitcoin and the other thing Amazon. So here the world's you know, one of the world's most famous value investors is loading up on Amazon, which I've I've found it be colle crazy

and Bitcoin. And he also this is a fund that can be as much as triple levered, so he can't say that Bill Miller is going quietly into the sunset as he as he ages he's he's going big levering up triple levered, uh potentially triple levered Bitcoin and uh high flighting tech stock funds. So I think, you know, maybe this is a good example of how, um, the notion of what value investing is really changing dramatically. Is

Amazon and value stock? I know you can't single thing that's fair, um, but before we go, I have to read our favorite Twitter as well. This one is pretty good. Yeah. So we had Jeff Hancock right in he is at experts with two U s is ninety seven, underscored Jeff, and then he said Ford came out with an all electric F one fifty and the stock declined. Brad have to come to you. Was it just the fact that earnings were not very great and maybe overshadowed this? Yeah?

I think the yes, the F one fifty is the main driver of that stock. If you think, if you looked at deliveries over the past you know, decade or so, the F one fifty is always where you know your eyes first glanced, you know, are they are they on deliveries up. I wouldn't say that's the reason why the stock is down, so I'm gonna I'm gonna go I'm gonna go on the limb there, um and and and say that I think that mistake, and they actually beat on sales. I think it was just their their earnings

and other things. I think full year out the disappointing interesting one. Um, it was a Nissan profit was down nine year every year, which I thought was as far as the automakers went a bunch of Although I will say, uh, Sarah, if I were to make a Venn diagram of electric car drivers Tesla types and Ford F one fifty drivers, I don't think I'd see a lot of overlap in those two circles. They'd they'd be several inches apart. Maybe not necessarily. Maybe our Twitter guys on this stuff the

next Yeah, maybe so. But with that said, Brad Sean, thank you both so much for joining the show today. Thank you, thank you for having me what goes out. 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 and review the show on Apple podcast so more listeners can find us and you can find us on Twitter, follow me at at Sara Panzac

and Mike is at Reaganonymous. You can also follow bloomber podcasts at podcasts. What Goes Up is produced by topor Foreheads ahead of Bloomberg. Podcast is Princess the Leavie. Thanks for listening to you. Next time