Daybreak Holiday: Inflation Pressure, Markets, Retail

Thank you so much for joining us on the special 0:00:04.720 --> 0:00:08.760 edition of Bloomberg Daybreak. Merry Christmas, everybody. Markets are closed 0:00:08.800 --> 0:00:12.160 for this holiday. I'm Nathan Hager coming up this hour. 0:00:12.360 --> 0:00:14.800 It has been another banner year for the bulls on 0:00:14.880 --> 0:00:17.280 Wall Street. Will the new year bring as many happy 0:00:17.320 --> 0:00:20.400 returns for equity investors as twenty twenty four We will 0:00:20.400 --> 0:00:23.680 bring you a special stock round table with Lori Calvacina, 0:00:23.720 --> 0:00:26.960 head of US Equity Strategy at RBC Capital Markets, and 0:00:27.040 --> 0:00:30.880 Cameron Dawson, chief investment officer at New Edge Wealth Plus. 0:00:30.880 --> 0:00:33.120 We're wrapping up the most wonderful time of the year 0:00:33.159 --> 0:00:36.280 for retailers, So who were the big winners? We'll ask 0:00:36.320 --> 0:00:41.640 retail analyst Bert Flickinger, managing director at Strategic Resource Group. First, 0:00:41.680 --> 0:00:44.280 we want to focus on the economy as a whole. 0:00:44.479 --> 0:00:47.240 The Federal Reserve is coming off its final rate cut 0:00:47.240 --> 0:00:50.760 of the year. J. Powell and Company surprised Wall Street 0:00:50.800 --> 0:00:53.720 not with the interest rate reduction, but when they changed 0:00:53.760 --> 0:00:58.040 gears and put their policy focus back on inflation once again. 0:00:58.280 --> 0:01:00.960 We you know, we've had a a year on projection 0:01:01.480 --> 0:01:03.880 for inflation and it's kind of fallen apart. As we've 0:01:03.920 --> 0:01:06.920 approached at the end of the year. So that is 0:01:06.959 --> 0:01:09.680 certainly a large factor in people's thinking. I can tell 0:01:09.680 --> 0:01:12.399 you that might be the single biggest factor. Is inflation 0:01:12.480 --> 0:01:17.039 has once again underperformed relative to expectations. It's still you know, 0:01:17.200 --> 0:01:19.440 going to be between two and a half and three. 0:01:19.480 --> 0:01:21.560 It's way below where it was. But you know, we 0:01:21.600 --> 0:01:24.720 really want to see progress on inflation. 0:01:24.760 --> 0:01:27.600 And that was fair Chair J. Powell last week following 0:01:27.640 --> 0:01:31.039 the Central Banks final policy decision of twenty twenty four. 0:01:31.280 --> 0:01:34.600 So what's in store for next year? To answer that, 0:01:34.680 --> 0:01:38.200 we're pleased to welcome Tom Porcelli, chief US economist at 0:01:38.280 --> 0:01:41.680 PGIM Fixed Income. Tom. Great to have you with us 0:01:41.920 --> 0:01:46.000 on this holiday. And I hate to say inflation's been persistent, 0:01:46.160 --> 0:01:49.080 but are we going to see progress? 0:01:49.360 --> 0:01:52.200 Well, good to be with you, Nathan as always, and 0:01:53.000 --> 0:01:55.560 I think, you know, let'st I would reframe it a 0:01:55.600 --> 0:01:58.360 little bit. We have seen a lot of progress. I mean, 0:01:58.400 --> 0:02:00.480 if you just look at you know, a pick your 0:02:00.520 --> 0:02:04.480 flavor of inflation, but if you just look at core PCEE, 0:02:05.000 --> 0:02:07.280 core PC with what as high as nearly six percent 0:02:07.440 --> 0:02:10.120 and we're down to what two point eight percent now, 0:02:10.200 --> 0:02:12.400 So there's been quite a lot of progress from an 0:02:12.440 --> 0:02:16.320 inflation perspective. And you know what was interesting about about 0:02:16.320 --> 0:02:19.920 Powell's press conference at the recent FOMC meeting was he 0:02:20.000 --> 0:02:23.400 acknowledged I think a number of the things that that 0:02:23.560 --> 0:02:27.280 are challenges from inflation perspective that we can exclude from inflation, right, Like, 0:02:27.320 --> 0:02:30.239 so shelter is a great example. You know, they they 0:02:30.320 --> 0:02:34.360 and we all recognize that there are these calculation challenges 0:02:34.400 --> 0:02:37.440 from a shelter perspective, so you remove it, and you know, 0:02:37.480 --> 0:02:39.760 this is how the whole supercre idea sort of came 0:02:39.880 --> 0:02:42.440 came to be. Well, what I would say is I'm 0:02:42.480 --> 0:02:44.400 not a huge fan of supercore because I think it 0:02:44.440 --> 0:02:46.679 also strips out the things that are deflating. And I 0:02:46.720 --> 0:02:49.520 don't know why you do. That's part of the consumable basket, 0:02:50.000 --> 0:02:54.120 So that that to me just seems a little intellectually disingenuous. 0:02:54.280 --> 0:02:57.079 So what I would say is this, just take headline inflation, 0:02:57.520 --> 0:03:00.800 take core inflation, strip out shelter, and when you do that, 0:03:00.800 --> 0:03:02.639 what you see is that inflation is actually pretty tame. 0:03:02.720 --> 0:03:02.840 Right. 0:03:02.840 --> 0:03:05.280 So if we just use CPI as as an example 0:03:05.320 --> 0:03:08.560 of that, you know, like headline CPI is running out 0:03:08.560 --> 0:03:12.600 well one point six percent pace x shelter and core 0:03:12.720 --> 0:03:15.760 CPI is running out a two point one percent pace 0:03:16.000 --> 0:03:16.440 x shelter. 0:03:16.600 --> 0:03:17.800 So you know, I. 0:03:19.320 --> 0:03:21.480 Was, I was, I was a little bothered by by 0:03:21.520 --> 0:03:24.519 the idea of this notion of sticky inflation. I mean, 0:03:24.560 --> 0:03:26.680 I think I think a lot of us expected inflation 0:03:26.720 --> 0:03:30.440 would remain relatively elevated relative to target, but we continue 0:03:30.480 --> 0:03:32.600 to drift in the right direction. And I'm sorry, I'll 0:03:32.600 --> 0:03:34.280 say one last thing on this, Nathan, and then and 0:03:34.320 --> 0:03:37.040 then I'll stop. You know, I think about not just 0:03:37.080 --> 0:03:40.040 the not just the idea of of of stripping out shelter, 0:03:40.280 --> 0:03:45.200 but let's acknowledge that in real time shelter prices are slowing, 0:03:45.280 --> 0:03:48.440 so that will will continue to act as a sort 0:03:48.440 --> 0:03:50.760 of a as a weight on inflation as that continues 0:03:50.760 --> 0:03:53.560 to slow down. But maybe more important, when I look 0:03:53.600 --> 0:03:56.760 at wages, the direction of travel for wages I think 0:03:56.840 --> 0:03:58.880 is pretty clear. I mean, just look at quit rates 0:03:59.240 --> 0:04:02.440 that that are, you know, sort of getting clobbered. You know, 0:04:02.680 --> 0:04:05.160 that's that's yet another factor that I think we do 0:04:05.280 --> 0:04:08.440 not have to worry about because wages will continue to slow. 0:04:08.520 --> 0:04:11.120 So I think the inflation story is is is at 0:04:11.200 --> 0:04:14.160 least a bit more benign than what Powell suggested, So. 0:04:14.160 --> 0:04:17.040 Are you thinking then that the Fed could be more 0:04:17.120 --> 0:04:21.160 open to accelerating the pace of rate cuts more than 0:04:21.200 --> 0:04:24.279 they said they were planning to last week when they 0:04:24.839 --> 0:04:27.839 surprised the market with this expectation of just two cuts 0:04:27.839 --> 0:04:28.760 for all of next year. 0:04:29.600 --> 0:04:31.160 Yeah. I think this is the one thing that I 0:04:31.240 --> 0:04:34.400 actually did agree with Powell on. I think that, you know, look, 0:04:34.880 --> 0:04:37.960 as as a as a central banker, you know, you 0:04:37.960 --> 0:04:41.080 you relish optionality and and and I think you're and 0:04:41.120 --> 0:04:44.520 you're supposed to because you want the flexibility to be 0:04:44.520 --> 0:04:48.839 able to adjust as as the backdrop sort of evolved. 0:04:48.880 --> 0:04:51.440 So I have a ton of sympathy for that. So 0:04:51.520 --> 0:04:55.080 the short answer is, yes, I think you're you're absolutely 0:04:55.080 --> 0:04:58.080 supposed to acknowledge that you could see a faster pace 0:04:58.200 --> 0:05:00.279 of of rate cuts and and and indeed you could 0:05:00.279 --> 0:05:02.600 certainly see a slower pace depending how the data evolved. 0:05:02.960 --> 0:05:05.440 But I think again the problem for me is he 0:05:05.520 --> 0:05:08.520 kept on, pal kept on talking about, you know, data dependency, 0:05:08.960 --> 0:05:12.039 but I don't know if that's quite what it is. 0:05:12.680 --> 0:05:15.160 And I don't want to split hairs on this, but 0:05:15.240 --> 0:05:19.520 it really strikes me more as data point dependency, and 0:05:19.560 --> 0:05:21.920 that to me is a problem. And it's a problem 0:05:22.000 --> 0:05:24.360 because we all know this, right, I mean, we could 0:05:24.360 --> 0:05:26.400 all we could do an entire segment on this from 0:05:26.600 --> 0:05:30.119 one point alone. The data have been very volatile, more 0:05:30.680 --> 0:05:34.039 so than than what we've seen certainly pre pre COVID. 0:05:34.760 --> 0:05:37.159 And so think about the coming you know, in the 0:05:37.200 --> 0:05:40.040 next couple of weeks, we're gonna get what, We're gonna 0:05:40.040 --> 0:05:41.400 get a payroll report, and then we're going to get 0:05:41.400 --> 0:05:43.880 a CPI report. What if you get a clunker, right, 0:05:43.920 --> 0:05:46.000 what if you get a clunker of a payroll report, 0:05:46.640 --> 0:05:49.120 the market is then going to immediately start to sort 0:05:49.120 --> 0:05:51.280 of build in the idea of, oh well maybe if 0:05:51.320 --> 0:05:52.760 it is going to have to do more. So I 0:05:52.839 --> 0:05:54.440 think this is this is part of the problem with 0:05:54.520 --> 0:05:55.520 data point dependency. 0:05:55.960 --> 0:06:01.080 Speaking with Tom Porcelli, chief US economist at PGM Fixed Income, 0:06:01.680 --> 0:06:04.160 So what should the FED be focusing on then, Tom, 0:06:04.200 --> 0:06:06.560 I mean, at the meeting last week it seemed as 0:06:06.600 --> 0:06:10.800 though FED Chair pal was really laser focused now on 0:06:10.960 --> 0:06:15.680 inflation as opposed to potential risks to the labor market. 0:06:15.800 --> 0:06:18.000 Should be they be taking a more holistic approach. 0:06:19.160 --> 0:06:22.240 I think that's exactly right. I mean, look, they are 0:06:22.400 --> 0:06:25.599 a dual mandate Central bank, I think that you're supposed 0:06:25.640 --> 0:06:29.120 to be focused on both of these. Now, both of 0:06:29.160 --> 0:06:31.000 these are parts of the mandate. Now, of course, we 0:06:31.080 --> 0:06:34.640 all recognize that there are points where you know one 0:06:34.680 --> 0:06:36.479 will be fine and the other will be, you know, 0:06:36.800 --> 0:06:39.560 sort of deteriorating or accelerating, and so you know, you 0:06:39.600 --> 0:06:41.600 might want to sort of shift your focus to some extent. 0:06:42.000 --> 0:06:45.160 But I think what we have to acknowledge is that 0:06:45.520 --> 0:06:48.560 from a labor market perspective, right, because it's clear that 0:06:48.600 --> 0:06:50.920 he is shifted, right, he's starting the process of shifting 0:06:50.920 --> 0:06:52.719 away from labor, which is what they had been focused 0:06:52.760 --> 0:06:55.520 on over the prior few meetings, which is why they've 0:06:55.560 --> 0:06:59.800 delivered one hundred basis points of cuts at this point. 0:07:00.320 --> 0:07:03.719 But it's pretty clear that they're shifting back toward inflation. Now, 0:07:04.480 --> 0:07:08.400 I would caution against doing that too forcefully, because what 0:07:08.800 --> 0:07:11.360 we know is that there are some cracks that are 0:07:11.360 --> 0:07:13.640 forming in the labor backdrop. Now, again, I would hasten 0:07:13.680 --> 0:07:17.160 to add just because I'm saying cracks does not mean 0:07:17.160 --> 0:07:18.480 that I think the floor is going to fall out 0:07:18.520 --> 0:07:20.360 from from beneath labor. In fact, I don't think that's 0:07:20.360 --> 0:07:21.520 going to be the case at all. I think labor 0:07:21.560 --> 0:07:24.240 will be fine. I mean, you know, the continued economic 0:07:24.280 --> 0:07:27.960 expansion is is and has been our call over the 0:07:28.000 --> 0:07:30.840 coming and for the coming year, So you know, I 0:07:30.840 --> 0:07:32.920 want to sort of level set for everyone on that. 0:07:33.000 --> 0:07:37.320 But that does not, you know, mean that we should 0:07:37.320 --> 0:07:40.360 take our eyes off the fact that quit rate is 0:07:42.520 --> 0:07:48.440 getting cloppered, the hiring rate is slowing down. Confidence toward 0:07:49.480 --> 0:07:55.080 labor has deteriorated, right per the Conference boards labor differential, 0:07:55.520 --> 0:07:58.920 and that has a very good relationship with the unemployment rate, 0:07:59.080 --> 0:08:01.760 which is up what amost a hundred basis points from 0:08:01.840 --> 0:08:04.480 from the nearby low. So so you know, these are 0:08:04.480 --> 0:08:07.520 our realities. I mean, labor has slowed down. Demand at 0:08:07.600 --> 0:08:10.280 large has really slowed down. So I don't think we 0:08:10.280 --> 0:08:12.320 should take our eye and I don't think the Fed should, 0:08:12.360 --> 0:08:14.400 and I don't think that they will take their eye 0:08:14.440 --> 0:08:18.920 off of labor. I just think that shifting these focuses 0:08:19.000 --> 0:08:21.080 from like one mandate to the other, I think just 0:08:21.160 --> 0:08:24.160 lent itself to volatility, particularly as it relates to volatile 0:08:24.320 --> 0:08:26.600 economic reports, which is what we've been getting. 0:08:26.880 --> 0:08:30.760 One potential possibility of volatility here we haven't talked about 0:08:30.880 --> 0:08:35.040 just yet is the incoming Trump administration and how policy 0:08:35.320 --> 0:08:39.120 could affect the economic trajectory going forward, How do you 0:08:39.200 --> 0:08:41.439 factor that in? How does the FED factor that in? 0:08:42.000 --> 0:08:44.079 Yeah, I think I think Powell had it quite right 0:08:44.120 --> 0:08:46.679 when when he said, you know, they just they can't 0:08:46.679 --> 0:08:50.440 build it into their forecasts at this point. And I 0:08:50.440 --> 0:08:53.000 have nothing but sympathy for that. The reality is we 0:08:53.120 --> 0:08:56.240 just don't know what these policies are actually going to be, 0:08:56.480 --> 0:08:59.360 So for better or for worse, you know, the FED 0:08:59.440 --> 0:09:00.920 is going to have to be reactionary. 0:09:01.320 --> 0:09:04.199 How do you expect the FED to react then? Given 0:09:04.240 --> 0:09:07.520 to how what kind of uncertainty we have for Trump 0:09:07.520 --> 0:09:08.600 administration policy? 0:09:09.280 --> 0:09:11.880 Carefully? I mean, I think that you know, we have 0:09:11.960 --> 0:09:16.520 to recognize there are extremes from a tariff perspective and 0:09:16.559 --> 0:09:20.600 from an immigration perspective that could do some damage. From 0:09:20.760 --> 0:09:25.080 from an economic perspective, if you get more modest versions 0:09:25.880 --> 0:09:29.680 of tariff and immigration policy, then it probably you know, 0:09:29.760 --> 0:09:31.640 doesn't turn out to be nearly as bad. 0:09:31.720 --> 0:09:31.880 Right. 0:09:31.920 --> 0:09:35.319 So my view is that I think people are putting 0:09:35.360 --> 0:09:37.240 a little too much emphasis on the negative, and I 0:09:37.240 --> 0:09:39.360 think they're putting a little too much emphasis on the positive. 0:09:40.120 --> 0:09:44.079 And I think ultimately, if we get more modest versions 0:09:44.520 --> 0:09:47.920 of immigration and tariff policy. I think that our view 0:09:48.000 --> 0:09:49.120 that this is going to be you know, sort of 0:09:49.200 --> 0:09:52.760 a roughly two percent year in twenty twenty five, I 0:09:52.760 --> 0:09:54.920 think we'll remain firmly intact. 0:09:55.800 --> 0:09:59.840 Is a two percent inflation target still realistic for this FED? 0:10:00.240 --> 0:10:01.720 I mean I don't know if it was ever really 0:10:01.960 --> 0:10:06.160 totally realistic to I mean just just sort of thinking 0:10:06.200 --> 0:10:09.600 over history. I mean, look, the central banks want an 0:10:09.640 --> 0:10:13.120 anchor and two percent is just the sort of the 0:10:13.600 --> 0:10:16.280 number that they landed on. So in that context, I 0:10:16.360 --> 0:10:19.680 have sympathy for a target. Is this supposed to be 0:10:19.720 --> 0:10:24.360 two point zero percent? That's a completely debatable point. I mean, 0:10:24.360 --> 0:10:28.240 there's nothing empirical that really drives home that two point 0:10:28.360 --> 0:10:30.319 zero percent is the right number. And if you think about, 0:10:30.520 --> 0:10:32.920 you know, where inflation spends most of its time, it's 0:10:32.960 --> 0:10:36.400 not at two point zero percent, So you know, look, 0:10:37.360 --> 0:10:39.360 should the FED go to a range sort of like 0:10:39.400 --> 0:10:42.200 the RBA, the Reserve Bank of Australia like they do. 0:10:42.520 --> 0:10:46.120 I mean, I think that that is a reasonable discussion, 0:10:46.440 --> 0:10:49.199 but the FED has been pretty clear that that's not 0:10:49.280 --> 0:10:51.079 going to be part of any of the debate that's 0:10:51.080 --> 0:10:54.040 happening internally, and two point zero percent is going to 0:10:54.080 --> 0:10:56.120 be the target for the foreseeable future. 0:10:56.800 --> 0:10:59.559 Where do you put FED credibility right now? Given that 0:10:59.720 --> 0:11:03.200 they kicked off the rate cut cycle so quickly slowed 0:11:03.240 --> 0:11:06.040 down just a bit, now we're projecting so much fewer 0:11:06.520 --> 0:11:08.040 rate cuts into next year. 0:11:08.559 --> 0:11:08.839 Yeah. 0:11:08.920 --> 0:11:12.000 I mean, look, I've been speaking with a number of folks, 0:11:12.120 --> 0:11:15.480 you know, post the fom C meeting, and I think 0:11:15.480 --> 0:11:18.120 a lot of them are sort of scratching their head. Okay, 0:11:18.160 --> 0:11:21.040 you know what exactly just happened, and not just at 0:11:21.120 --> 0:11:25.120 the FOC meeting that just passed, but over the last 0:11:25.160 --> 0:11:28.360 few fo C meetings, So you know, is credibility being 0:11:28.480 --> 0:11:31.400 tarnished or dinged up here? No, I don't think that's 0:11:31.400 --> 0:11:35.240 the case. I think the FED has really very very 0:11:35.320 --> 0:11:39.560 much earned the credibility that they do have. But I 0:11:39.600 --> 0:11:42.840 do think people are are are wondering aloud about you know, 0:11:42.960 --> 0:11:46.920 do they have it right? So there's I wouldn't call 0:11:46.960 --> 0:11:49.079 it a crisis of confidence, not by a long shot, 0:11:49.640 --> 0:11:52.679 but I do think people are are wondering if they 0:11:52.720 --> 0:11:53.600 have the right take on this. 0:11:54.040 --> 0:11:56.559 Really appreciate this, Tom, thanks for coming on with us 0:11:56.600 --> 0:11:59.719 on the Christmas holiday. That's Tom Porcelli with us here 0:12:00.240 --> 0:12:05.280 us economist at PGIM Fixed Income. And as we continue 0:12:05.360 --> 0:12:08.640 on the special holiday edition of Bloomberg Daybreak, we're going 0:12:08.640 --> 0:12:11.800 to bring you a special roundtable looking at stocks in 0:12:11.880 --> 0:12:14.960 twenty twenty five. We're going to speak with Lori Calvacina, 0:12:15.120 --> 0:12:19.000 head of US Equity Strategy at RBC Capital Markets, along 0:12:19.000 --> 0:12:22.800 with Cameron Dawson, chief investment officer at New Edge. Well, 0:12:22.920 --> 0:12:25.680 so stay with us. It's twenty minutes past the hour. 0:12:25.920 --> 0:12:41.199 I'm Nathan Hager, and this is Bloomberg. Thanks for being 0:12:41.240 --> 0:12:44.240 here on this special edition of Bloomberg Daybreak. Markets are 0:12:44.280 --> 0:12:47.559 closed for the Christmas holiday. I'm Nathan Hager. We now 0:12:47.600 --> 0:12:50.240 turn from the economy in twenty twenty five. So the 0:12:50.280 --> 0:12:53.440 stock market twenty twenty four has certainly been a good year. 0:12:53.480 --> 0:12:55.880 If you are a bull on Wall Street, will it 0:12:55.960 --> 0:12:59.320 be even more happy returns in the new year. For that, 0:12:59.480 --> 0:13:02.400 we're please welcome two of our favorite analysts on this market, 0:13:02.440 --> 0:13:06.480 Lori Calvacina, head of US Equity Strategy at RBC Capital Markets, 0:13:06.679 --> 0:13:09.920 and New Edge Wealth chief investment officer Cameron Dawson, for 0:13:09.960 --> 0:13:12.840 a holiday stock roundtable. Thanks to both of you for 0:13:12.880 --> 0:13:14.800 being here. I mean, we've had a more than twenty 0:13:14.880 --> 0:13:17.319 percent gain I think for the SMP five hundred year 0:13:17.400 --> 0:13:19.600 to date, I'll start with you, Lourie. Can the market 0:13:19.679 --> 0:13:22.400 keep up that kind of momentum into twenty twenty five? 0:13:23.320 --> 0:13:25.320 So thanks for having me, Nathan, And look, you know, 0:13:25.400 --> 0:13:27.800 I've got a ten percent target on the market for 0:13:27.880 --> 0:13:30.319 twenty twenty five, at least where the market closed when 0:13:30.320 --> 0:13:32.360 we put our numbers out. So we've been looking for 0:13:32.400 --> 0:13:35.040 sixty six hundred, and we think that's going to be 0:13:35.040 --> 0:13:37.800 another solid year of gains in the US eclby market, 0:13:37.880 --> 0:13:40.200 probably a little bit slower than what we saw this year, 0:13:40.559 --> 0:13:42.240 and we do think that we are going to have 0:13:42.320 --> 0:13:45.240 you know, what some of my colleagues term is potholes, right, 0:13:45.320 --> 0:13:48.080 some bounce of five to ten percent type drawdowns. So 0:13:48.120 --> 0:13:50.760 we don't necessarily think it's going to be a completely 0:13:50.800 --> 0:13:52.520 smooth ride. But at the end of the day, we 0:13:52.559 --> 0:13:55.160 think a continued moderation in inflation is going to help 0:13:55.240 --> 0:13:59.320 keep PE multiples elevated, and we think a solid earnings 0:13:59.320 --> 0:14:02.560 grows back and a solid economy are also going to 0:14:02.559 --> 0:14:05.560 help propel this market higher. But there may be some 0:14:05.880 --> 0:14:07.880 volatility here and there that we have to deal with. 0:14:08.160 --> 0:14:10.920 Cameron. We have seen a lot of analysts raise their 0:14:10.960 --> 0:14:14.560 price targets for the SMP five hundred, particularly after the 0:14:14.600 --> 0:14:17.680 election of President elect Donald Trump. Where are you sitting 0:14:17.720 --> 0:14:20.120 at this point. 0:14:19.320 --> 0:14:22.320 Well, it does create an interesting scenario where we're now 0:14:22.440 --> 0:14:26.240 seeing that overall in the market we have stretch positioning, 0:14:26.400 --> 0:14:31.400 stretch sentiments, stretched valuations, as well as pretty lofty growth 0:14:31.440 --> 0:14:35.920 expectations depending on where you're looking at earning vestiments. All 0:14:35.960 --> 0:14:38.440 of those things don't have to be a death knell 0:14:38.520 --> 0:14:42.040 for forward returns. They're usually not good timing tools, but 0:14:42.240 --> 0:14:44.440 it could be that we have to spend some time 0:14:44.640 --> 0:14:48.440 growing into those higher valuations, which lead. 0:14:48.360 --> 0:14:50.160 Us to expect two. 0:14:49.720 --> 0:14:53.160 Distinct scenarios for the market in twenty twenty five. We 0:14:53.160 --> 0:14:55.680 think we're either going to have a talking heads market, 0:14:55.800 --> 0:14:59.080 a road to nowhere kind of sideways chopped that looks 0:14:59.120 --> 0:15:02.560 like twenty fifteen or twenty eighteen, giving us time to 0:15:02.600 --> 0:15:06.720 grow into those high valuations, or we have a prints 0:15:06.720 --> 0:15:09.520 market where we sing, let's go crazy, let's party like 0:15:09.560 --> 0:15:12.240 it's nineteen ninety nine, and we actually have a bubble 0:15:12.280 --> 0:15:15.680 scenario where we have another strong year of returns driven 0:15:15.720 --> 0:15:18.840 by valuation expansion, but of course we know what comes 0:15:18.880 --> 0:15:21.280 on the other side. Of melt ups, which is typically 0:15:21.400 --> 0:15:24.600 melt down. So in either scenario, we think that we 0:15:24.720 --> 0:15:28.040 could have this increase in volatility instead of that low 0:15:28.120 --> 0:15:31.160 volatility up into the right market that we've been in 0:15:31.240 --> 0:15:32.360 for the last two years. 0:15:32.680 --> 0:15:36.000 Love the eighties metaphors. Is this a nineteen eighties moment 0:15:36.080 --> 0:15:37.000 for you, Laurie? 0:15:37.800 --> 0:15:37.960 Oh? 0:15:38.000 --> 0:15:40.360 Look, I do agree that we're going to have more 0:15:40.400 --> 0:15:42.720 of that volatility, and I think one thing that makes 0:15:43.040 --> 0:15:47.080 things so challenging is just this idea of animal spirits 0:15:47.120 --> 0:15:49.840 being so strong post election and taking us into the 0:15:49.880 --> 0:15:52.480 new year, and so on the one hand, we do 0:15:52.520 --> 0:15:54.560 think that those good vibes get us off to a 0:15:54.600 --> 0:15:57.400 good start. We heard a lot about companies in particular, 0:15:57.960 --> 0:16:01.280 just seeing activity being frozen quarters and months ahead of 0:16:01.320 --> 0:16:03.360 the election, so we expect some of that to be 0:16:03.480 --> 0:16:06.960 unlocked and to really give us some good vibes. And 0:16:07.000 --> 0:16:09.800 we've also seen consumer sentiment improve post election, and that 0:16:09.880 --> 0:16:13.880 is something that's very normal after elections, including changings of 0:16:13.920 --> 0:16:17.040 the guard. I do sort of sympathize with that possibility 0:16:17.080 --> 0:16:18.880 of the prince market. I think that one of the 0:16:18.920 --> 0:16:22.360 things that's tough for forecasters in twenty twenty five is 0:16:22.400 --> 0:16:24.240 that you know, we all put out forecasts and we 0:16:24.320 --> 0:16:27.480 have to articulate a base case, but the bear case 0:16:27.480 --> 0:16:30.400 and the bull case sort of the tails around that forecast. 0:16:30.720 --> 0:16:33.680 It seems like those are higher probability on both sides 0:16:33.720 --> 0:16:36.040 of the equation, and those tales are just fatter in 0:16:36.120 --> 0:16:39.120 the new year. And so I think the idea of 0:16:39.160 --> 0:16:42.240 you know, kind of twelve month visibility, I'm not entirely 0:16:42.280 --> 0:16:44.240 sure that we have it right now, to be honest, 0:16:44.280 --> 0:16:46.360 I think we do our best as forecasters, but we 0:16:46.440 --> 0:16:48.680 have to admit that things are going to be changing 0:16:48.760 --> 0:16:50.640 quite rapidly in the year ahead. There's going to be 0:16:50.720 --> 0:16:53.760 policy developments out of DC, and I think Cameron hit 0:16:53.760 --> 0:16:55.880 the nail on the head in terms of stretched sentiment 0:16:55.920 --> 0:16:59.760 and stretched valuation, and those things can last. It's very 0:16:59.760 --> 0:17:02.240 hard to predict exactly when they pop out, but they 0:17:02.280 --> 0:17:04.920 do tend to invoke some pain on the other side, 0:17:05.320 --> 0:17:07.399 and I think that makes it very very tricky to 0:17:07.480 --> 0:17:08.720 time everything next year. 0:17:09.040 --> 0:17:11.040 So if we have this kind of froth in the 0:17:11.080 --> 0:17:14.240 market right now, this lack of clarity, what do you 0:17:14.320 --> 0:17:18.040 need to see, Cameron to bring more clarity? What are 0:17:18.080 --> 0:17:20.119 you going to be looking for in the next couple 0:17:20.119 --> 0:17:22.119 of months for us. 0:17:22.160 --> 0:17:25.359 It all comes down to earning sestiments, and if you 0:17:25.400 --> 0:17:28.600 look at what has been the key underpinning driver of 0:17:28.640 --> 0:17:31.160 the last two years of the bull market has been 0:17:31.200 --> 0:17:35.159 that twelve months forward earning sestiments continue to rise. And 0:17:35.200 --> 0:17:37.800 we think in the next month, when we start the 0:17:37.920 --> 0:17:41.520 fourth quarter earning season at the end of January, we're 0:17:41.520 --> 0:17:44.520 going to start putting some of these earning vestments to the. 0:17:44.520 --> 0:17:47.480 Test, because this is the first quarter that you had. 0:17:47.320 --> 0:17:51.200 The expectation that the four ninety three, those non NAG 0:17:51.320 --> 0:17:52.360 seven names. 0:17:52.320 --> 0:17:54.000 Will really start picking up the. 0:17:54.000 --> 0:17:57.679 Slack and earnings growth and pulling their weight. The question 0:17:57.880 --> 0:18:00.399 is is that a bar that's too high. What you 0:18:00.520 --> 0:18:02.960 have in the four ninety three going into next year 0:18:03.040 --> 0:18:06.960 is a big reacceleration in earnings growth, and so we. 0:18:07.000 --> 0:18:08.920 Have to ask the question of can that. 0:18:09.040 --> 0:18:12.119 Part of the market truly deliver or are we still 0:18:12.160 --> 0:18:15.280 having to fall back on this small subset of MAG 0:18:15.359 --> 0:18:18.320 seven names that have been such a key underpinning of 0:18:18.359 --> 0:18:21.600 the overall earnings estimates. So we're watching that twelve month 0:18:21.680 --> 0:18:25.159 forward number on EPs estimates very closely because if that 0:18:25.320 --> 0:18:28.680 starts the flatten oute market returns likely flatten out as well. 0:18:29.040 --> 0:18:32.960 We're speaking with Cameron Dawson, the chief investment officer at 0:18:33.040 --> 0:18:36.159 new Edge Wealth, and Lori Calvacina, head of US equity 0:18:36.200 --> 0:18:39.760 strategy at RBC Capital Markets. Laurie, how do you view 0:18:39.800 --> 0:18:42.800 the earnings backdrop heading into twenty twenty five? What do 0:18:42.880 --> 0:18:43.600 you need to say? 0:18:44.440 --> 0:18:47.160 Well, look, I think Cameron raised some excellent points, and 0:18:47.400 --> 0:18:49.680 if I think about, you know, the earnings environment, I 0:18:49.720 --> 0:18:51.800 would say sort of three things have been coming up 0:18:51.800 --> 0:18:55.200 in my conversations. I am looking for two seventy one 0:18:55.240 --> 0:18:59.000 on smp EPs next year. The consensus is about two 0:18:59.119 --> 0:19:01.639 seventy five, so we're a little bit below, you know, 0:19:01.720 --> 0:19:04.480 kind of that bottom up consensus, but kind of putting 0:19:04.520 --> 0:19:07.359 that aside, you know, I would say three things is 0:19:07.840 --> 0:19:10.440 number one. If you look at this past year twenty 0:19:10.480 --> 0:19:13.080 twenty four, there was an enormous amount of download guidance 0:19:13.080 --> 0:19:16.240 that happened before reporting season actually kicked off, So companies 0:19:16.280 --> 0:19:19.159 really tried to keep the bar very low, and I 0:19:19.160 --> 0:19:21.080 think that set them up very well for this year. 0:19:21.119 --> 0:19:23.399 So I'm very curious to see if companies try to 0:19:23.440 --> 0:19:26.480 pull that rabbit out of a hat again in twenty 0:19:26.520 --> 0:19:29.239 twenty five. So you know, I'm not expecting, frankly, the 0:19:29.280 --> 0:19:31.720 tone to be all that great when that reporting seasons 0:19:31.800 --> 0:19:34.480 kicks off in late January. The second thing is I 0:19:34.480 --> 0:19:37.040 want to see what companies say about the dollar. We've 0:19:37.080 --> 0:19:39.480 seen an increase in the dollar a year over a year, 0:19:39.560 --> 0:19:42.280 and that does tend to push earning's revisions down. We 0:19:42.359 --> 0:19:44.800 haven't really seen that yet, but it does tend to 0:19:44.840 --> 0:19:47.760 hit most sectors in the market, aside from things like financials, 0:19:47.800 --> 0:19:50.840 reads and utilities. So we're watching to see if we 0:19:50.880 --> 0:19:53.520 might get some truing up there. And then the last thing, 0:19:53.600 --> 0:19:55.560 you know, that I'm really focused on when we get 0:19:55.560 --> 0:19:58.480 that January reporting season starting up is what are companies 0:19:58.520 --> 0:20:01.320 saying about margins and costs. Bloomberg does a great job 0:20:01.440 --> 0:20:04.080 of the Bloomberg Intelligence folks of tracking the bottom up 0:20:04.119 --> 0:20:06.720 sell side consensus estimates, and what they're showing in their 0:20:06.760 --> 0:20:09.640 margin stats is that we've been seeing twenty twenty five 0:20:09.680 --> 0:20:12.879 operating margins for the S and P really coming down 0:20:12.960 --> 0:20:15.800 since the middle of twenty twenty four, and that's really 0:20:15.880 --> 0:20:20.119 coincided in my work with just increased concerns about cost 0:20:20.240 --> 0:20:22.800 and inflation. We really do think that we're going to 0:20:22.840 --> 0:20:25.520 need to see sort of what companies are saying about 0:20:25.520 --> 0:20:28.800 that cost environment because strong margins have really been keeping 0:20:28.840 --> 0:20:31.679 earnings forecasts aloft, and if that story ends, I think 0:20:31.720 --> 0:20:33.280 it could be problematic for stocks. 0:20:33.600 --> 0:20:35.800 It's really interesting to bring up those points about the 0:20:35.880 --> 0:20:41.080 dollar and about margins the potential for higher costs. That 0:20:41.200 --> 0:20:45.480 raises the issue of what policy could mean for companies 0:20:45.560 --> 0:20:49.160 going forward in terms of FED policy and fiscal policy 0:20:49.160 --> 0:20:51.640 out of Washington, d C. How much does that affect 0:20:52.160 --> 0:20:57.080 how stocks could travel in twenty twenty five For you, Cameron, Well. 0:20:56.880 --> 0:20:59.359 It's been very interesting over the last couple of years 0:20:59.359 --> 0:21:03.439 how resilient stocks have been to changes and expectations for 0:21:03.520 --> 0:21:07.000 FED policy. If we contrast how we started twenty twenty 0:21:07.000 --> 0:21:09.920 four with six cuts priced in six and a half 0:21:09.960 --> 0:21:13.000 cuts actually into the beginning of the year, and at 0:21:13.000 --> 0:21:15.360 the end of the day we only got four cuts, 0:21:15.400 --> 0:21:18.119 and that we had a more hawkish FED than expected. 0:21:18.520 --> 0:21:20.880 Stocks had this ability to shake that off. 0:21:21.000 --> 0:21:23.920 The question is can they continue to do that if 0:21:23.960 --> 0:21:27.480 the Fed does not deliver on those cuts in twenty 0:21:27.520 --> 0:21:31.000 twenty five that are now projecting to be two cuts 0:21:31.000 --> 0:21:34.200 for next year. If we think about how that translates 0:21:34.240 --> 0:21:36.840 inn into the dollar, If the Fed continues to be 0:21:37.040 --> 0:21:40.080 in this position where they're seen as more hawkish, more 0:21:40.080 --> 0:21:43.080 restrictive in their policy than the rest of the world, 0:21:43.119 --> 0:21:46.080 which is having to cut because their economies are weaker. 0:21:46.440 --> 0:21:48.919 The end result is that you have that continued upward 0:21:48.920 --> 0:21:51.560 pressure on the dollar, which, of course, as Lori pointed out, 0:21:51.920 --> 0:21:56.080 could mean challenges for company earnings that are relying on 0:21:56.200 --> 0:21:59.440 overseas revenues. So if we think then in the context 0:21:59.440 --> 0:22:02.040 of financial conditions, we still are in a place where 0:22:02.080 --> 0:22:05.919 financial conditions are very loose, very easy, and considered to 0:22:05.960 --> 0:22:09.800 be supportive or even stimulative for growth. The question for 0:22:09.840 --> 0:22:12.960 twenty twenty five is how that progresses. If the FED 0:22:13.000 --> 0:22:16.119 continues to remain relatively hawkish to the rest of the world, 0:22:16.359 --> 0:22:19.959 could we see financial conditions tighten and thus feed into 0:22:20.080 --> 0:22:21.240 risk asset prices. 0:22:21.560 --> 0:22:23.880 What's your view on that, Laurie, Do you think financial 0:22:23.880 --> 0:22:27.199 conditions are going to tighten and can companies continue to 0:22:27.240 --> 0:22:31.080 sort of look past some of the hawkishness that is 0:22:31.119 --> 0:22:32.320 starting to build up in the FED. 0:22:32.920 --> 0:22:35.679 Well, it's a great question, Nathan, And I'll tell you know, 0:22:35.920 --> 0:22:38.040 after this last FED meeting, you know, there were sort 0:22:38.080 --> 0:22:40.280 of two things that jumped into my mind based on 0:22:40.359 --> 0:22:43.520 you know, sort of said conversations and said policy impact 0:22:43.560 --> 0:22:46.720 on data from the past year. And the first one was, 0:22:46.800 --> 0:22:48.720 if I think back to what I was reading from 0:22:48.720 --> 0:22:51.760 companies in our transcript reviews, you know, really earlier on 0:22:51.840 --> 0:22:54.679 in the year, one of the big points of uncertainty 0:22:54.680 --> 0:22:56.919 that companies were struggling with was just the sort of 0:22:57.000 --> 0:22:59.679 uncertainty over the path of interest rates. And so to 0:22:59.760 --> 0:23:02.240 the then that we're bringing some of that uncertainty back, 0:23:02.960 --> 0:23:04.760 I do worry a little bit that it could weigh 0:23:04.800 --> 0:23:08.120 on corporate confidence. The second thing is if I think 0:23:08.119 --> 0:23:11.120 about my own modeling for S and P earnings. I've 0:23:11.119 --> 0:23:12.800 been talking about this a lot in my meetings with 0:23:12.880 --> 0:23:16.600 investors lately. It's not that the debt burdens are unmanageable, 0:23:17.000 --> 0:23:19.159 but I have, you know, one line item in my 0:23:19.240 --> 0:23:22.320 earnings model where we try to forecast interest expense relatives 0:23:22.320 --> 0:23:25.280 to sales, and it's based on a variety of macro indicators. 0:23:25.640 --> 0:23:27.520 And you know, long story short, that part of my 0:23:27.600 --> 0:23:31.120 model always behaves very very well, and the interest expense 0:23:31.200 --> 0:23:34.440 has tended to be pretty low. What I've noticed the 0:23:34.520 --> 0:23:38.040 last couple quarters is that the interest expense line item 0:23:38.080 --> 0:23:40.399 has been coming in a bit hotter than my forecast. 0:23:41.119 --> 0:23:43.480 And then I also, you know, recently took a look 0:23:43.480 --> 0:23:45.320 at the effect of interest rates that S and P 0:23:45.440 --> 0:23:48.080 five hundred companies are paying on the debt they have outstanding, 0:23:48.119 --> 0:23:51.200 and that's moved out pretty meaningfully. So overall, I look 0:23:51.240 --> 0:23:53.520 at this as it just seems like it's getting a 0:23:53.520 --> 0:23:57.159 little bit harder for companies to manage other debt burdens 0:23:57.160 --> 0:23:59.960 from an interest rate perspective, and so I do want 0:24:00.080 --> 0:24:02.600 under if maybe that could dampen corporate confidence just a 0:24:02.640 --> 0:24:03.640 little bit in the new year. 0:24:04.000 --> 0:24:06.400 And Cameron, what do you see as potentially the biggest 0:24:06.600 --> 0:24:09.360 headwind to the rally as we get into twenty five. 0:24:10.560 --> 0:24:12.000 I would certainly agree with Lori. 0:24:12.320 --> 0:24:14.880 The idea is that a lot of companies were banking 0:24:14.920 --> 0:24:17.240 on the FED bailing them out in twenty twenty five. 0:24:17.400 --> 0:24:20.720 It was a survived to twenty twenty five kind of mentality, 0:24:21.160 --> 0:24:24.160 mostly within the small and mid cap line of things, 0:24:24.160 --> 0:24:28.280 where we tend to see less profitable companies, more reliance 0:24:28.320 --> 0:24:31.800 on short term debt and higher overall debt levels. And 0:24:31.880 --> 0:24:34.439 so if we think about the FED staying tighter and 0:24:34.680 --> 0:24:38.560 interest rates staying higher, that would certainly create a challenge 0:24:38.560 --> 0:24:41.720 for companies that we're expecting the exact opposite to happen, 0:24:42.080 --> 0:24:45.679 So that could effectively weigh on some of this hope 0:24:45.680 --> 0:24:48.919 and dream for a cyclical recovery because you're not getting 0:24:48.920 --> 0:24:52.280 the support from lower interest rates, and just create an 0:24:52.280 --> 0:24:55.440 earnings headwind that is not contemplated in the market that's 0:24:55.520 --> 0:24:59.240 trading still at twenty two times forward earnings. So it 0:24:59.320 --> 0:25:02.360 certainly would be a challenge and potentially something that would 0:25:02.400 --> 0:25:04.440 come right into terms with this high valuation. 0:25:04.960 --> 0:25:07.199 Stay with us. We're going to continue this conversation with 0:25:07.280 --> 0:25:10.439 Cameron Dawson of New Edge Wealth and RBC Capital Markets 0:25:10.480 --> 0:25:13.280 Lori Calvacina. See what areas of the markets you two 0:25:13.520 --> 0:25:17.280 like in twenty twenty five. As this special Christmas edition 0:25:17.359 --> 0:25:21.440 at Bloomberg Daybreak continues, I'm Nathan Hager, and this is Bloomberg. 0:25:29.760 --> 0:25:32.160 Thanks again for being with us on this special edition 0:25:32.240 --> 0:25:35.560 of Bloomberg Daybreak. I'm Nathan Hager. Markets are closed for 0:25:35.560 --> 0:25:38.800 the Christmas holiday, but we continue our market roundtable now 0:25:38.840 --> 0:25:42.280 with Cameron Dawson, chief investment officer at New Edge Wealth 0:25:42.600 --> 0:25:46.679 and RBC Capital Markets, Head of US Equity Strategy, Lori Calvcina, 0:25:46.720 --> 0:25:49.280 And as we wrap up this conversation, let's talk about 0:25:49.320 --> 0:25:51.959 some areas of the stock market that you both like 0:25:52.119 --> 0:25:55.320 in twenty twenty five. How about we start with you, Cameron, Well, we. 0:25:55.359 --> 0:25:59.520 Are looking more at value areas going into twenty twenty five. 0:26:00.200 --> 0:26:02.640 Buying value broadly. We think that there are a lot 0:26:02.680 --> 0:26:07.199 of low quality and value traps within the overall value style, 0:26:07.640 --> 0:26:11.200 but the degree of underperformance has been so pronounced versus 0:26:11.240 --> 0:26:13.439 growth that we think a lot of companies are just 0:26:13.480 --> 0:26:16.919 simply being ignored. If you look over the last two years, 0:26:17.000 --> 0:26:20.840 growth or value has underperformed growth by over sixty percent, 0:26:21.280 --> 0:26:25.120 which just leaves rooms for more valuation kind of buffer 0:26:25.240 --> 0:26:27.720 for those lower, lower priced companies. 0:26:28.040 --> 0:26:29.080 So we're being selective. 0:26:29.119 --> 0:26:32.600 We're putting a quality overlay on that value side of things, 0:26:32.640 --> 0:26:35.720 looking for good cash flow, good return on invested capital, 0:26:36.080 --> 0:26:38.480 but looking for names that are trading at a discount 0:26:38.480 --> 0:26:41.600 simply because they have been left behind over the last 0:26:41.600 --> 0:26:42.240 two years. 0:26:42.359 --> 0:26:44.960 It feels like growth has been the place to be 0:26:45.119 --> 0:26:49.040 though for quite a while. Laurie, what's your view look, 0:26:49.080 --> 0:26:49.640 I would. 0:26:49.440 --> 0:26:51.919 Just say on growth versus value. You know, in our 0:26:51.960 --> 0:26:55.000 year head outlook, we gave value a tiny edge just 0:26:55.040 --> 0:26:58.679 because growth has been so crowded and so overvalued. But 0:26:58.720 --> 0:27:00.280 one of the things that has come up up in 0:27:00.359 --> 0:27:02.960 conversations over the last few weeks has just been there's 0:27:02.960 --> 0:27:05.200 not as much opportunity and value as there was six 0:27:05.240 --> 0:27:08.240 months ago, and growth has really been fighting back in 0:27:08.320 --> 0:27:11.880 terms of defending its earnings dominance. So I wouldn't completely 0:27:11.880 --> 0:27:14.480 give up on things like the mag seven, you know, 0:27:14.480 --> 0:27:16.760 I would look for opportunities on the value side of 0:27:16.800 --> 0:27:19.200 the market. But I do think until we really see 0:27:19.240 --> 0:27:23.240 the earnings growth leadership seeded from growth to value, I 0:27:23.240 --> 0:27:25.120 think that growth is going to continue to fight back 0:27:25.160 --> 0:27:27.960 and you're going to see volatile trends. I will say 0:27:28.000 --> 0:27:31.040 in that context, one of my favorite sectors has a 0:27:31.040 --> 0:27:33.320 good mix of growth and value within it, And so 0:27:33.800 --> 0:27:36.240 our fresh money idea for twenty twenty five at the 0:27:36.280 --> 0:27:40.920 sector level is communications services. It's cheap, it's had positive 0:27:40.920 --> 0:27:43.280 earnings revision trends. There has not been a lot of 0:27:43.359 --> 0:27:46.159 talk about politics in this sector, which I frankly like, 0:27:46.400 --> 0:27:48.639 just given how a number of things could go in 0:27:48.720 --> 0:27:52.000 multiple directions. And when I look at my industry work, 0:27:52.000 --> 0:27:55.119 there's pretty broad based appeal by industry within that sector. 0:27:55.240 --> 0:27:58.040 So that's really the one we're emphasizing, you know, on 0:27:58.119 --> 0:28:00.439 more of the value side, I see opportunity and smaller 0:28:00.440 --> 0:28:03.080 cap financial especially regional banks, and on more of the 0:28:03.119 --> 0:28:06.200 growth a side. Areas we've been highlighting have been things 0:28:06.240 --> 0:28:08.960 like software and IT services, which still have pretty reasonable 0:28:09.040 --> 0:28:11.560 valuations and very strong earning trovision trends. 0:28:11.680 --> 0:28:13.680 That's going to be interesting to see which, if any 0:28:13.720 --> 0:28:17.920 sectors can stay politically agnostic heading into twenty twenty five. 0:28:17.920 --> 0:28:19.879 But in terms of the sector level, Cameron, what are 0:28:19.920 --> 0:28:21.000 you looking at? 0:28:21.600 --> 0:28:25.480 Well, we find opportunities across sectors, and we're more focused 0:28:25.560 --> 0:28:29.680 on the quality factor quality style of investing. 0:28:29.480 --> 0:28:31.160 Which is just to say that if we look over 0:28:31.200 --> 0:28:31.960 the last. 0:28:31.640 --> 0:28:34.480 Three months, there has been a big deterioration in the 0:28:34.600 --> 0:28:39.240 performance of quality names versus low quality, high beta, high 0:28:39.240 --> 0:28:42.440 momentum parts of the market. But what's interesting is that 0:28:42.560 --> 0:28:45.600 high beta, high momentum, low quality are all in the 0:28:45.720 --> 0:28:49.920 ninety ninethis percentile of outperformance. So we think that this 0:28:50.080 --> 0:28:52.880 is the time to not chase that part of the market, 0:28:52.920 --> 0:28:55.680 but instead look for those names as I mentioned earlier, 0:28:56.040 --> 0:28:57.160 with good balance. 0:28:56.880 --> 0:28:59.680 Sheets, with good free cash flow that simply. 0:28:59.360 --> 0:29:02.280 Have been left behind in the last few months of 0:29:02.320 --> 0:29:05.360 the low quality rally and using that as an opportunity 0:29:05.400 --> 0:29:07.960 to build into positions that we would consider Crown. 0:29:07.800 --> 0:29:10.480 Jewels and Laurie, I know you said that you wouldn't 0:29:10.520 --> 0:29:13.240 count growth out just yet, but can the MAG seven 0:29:13.280 --> 0:29:15.960 continue the kind of momentum that we've seen over the 0:29:16.040 --> 0:29:17.640 last several months. 0:29:17.720 --> 0:29:19.719 You know, it's a great question, and I think one 0:29:19.760 --> 0:29:23.000 of the reasons why this rotation has gotten started. It 0:29:23.040 --> 0:29:26.720 hasn't really been smooth. But one thing you're seeing in 0:29:26.760 --> 0:29:30.000 the MAG seven names is a acceleration of garning's growth 0:29:30.000 --> 0:29:32.480 in terms of expectations that are embedded in the market 0:29:32.800 --> 0:29:36.720 and the individual companies for twenty twenty five. So whenever 0:29:36.760 --> 0:29:40.040 we see hot growth momentum, ayas with accelerating Earning's growth, 0:29:40.120 --> 0:29:41.920 you know, if I think back over the last couple 0:29:41.960 --> 0:29:44.800 decades in my career, it tends to make investors very 0:29:44.800 --> 0:29:47.280 skittish and it tends to make you know, any sort 0:29:47.280 --> 0:29:51.960 of misstep really magnified in terms of negative price reaction. 0:29:52.440 --> 0:29:54.440 So I do think that that is a high hurdle. 0:29:55.040 --> 0:29:57.280 That being said, the value part of the market is 0:29:57.320 --> 0:30:01.160 just not stepping up and taking over leadership. And so 0:30:01.280 --> 0:30:04.120 when we look at twenty twenty five, earnings growth expectations. 0:30:04.120 --> 0:30:06.600 The MAG seven, you know, is I believe it's down 0:30:06.640 --> 0:30:10.000 in the single digits, but so is sort of the 0:30:10.040 --> 0:30:11.920 rest of the market, and it's not. The rest of 0:30:11.920 --> 0:30:15.240 the market is not able to surpass that MAG seven 0:30:15.240 --> 0:30:17.520 earnings growth. And when I look, you know, take a 0:30:17.520 --> 0:30:19.400 look at it slightly differently, and I look at the 0:30:19.400 --> 0:30:22.800 relative PE between a basket of top ten market cap 0:30:22.880 --> 0:30:24.840 names in the S and P, and I compare that 0:30:25.440 --> 0:30:27.360 with the rest of the market, and then I do 0:30:27.440 --> 0:30:30.880 the same analysis on long term earnings growth expectations. The 0:30:30.960 --> 0:30:34.600 relative pe is tracking the relative long term earnings growth expectations. 0:30:34.600 --> 0:30:37.880 They're almost an identical chart. So MAG seven is getting 0:30:37.880 --> 0:30:42.080 that superior valuation because the earnings growth expectations longer term 0:30:42.120 --> 0:30:44.600 are still vastly superior to the rest of the market. 0:30:44.960 --> 0:30:47.960 And until you see something change in terms of long 0:30:48.040 --> 0:30:51.200 term earnings growth expectations, that could be MAG seven falling apart, 0:30:51.240 --> 0:30:54.240 that could be rest of market really surging. But until 0:30:54.280 --> 0:30:56.800 something changes, I think that you're going to be stuck 0:30:56.840 --> 0:31:01.080 in elevated relative valuations for that top ten seven cohorts. 0:31:01.880 --> 0:31:04.440 And they basically the bottom line is they deserve the 0:31:04.440 --> 0:31:07.240 premium valuations that they're getting from an earnings perspective. 0:31:07.840 --> 0:31:09.520 Thanks for this, Laurie, and great to have you with 0:31:09.600 --> 0:31:13.120 us on as well. Cameron Dawson. That's new Edge Wealth 0:31:13.200 --> 0:31:16.920 Chief investment Officer, Cameron Dawson with us along with Lori Calvacina, 0:31:17.040 --> 0:31:20.760 had of US Equity Strategy at RBC Capital Markets. And 0:31:20.840 --> 0:31:23.480 we're going to wrap up our Daybreak Christmas special with 0:31:23.560 --> 0:31:27.040 a focus on the retailers this holiday season. Who better 0:31:27.080 --> 0:31:29.840 to do that with than Bert Flick and Jert managing 0:31:29.840 --> 0:31:34.240 director at Strategic Resource Group. Happy Holidays. Bert, I think 0:31:34.280 --> 0:31:37.080 it was a pretty happy holiday kickoff in terms of 0:31:37.160 --> 0:31:40.800 shopping season. So how the retailers do good kickoff? 0:31:40.840 --> 0:31:45.480 If you said, Nathan, in as stable finished, adjusted for inflation, 0:31:45.960 --> 0:31:49.480 November December sales should be up about one percent. Given 0:31:49.520 --> 0:31:53.360 the two thirds of American consumers is reported on the 0:31:53.360 --> 0:31:58.040 Bloomberg terminal or living paycheck to paycheck, good results for retail. 0:31:57.680 --> 0:32:02.520 Overall percent sounds pretty tepid. What does that tell us 0:32:02.520 --> 0:32:03.640 about twenty twenty. 0:32:03.400 --> 0:32:07.200 Five concerns ahead in twenty twenty five, Nathan, We're already 0:32:07.240 --> 0:32:11.760 seeing it in the wipeout of chain drug Chain, Dollar Specialty, 0:32:12.360 --> 0:32:16.080 Best Buy, Consumer Electronics, The only ones that are really winning, Nathan, 0:32:16.200 --> 0:32:20.040 is food and off price, and the rest are struggling 0:32:20.080 --> 0:32:25.920 and choice as many consumers for Thanksgiving, Christmas, Sonica, New 0:32:26.000 --> 0:32:31.880 Year's are buying buy now, pay for part of it now, 0:32:32.000 --> 0:32:33.320 pay for the rest of it later. 0:32:34.000 --> 0:32:36.239 Does that tell you that we're going to see a 0:32:36.280 --> 0:32:40.160 downturn getting into twenty twenty five if the consumer continues 0:32:40.200 --> 0:32:43.720 to be selective as it has been throughout twenty twenty. 0:32:43.440 --> 0:32:47.600 Four, Nathan, Yes, to your present point, we're expecting a 0:32:47.680 --> 0:32:52.600 strategic resource group downturn. The XRT on the Bloomberg terminal, 0:32:52.680 --> 0:32:55.240 the S and P retail indexes at an all time 0:32:55.320 --> 0:33:00.520 high going into this last week of December, and Walmart's 0:33:00.560 --> 0:33:05.800 pretty heavily valued targets probably undervalued with the Taylor Swift 0:33:05.840 --> 0:33:08.880 tailwind that will really help them the rest of this 0:33:08.960 --> 0:33:12.240 month and into the new year, but most of retail struggling. 0:33:12.600 --> 0:33:16.160 What's really a leading indicator on the terminal, Nathan, is 0:33:16.280 --> 0:33:21.280 the restaurant sales on a cash on cash basis were 0:33:21.360 --> 0:33:25.880 negative last month for the first time in about four years. 0:33:26.280 --> 0:33:29.960 So where do you see consumers concentrating their spending in 0:33:30.040 --> 0:33:32.120 twenty twenty five? Is it just going to be all 0:33:32.160 --> 0:33:35.600 about staples or is there room for some of those 0:33:35.640 --> 0:33:38.000 big ticket items to get a little bit of a 0:33:38.040 --> 0:33:39.000 look at least. 0:33:39.680 --> 0:33:44.480 Well big ticket items. Nathan has Bloomberg's reported, well, since 0:33:45.360 --> 0:33:51.080 Black Friday is Triple A is expecting record travel, close 0:33:51.120 --> 0:33:54.400 to one hundred and ten million travelers, most by power. 0:33:55.040 --> 0:33:57.440 But they're going to be spending on experience. This is 0:33:57.480 --> 0:34:01.360 seventy percent of the expenditure to your question, is going 0:34:01.400 --> 0:34:05.480 to be on an experiences thirty percent on retail. Retail 0:34:05.600 --> 0:34:10.280 people say is the best, Well, they're great bargains between 0:34:10.360 --> 0:34:15.200 today Christmas and Hanika Day into New Year's the smart shoppers, 0:34:15.200 --> 0:34:17.480 a lot of smart the stores and wait till Calendar 0:34:17.920 --> 0:34:21.359 twenty twenty five for desperation discounting. As the retail ice 0:34:21.440 --> 0:34:25.360 age accelerates and more retailers contract or some even collapse 0:34:25.400 --> 0:34:28.440 into bankruptcy and they have to liquidate more and more inventory. 0:34:29.000 --> 0:34:32.480 Wonder if that points to an opportunity for some retailers 0:34:32.520 --> 0:34:35.000 on an aspect that we've talked about in the past, 0:34:35.040 --> 0:34:38.600 providing more of an experience on the brick and mortar side. 0:34:38.719 --> 0:34:41.920 Is that something that's a possibility into next year? So 0:34:41.960 --> 0:34:45.759 does that point to an opportunity for retailers to provide 0:34:46.200 --> 0:34:49.720 more of an experience along the lines of an aspect 0:34:49.719 --> 0:34:51.400 of retail that we've talked about in the Passport. 0:34:52.520 --> 0:34:55.960 Nathan, you're raising a really important point about experiences, and yes, 0:34:56.000 --> 0:35:00.759 they're doing it well in London, Dubai, Paris, Toronto and 0:35:00.880 --> 0:35:04.160 throughout the Asia Pacific region. They're not doing it in 0:35:04.200 --> 0:35:07.320 the US, and we're seeing sax Fifth Avenue not investing 0:35:07.320 --> 0:35:10.200 in windows for the first time in their history, and 0:35:10.880 --> 0:35:15.440 we're seeing the ones who have experiences are winning. Specifically, 0:35:15.560 --> 0:35:20.000 Target wall the Wall on Taylor's Swift's eras tour release 0:35:20.040 --> 0:35:25.200 of her book, her music, her licensed merchandising. Big win 0:35:25.280 --> 0:35:29.480 for Target. Kroger Company always a big partner of Disney, 0:35:29.920 --> 0:35:34.759 big winner experientially Wall the Wall from Disney to societal 0:35:34.840 --> 0:35:39.399 good for people from all walks of life, especially for 0:35:39.760 --> 0:35:44.080 people who are nutritionally and economically target challenged. So win 0:35:44.200 --> 0:35:47.680 for Kroger, win for Target, not a win for the 0:35:47.680 --> 0:35:50.440 rest of retail in terms of experiential, which is so 0:35:50.520 --> 0:35:51.759 important this time of year. 0:35:52.080 --> 0:35:55.319 How do you see retailers making that kind of investment 0:35:55.560 --> 0:35:58.759 in an experience? Do they have the wherewithal to do it? 0:36:00.080 --> 0:36:06.360 Nathan, it's ironically or radiosyncratically, it's an investment, as you said, 0:36:06.840 --> 0:36:10.680 rather than an expense. It's almost analogous to retail crime. 0:36:11.200 --> 0:36:16.840 The Kroger company, in Costco and Target invest in crime 0:36:16.920 --> 0:36:21.640 prevention for shopper, worker and vendor security the same way 0:36:21.680 --> 0:36:29.000 they invest in experiences to really excite and delight shoppers 0:36:29.000 --> 0:36:34.000 of all ages, where Walmart treats everything as an expense. 0:36:34.640 --> 0:36:37.719 And one of the things in the attachments we sent 0:36:37.840 --> 0:36:42.600 for Another day another time is Walmart fails worldwide where 0:36:42.600 --> 0:36:47.160 they don't get subsidies and in the US, taxpayers subsidized 0:36:47.200 --> 0:36:51.800 Walmart target, Amazon, Aldi and Costco at the expense of 0:36:52.000 --> 0:36:56.640 retailers that pay their own way like Kroger, CBS, etc. 0:36:57.080 --> 0:37:01.160 So the retailers that are subsidized do not invest in 0:37:01.280 --> 0:37:05.440 experiences and oftentimes do not invest insecurity, which is the 0:37:05.520 --> 0:37:09.160 ultimate consumer and commercial irony across America. 0:37:09.719 --> 0:37:13.160 It sounds like a challenging backdrop heading into twenty twenty 0:37:13.200 --> 0:37:15.839 five for retail. Thank you for this, Bert, really appreciate it. 0:37:16.040 --> 0:37:19.799 Thanks to Bert Flickinger, Managing director at Strategic Resource Group, 0:37:20.080 --> 0:37:23.359 along with Lori Calvacina of RBC Capital Markets, New Edge 0:37:23.360 --> 0:37:27.480 Wells Cameron Dawson and Tom Porcelli at PGIM Fixed Income. 0:37:27.520 --> 0:37:29.440 And thanks to you as well for listening on this 0:37:29.560 --> 0:37:32.760 Christmas Day. I'm Nathan Hager, wishing you a very happy 0:37:32.800 --> 0:37:36.640 and healthy holiday season. But stay with us. Today's top 0:37:36.680 --> 0:37:49.640 stories and global business headlines are coming up right now