'Bloomberg The Open' Full Show (01/04//2022)
Live from New York City this morning. Good morning. Good morning. Your equity market positive a half of 1 percent. Trying to bounce the count down to the open starts right now. Everything you need to get set for the start of us trading. This is Bloomberg, the open with Jonathan Ferro.
Latham, New York. We begin with a big issue falling on hard times, Tesla and Apple facing down investor skepticism. Kevin McCarthy spent for speaker drowning in doubts and economists looking to China to bail out a gloomy outlook. We're pretty bullish on China. When China does reopen, reopening in China right now with the reopening, the focus shifts back to consumers by the end of 2023. China no longer going to be worrying about how bad we should see them come out and buy crude oil.
The reopening thing as quickly as it's happening probably complicates the Fed's job. Yes, bad news for inflation, putting a little bit of a bet under oil prices, putting a little bit of debt under inflation globally. There's still a lot of bad news priced into China, but it is definitely something to watch out for. In the US, the economy is flirting with a recession. Risk of recession is certainly something that we're very focused on. People are underestimating China's reopening and the multiplier effect on demand. Joining us now to discuss this, PJM,
Greg Peters and invest goes Mohawk. Ben, first to you, Greg. Greg, you're expecting a major shift into bonds this year. Does China's reopening complicate that moves? I don't think it dramatically complicates the move. Clearly, it puts a little more pressure on inflation all sequel. But I'm I'm leaning against this whole growth narrative where China opening up is just fueling the global growth outlook. I just don't see it. I don't see the global growth on the
other side that China can sell into. So on the margin, it's positive. But I'm a little circumspect around the real dramatic nature of the reopening. Have you taken the other side of that? Happy New Year, Jonathan. Nice to have you back on the show today. I would take the other side of that. I think we have underestimated some of the benefits of that increased demand coming from China. And if you kind of look at the
performance of emerging markets, even the last couple of months, we see outperformance relative to developed markets. So in my mind, that's the market telling us that, you know, there is some optimism in terms of how the demand picture looks over the next few months as well as into into the mid midyear. Samir, let's go through your Co's remain overweight risk via a.m. in developed X U.S. equities. How much of that is just the china coat?
Yes, China and I would say Europe more broadly. Right. So, you know, we see that outperformance and that's really a call on sentiment. So we saw sentiment improve in December and that's when we started adding risk back to the portfolio. But we're taking that risk. International markets, we actually think this is the beginning and potentially the year for international markets outperforming developed markets here in the U.S.
specifically. And that's been kind of a trade that has been hurt over the last 10 years. So a lot of the portfolio risk is in international equities and emerging market equities, but we're also adding risky credit. So that's an important factor as well. Greg, tell me why most wrong. Well, you know, it definitely hinges
upon a pretty rosy outlook. I still think there's a tremendous amount of uncertainty. Yes, I think global central banks are not going to be as aggressive in 2023 as they were in 2022. But there's still this tension point around growth. And I don't think we've seen the full effect yet of this tightening on a lid on the growth cycle. So to me, it's somewhat premature.
I still think the US wins ultimately here. I think you'll see a flood into the US markets and I think all is equal that will drive the U.S. to outperform. Greg, given that we haven't seen the impact yet. Is it too premature to start this long duration trade? The reason I bring up that question is because we call it a bench regime for itself just yesterday. And she said us too.
As I write this down, for the most part, the economy is going to be relatively strong. The market being so concerned about a recession so soon in the year feels like it's overdone. Greg, is it overdone? Well, we've been talking about a recession now for nine months and we haven't really seen it. So, yeah, there is that potential. But I do think the the lagging effect of central bank policy has yet to really be felt here.
So, yes, a slowdown I think is on horizon. Where the bond market could be wrong is if you do see a growth actually reseller rate here, not slowdown. Central banks take their foot off the brake and curve start to steep an out, which makes it a much better outlook for risk assets and a much worse outlook for the bond market. The upside risk the Treasury yields. Let's explore that further. Correct. So we've got the risk that growth re accelerates as they back away from rate hikes.
You've also got ECB Kuti on top of that. You've got Fed Kuti. That's going to continue regardless of whether they pulls on interest rates. At least that's what they're communicating.
Then to the B J. We might well get rate hikes in the VHA later this year. I've got no idea if that transpires. Correct, but some people think it will. What do you think all of that means ultimately for this bond market? So, you know, as you mentioned from the onset, you know, we are pretty constructive on the bond market. We do think, you know, there's value in bonds.
I think STARTING POINT matters a lot. Jonathan, you know, you'll never yield. Levels are much higher today than where we started this time last year. So I think that matters a lot. So a lot of bad news is in the price
already. So we're pretty constructive. But if you do have a situation where curves, you know, steep and out normalize and, you know, front end rates remain where they are. And that is a risk factor from the bond market perspective. Vonnie Quinn to lower yesterday, lower again today to some right away.
Three settings on your 10 year right now down six basis points to 368 on a two year, down about three or four basis points to 433. If you look into the equity market right now, equity futures are positive by four tenths of one percent. Twenty four minutes away from the open and found a little bit later this morning.
Tons of economic data then later this afternoon. We get the Fed minutes at 2:00 p.m. Eastern time. That is payrolls coming up on Friday as well. My NIKKEI, what are you looking for from the data this morning and the Fed this afternoon? Well, you know, John, Gregg Peters was talking about the fact that the full effects of the Fed's tightening haven't hit the economy yet. And that's going to be kind of the focus. Do we start to see a change as the
tightening efforts really start to come through? And we'll look for that this morning and in particular in the Fed minutes. How long do they think it will take before we start to see an impact on the economy? And that means do they think they need to raise rates higher than the five and a quarter percent terminal rate that they forecast in December at that meeting? And do they need to go 25 or 50 at the February 1st meeting? That'll kind of depend on unemployment. How high how fast does that go? It hasn't really moved. We'll get some indication today from the JOLTS report. And then, of course, we do have the payrolls on Friday and inflation. What still worries the Fed? Are we still seeing inflationary pressures? ISAF comes out at 10:00. We'll see what their prices paid index
shows. But here's the real issue is the JOLTS numbers. The Fed's made its case that because the job openings numbers, the white line is so far above the blue line hirings, that unemployment doesn't have to rise significantly because the open jobs will absorb people who lose their jobs. But the problem with that is it doesn't change the dynamic of wages still rising. So what are the minutes say about that? We'll take a look at that. The numbers overall that are going to matter right now.
Employment figures we get a lot of this week. We're going to be seeing jolts today and I assume employment, ADP tomorrow, jobless claims and then the December payrolls numbers. Do we see as the start of the impact from Fed tightening that's going to be key. And of course, next week we'll all be waiting for the CPI numbers because everything is still sort of rotating around. What does the Fed think and what are they going to have to do the day after that? We get frank earnings from JP Morgan and others as well.
My NIKKEI, what a stop to 2023. Mike, thank you. What about that question from my NIKKEI? How long can relax? I have been we've talked about that before. Let's talk about it again. Longer variable lax. How long can the LAX and for someone constructive risk the cycle, the economy, Europe, China for that matter as well.
But can you tell me whether you think we've seen the impact? We're just not going to see much of an impact. How are you thinking about that? Yeah, I would. Greg, with I would agree with Greg, I do think there is a lagged effect that we haven't necessarily seen. So it'll be interesting to see Friday's job reports, non-farm non-farm payrolls and see if there's some weakness.
If you look at hiring versus quits, that's definitely something that has been impacted and we're watching that closely. So while we still see a very significant and strong labor market, there are some signs that there could be weakness on the horizon. I would say the lag is six to 12 months there. But for us in the short term, we don't necessarily see a recession in the first two quarters of the year. And that's really more on the tactical side, positioning for a little bit of a rebound in terms of the downside, obviously there's downside to that call, you know, 5 to 10 percent further risk to the equity market. But we do see the upside potential being much higher than that. Greg, I listen to the companies, the big
tech companies. Let's take Salesforce this morning and asking counts. If 10 percent of the staff and we discuss that on the up and about, they tell me one thing. Then I look at the data. Jobless claims in and around 200 K payrolls this Friday set to come in at two hundred thousand estimate. An estimate now says unemployment at three point seven percent.
We talked about JOLTS comes out later this morning itself. That indicates one point seven job openings for every unemployed American. Greg, in the labor market, where is the weakness? Really? Yeah. So the the spots where we have seen weaknesses, as you mentioned, Jonathan, isn't CAC, right? So CAC had this massive labor boom is starting to come off the boil. So where you're seeing the layoffs are
the smiley around the tech sector. But where you're not seeing it, which is atypical, isn't the kind of the lower wage scale, the more sensitive kind of sectors like hospitality at all. So this is a very unique cycle in terms of labor and suggests a lot more underlying strength, which actually perversely means, I think that the Fed has more to do if they want to shake inflation out of the system. So I give me an idea of how much more work this thing this Fed has to do with pricing of the terminal rate of about 5 percent you think is much, much higher than that. I don't think it's much higher, but I do think it's higher. I think that's the risk. And you look at what the markets are
pricing, they're not only pricing in capping out around 5:00, but then they're capital. But then they have it rolling over. Right. And I think that's where the mistaking the market like I don't necessarily see that. So I think the risk for two thousand twenty three is that inflation is embedded in the system much more than kind of perceived and anticipated. And so that means the risk that the Fed and central banks have to do more, not less. And I don't think risk markets are set up for that necessarily. Neel Kashkari, if the Minneapolis Fed
speaking just moments ago favoring raising rates to five point four percent and then Paul saying my last day on the same page as well, Greg Peters just setting you on the same page. I am on the same page in terms of the roll over, I do think that is mispriced in the market. But, you know, terminal right around 5 percent, I think that would be our view as well. So maybe another 50 basis points left on
the table in terms of just the outlook. You know, I think a pause is more likely than a pivot, right, if the market is expecting rates to start coming down towards the back half of the year. That's really more of a recessionary call. And I think for us, again, we don't necessarily see that there is a risk of that. But in the near term, we're a little bit more bullish than the consensus.
It's a coming in to twenty three, the script for so many people. You get a dip and then you get a rep. Are you saying it's in reverse to this equity market rally since drug was in the back half? How are you thinking about the sequencing of that? Yeah, that's a great question. So we don't see the V shape, right? So this is not the beginning of a new cycle in our minds. So this could be a little bit of a retracing or a W shaped recovery.
So not the beginning of a new cycle. Near-term opportunity to take risk, especially in credit where you're getting compensated for that risk. If you just look at high yield, for example, you're getting about 500 basis points over. That's pretty attractive. That's equity like return with bond market risk and that's very attractive. Now, that said, it's not the beginning of the new cycle in our view.
So there could be a little bit more of a pullback, especially in equity markets, especially in developed or U.S. markets where valuations are a little bit higher than internationally. Greg, just on the sequencing, just to find a way to place. Yes, so I agree with Mo largely. So I think the sequencing is government bonds first.
That protects you from the risk of recession and then droll and carry on just the bond market probably, which includes credit. So I don't think you're induced to go out to take a dramatic amount of risk and that means equities and other types of assets. I think the bond market is the place to be where you can get the role and carry and it's highly uncertain. People lining up in fixed income to say the same thing about the bond market. And twenty three regulators might have been sticking with us. Equity futures right now are four tenths
of one percent coming up. Still no speaker for this House. Well, we may have a battle on the floor, but the battle is for the conference and the country. And that's fine with me. Today is the day I wanted to have three strikes for Kevin McCarthy. Is he out? That conversation up next.
We've attempted to bring bills on this floor to address inflation, but those bills were rejected. We can't start fixing those problems until we elect Kevin McCarthy as our next speaker. For unity in Congress and progress in our country, Democrats are united behind Kim Jeffries. Maybe Jim Jordan would be the right person because he wouldn't fund us when we try to put a balanced budget on the poor. No persons having received a majority of
the whole number of votes cast by surname. A speaker has not been elected. Republican leader Kevin McCarthy. Coming up short in his bid for speaker failing to garner enough support from within his own party. Despite three rounds of voting. Is that the day I wanted to have. But if we're able to work out our differences and make this comic, we'll only be stronger to be able to accomplish the things. The House returning at noon Eastern with
another round of voting on the agenda down in Washington, Flint DAX a.m. HMRC. Let's go straight to that quote. That statement from the former president, Donald Trump, calling on Republicans to vote for McCarthy, saying the following.
It's now time for all of our Republican House members to vote. The campaign did not turn a great triumph into a giant and embarrassing defeat. Does that statement make a difference? Well, remains to be seen. And just yet.
Jonathan. So far, you don't have any individuals of those groups of 20 that came out at the last the third tallying vote yesterday for the speakership come out and say that that has moved them in terms of backing Kevin McCarthy. So unsure yet if the former president's words will make any difference. When do you think about some of the
staunchest holdouts like Representative Matt Gates, who you played a clip there. He was an individual that came to the floor and said that he wanted Jim Jordan to be speaker of the House and was wanted him to be elected speaker. He is one individual that has said that Trump hasn't always gotten it right when it comes to personnel and leadership personnel. So there's still going to be these individuals that are going to hold out.
And the issue Kevin McCarthy has is just the numbers. There wasn't a red wave. Republicans have a very slim majority. And if every member is present, he needs to 18. He lost 20 individuals yesterday. So he needs to get 16 people to join
him. He sent out his top backers yesterday trying to see if they can coalesce enough individuals to back him. But at this moment, it doesn't rain to be seen if he's able to do that. Today is all going to be about if he's not able to win the speakership, one, it'll be about did he make progress in bringing more people on board? And two, if not Kevin, then who? Well, let's talk about the who and what next. I'm right. This is great theater for some people at least. Is it consequential? It's great theater certainly for the Democrats, right. They remain remained able to hold their
line yesterday. And it just looks like the Republicans are unable to govern at the same time. You also have today, Jonathan, in the noon hour, as well as the House members are once again trying to elect a speaker. You're gonna have President Biden in a very big showing of bipartisanship with Senate Minority Leader Republican Mitch McConnell talking about infrastructure spending and bipartisanship and how that is the way to govern when it comes to the on the theater.
Does this matter? Well, it does. If you think about the fact that if they are unable to elect a speaker, what is going to happen on September 30th when the US government runs out of money? And at the end of the fiscal year. And they have to then fund the government again or what's going to happen when they have to raise the debt ceiling. These issues are going to become so much harder to legislate. I'm done in Washington much more from memory throughout the time. Bloomberg Quicktake and I'm radio.
Final thought from Greg Peterson. Might have been back with us now. Greg, is it too early to talk about some of the consequences of what's taking place down in Washington? Yeah, it's too early, I think. But ultimately what I think of it strongly suggests is that there is not a lot of kind of legislation that's going to get done down in D.C. over the next two years. And if anything, I think it does tip the
balance towards Democrats versus Republicans, but no more volatility out of D.C.. I think that's something that we've been quite accustomed to. And I don't see that changing, unfortunately. So we got gridlock in Washington, said some officials talking about taking rates to five point four percent, then not cutting, but pausing might happen. What is different about this market
regime that we're in right now? I'm going to work through for the year ahead. And what's different about it compared to, say, what we experienced pre pandemic? Yeah, look, I think the political gridlock hasn't necessarily been historically at least an issue for markets. It's somewhat theater, as you mentioned, and gridlock tends to actually be good because when you get away from, you know, a lot of legislation and a lot of changes, that's usually uncertainty for the markets and markets will price that uncertainty. And that's downside in terms of what's
different for this market versus pretty pandemic. I think while we do see inflation coming down significantly and if you just look at, for example, the month over month inflation, you kind of see inflation coming back down into the territory where the Fed is comfortable. So that 2 to 3 percent might. My view is that it's probably going to
be elevated. Still writes a structural inflation, maybe above 2 percent. And the question is if we have a two handle on it. Is the Fed comfortable or is it really 2
percent? And I think that's going to be important to see because the Fed has said they are not going to stop until they hit their inflation targets. But what if inflation isn't 2 percent? It's closer to 3 percent. That will be interesting to see. How are you thinking about that? Oh, I think the world has completely changed post pandemic. I mean, the most simple way to look at it is through QE. The Q T. I think the world of negative rates is long behind us. I think that's a dramatic shift. So I think the world is dramatically
different today than where we started in 2020. And I think that matters a lot from an investment standpoint. And so what I think that ultimately means is that investors aren't induced to take the same type of risk that they were prior to with yields where they are. I don't think investors have to go out the risk curve out to portfolio channel to use the Fed words. So to me, I think it's a very different backdrop. And I think for full year leadership, that is a consequence.
And I think that means not going out to take risks in the same format as before. Correct. Let's catch up ISE. Why spectators alongside my happen to the two of you.
Thank you. We heard from Neel Kashkari, the Minneapolis Fed president, just about 20 minutes or so ago. He favors raising interest rates to five point four percent and then pausing. He says the Fed must learn the lessons of the 1970s and avoid what he calls premature interest rate cuts. And that's the division between this market pricing, interest rate cuts and these Fed officials trying to signal they're going to do anything in twenty three. And as we've said repeatedly on this program, is going to be very wrong at some point later this year. Coming up, the money kill was in lights.
Thanks, America. Turning constructive on equity savvy to Superman. Even why things are so bearish, it might be bullish. That conversation around the open about. Run about five minutes away from the open about equities, with the left trying to bounce here up a half of 1 percent on the S&P, on the NASDAQ of six tenths of one percent, that's the price action history. Morning course for you. First up. Bank of America upgrading Merck to buy highlights in the company's consistent revenue growth. That stock up 1 percent.
Wolfe Research downgrading Morgan Stanley to underperform from outperform, cutting shares by two notches given its rich valuation and challenging macro environment. Any final call from Wedbush? Carnegie's sample price target to 175. Dan ISE is growing increasingly concerned about the uncertain environment and demand headwinds that stock trying to bounce as well, up nine tenths of one percent.
Up next, more on Apple and Tesla with new streets PFA logo. Plus, sentiment getting so bad that it's almost good for America. Surveyed a Superman team coming up next to open about just around a corner. In New York City this morning. Good morning.
About 20 seconds away from the opening bell. Equity futures are up six tenths of 1 percent on the S&P and the Nasdaq up eight tenths of 1 percent. The small caps to rustle up by around about eight tenths of 1 percent as well. The opening bell in New York City rings. So we can switch off the phone and get to the phone market. Yes. Look like there's some a 10 year, 10
year lower by six basis points. The yield, 367, 90 last year. This time last year, 160, 73. That's the move over the last twelve months, a monster movie VFX market, Eurodollar one to six that's seen positive six tenths of one percent. One to watch here.
German inflation yesterday, softer than expected disinflation in France this morning is going to be the trend to the ECB back away, perhaps not yet in the commodity market. Crude. Seventy four. Sixty three with negative than by about 3 percent. The oil majors, some of the energy companies had a tough run of it just yesterday. So we'll look at that around the afternoon found as well into the open.
We got about 30 seconds into the session with positive by half of 1 percent on the S&P, on the NASDAQ, up by three quarter to 1 percent. These stocks to watch should be open. Tesla coming off its biggest day of declines in more than two years. He has the story. Happy. Hey, John. Well, this one is really pretty incredible because, of course, yesterday down more than 12 percent, the worst day since September 20, 20 after falling 65 percent, the worst year ever since going public last year.
So the wild ride continues. That's true, too, in the premarket at one point. Up more than 2 percent. Then down right now, up about half a percent. It has everything to do, of course, with that preannouncement that typical preannouncement that they do relative to deliveries. While it was a record, it was not quite what the street was looking for. So relative to the S&P performance yesterday.
Tesla was the biggest second biggest point drag right after Apple. Now, relative to the deliveries, it's really interesting because, of course, there were record deliveries, right? About 400000 shy of that 420 estimate. And also missing the estimate for a third quarter.
The bigger story could be growth stalling. But you still have analysts very positive. We have 56 percent of the analysts on the street having a buy recommendation, 11 percent sell. That could have something to do with valuation. Now, I know everybody says that stock is overvalued. But when you look at revenues for this current year, 34 percent growth expected profit around 30 percent.
The P E, the forward P is twenty one time. So you could make the case that it is a Garp story. They still own 85 percent of the luxury car market, 60 percent. Sixty five percent of the overall market.
Here is the growth, though. Here's the story. Here's the big question, John, because the first quarter of this year, you can see or last year, I should say, growth was close to 70 percent and that's where had been. And then in the second quarter, slowing to about 30 percent. Forty two percent. Thirty one percent. Now, of course, that slowdown does seem to coincide with Elon Musk moving toward Twitter.
The question is, is this big slowdown? Is it macro or is it some loss of focus on the part of you and Musk? I would argue it's too early to know, but it is a question to ask. And perhaps CEO Elon Musk is going to be putting more focus on Tesla. Of course, he is telling the employees of the company that these market gyrations don't pay attention to the long term. The fundamentals are strong. Abbi, thank you. That stock right now went to a 50 trying to pass by a set of 1 percent. Another stock to watch, a sales force announcing plans to cut 10 percent of its staff.
That's almost 8000 jobs. How many times you gonna see a club like this from a CEO of a Texan? This year, as our revenue accelerated through the pandemic, we had too many people leading into this economic downturn we are now facing. And I take responsibility for that. Kenny, nine cents more. Hi, Candy.
Hey, John. What is Tom always say? Companies adjust and that seems to be what Salesforce is doing here. Investors seem to like the move this morning. The stock is up more than 3 percent in the first few minutes of trading. As you said, 10 percent of the workforce, those laid off employees will be provided with a minimum salary of at least five months worth of pay and severance, health insurance and other resources. So that altogether is going to result in charges of up to one point four billion dollars plus. In addition, Salesforce is going to make
select real estate exits, an office space reductions in certain markets, which could add another 650 million and exit charges. So all said here, we're talking charges of up to two point one billion dollars for this restructuring in the next couple of years. Now, why is Salesforce doing this? You heard it from Benioff himself. They just over hired it has almost tripled its workforce in the past five years. In large part that was through a number of acquisitions, but it also picked up the pace of hiring during the pandemic boom. And now he realizes that was too much.
He's noting that customers are taking a more measured approach approach to purchasing decisions. In other words, demand is slowing down. Hence why the company is projecting the slowest revenue growth for the current quarter since going public back in 2004. And at the same time, they're facing that pressure on the top line. They're also facing pressure from
investors, including activist starboard value, to improve their margins and focus more on profit. Basically, in a world of higher rates, it is no longer enough to talk about profit way out in the future. They want to see it now and to Salesforce as credit. We're looking here at revenue and net income revenue in blue.
Net income in orange. They are estimated to add over one billion dollars in net income on just about a 160 million dollar sales increase. So trimming more fat. Trying to take more home and job cuts are part of that. Kelly how much more of that are we going to see in the year ahead? We've seen a lot of it already to close at twenty two to start. Twenty three starting to see more of the same.
Kelly, nice. Thank you. We are about five minutes into the session, up four tenths of one percent on the S&P and the Nasdaq up a third of one percent. We caught up with Mike to the Morgan Stanley early this morning. Still looking for a potential 20 percent downside on the S&P 500.
We think 3000 is or is a very achievable number given our confidence on our earnings for cash. Our bear case is actually kind of we avoid a recession, but not the slowdown that we're being. Three thousand scenario one hundred eighty dollars marriage.
Thanks. America surveyed a ceremony of saying reasons to be optimistic, writing the following. One reason we are more constructive on equities and twenty three is the big drop in sentiment Shery Ahn 22. And it's been a bullish signal when Wall Street strategists were extremely bearish and vice versa surveyed around in place. A site joins us right now. Today, it's a wonderful to catch up with you and happy New Year to you in the whole of the same ISE BFA. Let's stop that.
Things that bearish. It's bullish in January. Happy New Year. Yes. I think, you know, what's what's nice to see is that there is a lot of bad news out there, but everybody is talking about it now.
And what we've found is we have an indicator called the sell side indicator. And it's been one of the most reliable market timing barometers in terms of forecasting returns on red twelve month period. All we do for this indicator is we take the average recommended allocation of sell side strategists, sell myself, Mike Wilson, my counterparts, and we calculate that number over time. And what we've found is that when strategists are recommending a big overweight in equities, that's precisely the time you want to sell and when they're starting to drop that allocation of allocations towards cash and bonds. That's precisely when you want to buy. Where are we today?
We're at a 53 percent average recommended allocation to stocks. This is the lowest we've seen in almost a decade. And it's close to where we were in 2013, which was again, another very prescient moment in time where this indicator told us, OK, everybody in the world hates equities. Strategists have thrown in the towel on stocks. You know, we're in a recession. Europe's in a recession. We ran out of money and QE was back in 2013. And lo and behold, it was one of the
best times to be to enter the equity market over the last 10 years. So I think, you know, our view is, OK, it's going to be difficult. It's not going to be as easy as just buying the index and, you know, in the end, clocking in fantastic returns every year. But we do think that the good news is that folks are talking about all of the bad news. So in a nutshell, sentiment is is increasingly negative. It's dropped significantly from where we were at the beginning of 2022. Interestingly, at the beginning of 2020,
two strategists had up their allocations to a 60 percent weight in equities and a pretty low weight in cash and bonds. And, you know, we all know what happened to equities versus cash over the next 12 months. So I think that this is a moment where where we've seen a lot of that that bullishness wash out of the market now. I'll give you one statistic.
So if you look at where the indicator is today, how bearish Wall Street strategists are today. Historically, when we've been at these levels of bearishness or lower, the market has been up. Ninety five percent of the time over the next twelve months, that's a pretty good hit rate. So, you know, I think that there might be a little bit more upside risk over the next 12 months than downside risk at this point just to build on something surveyed. Just quickly, I've had this question already this morning. So the rhetoric is bearish, just the positioning stack up, line up with that.
So it's interesting because positioning in stocks has dropped a bit this year from from last year, but a lot of that was just driven by performance. So if you look at allocations at the beginning of 2022 and at the end, most of that drop in allocations was just the fact that equities underperformed cash. You know, I think that where we are today is an environment where what's risky is that investors are still hugging a lot of those secular growth, long duration areas of the market. They haven't really shaken this love affair with technology and TMT. And I see that as the risk within the equity market. That area of the market is still
relatively crowded. Surprisingly, energy, even though it's had a stellar couple of years of performance, is still a pretty significant underweight and the average mutual fund. So I still think there's a lot of alpha to be made in sectors. But but we have seen allocations in overall equities come down. The problem for me, though, is that, you know, everybody is talking about this recession. We've got the most telegraphed recession
in the history of mankind coming up. And the problem is that everybody is kind of do it using muscle memory to go back in to the sick, what they think of as the safest equity market, which is the S&P 500. Trouble is, if everybody is in the S&P 500 and they're all selling at the same time, the S&P isn't really that safe. So our view is that within the equity portfolio, the S&P 500 is actually the most crowded.
Take her in the world and it's time to go into other benchmarks like small caps. We talked on your show quite a bit about small caps. My colleague Jill Hall and I. And, you know, I think that's really an area where you can get exposure to equities without the risk of, you know, everybody being crowded into the same index fund. So if each of us the index story, let's watch that a little bit further. Could you send us an opportunity here? It's not on the index level for the S&P 500. It might be in the Russell. Can you just go through sectors for me
with a little bit more data savvy to how would you express this three sectors right now this month? Absolutely. So I think, you know, we're still underweight tech. We're still underweight communication services. I think those are still areas of the market that look crowded, relatively expensive. I know on some metrics, communication
services looks cheap, TMT looks cheap. But the problem is TMT is a big value trap. The reason it looks cheap is that prices have fallen faster than analysts have cut earnings expectations. When we look at tech and TMT, we think earnings are likely to come down another 15 percent from where consensus is right now. So those are not sectors that I would be jumping into. I think where the action is going to be is the inflation plays.
I mean, I still think we're in an environment where inflation might be stickier and higher than folks are expecting. Sure, it's coming down a bit. But, you know, 7 percent is still a lot higher than 3 percent. So we like energy. We like financials. I think another area that might be interesting over the next couple of years is industrials, select industrials that benefit from traditional kind of picks and shovels, types of cap ex, because what we're also seeing is this massive reassuring boom where companies, mostly tech companies and multinationals are bringing plant property and people back to the US. And that is good for automation plays.
It's good for industrials and it's also good for U.S. domestic focused companies. So I think, you know, even there at the small cap benchmark looks a lot more domestic and safe rather than other areas of the spectrum. So I just want to squeeze this in, if I can just build on that. There's something you said in your research recently and was a risk factor. It was the less smooth earning streams that you can expect from diversified multinationals.
Is that part of that theme? Absolutely. Thank you for bringing that up. I think that's a really important point. So multinationals look great because they've got this global diversification. Their earnings are super smooth. They've had the benefits of
globalization, the secular theme for the last 20 years. Now, all of a sudden, wham, they're hit by, you know, supply chain issues. They're hit by, you know, moving to net zero and moving stuff closer to their end user. These are companies that are in the process of rejiggering their entire structure. And I think their earnings are going to be much more volatile than some of the more domestic plays. So they have wonderful lines.
Always great to catch up on stuff. I have to say from the team. Thanks, America. Evasive amounted to a more constructive view beneath the index away from the S&P 500. Coming up on this program, challenges mounting for big tech. We forgot how cyclical some of these tech stocks are. And I think what you'll see what I feel I'm kind of casual right now with these sort of recession concerns mount. Once Tesla's biggest bill cutting its
price target just months ago, that conversation. I'm next with P.F. A of new street research. This Bloomberg Zoo opened Emily's Mateo live in the principal room, coming up, Ellen Zentner, Morgan Stanley chief economist.
That conversation at 12:00 p.m. in New York, 5:00 p.m. in London. This is Bloomberg. Global equities can do well this year unless CAC does less Bible if earnings will be under pressure. We forget how cyclical some of these tech stocks are. And I think that's what you're seeing with Apple. I'm for a Tesla right now.
These sort of recession concerns mount. But also remember, valuations been absolute crushed. And if to stay while controlled here with valuations being turned around, I think that's where you're going to get some tax relief. With the tech sector already running into trouble this year with two giants warning of slowing demand, Tesla dropping the most since 2020 after its latest deliveries. Miss an apples market family is falling below 2 trillion after telling its suppliers reportedly to makes you were components with us.
Come and sign it and Kenny lights for more. Kevin, can you tell me what is the big move? The big driver behind this move lower in Tesla? Well, I think, look, this is the first time that as an automaker, this is a company facing macroeconomic pressure, which they've never done before. Right. When you look at legacy automakers and the cyclicality of the industry, we have been through these good times, bad times, you know, dozens of times over. When you look at the auto tech companies that Tesla's revisions lucid, you know, even Tesla going back to 2010, 2013 when they started mass producing Model S have never seen this kind of demand environment. It's always been easy money stock going up A but able to raise capital. So all you build and this is the first
time that they're in this kind of economic challenge. Teddy is not catching up with Apple as well. Yeah, on both the supply and demand side is really the problem for Apple here, John. A year ago yesterday. This was briefly a three trillion dollar company. Now it's less than a two trillion dollar company. Even if it's rebounded by about 1 percent today.
And of course, this was a stock that had been more insulated from the pain that hit big tech this year. It was only down 30 percent in the last 12 months relative to steeper declines for the broader Nasdaq 100. But now, on top of the existing supply concerns around the Covid zero policy in China, which has led a number of analysts to take down their estimates of how many iPhones the company ultimately is going to sell in the holiday period that just ended, those expected to be down about 3 percent. Now, what is also about demand concerns with the reports this week that they're asking suppliers to reduce making some of those components for devices because of weakening demand. And of course, John, as you mentioned earlier. That's why Dan ISE over at Wedbush cut
his target on the stock today. Difficult end of 2010 for these names. Difficult start to 23 as well. Kevin Kennedy, thank you. No straight research coding test that one of its top picks for the year despite kind of his price target to 320 from full 50. The Hang Seng good writing a recession could slow Testa in twenty three. The company is by far the best position to fly through tough times growing profitably. Recent concerns are overblown.
Pittman place to say, joins us right now. Bill, thanks for your patience, sir. Let's get straight to it. Easy to trash a stock. This dam more than 60 percent since the start of Q4. You tell me why the passive rank? Yes, absolutely. Let me tell you what the bills are looking at. They're looking at what's happening with
what's happening with Latinos. It's a source of concern. It's very legitimate. Now, what they're overlooking is that the Twitter thing is a very small moving bar financially.
And then Elian, most has already been in the bars and very hands up like this lady, you know very, very well. McCain still needs him as a CEO to make the calls, to make the decision to arbitrate. But his direct involvement in the company is no place to say which things are going in the past and just saying the things that they're looking at. I think with the wrong angle is like a very steep demand slowdown we've seen in the last few weeks. So let me be clear.
These and slowdown is happening. Tesla has lower prices in China. This law has massively discounted cars in December in the US market. And Tesla came out with like a doubling of cars in transit at the end of the quarter. So very clearly, demand has gone through
like a steep dislocation in recent in recent weeks. Now, what's missing is that we are talking about growing volume 30 percent or 35 percent instead of 45 percent. We are still talking about a company that has a run rate delivery on an annualized basis of one point six million dollars to date a year. Four hundred thousand a quarter, whereas
the company delivered in 2021 less than a million units. So we still have a very strong growth trajectory for they stop and that's this like dedicate angle about bears are missing. What's going to happen next year. We're going to see Tesla going through a
recession. That's very clear. Now let's see what next. I mean, Zetia, what is this you're going to look like? What would this be? Look looking at night. If we had no rescission, Tesla would lower your average selling price like that 10 percent and increase your addressable market by about 50 percent. The car industry is extremely elastic. And so Tesla would be growing volumes by 50 percent, filling in two new fabs in Austin and in Berlin, generating significant margin expansion.
OK, in a recession, what's happening? Let's say auto demand is down 15 percent. That's a fairly bearish view, especially for higher and autos. Then instead of doing that, this law would still take the prices down by about 10 percent and we grow volumes 35 percent instead of 15 percent, 50 percent because 15 percent of the demand is going to go away. You know, in a recessionary environment.
So we think this still grows very well through the recession. Number one. And number two, taking airspeed down from here. Soft slop, we think, happened without a significant impact, negative impact on gross margins because Tesla is ramping to new fast as the fabs ramp, a fixed cost are being up. So it's a tailwind to margins. Tesla benefits some massive subsidies in the US. And last but not least, something that's
very, very most people looking at it over to ISE ramping Berlin gets less stops shipping cars from Shanghai to Europe. And that's a very significant cost saving. And then last but not least, of course, Tesla's rumblings and most efficient car manufacturing facilities in the world and is still lowering its so-called cost base. So what's the street is missing? Is this idea that we're in recession, this is going to grow slower and it's still going to be able to do that very it's a premium margins ex experiencing today. So, yeah, this is pretty constructive
stuff, including the maintenance of margins even with price cuts. But let's go with that. Can you tell me what kind of margin, what kind of multiple, rather that story deserves? Because I think that's what people are struggling with. The same time with the Fed Reserve speaking just 50 minutes ago, talking about one official, talking about taking rates to 5 percent plus and keeping them there. What's the appropriate multiple you put
in that story? Yes, it's a very good question, and it's like today's are the reason why we we just adjusted our price. I get our price target today. So when you look at Tesla, you need to think about long duration high growth. So when the stock is fully valued. The ability to recognize is at best a game to grow at a very high base.
It was for multiple years that kind of stocks, you know, next stock like the one that comes to mind, of course, is Amazon have generated very significantly in the last 15 months. And that's like the resurgence of interest rates going up. But when interest rates being over, the value of time is changing and the valuations that depend a lot on long term growth are getting cheaper. So I think stocks like that today could trade. You know, in the 40 to 60 times earnings
range when fully valued. We are saying we are trading a year ago. It is a 50 to 100 range. So you've had a significant rate, but we are still looking 50 to 60 times earnings because these are still businesses that can grow. You know, volume is 40 to 60 percent of
your revenues, 30 to 40 percent a year. And earnings very close to revenues because they have different defensible margins. So the place that we set today is basically like 40 times the earnings we expect for 20 or 2024 Kailey Leinz. I'd get us both 300 dollars. So that means we see this stock almost tripling as you get back to a 40 times earning mostly prose that sounds from a very high growth stock like very reasonable compared to what we've experienced in recent years, of course.
But we think that's the right way to think about it. Yeah, we are in a high interest rate. I'm against the clock. But I appreciate the constructive view. There's a ton of bearishness out there.
That right there is one of the buys from Francine Lacqua of New Street. Yeah, we'll catch up soon. Twenty five buys on that stock. That was one of them. Holds 14, sells five.
A very contentious story over a test and the more constructive view from the senator from New York City this morning. Good morning. Short about twenty six minutes into session, equities around by about a half of 1 percent. This was the countdown to the open. This is Berlin Thanksgiving.