Bloomberg Markets: The Close 01/24/2024

Bloomberg Markets: The Close 01/24/2024

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Big gains for big tech. Live from Studio two here at bloomberg headquarters in New York. I'm Romaine Bostick and i'm Alix Steel. We are counting you down to the close of markets melt up, but we're feeding a little bit, i got to say, a little bit of a melt up and then a little bit of a fade. Sure.

Records for the S&P. Yes. Where it records for the FAANG plus index. And I say that because all of big tech, what you're looking at in video are Tesla, Microsoft, Google, they're all in this. But for the S&P we're fading a touch. One of the reasons why comes from the bond market. You're looking at yields really pushing

higher. We had a five year auction that was kind of that demand wasn't that great. There was some concession into the bond auction. So you're seeing yields move by four basis points higher also remain. It was really far, really fast. Even the bull, like Yardeni, is now a little bit worried about just how far we've come. Yeah, we need to talk about that a

little bit later here. We've already blown past all of the estimates for the year, but let's talk about some of the individual stocks here because they are there any doubt here about market leadership when you got a big reminder of that today here? Let's take a look at Nvidia. It was last year's best performing stock, at least among Largecap names. And as of today, now, it has reasserted itself as the best performing stock here in 2024. Now, the big spark that we see on the day is largely because of that earnings report we got out of ASML over in Europe, an earnings report that seemed to suggest not only a trough in the chip cycle right now, but actually maybe potentially some good times ahead in the video. Shares up more than 44% over the course of 24% today. Over the course of a five day, 12% run

that has gifted investors now a more than 26% return here just to start the year here. That's more than double the gains that you're going to see from better triple the gains for Microsoft and almost four times the gains that you got right now on Alphabet. Now, while Nvidia shines, Tesla is actually the only member of the Magnificent Seven that's down on a year to date basis. While the stock is getting the modest bid today, we are expected to get those earnings results out of the company a little bit later tonight. We're not quite in panic territory when we talk about that 15% drop off to start the year, particularly when you consider that the stock doubled last year here.

But of course, a lot of concerns right now, not just about how many cars Tesla can sell this year, but more importantly at what price. There's going to be a lot to talk about with the micro. But we do need to start the show off with the macro here. Alex, There's going to be a big couple of big economic data points coming down the pipe over the next couple of days that first look at fourth quarter GDP and of course a fresh look here at that monthly PC inflation data.

Yes, growth in inflation, the two core topics. Right. So here's my question. Do we see good growth in the fourth in the fourth quarter? So expectations are four 2%. So this bottom line shows a quarter on quarter annualized GDP, right? We're right at 4.9%. That was the last three for the third quarter. We're supposed to go down to two. But the top part is a month on month.

Read of composite PMI. You got manufacturing services. We got that today at the highest level we've seen since 2022. And it's actually re accelerating. We're now at 52.3, both in expansion territory for manufacturing and services plus that everyone felt better. The service and manufacturing industry saw their order books increase. They are a little bit more positive when it comes to the next 6 to 12 months.

Can we really see growth decline if those kind of indicators are picking up? I realize one sentiment and I realize one's month by month, and this is actual like actual data, but nonetheless remain, it raises some questions about just how negative growth will actually be tomorrow. Absolutely. Here. And we're talking about the potential for a slowdown. We know we're going to get that. The question is, I guess, to what extreme and more importantly, can investors live with it at all? U.S.? Joining us right now, senior currency and rates. Analysts at Columbia Threadneedle

helping us kick off to the close here on this Wednesday afternoon. And Ed, let's start right there. Here. There's good we're going to get a nice look here at least what the how the economy was performing at the end of last year. And while most people expect that that annual growth rate came down significantly here, it's still at least for by U.S. standards, still relatively healthy. Yeah, things look pretty good.

You know, it's a little bit of a step down from Q3 into Q4. Q3 was really extraordinary, close to 5% growth stepping down to two and a half percent I think makes a lot of sense. Well, look at the broader picture. Growth last year was truly solid, particularly when we look at the consumer side of the economy, what's being priced into this market right now? Because when you look at the price action and fixed income as well as in equities here, it seems on the surface that you have a market that does anticipate maybe a slightly stronger economy. Do you find that? I think that's right.

If you look at risk premia, whether it's in equity markets or credit markets, where credit spreads are significantly compressed, that close to historic tights, We're looking at a really good outlook from the perspective of risk. At the same time, when you look at rates markets, there's a little bit of weakness in the price is clearly an accelerated easing cycle that's being priced in. So there's going to be have to there's going to have to be some reconciliation of the two, I think in the coming quarter, 4.2% on a ten year yield. Does that tell me economic times are.

Going to be good going forward. I think what it's telling you, particularly you look at the inflation adjusted rate, close to 2% across the curve. It's telling you that monetary policy is relatively tight given what's happened to inflation. I think the key feature of what's happened in the last year is inflation has come down really aggressively. And what it's telling me anyway is that monetary policy is a little bit on the tight side. It's likely to normalize in the course of the next couple of quarters.

So normalizing, not cutting for recession, which I feel like is a really big difference when we're looking at how we understand the curve and where you want to place bets. I think that's exactly right. It's sort of a two step dance for the Fed. The first step is responding to the fact that inflation's come down and inflation's come down a lot faster than they anticipated. Were close to 2%, depending on how you measure it. The second step will be potentially responding to weakness in the labor market, responding to some uncontrolled or unanticipated tightening international conditions. That's one to the future that's hard to anticipate. The first step, let's just respond to

the fact that inflation's come down to 2% over the last 18 months. What are the chances, though, that the economy actually does better than we think? Like I realize like a PMI versus GDP isn't like the perfect comparison, but the economy has continued to surprise and a lot of data is showing that maybe it could be better than we think. I think especially when we look at the economy through the lens growth, those odds are really good. Consensus expectations are weak. They're around 1% for the year, slightly above 1%. If you look at the Fed's Q4 of Q4 metrics, these are really low numbers.

These are below potential growth for the U.S.. Odds are will likely surprise them to the upside, particularly the first half of of the year. You zoom out a little bit. Look at the labor market. The labor market has been weakening

pretty much in a linear fashion on the margin. At some point that starts to show up in the unemployment rate. And I think that's when things get interesting. I want to get your thoughts here. Just over the last couple of hours here, we had to interview David Westin, sat down with former Treasury Secretary Robert Rubin. He raised a lot of concerns about the

current U.S. deficit, the servicing costs related to that, and making some correlations, I guess, between some of the policies that have come out of Washington, the moves that we've seen in rates and ultimately what ends up feeding into the market here. Do you actually see any material risk coming out of the big budget, what we call it here, just lack of interest in dealing with the budget in Washington? Pretty much. Yeah. That seems fair. So let me kind of make two broad points. One, if you look at the last 30 years, the debt has grown significantly, which transitions into a place where we're running much larger deficits. And yet in aggregate, the real rate that we're paying on those deficits is lower.

That's largely reflecting the fact that investors are willing to finance the government. There's a lack of safe haven assets out there, and the U.S. government has tremendous credibility in terms of being able to lower those deficits going forward. And I think the key question and this is I think this is the issue that the secretary brings up is, is that credibility to grading? If markets sniff out that the government is becoming less credible in its ability to maintain deficits or to consolidate those deficits in the future. Rates will rise. And we saw a preview of that in the U.K.

briefly a year and a half ago. Is it likely to happen in the U.S.? I don't think so. But these are exceptionally difficult things to do to forecast, I think are and I'm sure you'll be on top of it.

One of the best in the business here at al-Hussein is senior currency and rates. Analysts at Columbia Threadneedle helping us kick off to the close here on this Wednesday afternoon with the eye to earnings coming after the bell Tesla. We'll have a breakdown of what to expect out of those results. Ross Gerber going to be joining us co-founder and president over at Gerber Kawasaki. Plus shares of Boeing is whipsawed on the day. We're going to break down the headlines, moving the stock and today's stock of the hour.

And ghosting is not just for romantic partners anymore. We're going to learn why investors are apparently trying to ghost some of their finances. See what I did there. A great piece here on the Bloomberg terminal. We're going to have a full breakdown here of what's going on in that sector when we come back after the break. This is the close on Bloomberg

and. Going ghost on investors. So I guess ghost is a verb noun for that. All right. Startups typically depend on serially infusions of funding from backers to get through their early years in a so-called down round that's raising money at a lower implied valuation than before is a big black eye. So lately, companies have gotten very creative to try and avoid being considered less valuable. Joining us now is Hammer Parmar, who wrote the story for Businessweek, as well as Ken Smith, managing partner over at Next Round Capital, who's quoted in the piece and remains give me a thumbs up. So said both names correctly, which was

not a given 5 seconds ago. All right. Hammer, When you wrote this piece, what did you find out? Because managing this is really important for startups. Precisely. And this market where everything has gotten a lot more challenging. People are very concerned about

valuations and companies are concerned about a potential down round or being viewed as less valuable and a tricky market. It can impact their future fundraising, it can impact IPOs. And so some of the things that we're seeing they're doing to avoid potentially being viewed as worthless, ghosting investors, not sharing information with them, impacting the secondary market, blocking secondary transactions, all these kinds of methods to sort of keep their viewpoints and their perspective of investors higher. Can that can't be cool? No, it's not. Right. So then where's the visibility? So CEOs are really just hoping that, you know, this all goes away one day and that they can cling on as much as they can to 2021 valuations, which as we call is the high watermark.

We're unfortunately a lot lower than that. And so the difference that we're seeing is that 2021 high watermark and people fighting to sort of find balance of what true valuations are. But the challenge is how much set is how do you know the true financial performance of these businesses if they're not giving it to you and they're only giving selective disclosure? So this is how Sarbanes-Oxley got started in the public markets. Some investors got certain information, others investors didn't. In the private market, it happens every day. Right. So you have a wide disparity of valuations and prices of where these companies are trading. And if the CEO and the board doesn't

like it. They don't allow it. Okay. So there's a there's an issue of the opaqueness of what's going on, not only in terms of the performance, but also the story points out that there are work arounds to sell off shares in a way that wouldn't be made public or at least not be made privy for the folks who would have a stake or at least have some interest in knowing that that was done. Correct. How do you do that? And so you basically it's it's you know, it's a workaround, right? It's called the gray market. Right.

And this is where you try to keep these transactions away from company management, the board. And you, as an LP will say to another LP, Hey, I'll create a new LLC structure. You can own the LLC structure and buy it. And you know, it's just our deal, right? How much of this, though, is being spurred from internally by those companies and how much of it is from the outside pressure by investors and LPs? I mean, there are a lot of folks who have raised a lot of questions in this recent cycle about the returns that were promised and the returns that they have not yet gotten.

That's right. So we're in an environment right now where this business venture capital was $27 billion of invested capital in 2012. Currently, as of last year were $345 billion.

So massive growth. The number of unicorns went from nine in 2012 to 345 today. So you can understand this is now what used to be ten, 12 years ago, really kind of a small little cottage industry has now grown into a massive amount of companies that are now having to abide by standards that were set many, many years ago.

Right. And so basically the growth of the market hasn't kept pace. And so LPs are upset, right? They want what they call DPI, which is basically a return of their cap. They were told eight, nine, ten years ago by 2024, like, you know, when The Jetsons were flying around, when the Jetsons are going to be flying around, you're going to have your money back with a 2 to 3 tax return.

Yeah, well, many of those fund, one fund two still haven't given a dollar back. And so with an IPO market that's been slow, M&A market that's been very tepid, you only have one option is you can sell in the secondary market or you continue to wait till venture capital markets tell you what they're worth. How might the Fed cuts rates if this all go away? I mean, it's going to take time because companies are dealing with cash flow issues. They're dealing with debt.

They have to pay off. It's going to be a little while. And some of them still haven't been marked down by investors nearly as much as they may need to be. So there is this lag between public markets and private markets. And you see that sometimes 18 months

delay. So things will get better as rates come down, but it's going to take some time. I think in addition to that, only about 30 seconds left. Does a healthier IPO market.

Does that absolve some of this? It does. It doesn't. It doesn't. It actually this is where CEOs are really trying to guide the valuation, because as you start talking to bankers, they start paying attention to the actual transactions are happening. Right.

So the least or the lesser data they have pointing to a lower valuation, they can turn around and tell their bankers, Hey, we've got stock. It's trading at a premium or close to our valuation. That's where our IPO should go up. But the public markets are always going to determine what these companies are worth. So they're going to have their day in the sun at some point. Yeah, it just doesn't happen in the private markets.

All right. Well said. I'm going to have to leave it there. Really fascinating story here. Ken Smith, next round, Capital Partners founder, and our very own Emma Palmer, who has what is, quite frankly, the story of the day for me. You can check it out in Bloomberg Businessweek and of course, right there on your Bloomberg terminal. Coming up here on the program, a check on supply chains, a check on transportation as we await for earnings over the next few days and weeks from CSX, Knight, Swift and several other companies. A discussion here about what to expect on the close. This is Bloomberg

and. All right. Let's get a view from the sell side with our top calls, the big movers on the back of analyst recommendations. And we start off with Andy and the potential of a new street research lifting its recommendation to buy from neutral and setting a $215 price target.

Daniel Therapy Airfare Review. Expecting expecting spending on A.I. chips actually boomed to about $400 billion by 2027, in his view. He says any company out there that would be best positioned to take advantage of that, it's going to be. And those shares up 5%. 177 That's a record high on the stock. Next up here.

Well, let's take a look at Biogen getting a downgrade today over at UBS to neutral. A lot of concern here about that company's Alzheimer's drug and some of the slow uptake that we're seeing right now in terms of demand. The analysts not actually seeing any real catalysts out there that would change that trajectory. That's why you got the downgrade there. That's why you see the stock lower by about a percent on the day. And finally, let's take a look at Uber losing its buy rating over at Gordon Haskett.

The Gordon Haskett going down to neutral today here. The analyst says that Uber deserves a premium relative to its competitors here, but says that right now anything that could potentially move the stock higher has already been priced in. Those shares down about a percent on the day 6357. And those are some of our top calls. All right. Let's turn now to what is going to be a big earnings story of the day. Transport companies CSX and Knight Swift are scheduled to release results after the bell tonight.

Let's get a preview on the health of those companies and really the broader transportation and supply chain sector. John Chapel, research analyst over at Evercore ISI, joining us right now. He has a outperform rating on CSX. So let's start there here with the rail freight company here. What are your general expectations here? This is a company that for a while seem like it was kind of on a path to a resurgence. Yeah, thanks. Remain so for CSX. I'm not expecting anything too robust. I mean, just an in-line result here I

think will be good enough. I think the most important thing we're looking for is 2024 volume expectations, and I think they'll be a pretty broad range there, something somewhat opaque like better than GDP or better than industrial production. But the biggest takeaway we'll see from CSX is how they talk about productivity and incremental margins as it relates then to that volume growth. You know, CSX is typically the first railroad to report almost every quarter. So given a funky calendar this this quarter, Canadian National reported last night at a very robust and potentially even ambitious volume outlook for 2024, but very muted margin and EPS growth in relation to that volume growth. So I think that the U.S. rails CSX tonight, Union Pacific, tomorrow, Norfolk Southern Friday morning will have better things to say about incremental margins and then growing earnings with a better volume expectation.

How much does that tie, though, into economic conditions? Because there are a lot of people, they look at consumer spending and they look at manufacturing activity and they try to sort of extrapolate sort of the flow of goods around the country and how that either helps or maybe potentially hurt CSX and its peers. Yeah, exactly. And I think what's really interesting about the rails for 2024 is this is the one segment of transportation that was a net loser during the goods boom, post the lockdowns in the early stages of the pandemic. They didn't have the service reliability to move the cargo when it was more timely than it was a margin story of the retailer. So they lost a lot of share. And now when their service is better,

they put a lot of costs into the system. This is why we're talking about incremental margins for 24, because it was decremental margins in 23 in the back half of 22. So they have a lot of share to gain. Even in a stable ice cube. The ice cube may be melting a little bit, but as rails take a lot more share off the highway, there's a lot of a lot of growth potential for their intermodal segment, really for the overall volume story in Rails, while the others trucking companies, maybe a good segment to do tonight stagnate a little bit Stable Ice Cube. I don't know. I've ever heard that before, John. But to that point, does that also mean that if there is a downturn, CSX will be very, very hard pressed to lay off people and trim their workforce like there's no fat to then trim? Yeah, that's exactly right, Alex.

I mean, what's happened in the last 20 years is the rails have been able to flex variable costs very quickly in downturns, in freight. And given the regulatory landscape, some of the service issues they had the last two years, you know, the unions have become quite more emboldened. They just don't have those levers to pull. So that was a big issue for the rails in 23 volumes were weak in 23 and they weren't able to take incremental costs out. In fact, they had to add them. That's the opportunity for 2425.

Now, if we go into a hard landing and recessionary backdrop, then certainly I think it's going to be difficult for any rail to improve their margins. So what's in the stock? We're like a stone's throw away from a 52 week high. The stock's had a really nice run. I know you said that sort of in line will be good enough. But what's going to be kind of the next catalyst to get even more juice going? Well, there's going to be two things. I mean, tonight, again, it's going have to be a focus on margin improvement and they get incremental margins in a decent volume environment. But over the coming weeks, it's going to

be a story about volume growth again, Are you going to get that market share back? Are you going to grow better than GDP? Are you going to win the share that you lost over that two year period? And it kind of. Filters into a domino effect. If Rails get the volume, they should be able to get the incremental margins and greater EPS growth. Typically, also when rails get volume, they get multiple expansion. CSX is one of the few companies in all

of transports who are trading at more of a kind of a trough multiple than they are a peak multiple. Everyone's trying to buy the last cut. Where's the next positive rate of change? Huge multiples on trucking companies, on even the Canadian rails. But the US, especially the eastern rails, are trading at muted, muted multiples and I think they'll get some of that expansion as the volume comes back as well. All right. All right. Thanks. And so, John, it gets to this idea, too, when we talk about sort of the feed through here to economic conditions and more importantly, how investors view this. Is there really a case to be made for, I guess, the value that we use to sort of find out a lot of these companies, the idea that they were kind of seen as value players, some of them exist in the old days is actually been pretty healthy dividends.

I know that ship might have actually sailed, but is there a sort of a case to be made for that actually coming back? And it depends on the stock. I mean, we're pretty cautious on most of our coverage universe. We like CSX, we like Norfolk Southern and we like Union Pacific, effectively the US rails, But we're neutral to, you know, even more cautious on most of our other coverage. You know, we didn't talk really about Knight much as the the biggest indicator, the bellwether for the trucking industry. But this is an industry now that's in their 23rd month of what we'd consider a freight recession.

So the restocking thesis that a lot of people are kind of anticipating or had been anticipating for 12 months, that retailers are going to start buying aggressively again and restocking their inventories. It hasn't played out, and we're far more cautious on the outlook for that occurring at least in the next six months and potentially even the next 12 months. All right, John, thanks a lot. Really appreciate it. John Chappell over at Evercore ISI. That reminds me kind of what DuPont was saying. And I realize DuPont more levered to China, but the idea that the businesses that they serve are destocking, they're not refilling their stocking and that and that that's causing problems for them as well. How many people have you spoken to right here on this program that have talked about what he just talked about in the retail space here? Yeah, people getting that inventory under control.

And I guess if you're a company that ships inventory, that's not exactly what you want to hear. No, not at all. All right. Same with companies. Tesla. It's the day the growth in the spotlight, margins in the spotlight, profitability in the spotlight. We're going to get a take on what to watch as they report after the closing bell today. This is Bloomberg. And.

Few of the New York City streets. 3:30 p.m. here in New York. This is the countdown to the close. I'm Romaine Bostick and I'm Alix Steel. All right, Tesla. We're like, what, half an hour away, 40 minutes away.

Tesla is going to be big investors very much waiting for this after the bell. It profit margins. It's going to be deliveries. Me, all that stuff. Yeah. I always don't know what to make of these results because obviously we know a lot about their production and deliveries because they put out the monthly updates and then of course Elon is always out there chatting it up here. I guess the big question really is here is what's the growth story going to be? It's obviously not going to be the cybertruck I'm talking about for the company as a whole. I know there's going to be a refresh

potentially of some of their models this year. So is this going to be a story where they can sell more units or is this going to be a much more of a story about pricing and more importantly, some of those discounts that were all the talk over the last few months? And this always brings back like the whole is Tesla a car company or is it a tech company because it's the worst performer in the MAG seven. So does that wind up sort of dragging on? Yeah, On growth, I went through its 10-K. I'm pretty certain that the car company that they make, they make cars, right. I agree with you, but really just cars. But they're valued like a tech company.

I know like they're Mag seven. So you have to wonder like if they disappoint or it's not great, do they want to drag it down the whole tech sector, Does that disrupt the market or is it just going to be its own kind of story? Yeah, well, I, I think for the sake of the rest of the market, maybe some people hope so. Maybe. All right.

Well, Ross Gerber is co-founder, president and CEO of Gerber Kawasaki. He probably doesn't hope so. He owns about 388,000 shares of Tesla. If we get a dip after earnings, are you buying it? I'm not none of these prices. But if we really get a nice dip in the stock over the next couple of months, we might. But, you know, when you look at their earnings expectation in their price earnings ratio, you know, it's it's a stretch to see how this stock gets, you know, much higher. But it could actually go much lower and

that could be an opportunity for investors. So. So we're going to see how it goes. But, you know, when you got in video trading at, let's say, 30 times forward earnings and Tesla trading at 60 times forward earnings, it's it's kind of hard to compare. So in early 2022, you had margins, profit margins like 30%, and we're like half of that.

Now, Ross, how much do you care about that number? I care tremendously about that number because, you know, with all economics, if you have unit sales and lower and lower margins, you know, essentially you're offsetting your growth with lower and lower profit margins. So you actually earn no more money. And that's what Tesla's seem to have gotten themselves into this pickle. Now, the irony of it is it's because they don't advertise. So here's a company that spends zero on

advertising where some companies spend five to as high as 20% of their or higher of their revenue on advertising. And so Tesla's got $26 billion in cash just earning interest and and they've got waning interest in the vehicles while they increase supply, but they're doing nothing to increase demand, and that's putting pressure on margins. I am curious as to what they can do. I mean, obviously advertising could be a component of that. But as I'm sure you know, Ross, there's been a lot of discussion about whether we've kind of already gotten past, I guess, that first peak in the EV boom, the idea that all the early adopters basically have their cars and now you're trying to sort of woo a lot of people who are still on the fence about EVs overall and not necessarily Tesla specifically, but just about EVs overall charging range anxiety, all that stuff that goes into it. Yeah. I mean, this is exactly the point.

So, like, 90% of people still don't really understand all the value propositions of owning an EV. And then recently during the storms, you know, in the really freezing weather, it was somehow national news that it was hard to fill up your TV like it was any easier to fill up a gas car. I don't think so, because freezing -22 doesn't work in gas stations either. But you know, the news covers Tesla and then Tesla does nothing to offset this. And so any story is true. That's actually because they don't even comment when the media contacts them about these stories.

So so they'll tweet. But unfortunately, Elon doesn't understand that most people, 99% of people don't actually look at Acts or Twitter. And so tweeting does nothing to help. Yeah, Yeah. It's a whole nother conversation. Ross I am curious though, about sort of what you envision or maybe let me rephrase that. What do you want the next growth story to be for this company? Because I mean, they've sort of reached critical mass. I mean, they control 55% of this market, at least here in the U.S. And I know that's come down a little bit

given the new entrants here, but they are the dominant player here. And of course, they're charging network, at least right now, is second to none here. So what can they do, I guess, going forward longer term in terms of introduction of new vehicles or maybe even a pivot in some way that would really sort of be a catalyst for huge reevaluation of this stock? You know, truthfully, they have the product roadmap already. That is what I want them to do. The business plan that we bought into is cybertruck and semi trucks is really the next big stage for Tesla. So they've released and launched the CYBERTRUCK and it's a polarizing vehicle for sure. But even, you know, it has the potential to sell at least 100 to 200000 or more.

You think so? I think, though, for sure. I mean, you know, they sell millions of pickup trucks a year in the United States, but the price point is so high that a typical truck buyer won't buy a cybertruck until it's priced much lower. And that, I think, is a huge opportunity because most people in construction and using trucks actually drive a ton. And like the construction workers who work at my house, for example, spend upwards of 15% of their income just on gasoline. So imagine, you know, if you're in construction, the value of having an electric vehicle, but they are not buying $80,000 trucks. So Tesla needs to address the truck market is a huge opportunity.

And these are great buyers and and they want electric vehicles. So we'd love to see the semi and cyber ramp. And, you know, that's just the beginning. They have lots of other great stuff to do, like getting full self-driving to actually work. But why would they choose a cybertruck? And I know the Cybertruck may be sort of a precursor to something maybe that's a little bit more practical for folks, but when you have an F-150 lightning, for example, you have the Rivian pickup, you have a lot of other pickup said, at least in terms of the traditional styling that they offer relative to the Cybertruck, I think we'd have a little bit more appeal for those folks who are actually going to use a pickup truck for what it's intended purposes. Yeah, right. But the cybertruck also attracts people

that would would not otherwise buy a truck like myself. So, you know, like I would never drive a pickup truck just for the sake of it, but I would drive miss the cybertruck what you know so cool depending on what actually happened was I do I live in Manhattan so I can. It's impractical. There's reasons to have a pickup truck for sure. But, you know, I'm actually really into fast cars, you know, like, really fast cars. So I drive a plant. Fastest car on earth. What's that?

The Model S plaid, you know, So I drive fast, Carter, and I burn these Bugattis and Maseratis and everything else that try to race me every day. It's fun. Well, not every day, but definitely not so fast. I saw on the street when I. When I saw the Model S racing, one of the God roars. My question is like.

Like longer term, like, we all know that these are going to take it, right? But in the meantime, it does feel like hybrid might actually be a good solution and that a lot of the carmakers missed a big trick with that. And that leaves a big window for like Toyota. What do you think about the the hybrid in the middle? So I think that, you know, I don't want to say bad things about hybrid because they're still energy efficient vehicles and serve a great purpose in the marketplace in getting people transition to electric vehicles. But most importantly, it's better for the environment. But the idea of a hybrid vehicle is really stupid. You know, when you really just drive an all electric vehicle, that works perfectly fine, why would you need a hybrid? And the main reason the hybrids have been successful is because of pricing.

And, you know, you can buy a hybrid for a very reasonable price and and save money on gas. And and I think it's a great alternative if you're driving a gas car. So I think hybrids have a place in the marketplace that isn't going to go away. But when you drive an all electric vehicle, the performance of an all electric vehicle over a hybrid is like day and night. And then the efficiency of a Tesla, for example, where there's you know, you're arguing that it's a car company. And I would say, you know, the reason why you're wrong about that is because when you drive a Tesla and you use the software, it compares to no other vehicle. It's an iPhone.

It is pretty drives it's an iPhone. So I would argue Tesla's a battery maker before I would for you. It's a car maker. Okay. You know, so they make lots of batteries

that can be used for lots of things. But now I look at their charging business and I'm like, this is a mine. This is a huge opportunity, huge mass. So, you know, Tesla has a lot of potential growth in the future. And if even focus is it really tries to create demand, they'll be great.

All right, Russ, I love you. I love all your insights. One day we have to have like a Lincoln-Douglas style debate here about whether it's a car company or a tech company here. Because I've got some opinions I've always read. I'll take you to the company and you'll see when you walk in the door, it's all tech people working on software. All right. It's a date race robot. I got to leave it there.

Ross, Great to catch up with you. Ross Gerber, co-founder, president and CEO of Gerber Kawasaki. Stick with us. A lot more coming up here on Bloomberg. I'm. Wi-Fi safe planes. We don't put airplanes in the air that we don't have 100% confidence in. I'm here today in the spirit of

transparency. Number one, recognize the seriousness of what you just asked. Number two, to share everything I can with our Capitol Hill interests and answer all their questions because they have a lot of them. Dave Calhoun there, the CEO of Boeing. This after a meeting with lawmakers down in Washington, D.C.. Shares of Boeing actually higher on the day, up about 1.6% here. A lot of concern right now about how the plane maker is addressing some of those safety and regulatory issues surrounding its max nine fleet.

We're taking a closer look at the stock right now. It is our stock of the hour. Abigail Doolittle standing by here to walk us through this here. I was actually taking a look to see. I see they've kind of clawed back a lot of the losses that the stock had coming out of that. When we first learned about that Alaska Airlines incident. Not quite there yet here, but investors

seem to think that this is something that they can manage and something that's not going to have a long term material impact on the company. Well, in some ways, today's meeting in Congress or on Capitol Hill really speaks to the idea that this is a crisis of confidence. So they're clearly addressing that piece of it. There's the mechanical side of it as a consumer and airline consumer.

The idea that you're hearing the CEO of a major airline manufacturer saying we fly safe planes. That's just something that you take for granted. But after the two tragedies in 2018, 2019, the rudder issue last year, the door plug blowing out. Last Saturday, a wheel fell off. I mean, they really have a situation. It's pretty clear that there's some mechanical issues with them putting together their planes. There was a Seattle Times article out today saying that it wasn't Spirit Aerosystems fault in terms of the door plug blowing out. It was an issue with Boeing putting it

in properly. So they have to address this. Now from the investor standpoint, the crisis of confidence. He does seem to be doing a decent job. Dave Calhoun came in as CEO in 2020 to

take over after those tragedies in 2018 and 2019. Now, though, given the fact that there are so many smaller issues, but ones that really are a little bit scary to anybody who's going to go into one of those planes, you have to wonder, could there be changes made there? So he's fighting for himself as well. The numbers, they've gone down from 2018 to now by about 25% for sales. They haven't been profitable in a number of years. They will be reporting next week. I think that there's going to be a clearly a ton of inquiry into the 737 max. What are they going to do?

I think that the one thing, if they're able to be turn profitable before expected at some point, that could clearly be a big thing. But the stock's still down 50% from that 2019 peak. So they've got their work cut out for them.

All right, Abigail, thanks a lot. Really appreciate Bloomberg's Abigail Doolittle interesting remain that today of all days, Boeing 737 max has been delivered to China for the first time since 2019. Yeah, I thought that was interesting timing just for me.

Yeah, the thing is interesting too, and I almost kind of forgot that that Calhoun was actually brought in after the Lion and the other major crash here. And it was raises a lot of question as to whether that was the right decision. I mean, we know he was a capable executive, but this is a company that is dealing with a lot of other issues. As you said, this is more about the confidence rather than just operations itself. Yeah, culture problem, like a culture makes a difference.

It's hard to transform that. All right. Well, coming up next, our next guest says that we are in a sweet spot for markets, dare I say Goldilocks, she shared. Goldman Sachs is seeing some opportunity next. We're about 15 minutes away from the close. This is Bloomberg. This is the countdown to the close Romaine Bostick alongside Alix Steel and Alex. I know you hate this rally, but guess

what? Five straight days now. S&P up again, only up a 10th of a percent. But you know how this works is a record high yesterday. 1/10 of a percent means a record high. A record high today. The tech meltdown. And I just want to point out like what's happening with tech, because if you look at the ADR of ASML, a record high over in Europe after killer earnings and really continuing that here as well, Microsoft at one point hit a $3 trillion valuation, a 52 week high.

A Google, same thing at a record high on the downside. And I point this out, Romain earlier and this feels important is the underlying economy is DuPont. It's a chemical maker. Their outlook for demand was not great. I appreciate that might be just a China story, but the chemical guys are not coming out with strong numbers. It's look at say 3 a.m. short cycle industrial I look at BASF

over in Europe chemical sector weak and what does that mean? Yeah, absolutely. I mean, it raises a lot of questions, too, about all that breadth that we were talking about yesterday. Alex, if everyone's just gravitating back to big tech, as you saw, joining us right now, CEO for public investing at Goldman Sachs Asset Management, as the countdown to the closing bell just about 9 minutes away. And you saw the kind of what Alex was alluding to here. I mean, there's certainly an area of this market that people are gravitating back to. And I don't know if that becomes a concern, because the whole idea late last year was that we finally started to see and to broaden out and what people were buying, what people were willing to buy. And now it just seems like people are

retrenching back to, I guess, what is tried and true. And that's big tech. Well, let's go back to why they're going back there. I mean, you consider the fact that the last two years companies have really pulled back on their tech spending.

You know, we've seen 3% tech spending growth. This is the year where CIOs and companies are confident enough to be investing in tech. And so you're getting a fundamental tailwind that is driving this valuation. We all know how high the margins are for this business. And I'm not even going to get into A.I.,

which kind of opens up the value that a CIO can offer inside their company. So I think there are real strong underpinnings. Can it get ahead of itself? Of course it can, but I think it's a good long term play here to invest in these companies. I certainly understand the optimism, particularly longer term in particular, when you factor in things like AI here. I'm wondering, is there an economic

fundamental story there as well? Because if there is, wouldn't that also push up the Russell 2000 instead of like it is for the last two days down in the red? So I think one of the biggest surprises that we saw in the markets last year is when we got this Fed pivot. People weren't prepared for it. Right. And and so they had been hiding in kind of certain parts of the markets.

Why you saw this breadth in the market expand, right, as you got the pivot of wait, maybe we don't go into recession next year. And I think part of the reason why you have seen good performance, not fantastic, but good performance within Smallcaps is just the sheer cheapness relative to these large caps. So as you make your money in the large cap part of the market, it gives you the opportunity to then diversify your holdings, you know, down in small caps. And I think it's simply a matter of

time, which then leads to the Fed cuts and kind of why they're doing it, because that's going to kind of lead to what's the set up for small caps. We spoke to Ed al-Husseini, senior currency and rates analyst at Columbia Threadneedle at the top of the hour. He's here to say about rate cuts. It's sort of a two step dance for the Fed. The first step is responding to the fact that inflation's come down. The second step will be potentially responding to weakness in the labour market, responding to some uncontrolled or unanticipated tightening international conditions. So a normalization versus then everything sucks. We've got to cut.

So from that perspective, like what's the play for Smallcaps? Well, look, I think the the simple thing that you need to consider here and as someone that maybe isn't the best dancer, that you have to think about the fact that the inverted yield curve has kept people on the sidelines. Right. So when that happens, you're going to open up the opportunity set for small caps. But it really comes down to, you know, the timing and you're not going to time it perfectly. Right. Anyone that went through October and November of last year waiting for the perfect time to go in, you know, most of those people missed it. And so I think being a little bit ahead, really looking into valuation and making sure you're picking the companies that are going to best value trapped, though.

Well, you don't have to go after pure value. You can go after quality that represents good value relative to the large caps, Right. Large caps that mean they'll like what does that mean in quality? So we context. So in my mind, quality is you're generating free cash flow. You're anchored towards customers that actually have long term growth. Right. So you're tilted with a new tech stack

as opposed to having to run a melting ice queue. Business like these are all great opportunities. The biggest, biggest thing that I always keep in mind is like, okay, what is going to work over the next 3 to 5 years? And if you work backwards from that and say, okay, it can be cheap, it can be rich, but you want to make sure that whatever you're buying aligns to that long term trend. What don't you like?

What would be considered risky right now? Look, I think that companies that are generating negative free cash flow here and have more debt are really challenged. Right? You are going to see rates come lower, but that isn't going to help a company that either is doesn't have the capital to invest, doesn't have the timeline right, or is going to face the issue of competition where they don't have pricing power. And pricing power is something that as inflation is coming down, we're getting to learn who who has pricing power within this market. In some cases, it's, you know, companies that have real product differentiation. In others, it's ones that have great relationships with with their customers, really have kind of alignment to how those customers are doing well.

I want to just make a quick pivot here. And we actually had interview a little bit earlier with Robert Rubin, the former U.S. Treasury secretary. I want you to listen to what he had to say about the U.S. deficits and the markets.

I think that the risks are even greater today because our debt to GDP ratio is approximately CBO estimates at about 100% right now. It's the highest in the history of the country, except for 1946 and 47 when we were coming back out of World War Two. I think the risks are enormous and some of them are materializing already, like higher interest rates, an effect on inflation due in part not before, and others haven't materialized yet. But I think they're out there and sooner or later will materialize if we don't correct our fiscal trajectory. A smart man and a smart take there, but a smart take that I think I don't know. I feel like I heard a decade ago and maybe two decades ago, maybe three decades ago.

When does it start to matter for the markets? Look, it matters when growth and deflation come back, right? Because if you have a modest level of inflation, you can sustain kind of debt growth. But when growth slows down, right, when your demographics go negative and your population starts shrinking, you can't support that that debt anymore. And so it's the same thing when you're an individual. If you borrow to buy a house that goes up in value, having a lot of debt isn't about a big problem. If you borrow to consume, that means the future is going to be less good than today. And I think that that's the thing we

have to make sure of. You know, look, what I know of is that the U.S. has some of the best assets out there. Yeah. And most innovative companies. And frankly, that's what we're excited about. All right. And she's going to have to leave it

there. Great to catch up with you. She's Nate Silver for public investing over at Goldman Sachs Asset Management. Stick with us. We're about to take it to the bell and beyond and.

Beyond the Bell. Bloomberg's comprehensive cross-platform. Coverage of the U.S. market. Close starts right now.

And right now, we are 2 minutes away from the end of the trading day Romaine Bostick alongside Alix Steel. We're counting down to the closing bell here. They'll take us beyond the bell. Get the global simulcast with five of your most favorite people.

That includes Scarlet Fu, that includes Carol Massar, and even includes some of the most favorite that you should just be your favorite people. All right. Well, a hearty welcome to all of our audiences across all of our Bloomberg platforms, television, radio, originals, our partnership with YouTube. The S&P up fractionally what is a fifth straight day of gains. And if this holds, it's a record high. Yeah, unbelievable. I feel like the superlatives that we

kicked off with a couple of hours ago, it's just you see stocks, what was it, Alphabet? We saw platforms and platforms all at all time highs, just taking out some equities, significant levels that make you feel good. You get worried. I get a little worried. You bring up a good question, Ramon. I think there are certain people who are starting to get worried. We were just talking about Ed Yardeni, who came out with a note that said that he's concerned the S&P 500 may be starting a tech led melt up similar to what happened in the second half of the nineties.

I think people would push back on that saying, okay, well, these are different types of companies now. But he did use the term irrational exuberance. Well, no irrational exuberance when it comes to tussle, which of course will be reporting earnings soon.

It's the Magnificent Seven stock that hasn't done much of anything in 2024 so far. Yeah, I mean, I think my thing, though, when it comes to sort of how are we going to get over our skis, the average price forecast for the S&P, we're like really close to that. It's like 4900. So what happens in Germany if we hit that ramen and all of a sudden what, all the strategies come in and like redo their forecasts already? It is the first few weeks and.

Jan Yeah, absolutely. But I mean, look, I mean right now, I mean it'll be interesting to see as we get more of these earnings reports, we get more of this commentary, whether that ends up front running some of the economic data. And we do have a lot of earnings on tap after the bell. That includes Tesla, Lam Research, IBM, ServiceNow and CSX, just to name a few. Let's walk through the numbers before

those earnings sit with the Dow Jones Industrial Average that had spent a good portion of the day in the green, flipping into the red, down 2/10, 3/10 of a percent here on the day, lower by about 99 points, the S&P 500 higher by four points. That may not be much, but that is, yes, indeed, a fresh record high. I should point out RSI is now firmly in overbought territory on the S&P as it is on the Nasdaq as well. The Nasdaq closing higher by about 4/10 of a percent here on the day and the Russell 2000 sitting what sitting this one out lower on the day by 7/10 of a percent. All right.

As we await a batch of earnings, guys, S&P 500 yet 141 names to the upside, 357 now losing ground amid all this irrational exuberance or whatever you want to call it, Scarlet five unchanged. All right. Let's take a look at how the sectors are performing. Let's bring up the map, which shows the different sectors in the form of a pie.

And it's a pretty mixed bag here. One thing to note is that you are seeing some strength in energy stocks as oil prices WTI climbs above $75 a barrel. And Alex had noted earlier the weakness in chemical companies materials stocks are certainly weaker at the moment, and we do have some earnings now. Yep, CSX, I love me some trains, fourth quarter revenue coming in at 3.68

billion. That's a little higher than estimates. Earnings coming in at $0.45 a share, a little higher than estimates. The operating income, a little light than estimates, but so far, so good, sort of relatively solid. Solid, Carol. The the real issue is going to be about higher wages and benefits in those profit margins. Right. Exactly. And they've been certainly watching their costs in a big way. I'm looking at a stock that's little

change on the year. We look at something like trains, right. In terms of moving stuff around. We were talking a little bit earlier about the problems in the Red Sea and the logistical problems. So, you know, you keep an a watch on one of these names, but it's unchanged in the after hours. So it looks like investor Scarlett trying to make some sense of it, try to make some sense of it.

And of course, looking ahead to the other results, what would you say the overall picture is from the companies that have reported? Ramy? Well, it's been positive. I mean, the expectations were lower than I guess we had expected. But so far, at least on an aggregate basis, I mean, they've continued to beat all of those not only on the earnings but also even on the revenue side as well. Yeah, I mean, I think we're still early days, though. I mean, we still have a lot of companies to hear from. We have to hear from Tesla today.

Netflix, of course, was huge blowout and we got Apple next Thursday. So, yeah, you know, we're we're getting through it but there's still a few companies to hear from. The other thing I would say the stocks was an outperformer ASML coming in and they had orders tripling.

This is, you know, a company that produces equipment to make some of the most sophisticated chips out there. When I see kind of a bullish signal like that, it makes me think about demand. Alex from all of its users and customers. Yeah, but I just want to point out again, DuPont, I mean, we're looking at the worst day, I think, since like 2008 for the stock chemical company real economy and the outlook for demand is not great. Scarr Yeah, not great. And it certainly raises a lot of concerns about other companies in a similar industry. And it goes back to that idea about industrial customers showing some weakness.

So that's something we heard from Texas Instruments, Carol As much as ASML came out with good numbers and TSMC certainly revived optimism for the semiconductor industry, Texas Instruments was a bit of a cold water reality check. Yeah, Yeah. No, it's interesting. Right? Yeah, exactly.

It's a reminder. But we have to remember, like, right now, all of these chip companies are the same. And I think about something that's actually equipment, which is kind of the early end of that semi cycle, if you will. And so I don't know. We'll ultimately see right when we get

through all of these earnings and we have Tesla, it has just crossed. Yeah. So let's get right to it here with Tesla, the numbers coming in, EPS, the bottom line number coming in at $2.27 a share. I have to look up the comparison there.

But on an adjusted basis, here's your comparison. $0.71 a share on an adjusted EPS basis, that's a bit of a miss. By about $0.02, the Street was looking for $0.73 a share. Here's your revenue number, 25.17 billion.

That's also a slight miss. The street on average was looking for $25.87 billion in revenue. The free cash flow number, that looks like a beat coming in at about 2.1 billion. The Street was looking for about one and a half billion. And here's your gross margin number, a number that Ross Gerber said he was paying close attention to a miss 17.6% on fourth quarter gross margin. The Street was looking, guys, for 18.1%. Okay.

Well, let's talk about some of these reasons why profitability, operating income decreased year over year to $2.1 billion in the fourth quarter, reduced vehicle average sales price due to pricing and mix increase in operating expenses, partly driven by air in other R&D projects, lower full self-driving revenue recognition year over two year. The cost of the CYBERTRUCK production ramp, lower cost per vehicle growth in vehicle deliveries and gross profit growth in energy generation and storage. So there's a host of reasons why profit got hit in 2020. Visit kicker 2020 for vehicle volume

growth may be notably lower than 2023. Notably lower. I mean, I mean, that can't be good. You're seeing the stock kind of roll over now in after hours. We also, of course, want to just mention Cybertruck, because Elon Musk likes to talk about so much.

Not a whole lot of details, at least in this early release, but cybertruck producti

2024-02-01 14:09

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