Bloomberg Markets: The Close 02/08/2024

Bloomberg Markets: The Close 02/08/2024

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Happy Friday, Eve. Live from studio two at bloomberg headquarters in new york. I'm Scarlet Fu. I'll let her trick you. This is actually her friday. That's why she's so pumped. I'm Alix Steel and we're kicking you off

to the closing bell right here in the U.S. It feels like the rally is trying to broaden out here. So the stuff that didn't go along with the rally before is now playing a little bit of catch up headline. S&P goes Nowhere but the Russell 2000.

A nice solid rally up by one and a half percent. S&P energy index, the best performing sector within the S&P up by 1%. Oil really outperforming as well and the 30 year had that auction earlier today, $1 billion more than we saw in November. It went down pretty well.

Nonetheless, the whole curve is trading a little bit heavy and yields moving a touch higher. But it really does feel like we're trying to get to that everything plus rally score. We're really trying. All right.

Janet Yellen. Alex sees more turmoil ahead in commercial real estate. And while that may lead to bank stress and financial losses, the treasury secretary says she doesn't see the fallout posing a systemic risk to the banking system.

Yellen also told Congress that some non-bank mortgage companies may be at risk of failing in stressful market conditions because they lack access to deposits that traditional banks don't. Having said all of that, CEOs are feeling better about the economy Overall, the Conference Board's measure of CEO confidence. It rose to a two year high, thanks to growing expectations for lower interest rates amid slowing inflation.

Even so, corporate leaders do worry about the upcoming November elections and the risk of international conflicts worsening. We all do. So you put it all together. U.S. stocks continue to push higher, Alex, setting new records. We see that if it's global stocks as well, because you look at the MSCI World Index, it too is at an all time high.

So it sets up a pretty stark contrast to what's happening elsewhere, particularly China. Yeah, for fear point like you get to 5000 round numbers actually mean stuff. You look at your four one case, you see it on the headline like that could drive actually more coming into the equity market as Scott was pointing out this orange line here is the MSCI all country index. So that's everywhere. And you can see the outperformance versus Chinese equities, which is really underperformed, in fact, since its peak that we hit since 2021, Chinese stocks have lost almost $5 trillion in value. However, guys, it's all about tech. So this blue line here is the S&P outperforming all the all world country index and then the red line here, well, that's the Nasdaq 100. And you clearly see at the run that we've had over the last three years has purely been tech driven. It doesn't mean you can't have a little

spats of outperformance here and there. Just take a look at today where the Russell and say energy. But still what's driving the world index is really about U.S. tech SCARLETTE. All right. That's a great way to start off our conversation with Bob Elliott. He has CEO and CIO over at Unlimited. And Alex says it's all about tech. Maybe they should be their own index.

And, you know, The Magnificent Seven, it pretty much is. And then you look at all the other national markets, whether it's the US, whether it's China, whether it's anything else, you take out U.S. tech, how attractive is the US market and the U.S. economy to the rest of the investing investing world? Well, I think what the mega tech tech stocks really are highlighting is the is the cyclical strength of the economy. When you actually break these these

stocks down, what are they really? Amazon is consumer sales and business investment. Google is advertising better as advertising. And so I think what they're really showing is that in aggregate, the U.S. economy, nominal GDP growth, it's very

strong, it continues and they just have some of the highest betas and best cash flows to that strength in the overall economy. So when you look to the rest of the the overall market, what you see is companies that maybe aren't quite as strong and are more sensitive to the liquidity conditions that are going on, but those companies have a chance to rally in these sort of environments. As liquidity starts to ease a little bit, the Fed shifts their policy stance and GDP growth continues to expand. So that by smallcaps. That's right. I mean, you could easily get a rotation here into the small cap.

Will it last? I mean, we saw this trap last year. It did not last. Well, I think I think the main reason why it didn't last was the real question was whether monetary policy was going to continue to be tight and whether that was that tightness of monetary policy in the difficult financing conditions was going to keep weighing on those on those companies that needed the ongoing financing were shifting to almost a perfect situation for many of those companies where the economy is good.

But we're shifting to an easing cycle with low valuations. You put that all together. If people are looking for, you know, corners of the market that haven't been built up nearly as much, they're going to look to those areas like energy and small caps.

All right. Let's fold fixed income to this into this conversation as well. Alex was talking about the 30 year Treasury auction. Pretty good demand, pretty good demand for the ten year auction as well. So February looking okay when it comes to the Treasury refunding itself, What is your read here on the supply that we're going to get this year and whether that demand will continue to show up? Well, those 30 years that got issued earlier this afternoon are now, you know, through the bottoms. And so we're seeing yields rising.

We're seeing that creeping happening for many of those buyers that are. Continuing to experience losses. You know, we moved from well under well under for in now, you know, up to 415 on tens. And I think the key thing to remember with the bond issuance dynamic is that it's going to be very hard to front run $500 billion of net new supply in quarter two. And so it's every day what you're seeing is a weight on the bond market that's coming as that issuance comes. And remember that Q2 net issuance is going to be twice as big as Q1.

So right now, the actual flow, the actual demand to borrow is not that bad. Just wait till Q2 when it doubles in size on next year. But we could have said that like in the fourth quarter of last year and then the take down actually went, okay, what do you do in a market though? You come in every day and things look overbought, technicals do not look good. We continue to grind higher. Like how do you manage that? Well, I think you got to you got to look at the linkages that that will either stop the economy in its tracks or keep it going. And we've got this income fueled expansion.

And in that environment, stocks can continue to outperform, perform, particularly bonds, as income growth continues to finance spending. And we continue to get strong nominal GDP growth. That's a very resilient type of growth. This is not the debt fueled growth of,

you know, cycles past. This is a very this is a this is a expansion that can continue for an extended period of time until we get enough tightening in the financial markets to start to bring down asset prices and slow the overall economy. So right now we're really in that that sweet spot of strong enough growth without enough tightening, particularly on the long end of the bond market to bring things back, how high the yields have to go before you start to see it show up in equities in a bad way? Well, I think we saw a little bit of a flavor of that last year, but we we moved bond yields up to five and equities sold off, you know, 10%, 15%. That's not that big a deal. Equities sell off ten or 15% all the time. And so we're probably going to need to

get bond yields up there and for an extended period of time before there's enough of a wait on asset prices in the real economy to really bring this expansion to a halt. All right, Bob, really appreciate your joining us today. Bob Elliott is CEO and CIO at Unlimited. We've got a lot more coming up on the close.

Coming up, shares of arm surging the most since its IPO after giving a strong sales outlook. The stock getting an upgrade as it pushes beyond smartphone chips. That's in our top calls. Plus, we're going to hear from my conversation with Lynn Good, the CEO of the power company. It's a big, huge utility, Duke Energy, her take on the US energy transition as demand for electricity skyrockets.

And we'll focus on potential opportunities right now in commercial real estate in spite of all the market turmoil. Our guest, Anton Pil, global head of alternatives at Jp morgan Asset Management. This is the close. Shares of Duke Energy, the worst performer within the S&P utilities sector. That's after mixed results this morning. Despite the share move, though, CEO Lynn Good is remaining confident on future growth. We are seeing a level of growth that we haven't seen in decades. And a couple of things I would point to its population migration that continues really from the pandemic forward.

But adding to that is extraordinary economic development growth in all of our service territories. So think about offshoring, U.S. manufacturing, semiconductors, battery, automotive. And is the U.S. continues to pursue leadership in artificial intelligence and data centers. And so all of that growth gives us an opportunity to continue capital investment at a pace that not only serves customers, but delivers returns to investors. So your five year CapEx plan was updated

by $8 billion to $73 billion. What is your level of confidence that you won't have to revise that up again? It's a good question, Alex, because I believe the capital plans will continue to be refined. You might, in following us, know that we do have generation plans in front of our commissions in North and South Carolina as well as in front of Indiana, where they'll be working with us on the pace and the type of generation investment. In addition to all of the grid investment that's underway.

So I believe those capital plans will continue to be refined. I would say the bias would be to the upside because of the growth potential, but pursuing it in a disciplined way that keeps an eye on the reliability and affordability is another important point that I would just underscore. We have to do all of those things right. Managing the surge in demand is going to

be huge. Do you think that we're going to see slower closure of coal plant plants because of that? It's an interesting question because it has to do with are we going to be able to bring resources onto the system at the right pace to meet the demand. And right now, we remain committed to reliably closing coal in 2035 and are bringing a wealth of resources, solar and battery.

We're taking advantage of energy efficiency, demand side management, some natural gas, and continuing to pursue new nuclear as well. Small modular reactors in the mid 2030s. And I think, Alex, if we can keep this diverse set of resources moving, it will allow us to continue to target reliably retiring coal in 2035. What is the conversation around a new natural gas plant in the board room right now? It feels like that is a very tough, tough subject and putting money into something that's going to be there for the next 40 years goes in the face of sort of climate neutral or going green for the United States.

Like what do you guys talk about in relation to natural gas? Our assignment, Alex, is a three fold assignment, reliability, affordability and increasingly clean. And I think the question you're really raising in the question that's in the Duke boardroom is, is it wise to invest in natural gas? Is it wise for our customers, for our communities, for our investors? And I think this context of growth has to be a part of that conversation because we we need to serve the growth. We need to balance the short term with the long term. And so where we come out is a diverse set of resources is going to be necessary. We're going to need to lean on some

existing technologies while we're also exploring hydrogen carbon capture needed to clear offshore wind and technologies that'll be maturing into the 2030s. So we continue to believe that natural gas represents a clean form of generation complementary to renewables. Important as we retire coal and we also believe that as hydrogen develops, it'll be a continuing clean source of generation for years to come. In the meantime, we were mentioning the demand side. Have you had to turn away any big customers because you just don't have the capacity yet? We haven't faced that yet, Alex, but we watch it really closely.

As you can imagine, economic development in all of our states is a partnership with the states. We're working closely with economic development organizations, with commerce organizations, and really working to market our states in a way that achieves their objectives of job creation and economic growth, while also making sure that we have the resources to serve. Do you expect that you'll have to have those conversations at some point? You know, I don't foresee it in the near term, Alex, But that's the conversation that's ongoing in front of our regulatory commissions right now in North Carolina. We filed a generation plan in August of this year and we've already updated it, filing it again. Wow. In January this year with more load growth, with more need for generation. And I think it's just an important

conversation that we're going to have in all of our states. Just find the if to find a happy balance. So then to flip it. Are you seeing industrial customers that want to go into your territory that are looking to build factories, that they say, Ooh, you know what, Lynn, I got to get back to you. I don't know if I can actually get this done because of the power. I haven't heard that. Alex You know, the conversation with

industrial customers is a broad ranging conversation. They're looking for workforce, they're looking for supply chain, they're looking for sources of energy. They're looking for a state that they can partner with that has fiscal policies that meet their needs and expectations. And North Carolina is, you know, has been ranked number one for business for a couple of years running. So that conversation around economic development has been well seeded. And we expect those conversations in all of our territories to continue.

What about in a Trump presidency? And I say that because you were mentioning the chip side to get the IRA and the Infrastructure Act. Is there a conversation that any of that will be repealed if you get Trump back in the White House and sort of what that does to the demand side of your business? I'm not going to speculate on the politics out of this, frankly. I don't know. But I would say when we think about politics and we think about how it impacts our business and it impacts the communities that we serve. Our objective is to be advocating for policies that support where our states are trying to go, what our customers need, what we need in our business in order to continue to to serve. And what we find is in a bipartisan way,

there's a strong interest in infrastructure in making sure that the U.S. remains globally competitive, that we onshore these industries in a way that strengthens us not only economically, but from a national security standpoint. And then any way that we can lower the price of energy to further underscore that, that economic competitiveness is also something that's a part of the conversation.

So infrastructure and low energy prices, I think that's a combination that enjoys a lot of support in the political arena. That was Lynn Good chair, president and CEO of Duke Energy. So a couple of things. There's the demand side. They got to spend more money.

How do they wind up financing the money, the balance sheets looking back, much better. But still, that's the risk. But on that net net, like all these changes about Infrastructure Act, chips, Act, IRA, huge, huge, monumental changes for these companies. Just a perfect example of one of those CEOs who are feeling better overall about the economy, a little more confident, but at the same time kind of concerned about what's to come in November with the election changing up a lot of those things like the IRA, which sounds like it's been good for Duke. Yeah, because you can definitely get some upside for tax credits and hydrogen, for example, or nuclear. They have a ton of nuclear storage as

well as renewables. So you can get that. But also if you are want to build an EV plant in the Carolinas, you're going to be plugging into Duke and that is going to really help the demand side of it. But again, then you got to spend the money. So and also a lot of these companies are already sinking their cash, like it's going to be really hard to roll back some of the CHIP and Infrastructure Act stuff, even if President Trump goes back to office because it's already sunk.

It's already they're already planning it. Right? Well, can't reverse that that that money's already been earmarked. Yeah all right kind of aam shares are skyrocketing here that's after impressing some analysts with its sales and profit outlook we're going to recap the earnings and first CEO renaissance tells Bloomberg how artificial intelligence is shocker driving the upside this is the clothes on Bloomberg what designers want to do and need to do is future proof their designs with more and more compute. And that is really driving a strong licensing cycle force in terms of more demand. It's time now for our top calls and look at some of the big movers on the back of analyst recommendations. And we start with Spirit Aerosystems and

upgraded to outperform from market perform at Cowan on hopes of a rebound in free cash flow. The aerospace manufacturer increasing volume and productivity and once contract talks with Airbus are settled, the analyst says its cash position should improve in the second half of the year. The shares are up by two thirds of 1%. Next in line is Hertz. Morgan Stanley hitting the brakes on the rental car company with an equal weight rating about three weeks after it had upgraded Hertz to overweight analyst Adam Jonas warning investors about the risks facing its EV strategy. Jonas says shrinking the fleet is an important first step, but more needs to be done.

Shares right now down about 1% and finally, arm's price. Target lifted to $115 at Citi, up from 86 and Citi keeps a buy rating on the stock. Analyst Andrew Gardner was impressed with the latest earnings report with royalties and licensing driving the upside, he sees sales trends remaining robust into fiscal 2025. The shares right now up almost 50% on the day. And those are some of our top calls. So joining us now is the analyst behind that call, Andrew Gardner. He's staying up late for us.

He is head of European Technology Equity Research at Citi. Andrew, thank you so much for staying up to speak with us. AAM as you've noted in your recent research report delivered an impressive beat in RES but a 50% jump in stock price. Does that get it to a point where it gets a little expensive? I mean, ARM has long traded at a premium multiple.

I suppose it's it's one of those stocks that's got a very strong structural story both at the top line in terms of the revenue growth that's happening today as well as into the future. And it's got a very strong operating margin profile again, something that's likely to expand nicely into the future. So yes, it does trade on a premium multiple, but I would say it's very much justified given those strong fundamentals.

Andrew, do you feel like the valuation that you've now put on it incorporates licensing and royalties at a certain point like what credit is aam getting for which right now. Yeah. I mean I think the market is looking initially at the you know the near term royalties that represents the chips that are being delivered at the moment. They did see upside there in the quarter but really the impressive upside in the December quarter came from the licensing side and that as you'd heard earlier from Rene Haas, the CEO has really been driven by increased need for arm's designs as their customers look to do more in the area of artificial intelligence. And, you know, I think, again, as the company has laid out and I would agree, we're very much in the early innings of artificial intelligence adoption this is something that arm's customers are taking technology from. AAM today they're going to go away

they're going to design those chips and you're going to see more come from them over the next three four or five years. It's a very long lead time item that they are licensing out to the customer base. So that is really what is supporting such strong long term growth into the future long term growth. We know that the the line the trend line is going up for the next three or four or five years. But how do you begin to model that out year over year when you actually put numbers to that? What does it look like or what are the challenges of doing that? Yeah, I suppose it's twofold. I mean, on the royalty side, it's perhaps a little bit easier because that's happening here and now and we can try and get an estimate as to what's happening in the mobile phone market, which is, you know, a third of of arm's business at the moment used to be much higher.

It's come down as they've diversified, but it's still the biggest single driver. And we've got estimates of what the mobile phone market is doing that gaining share into the infrastructure space. So you're seeing more cloud computing companies adopt arm based designs. Automotive is another big growth driver

into the future as our cars become more intelligent over time. So we can look at those end markets and try and think about the unit volume and the rate of ARM adoption and the pricing of arm's technology. So that side of it, we've got the, you know, the the variables there to play with and make forecasts. The licensing side of things is a little bit trickier. It can be quite lumpy quarter to quarter

or even year to year. It very much depends on when those big chip customers come to arm and say, Right, we're ready for the next slug of technology from you guys. You know, we're looking further out into the future, but we need this architecture today in order to design those chips. So that's a little bit trickier. We do take, you know, some guidance from the company in terms of how to model that. The royalty side is a little bit more predictable. I mean, quickly here, Andrew, I mean, the stock is at 114 113. We're like kissing your upgrade that you

just gave today. I mean, how quickly you're going to have to be rethinking the stock and modelling it out is no question. It's a you know, it's a fast moving name. And I think the surprise that we've had

today, particularly on the artificial intelligence front, is where everyone is going to have to go back and, you know, do a bit more work and really see how arm's technology is going to be adopted further into the future. Again, the company with the results for the December quarter last night gave us some initial idea there, but we're in the early stages here, so I think there's more to come from them. They certainly promised us a bit more of an update in three months as they themselves go away and reassess things.

Andrew, really appreciate it. Thank you so much for staying up. We really appreciate that. Andrew Gardner over at Citi. But point blank, like when you have a $120 billion company that's been 50% on solid numbers, I mean, that's an incredible move. Like how often are going to continue to do that when people worry that aam was to rely on Apple that's gone away now that is just dead in the water with two letters yeah exactly right. Next up we're going to talk to engine pill global head of alternatives over Jp morgan asset management.

This is Bloomberg. And. And it is just about 330 in New York.

This is the countdown to the close. I'm Scarlet Fu and I'm Alix Steel. Please get this headline here. Money market funds reach a record again of, say, over $6 trillion after we have been pricing back some of the Fed rate cuts. I mean, we talk about that money moving

out and where that money belongs to. That money likes where it is. Yeah, it's pretty happy. It's earning a pretty good yield. It contains zero. So I can't count those zeros.

How many is that? 12. One, two, three, four, five, six. Yes, well, it's 12. It's a lot of zeros and a lot of commas on top of that. Yeah. The big question is, is that dry powder for something? Yes.

But when and where And it hasn't happened yet. No. And we're waiting for that moment to happen. Where it's definitely not going is New York Community Bank. How how's that square for you?

That is a great one. Thank you. Shares are down yet another 7% today. Remember, the stock has lost more than half of its value since late January when it took losses in provisions against real estate loans that were more than ten times bigger than analysts had anticipated. And commercial real estate is a risk for all types of lenders. We saw some property guys over in Germany get hit earlier today. Treasury Secretary Janet Yellen did

highlight these additional risks stemming from non-bank mortgage lenders. If Sark is very focused on that because non-bank mortgage companies lack access to the two deposits which banks have, there is concern that in stressful market conditions we could see the failure of one of these. More insight. Want to bring in Anton Pill, global head of alternatives over at JPMorgan Asset Management. Alternatives is going to be key for you. Yeah, I know where you can put some of that money.

Well, you know, we go that you can, but we say alternatives. What is it? I mean, is it private credit? Is it these non-bank lenders that Janet Yellen is worried about? Is it gold under my bed? What is it? It's a little bit of all of the above. We tend to think of it in sort of two concepts, obviously, private assets, which are, you know, anything that is not traded publicly, but also non index based long short managers, hedge funds, things that where you can go long and short, which is a little bit different, is there's a different set of tools. So that's kind of how we think about alternatives. It's it's not your traditional bond market, it's not your traditional stock market. It is effectively asset class that can help diversify your overall portfolio.

It can help diversify your overall portfolio. And it's certainly a lot more accessible now than it had been in years past. But how what is the take up by investors, particularly retail investors who are sitting pretty happily with their passive funds just following the S&P 500? Yeah, look, there might have been a great trade in 2023. I don't remember a lot of people being that excited in 2022 when, for example, alternatives actually had a very strong year. I think what alternatives can do is help

smooth the ride, including for individuals of their actual portfolio performance. And and frankly, when we think of some of the uncertainty in the marketplace right now, for example, you know, many people are currently debating the when is the Fed going to cut rates? Are they cutting rates? What is going to happen? That's all resulting in more volatility in both equities and fixed income, which really, as a long term investor, you're not really enjoying that ride. I think alternatives can really help smooth that and keep people invested longer term for their eventual wealth buildup. So we just take the private credit world for a second. Yes, I feel like there's two schools of thought.

One is like, guys, we have no idea what all this money going to private credit is going to do. If there's a massive downturn, it's hard to price these things. And then the other is like, hey, yeah, but your money is locked up for ten years. There's a long time horizon like it's going to be okay. Which camp are you? Okay, You're me in the first camp.

But why are you going? Actually, I'm a little bit more. I'm probably out of all the sort of alternative asset classes. Private credit is the one I'm probably most cautious about. And not so much because of of bad covenants or of the lending standards, but frankly, because valuations there have started converging more closely to high yield. And I think in an environment where you're uncertain and have a lot of volatility, I think on the margin, I would probably make sure that the private credit you own is extremely high quality. And if you want to own something a little weaker, go into the high yield market where you'll have some degree of liquidity. It's not that popular of a view amongst

many pairs of mine, but I do think valuation plays a big role. Now you are correct, having a long term hold period allows you to ride out a lot more uncertainty and actually allows you to negotiate with these companies to help think about how they survive through a liquidity squeeze. The flip side is if the Fed does cut rates, liquidity is injected back in the marketplace. Most of these asset classes will do

quite well, including private credit. Mm hmm. Mm hmm. We were talking a little bit earlier about your biography and how you started off in the public markets, fixed income currencies, commodities, equities as well. And then you've transitions since then to alternative assets and now alternative investments. Is the industry made up of people like

you or those who started off in alternative investments and therefore don't really have the scope of understanding markets as a whole? I think it's a combination of both. I think some people really grew up in the private equity business and have been in that sort of trend for a while. Other, similar to myself, started in public markets and started realizing the growth of private markets and therefore looking at private markets as being sort of the next opportunity where you can apply the learnings from public markets. And as private credit continues to grow and private equity continues to grow, these markets are beginning to be equal or larger in size than the public markets. So expect that to that trend to continue. What has surprised you the most about

making that transition into alternative investments from the public markets? I think many public market investors are sometimes a little annoyed that we have a much longer time horizon where I don't have to worry about like earnings this second right now because I have a much longer time horizon. And I think for a lot of investors that can be particularly powerful for their portfolio, they can they can kind of not get scared when something bad happens overnight and then three or four weeks later not worry about it. So how worried would someone who has a long time horizon be about the commercial real estate wobbling this that we're seeing right now? So, you know, I actually have a little bit of a different view than most. I think we're beginning to bottom on the sector is actually that most people are worried about. I think on the office side, we're beginning to see a lot more people go into the office. If you look at the house stuff, people are in an office, especially in the U.S.

A lot of people probably we're going to need more office space if the growth in the US continues. So I think a lot of it is if you can buy a high quality office that's fully leased, the values are there and you're probably going to bottom out by the end of the year. Early next year. So I'm actually more optimistic on the commercial real estate side than most about residential real estate, because in some ways, I mean, that was really New York Community Bank. That was the tough one, right? Right in front of the rent controlled building. I think that's right. And I think some of the segments in real estate that people are most excited about, which are multifamily, I actually think could be on the verge of a much more difficult second half of the year because of an oversupply of that's coming in the marketplace. I also wanted to get your thoughts on

private equity before we let you go, because it's sort of a similar story with private credit in terms of the time rising sector. But what we've seen in the last few years is the lack of exit strategy in creative ways, where you have to fund yourself, where you can't exit. What do you think of as an investment now? I actually think it's going to be a very good vintage year for private equity.

We've seen valuations come off in 2023 from some of the highs and frankly, a lot of the people who needed that liquidity that you just described are being for sellers. And if you can pick that up and even for individual investors who can get access to products that are buying these in the secondary market someone else's and providing liquidity, I think it's actually going to turn out to be a very good year. Looking back, you say for private equity on the buyout side that there are certain areas that are more attractive than others, mid-market, small market in particular. But I look at, for instance, the Russell 2000 and how it hasn't had that breakout. I mean, we had a guy that had the rise. We've had many of these companies are staying private much longer, and that's part of the problem.

Exactly. And talk us through why you see value in smallcaps when public market investors can't seem to. Yeah, I think partially because at the end of the day, when you're doing a small and mid-sized company, it's not about the financial leverage to try to get your return. You're actually going to manage that company to try to improve the company itself.

So it's much more about managing the nuts and bolts of day to day activity than trying to bet on whether rates are higher or lower in your next refinancing wave. And that's what's exciting. Like on the small and mid-cap size, we can see the real time impact of things we're doing on these companies and devalue your generated by managing them well, which is a lot harder to do on bigger companies, which are much more dependent on financial leverage. Anton Really great. We really enjoyed talking to you and it's great to be here, guys.

Thank you. Bobble head and contrary. I like that bobble head of alternatives at JPMorgan Asset Management. Some breaking news for those of you who follow oil like I do.

ExxonMobil is now exiting Equatorial Guinea within months. They've been there for 30 years, while almost 30 years they have helped transform this nation into one of OPEC's smallest members. What this tells me, Scarlett, is that this is Exxon continuing to trim any fat that they have to pour all of their focus and resources on the Permian, for example, integrating Pioneer and really helping to streamline what they are able to accomplish. Is this a call on Equatorial Guinea or

is this more just the Permian Basin is just so attractive? We want to place all our bets there. I would say something probably in the middle that they probably can't bring any more value to to Guinea. I mean, they're probably up and running and they're testing a lot and the technology, etc. maybe won't be useful there. They can apply their technology in a big, big way. Is they to pioneer as wells, for example, or to other assets that they have, probably not this asset. So it's Exxon making a call,

essentially. And I think that you're right about something we'll watch for. ExxonMobil currently up about a dollar 93 at one over 15. All right.

Let's talk about our stock of the hour, because it is coming up. It is a Chinese holographic tech company really capturing the attention of meme stock traders. Look at that move today, up 45%. This is the close on Bloomberg.

It's time now for our Stock of the Hour. And today we're looking at a battered Chinese company that develops holographic technology. The name of the company is Micro Cloud Hologram. And the shares are soaring today after garnering attention from who knows, the meme stock crowd. Later, Bill Pina is here with us now.

Over the last two days, it's gained 1800 percent. That boggles the mind, Alina. And the ticker is hello. Hello. Exactly. Hello is very similar to YOLO, which stands for you only live once.

So this stock closed at an all time low on Tuesday. It rallied tenfold on Wednesday and now they're 100% early in the day on Thursday on no apparent reason. It's just that, you know, the meme stock crowd decided to push it higher, as was the case in 2021. But guess what? Options on this stock I'm not trading so it's not call options that I'm driving to sell my car. It's just the shares that are rallying so much now, no guarantees. So is this like a risk appetite among retail guys up again? Like, is this going to be 2021 all over again? Yeah, it's it's also it's one of those tickers that, you know, it was trading near $1 a share, which is very close to the mark where it gets kicked out of official stock exchanges and goes to the LTC market.

That's why did Garner stock split. But yeah, it could rally some more based on the appetite of the crowd. Okay. So you and your colleagues are on Bloomberg's cross asset team and stocks team. You are trying to talk to analysts and investors who actually cover this company.

Do you are you able to find anyone who can tell you anything fundamental about this company? Nothing fundamental. Yeah. It was an absolutely penny stock company. It did irreversibly on Friday.

It went public in 2022. It wasn't doing really well. It is a Chinese based stock that had no coverage on Wall Street, no apparent, no value that would take it so much higher in such a short period of time. And this is why David Einhorn gets mad. But this makes sense, right? Okay, Alina, thanks. Alina Pina joining us from Bloomberg. All right. Coming up, we are still on Earnings

Watch. We get a firm remember the buy now pay later company. We got Pinterest. We got take out with results after the bell. We're going to break down on what to watch with Dan Suzuki. He is deputy CEO over at Richard bernstein advisors. You are watching the close on Bloomberg volume.

Not that exciting overall index level. Not that exciting, but you're still seeing the Russell do pretty well. You're also seeing sort of the the the unloved stuff like energy do wells or does feel like at least today the rally is broadening out. Yeah the Russell 2000 having an impressive rally on a day in which not much else is happening.

We are hugging record high so it's a wrong number and. This is the countdown to the close. I'm Scarlet Fu here with Alix Steel Alex. Not a whole lot to look at. If you're paying attention to the S&P 500, which most people are because they're invested in some kind of index fund, But a lot to get excited about, I guess, if you like small caps. Well, at least today, I mean, the Russell doing quite well today, about one and a half percent energy that was mentioning earlier. Also up so doing well over 1%. I just want to point out a winner and a loser just because they're fun to talk about. So one loser was PayPal.

We had the report yesterday after the bell, the worst performing stock in the S&P, cutting cost streamlining operations. Usually that gets investors excited, just not so much with this stock. And then Ralph Lauren totally missed this one, up 17%.

I was interested by the strong rebound in China, which totally flies in the face of things like Estee Lauder and L'Oreal. I realize that skincare but that did not that label China as the reason why the earnings weren't as good. But Ralph Lauren just totally defying that. The Chinese consumer really likes the

preppy look. I guess I really am right. I mean, I don't know. Lauren's sales are pretty consistent always and within that preppy school. All right. Let's talk about earnings season so far because they're rolling on.

And after the close, we're going to get a firm Pinterest, a cloud for Cloudflare Pricing that quickly out after the bell. Our next guest expects earnings to, quote, continue to accelerate for at least a couple more quarters, adding that he likes companies least price to benefit from that acceleration, such as small caps, industrials and emerging markets dances. Yuki, deputy CIO over at Richard Bernstein Advisors, joins us for more Smallcaps We keep talking about them and we keep hoping that they'll actually be able to hold on to some of their gains. But it doesn't come. I mean, there are so many leading advances. What's different this time? Well, I think to some extent that makes sense. I mean, if you look at the under the underlying you look under the hood at earnings, you know, it has been a tech driven story up until now. But if you look at the acceleration that

analyst forecast for the rest of the year, you know, that's going to be less and less the case. So you're going to see, you know, the further acceleration of earnings is going to be less about Texas Tech and those related sectors growing. They're actually going to be growing at a slower pace and it's going to be more the traditional cyclical areas of the market, like small caps, like industrials, like energy, whose earnings are expected to accelerate if you believe the analyst forecasts, you do.

Yeah. So why is this time different than like last year, which was like a fake out? Well, last year we were in a profits recession for the first part of it. And then as you accelerated, it was really it really truly was, you know, the tech stocks who led us into the earnings recession, which had big bounces coming out of that.

So to some extent, you know, it makes sense that people are getting excited about that. You know, turnaround and growth. We try to get excited all the time about these other companies, anything beyond the Magnificent Seven, but it doesn't work. And in the end, everyone just looks at the same seven stocks, maybe not Tesla so much and piles into those. I mean, we talk about the broadening of the rally. It hasn't happened. I know. And you talked about broadening like

maybe if the gap was this big and it goes to this big, I guess it broadened. But still, I mean, Dan, how can I just why do I want to buy small caps? Go buy. Well, there's there's two things going on, right? I mean, there's we've been talking for for a long time about the dominance of Magnificent Seven. But, you know, this year, every time I turn on the TV, it's like the Super six and the Fab Five and the Fantastic Four. I mean, at some point, you know, maybe

you are just getting an implicit broadening out here where it's less and less stocks that are driving the market higher. But I think the other thing is, if you look at the history of markets, you don't have sustainable markets, long lasting bull markets that don't at some point come with breadth. I mean, we saw last year was the worst breath basically in history. And I don't think that that's going to continue. If it does continue, it's probably a very bearish sign for markets and a bullish one, because if you think about it, you it's okay to huddle up in the handful of stocks that have the best growth when there's not much growth out there. But the more the profits accelerate, the more companies put up really strong growth. And then you can become comparison

shoppers and say, why pay? Why would I pay 30 or 40 times for a stock growing at 20% when I can pay ten times for a stock that's growing faster? You know, we were just talking about headline earlier about money market assets hitting a record $6.02 trillion. That was 12 zeros we counted on after the Fed minutes pushback after it became apparent that the Fed was not going to cut rates in March. Is any of that money being deployed right now? What are you seeing? It looks like it's being deployed, but it's being deployed very narrowly. I mean, if you look at the the sector flows year to date, I mean, there's one sector that's got all the flows and everything else is basically flat to down. So and actually what's also interesting is you're seeing people focus less on buying broad market indices. That's yesterday's story. You can just go buy the three or five,

seven stocks. They're driving everything. So people actually just back to stock picking now and not really picking those buying those seven stocks. So let's go to the Russell for a second. Would you would you sort of use the same template that. Some are doing with the mag seven but use it in the Russell.

So is it a value versus growth situation within the Russell? Do you need to buy Russell growth rather than value or you break the back? I think I think the time, historically the time to own growth is when growth is weakening and slow. Well, that's not the case of growth is going to continue to accelerate. This is actually a better time to own value. And so owning value, owning cyclicality

is the right thing to to to do while this earnings recovery lasts. Now, we I can come back here six months from now and very well be seeing signs that the profit cycle is starting to roll over. If that's the case, you're probably going to reverse that trend and maybe add more growth back into the portfolio. But I just don't think this is the time

when profits are actually still accelerating. I want you to weigh in on the other big story that's really been plaguing investors the last few weeks, and that is, of course, commercial real estate and your community bank and what that says about the bad loans out there and who that's going to hit, because we've seen a German bank bond get affected. We've seen Japanese companies get affected. How worried are you about commercial real estate rearing its ugly head again? You know, I think you have to be you have to be aware of what your exposures are. I think that, you know, the fact that it's everybody's talking about it and it's all over the headlines and banks are are failing over. I think, you know, to some extent that should give you comfort that a lot of the bad news is priced in.

But there's still going to be I mean, you should never be surprised when there's there's a few a handful of companies that are going to be taken down by this. I mean, that's just the history of how things go. It doesn't mean that it's going to be this worsening crisis from here. In fact, I assume in many cases, a lot of the bad news is priced. When do you think we start to get an earnings roll over again? You know, a lot of people, maybe most of the people that come on this show will proclaim to be able to see the future.

We really don't try to make that proclamation what we try to tell people as the best and second best thing to that is actually trying being timely and identifying the inflection points. And for the time being, we're not seeing any signs of inflection. In fact, actually, things are still getting stronger from an earnings perspective. But again, we have visibility a couple of quarters out. So as we get into third, fourth quarter, you know, who knows what's going to be happening? There's going to be a lot going on at that point in time. What are you most worried about right now? Very quickly, what what weighs on your mind? Well, just at the risk of sounding like a broken record, I think there's massive concentration risk in the markets today.

And so it doesn't take a whole lot for the wind to come out of those sails at any moment. All right. Dan Suzuki, really appreciate it, deputy CEO over at Richard Bernstein Advisors. He's worried about something that we've talked about for so long over concentration risk, but still has not yet really come to fruition. No. And also just the idea that just because you think that now doesn't mean that six months you won't change your view. Right. It's a fluid market.

So fluid opinion. All right. We're moving closer to the closing bell for market coverage right here on Bloomberg. Beyond the Bell. Bloomberg's comprehensive cross-platform. Coverage of the U.S. market.

Close starts right now. We're about 2 minutes away from the end of the trading day. I'm Scarlet Fu here with Alix Steel. We're counting you down to the closing bell. And here to help us take you beyond the Bell with a global simulcast, Carol Massar and tim Stanwick. And, of course, welcome to our bloomberg television, bloomberg radio and YouTube audiences who are joining us online to take a look at this trading day, which by the measures of the S&P 500, we're not seeing a whole lot of action, but we're near record highs. And the Russell 2000 finally gets a bit of a pick up, which is good to see.

Right. The small caps are participating. But yeah, I keep calling it a day again. But 49 99.68. Right. Is what we got in the S&P. So yeah, so close to 5000 Charlie Bell And I like all of us, we've been kind of obsessed watching whether or not we get about 5000. The indices, though, they're masking the big moves that we're seeing in individual equities today. And look at look at, Alex, what ARM is doing today, up more than 60% at one point in the day, Disney higher by double digits. We're seeing PayPal down by double

digits. So we're not getting the real story by looking at the indices. No and particularly with aam too I was mentioned this earlier that's you know $120 billion company right and it's moving by this much that's pretty quite a lot of churn within the equity market but I'm still in the the small cap story the energy story like the the laggards over the last few weeks playing a little bit of catch up. Well will they be followed through tomorrow. I don't know. I'm more skeptical. We do get a CPI print. You do wonder if it'll change if

anything kind of returns. Yeah. And revisions which Yeah. Could hold a lot of change. So it's worth noting as well. We had a pretty decent 30 year Treasury

auction following a decent ten year Treasury auctions. Now you like the auctions? She was making fun of me yesterday for the auction. Why? We shouldn't wait. What's going on here? I was in front of her so much as saying. You really want to talk about.

Well, we've got to separate you two. We did the top of our show with Michael Mackenzie on the auction. Yes. Oh, okay. I see. I was just like, All right, let's take a look at how markets are closing on the day. You have green all around. But did we get to that 5000 level? No. 4998.52 is the early read. But of course, we're waiting for it to

settle. We're going to come shy of that 5000 level. It is a gain of almost 1/10 of 1%. Dow Industrials adding about the same amount and Nasdaq gaining a quarter of 1%. All right, folks, let's get to some

earnings crossing the Bloomberg terminal. We're talking about Expedia, home to so many travel websites. Men getting killed in the aftermarket down about eight and a half percent.

Let's go to the numbers. Fourth quarter adjusted revenue, our fourth quarter revenue excuse me, 2.89 billion, slightly higher than the street estimate of 2.88 billion fourth quarter adjusted EPS, $1.72. That's three pennies better than the street was expecting.

Fourth quarter negative free cash flow, 415 million. The estimate was for a -192.6 million. So that's going to disappoint investors. Fourth quarter gross bookings, 21.67 billion. And Tim, that's also coming in light 22 billion was the estimate stock down about 7.8% here. Yeah.

Peter Kern, the vice chairman and CEO of Expedia, saying our work is finally starting to deliver results and we are in the best place we've seen we've ever been technologically moving forward. We are now able to execute without the numerous constraints we have faced in recent years. We will continue to focus on acquiring and retaining the right customers, driving share growth in our B2C and B2B businesses, and providing the best product and partner experience in the industry. And Expedia also announcing a CEO transition plan and Pause.

Two other really interesting things. One arm adds $38 billion in value, record 48% jump. And and the S&P briefly broke above 5000 guys. It didn't it didn't settle there, but it briefly broke above that first time ever. Really? Yeah.

There should be like, you know, balloons and confetti and thousand point four We did This is true. Yeah. But it's a touch and go, right? It gets old. It doesn't count though. If it was intra day like we only counted

when it's the close. Right. You break out the hats when it when it was about that close. There's options. Tomorrow it's going to move. All right. Right, Right. We'll see whether it is this weekend. Yeah. Okay. No, let's get to some of the individual

gainers. Surprise, surprise. ARM Holdings was a gainer soaring to a record up the most since its IPO last September. You know the news, you know the story. The company issued a surprisingly bullish earnings forecast showing and we've all had conversations about that pushing beyond smartphones is helping fuel growth. So that was certainly a big outstanding name. Another chip name on my radar and this is monolithic power say that five times fast among the top of the Nasdaq 100. It's a semiconductor device company reported fourth quarter results beat expectations. It also gave a positive outlook.

Analysts noted a tailwind from artificial intelligence. You had a lot of analysts raising their price. KeyBanc Cohen, Oppenheimer Truist all raising their price targets KeyBanc.

With the Street High now of 830 a share, boosting it from a previous target of 600. But again, the stock up 47% by the close here. And then Disney had to talk about it rallying big time, most intraday or most in about three years since December of 2020. You know, the story there reported

better than expected earnings for its fiscal first quarter, raised its dividend 50%, approved a $3 billion stock buyback plan. And issued an upbeat profit outlook for the year. So again, that one was up more than 11% in today's trade. All right. Well, let's look at some of the

decliners as we continue to wait a wait on earnings. Let's start with PayPal. Among the worst performers on a percentage basis in the S&P 500, seeking more than 11%, the most in months. This after the company issued a disappointing 2024 outlook. PayPal said it expects earnings to be flat this year as it continues to cut costs and streamline operations. Just a reminder, the company did

announce last month it's going to cut about 9% of its workforce. Part of the CEO's efforts to boost profits. Taking a look at snap on tools falling the most intraday since March of 2020, after the company's tools group reported a sales shortfall.

Management did say the segment's performance was, quote, not at our standard. Shares finished, then down by 9.7%. And then have you guys been talking about 23 and me much. The stock has been on a tear has been talking about it there. Right. It's barely barely there.

I mean, they're concerned that it's going to get de-listed. Shares today falling for yet another day. The company's CEO and will diski telling bloomberg news that she's considering splitting up the dna testing company's consumer therapeutics businesses in an effort to revive a sagging stock price and avoid being delisted, down another 13% today. Total return on the stock has been

decline of more than 90%. You guys taking one of those 23 retest? I mean, like everyone who was going to did it a few years ago, that's exactly the problem. Right. It's not a recurring plus, but they keep adding more people to the database so then you can keep going back. So I haven't done it, but my husband does. He's totally into it. He loves the whole let's go back and then see what does he pay each time he goes back. He doesn't tell me these things.

I do wonder, let's say let's say the company is delisted, that split up. I wonder what happens to the data. Because a big question that I have is about the privacy of this data. This is why I don't do it, because I don't want to share this. There are others. Yeah, that's so that that's a question that they already have all the data please from your smartphone. Anyway, stop.

Right. And just a quick pivot here on yields, because we did see yields climb. We had that successful 30 year auction, but yields moved higher. We had a little bit of a sell off, but not at all affecting the equity market. It does feel like we can have higher

yields now and higher equity market. Yeah, it's it's kind of a whole Hamdi and Treasuries. I'm accustomed to seeing 23 basis points moves. So that that's kind of shocking in how

slow and boring it is. We have take two numbers coming out and take two. Of course, the video game publisher, everyone cares about it because of Grand Theft Auto six. When that does come out, not a whole lot of numbers to work on right now, but third quarter net bookings of $1.34 billion, slightly higher than what was anticipated, which was 1.32 billion. We're waiting for some more numbers

across right now. But if you look at how the stock is trading in after hours, we have it closing up $0.03 at 169, 60, about 1% higher, right? Yeah, Yeah, just a little bit right here. Yeah. This is a stock that I'm just looking at. It's up about 5% here so far this year. But again, you're seeing a little bit of

momentum up two and a half percent. The company saying it sees fiscal year net bookings of 5.25 to 5.30 billion. The estimate on the street, this looks a

2024-02-12 18:20

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