Magnificent 7 All on the Rise Today | Bloomberg Markets: The Close 4/11/2024

Magnificent 7 All on the Rise Today | Bloomberg Markets: The Close 4/11/2024

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The dip buyers emerged in the calm after the storm. Live from studio two here at bloomberg headquarters in new york. I'm Romaine Bostick and i'm Alix Steel. We couldn't even have follow through

selling. No, no, alex. This is how it works. You know this. I know, But every time it surprises me not only no follow through selling, but also a record high in Amazon. Go figure.

S&P is up by about 8/10 of 1%. Tech most definitely outperform and we'll get to that in a moment. Amazon, as I mentioned at a record record high up a whopping 2%. But I mean, keep in mind, again, this

always is for remain here. I was talking to Vince Perella of Bloomberg. We used to trade up x 155 is now the line in the sand from some serious intervention and that 30 year bond auction was a total bust, yields up three basis points only. And yet equities still around the highs of the session. Yeah, let's get right to it here, Alex, because while that cooler than expected producer price report didn't quite sort of ease everyone's nerves here after that hotter than expected consumer inflation number yesterday. You see the price action, Alex, many buyers out there right now really finding some solace that those two reports put together at least signals some underlying economic strength. That's why you're seeing some dip buying

here, because it really could be a good thing as we stand at the precipice of a critical earnings season. George Ball, chairman of Sanders Morris, he told Bloomberg earlier it's not going to be the Fed rate cuts that really drive this market higher. It's going to be earnings, in fact, moderately higher. Inflation might actually help some of those companies margins. All told, earnings for the S&P 500

companies are expected to maybe improve by about 10% in the first quarter. That's according to Deutsche Bank strategists. And earnings upgrades from analysts this year have so far outnumber downgrades in the first quarter. That's according to City. Now, our analysts at Bloomberg Intelligence, they say while consensus is still cautious heading into the earnings season, as sales gains may be a bit more muted than anticipated. So that really leaves investors keen on what executives will have to say about the longer term outlook.

But before we get to all of that, we do have to start with two of the big movers of the day right now. In fact, the biggest drag on the S&P is Morgan Stanley having its worst day since 2020. And Alex, Apple right now, the biggest contributor to gains in the S&P having its best day going back to May of last year. Apparently some new Macs coming out with an eye chip there may be.

Could that be the big catalyst we've all been waiting for? So this is a chart. It's just a moving average chart. I say just but it was pretty ugly. So just so you know, you get the pink line is the 50 day, the green line 100 day and the yellow line 200 day just shows the long term and short term, medium term trend. And this is what you want to pay attention to.

So this is the 50 day and this is the spike that we're seeing today. We haven't seen this move since May of 2023. That's a nice gap higher. Do we hold it now? It might be easy to talk about Mac. And then in terms of the AI powered chips, et cetera. But then again, Amazon is also at a record high and overall tech is outperforming Tesla's even higher.

So, I mean, I have to wonder, is it the products that we're looking at or is it just maybe we sold off a lot? Let's go ahead and buy some shares to stabilize? Yeah, that's a good point. Maybe we can pose that question to the person who broke this story, that story crossing the terminal just a little while ago. Apple aiming to boost sluggish computer sales, preparing to overhaul that entire Mac line with a new family of in-house processors designed to highlight artificial intelligence. Mark Gurman joining us right now with

more details on this. And Mark, investors really like this 4% gain in Apple is something we haven't seen in some time. If I were to guess it's not necessarily the Macs themselves. Obviously Macs are a small portion of the overall revenue base for Apple, right. On an annual basis, something around 10%. And I'm not sure that any investor

believes that's going to skyrocket to doubling revenue or even, you know, going a third higher. I think it's the focus on a I think that investors are seeing that Apple is trying to push artificial intelligence to every nook and cranny it could across the company, not only in the new version of the iPhone operating system, not only some of the new software they're working on, not only into Siri, but into their chips as well. And so like I reported earlier today, Apple is working on new M4 chip, the big focus, an upgraded neural engine which would allow more cores and computational capabilities related to large language models that would run on Macs themselves. Now, I do think Apple's A.I. initiative will you'll see a big presentation in June around that, but I do believe it is a multi-year effort. So while the chips are getting these capabilities this year, probably on the software and services side, it will take a little bit longer probably into next year 2026, to see more A.I.

ification, if I may. In terms of feature set from Apple, you can totally say ification. I totally dig that. Bloomberg's Mark Gurman, thanks a lot. We really appreciate it. Really good reporting on that. And I wonder if I mean, if you just you say the word I Yeah, and it helps. It just shows, I think, how desperate investors are for Apple to have an AI strategy and to point to that And that's the whole point, right? They haven't really articulated that strategy in the way that we've heard from Microsoft and Alphabet and some of the other The. company.

So here. Maybe you got it. Yeah, exactly. Well, let's get more insight here with Dan Greenhaus. He's chief economist and strategist over at Soulless Alternative Asset Management. Dan, we had a whole nice plan for you on something very different, but we're going to start with big tech. I prepared for the plan right now.

We love ripping up plans. What do you make of the rally that we've seen today in big tech? Like how much of that was an oversold thing? Is it a buy the dip mentality? Is it product driven? What do you make of it? I think it's a mixture of everything, although it is hard to argue that there is an oversold condition in big tech and on a relative basis other than Apple and Tesla is obviously its own thing. But other than Apple, there hasn't really been very much weakness in those names, and justifiably so, because fundamentally the companies are operating quite well. And while there's obviously a bit of a risk off tone to the market, at least yesterday, the product cycle is what's been driving and driving.

And Nvidia, the product cycle is hopefully what's going to be driving Apple and what's been driving Microsoft. It's not flows because ultimately they all benefit from the passive flows which have been coming into the market more or less unabated over the last couple of years. Are you surprised that we're almost near to a 5% on the two year and yet stocks were doing nothing? Well, yes and no, because I think ultimately the level of rates right now doesn't really matter. The adjustment period matters. And I think to that point, sure, I think, you know, I was joking with with someone, an investor earlier in our fund that we should be printing up shirts. I survived again.

We should be printing up shirts. I survived the great crash of 2024 because it was obviously a 4%. That's about all you get these days. Do I think that we'll do that as soon as we get finished printing up our earthquakes? As long as I get my royalty free to do.

I think that 5% is some deleterious level for stocks. No. Do I think that's true for the ten year? No. But if you have a rapid adjustment, as

you saw yesterday, then it will be a problem in the short term. There's been a lot of discussion, though, that we've kind of in this sort of weird sweet spot, kind of inadvertently, if you will, the idea that the market has shown that resiliency as rates went up there, it's shown that resiliency as rates have remained elevated. And unless you believe that rates are going to somehow shoot up to five and a half, 6% here, is there any reason to think why we can't see more gains in this market? No, because it's I think I said this last time I was on there with you guys. It's almost as if rates don't matter nearly as much as some people thought they did. And to be clear, rates matter both what the Federal Reserve does and Treasury yields. I don't mean to suggest to flippantly

otherwise, but but I think when you have a tailwind where the economy is doing pretty healthy, I think we we need to stop saying it's a surprise to the upside. The economy is doing well, full stop, even with rates where they are and earnings growth is doing more or less fine, even with yields where they are. This idea that somehow if the Fed only cuts two times this year or only cuts one time this year, that that's some catastrophe for the market. I don't think that's borne out, especially by the performance of the fourth quarter.

Everyone we've talked to over the last few weeks have basically said that the earnings picture is going to be a lot more important for where this market goes next rather than just what the Fed does. But a big component of that was this idea that we were going to start to see a broadening a broadening of earnings growth beyond just the big tech and some of the big more established names and for that matter, a broadening of what people buy. Has any of that changed over the last couple of weeks or months? It depends how you look at it on the earnings front. No, I think most viewers probably know, and I'm sure you guys are aware, earnings at the big tech companies are expected to be up 30 whatever percent. And everyone else, the 490 whatever, are

going to be down a few percentage points. So on that front, it's a little more challenge. But I think that's too broad of an observation because when you look at the performance of a number of industries and sectors, for a while it was just semis and homebuilders you would point to. But I think something I've been harping on for the better part of a year now, and I think it's a little more well understood, is what's been going on in the industrial space. Yeah, it's not just your traditional industrials, I call it Caterpillar. It's the names that are data center

adjacent, if you will. They're building out the data center. They're cooling the data center. They're building the roads to the data center. There's something going on there as well, the hotel and leisure stocks. And those are there's there's plenty of themes to play beyond simply I and so on that front, while I acknowledge the earnings story is a little more challenged on the performance and the fundamental front, I think there's a lot going on that's very interesting, if not more so, than the A.I. story. A lot of potential inflection points. Dan, always great to get your insights.

Dan Greenhouse, chief economist and strategist at Solus Alternative Asset Management. As we kick you off to the close here, a conversation coming up about CEO sentiment and how it's finally turning the corner. A conversation up ahead with Paul Callan, op chair and CEO of KPMG. Plus, you got oil and just whipsawed as traders digesting swelling stockpiles plus geopolitical risk. We're going to discuss the outlook and moffettnathanson delivering an upgrade to DoorDash. We're actually going to talk about

what's actually fueling the optimism over there. That's in our top Call segment. Stick with us. A lot to cover here on the close on Bloomberg. Lots of indicators over the last few weeks about how CEOs feel about their economy. And KPMG is the latest with this outlook. A couple of things that stood out to me.

87% of U.S. CEOs feel confident in the US economy. 72% are looking to increase headcount this year. And the biggest risks are regulatory, operational issues, cybersecurity and tax. Super interesting, and inflation was not one of those biggest risk. Now, Ramy, what I also find interesting here is that the NFIB, the Small Business survey, showed something very different. That overall survey is the lowest level since 2020 2012. They're still looking at a super tight

labor market and they're still worried about inflation and they're really worried about sales. And I'm wondering kind of where the discrepancy lies. This has been a disparity for a while and we always kind of joke about the big economy and kind of the real economy.

If you hit Main Street economy here, that's a disparity I'm trying to sort out. And you can even see it in inflation, for example, are spending. Well, joining us for more is are Paul Canopy's chair and CEO of KPMG. U.S..

Great to be here. Thank you for joining us. Tell us about the survey and the discrepancy that we see among the guys you survey and little guys. Well, so I definitely believe that CEOs recognize the challenge with inflation and we see geopolitical risk and cyber risk as being near-term risk and the near-term risks keep evolving. Four years ago was the pandemic. Three years ago was the great resignation. But to, you know, sticky inflation, a

really tight labor market are structural things that we think are going to persist for quite some time. And when I say sticky inflation, what I mean by that is inflation has been reduced quite a bit. But at the same time, it's in that range where it seems to be difficult to believe it's going to get back back down to 2% any time soon. So that is a challenge now in the face of all those geopolitical risk and structural changes. We also have a lot of confidence from

CEOs, as you noted, and I think a lot of that confidence comes from the fact that the economy economy has been very resilient. We've navigated these challenges quite well the last four years. So we're both small and big guys wind up having tightness in the labor market. How are the clients that you surveyed managing that? Well, certainly as you think about going forward, you're trying to make your workforce more productive and efficient. And one of the things that we found in

our study is that generally the AI is in the plans of many CEOs to try to ensure that we get to that point. Also, in some cases, CEOs are not going to be requiring college degrees and they're looking at alternative hiring models or service delivery models. So when you say no, they're not requiring college degree, so you're talking about basically lowering the standard. So that seems to suggest they're still having trouble finding. So I think we've gotten very comfortable

remain upskilling, reskilling people. So I don't so much see it as lowering standards. But, you know, really good people that can be upskilled reskilled to help us get after some of these shortages that are in the market. And again, I think some of these

shortages will persist for quite some time, but they are still in that hiring mode. They still need a reason and they see sort of potential to increase headcount. Yes. I mean, of that study, I think it was 32% of CEOs said they would significantly increase hiring in the next 12 months, 40% modestly. Only 4% said they'd be reducing the workforce. One interesting thing, though, that I saw in the study was that a lot of folks are sort of taking a wait and see approach on a lot of things in their business until they see the outcome of the U.S. election, not necessarily on hiring, but certainly on M&A and some of the more strategic moves that they would be making.

M&A a major capital expenditure, 62% of CEOs reported they would wait until after the election to make those kinds of decisions. And I think it's is flaring up. But is that different? Because I'm always told that for a lot of folks, elections don't matter at the end of the day. U.S. policy, while there are changes based on the new president, generally speaking, the overarching policies we have are relatively consistent. Is it so opaque right now that people just feel they cannot make those decisions? No, I think what it is is that the two biggest obstacles to more M&A right now are higher interest rates being one. And then if you think about the valuations of companies shifting valuations multiples are very high. Those are huge obstacles.

That's what our survey showed. I think that the election just adds one more layer of uncertainty and complexity onto the M&A market, such that everyone's trying to figure out, you know, what will it look like after the election and will it actually present a better environment for actually doing M&A? I would say to the Remain that there are there's a lot of cash on corporate balance sheets, a lot of cash at private equity, and it's the market's going to come back. It's just a matter of the duration of this softness. Before we let you go, there was one of the thing that we both find interesting.

Only a third of CEOs expect people back in the office five days down to really to throw it. Man, we've been here five days for a long time. I just like. I know, really. So, Alex, it's really interesting. We did that same survey a few months ago and late in 2023, and 62% of CEOs at the time said that employee employees go back into office five days a week over the next five years. And it dropped, as you said, to 34%. A remarkable finding. I think what that means is that hybrid

is here to stay. And hybrid can be anything from 1 to 4 days a week, theoretically. And I think we're all getting more comfortable with the productivity of our workforce. And we're not we're not at optimal when it comes to hybrid environments, but it's an environment they're all more comfortable with moving forward.

All right, Paul, this is a really illuminating forecasting from home. That's what we'll do. Bite your tongue. Paul, top chair and CEO of KPMG us. A closer look here at CEOs sentiment for the year ahead as we continue to count you down to the closing bell and a look at some of the big movers out there on the back of analysts recommendations and a conversation with one of those analysts over at Moffettnathanson and his take on DoorDash. 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 analysts recommendations. And we start with Knight. Bank of America lifting its recommendation to buy from neutral, with analysts saying estimates are bottoming and, quote, finally look achievable. We haven't heard that in a while.

She also cites upcoming catalysts including the Olympics and Nike's Analyst Day this fall. The share is up 4%. Next in line, let's take a look at Airbnb. Two dueling reports out today getting cut to hold from buy over at Needham.

Part of the downgrade is valuation based, but the analyst also cites challenges with growth on a global scale and believes the market is just a little bit too bullish right now on Airbnb's use of API. Meanwhile, analysts over at Benchmark, they beg to differ. They're starting coverage of the company with a buy rating and a price target of 190. The firm saying Airbnb still remains the

go to among consumers, hosts and experts despite increased awareness of alternative platforms. Airbnb shares got a nice bid today, up three and a half percent. And let's take a look at DoorDash also in on the rally today with an upgrade to buy from neutral over a Moffettnathanson analyst there, Michael Morton believes the delivery service can capture growing consumer demand, especially for grocery delivery and those risk from student loan repayments. Morton says they failed to materialize.

He's raising that price target to 164. Those shares moving higher on the day by about two and a half percent. And those are some of our top calls. Now, we do want to stay with that last call on that DoorDash, because pleased to say that the analyst behind that call.

Joining us right now in Studio two, Mike Morton, a senior research analyst over at Moffettnathanson. And Mike. DoorDash. I mean, there have been a lot of investors who are kind of like pushing this stock to the side here. What gives you the confidence here that we could actually see not just a resurgence in the price, but more importantly in their growth story? Thanks for me. What we are really interested about with the DoorDash opportunity is it's an exceptionally managed company that's addressing two of the largest markets you can really think about when it comes to consumer behavior. It's restaurant spend, which is

$1,000,000,000,000 opportunity that's roughly 8% penetrated by food delivery at the moment. And grocery, which we like to refer to as consumables, this is a $2 trillion opportunity. Is the issue, though, with DoorDash. I mean, and by that I mean the issues that some investors have taken with this company. Is it one of revenue growth or is it also about their cost, the idea of what they're having to pay their drivers, what they're having to pay for their own sort of internal costs? Is that still an issue? Yes, It's historically many of the companies in my coverage world were more focused on growth and profitability. You're seeing the companies find a

balance in the middle here. For a company like DoorDash that is addressing such a large market. 3 trillion all in between restaurants and grocery, and they're growing bookings at roughly 20%.

You want to think longer term, and if you manage this business for profitability on a one year basis, you could really be cutting yourself short of the absolute profit dollars long term. So it's a delicate balance for as long as they're growing at this pace and getting additional penetration into the markets, I think investors give them the benefit of the doubt. So it's really about volume. Yes. So look at your calls about volume

growth. And I know you say you don't bet against the US consumer, but I got to say, man, like if I'm paying 70 bucks for Chinese food for three people, I'm going to go walk and pick it up. And I'm not paying DoorDash because I don't want to spend the money. Yeah, it's that's where we got ourself in trouble.

We downgraded this stock in the fall for that reason. We've been a big believer for a long for a long time of their opportunity. And we thought the student loans rolling up rolling in in October, we're going to be a headwind for discretionary spending.

And it turns out American consumers will continue to pay for convenience. And despite that, it's a price premium. We've estimated anywhere at roughly 50%. If you go and pick it up, people just keep doing it. Frequency is growing. Growth is accelerating its volume and profitability. The profitability estimates for this company have dramatically improved over the last year by over 100% for the competitors. Now to DoorDash and how they and how

they stack up has really become a healthy duopoly in the United States between Uber, Uber eats specifically and DoorDash. DoorDash has done an incredible job. pre-COVID. They set roughly a third of the market share. We think at this year they're going to be roughly 60% of the delivery market with Uber. The other third at GrubHub has been a

massive donator of share for the last five years, and you're just seeing a continuation of that going forward. There's been a lot of speculation about even further consolidation in this industry. Is DoorDash at all in M&A play? Yeah, Bloomberg's in some great interviews with the founder on it and it's something that they bought well years ago. It's a European operation and actually

rest of world operation that investors would like to see them focus on the projects they had, what they have on their hands at this time. And Tony, in a Bloomberg interview said our our hands are full. So hopefully they keep with what they have. I think that would be the preferred path for our view and also the investment community. And the thing that Alex seems to forget is not everyone manages their money as well as you do. I mean, some people don't mind blowing 70.

To get, you know, a burger and fries delivered to Chinese food. Man, I know I'm crazy. Tell you about that milkshake that I had the other day. Oh, okay. That. I'm Radio. Diner. Midtown Milkshake. Nine bucks. Okay, Well, I think you got ripped off,

and that's part of it. The size is like normal size. And I was like, if I did DoorDash, though, that would have cost me, what, 15 bucks? What's your favorite place in New York? I was a Han Dynasty person. Oh, a place? I don't know. I debate.

I love different restaurant wherever they fill in. That is not a five. This is like the whole this anymore. This is my point. All right, Michael, thanks a lot. Mike Martin over at Marvin like I do.

Is that his name? John Travolta and Pulp Fiction? I'm like John Travolta. I am like John. I can't imagine anybody spending $9 on a mexican. Well, I didn't know it until I bought it. I was buying it for my dad. And I was like, oh, my gosh.

Now, granted, it's midtown. Maybe that's something to do with it. But I'm just saying that, yeah, I think it's the Coco thing. I think it's the Coco inflation. All right. Coming up, speaking of prices, we're going to about oil.

So OPEC says that oil will need to be closely watched to keep a sound and sustainable market. Oil price is getting a little bit of relief today. We'll talk about that and the relationship with energy stocks with Barrett and partner RJ Murti. This is a close on Bloomberg. It's just about 3:30 p.m. here in New York.

This is the countdown to the close. I'm Romaine Bostick and I'm Alix Steel. And one stock I'm watching today remain is for now. Granted the stock is up by. Well, no, it's kind of flat on the day

but slashing their price of its electric F-150 pickup truck by about 50 $500. Yeah. I mean, this is kind of inevitable. I mean, the price point for most of these EVs was too high. And I understand on a cost basis the price point is probably too low. But from a consumer basis, it was too high.

They got to do something to move the cemetery. It seemed inevitable. You see Rivian down 7.8% on the day on the back of this because everyone thinks this is going to have a ripple effect through the rest of the EV space. And of course, we know Tesla, even though they don't want to admit it. I mean, how many times that they cut

prices in the last. Oh yeah, yeah. This is definitely like a Tesla price war thing that they don't want to acknowledge it. It's actually a Chinese price war. Yes. Is it even enough? Like, would you pay 63 grand for this? I don't know. You know what might help, though? Four or $5 gasoline, which takes us to oil prices. Yes, they're taking a break today, but analysts seem very divided on if Brent can actually hit 100.

So you got Rystad energy overnight, seeing the tight market pushing oil to 100 bucks in the summer, Macquarie says that oil isn't sustainable above 90. Well, joining us now with his bio site expertise is baritone partner Arjun Murti. Arjun currently serves as a director on the board of Conoco. He also worked at Goldman forever and covered the equity side. He's had decades of experience in the oil market. Arjun, it's always good to chat with you. Oil Well, it happened in one.

It'll happen eventually. Right now we've been in a rangebound market. I think OPEC deserves some credit, historically been an OPEC skeptic, but they've kept us in the 70 to $90 range. I think the most exciting thing going on in oil is that the demand numbers are great. You alluded to the issue with EVs in the lead into this. It's not just EV sales sort of fading.

Your underlying oil demand growth, I think, is exceeding most people's generally more bearish expectations. And if oil is to sustainably break through 100, it's going to be demand driven. So why do you think that we are at this level? Like I understand that OPEC's demanding supply and demand been really good, but still it feels like we got here really far, really fast. And I'm just wondering for the viability of that kind of move.

So after shooting up to 120 after Russia initially invaded Ukraine, we've been in the 70 to $90 per barrel trading band. So it's very reasonable to ask, aren't we kind of just at the high end of the range? And we could well be. There's a little bit of OPEC's spare capacity that's built up. I think the big drivers that have been fading is we had a lot of surprise on the upside from U.S. shale last year. This year, at least so far, it's still growing a little bit, but we're not getting the big positive surprises.

I think the other thing has been there's been this peak oil demand debate. Some people think it's going to peak in the next couple of years. Others think it may be in the 2030s. We've been in the camp that there's not a decade, let alone year, where anyone can definitively say oil demand can peak. And I think what we are most optimistic

on is some of these recent demand numbers, especially in the most mature economies like the U.S., Europe and Japan. They're not looking as bad as people feared. And if we don't have peak demand here, we're certainly not going to have it on a global basis. When you think about China, India and the developing world, I think it's that combination of factors. If we are to eventually break through this 70 to $90 band, we're at the high end of it. It's going to be demand driven and the recognition that shale doesn't come for free.

And it's not just going to bubble out of the earth forever, as it has been for the last decade or so. So Arjun, does this sort of feed into, I guess, the corporate story, the earnings story, if you will? I mean, we've all look at these prices. We're heading into an earnings season. We're going to hear from some of these companies and they're going to obviously have to address this here. Is there a direct correlation that we can draw, too, that investors can look to to sort of, I guess, run this to a certain extent? It's such a great question.

I think right now. And the big debate will be is what is the time frame by which higher energy prices ultimately feed through to inflation? And when you rangebound Yeah, prices are up versus recent years. You guys were we're joking about milkshake prices and so forth. We've not seen a sustained rise in oil prices since two decades ago. And I think that is the kind of factor.

We're not there yet, but the debate to me isn't do we go to 100 and then pull back or what have you, but do you go to 100? Do you go to 120? Do you go higher and you start staying there? Again, I think it's premature to make that call. We still got to get through some OPEC's spare capacity. We're going to have to prove that shale is not going to surprise to the upside. But when we look at these demand

numbers, I think it's that type of underlying inflation trends that does benefit the energy sector. But it comes at the cost of ultimately higher economy wide inflation. Again, we're not there yet, but I think that is what the worry should be over the long run.

So when you look at the rally that we've had at least to start the year, I think as at least as a group, I mean, they're up, I don't know, 15, 16% here, not really far off from what we've seen in the broader market here. We start to talk about this rotation, the idea that a lot of investors are kind of gotten tired of big cap tech. They're looking for other alternatives. Does energy become that? I mean, it's still a I know a very small portion of the weighting in the S&P 500, but we have seen that come up from, you know, three and a half percent to now 4% here.

Where we stand at the start of April. You know, there's this phrase that software is going to eat the world from, I think, Andreessen Horowitz. And I respect the phrase and it has deservedly gotten a lot of the excitement, a lot of those software companies, great earnings, great returns on capital, but all software ultimately needs hardware. And all hardware ultimately is going to run on energy. And I think that's what the world is waking up to. A lot of our focus at Veridian has been on, hey, we're having this sort of messy, quote, energy transition. There are lots of challenges with it.

I actually do think it's going to be big tech. It's going to it's a buzz word, and I apologize, but I it's going to wake people up to the idea that you don't get this software for free. It actually needs energy. And I think it's going to lead people to recognize the sort of ideology between behind energy transition that has caused these challenges. We need to rethink all of this. And there is a pathway towards having a diversity of energy sources, including traditional oil and gas. But I think the world is waking up to

it's going to be needed. And it's kind of what actually gives me the most optimism about where we are in this energy cycle, this recognition that we're going to need energy, and that while software is exciting and tech is exciting, let's not forget what powers all this stuff. Exactly. Arjun and we were talking about this down in Houston a couple of weeks ago when companies have to really rethink what kind of company they need to be, what kind of M&A is that going to trigger? We've seen a lot of consolidation of the big guys with some of the smaller Permian players. We're not even smaller. Just look at Pioneer. Do we see more of that or do we see a different type of consolidation? So, you know, it was a very tough decade for traditional energy last last decade.

And I, I accept the fact that investors were frustrated and annoyed with these companies and they needed to fix themselves. And a lot of the actions, max dividends, Max stock buybacks and some of the M&A we've seen have been trying to address the problems of last decade. And I think that's happened now the sector is sort of quote, fixed. The profitability is better, the balance sheets are better going forward.

We're now looking for who can actually profitably grow. When you say grow as an energy analyst, people say run for the hills. That's what they did last decade. So we will emphasize the profitability

aspect of it. But what are the new business opportunities? We know shale has been massive, but what comes after shale? Is it international? Is it Canada or is it some combination between gas and power? We know power is going to be a huge issue, especially with a growing amount of intermittency, questions on reliability, questions on how you feed these data centers. Is there an opportunity for natural gas companies to think differently about it? So when we look at go forward M&A, Yeah, when we look at go forward investments, how can these companies, how can it be more forward looking and not just trying to fix yesterday's problems? All right, Arjun, great stuff. We have to leave it there. Arjun Murthy's buried in partner. A closer look here at what's been happening in the oil and energy space. And when we come back after the break, a closer look at what's been going on in the world of finance.

We learn just a little bit a while ago about a federal probe into morgan stanley's wealth arm that sent the shares down as much as 7%. It's our Stock of the hour. An explanation coming up next here on the close on Bloomberg.

Earnings season is coming. I think we're all asking the same question just how much earnings growth we're expecting. Bloomberg is first to break the numbers. Iliad is coming out right now. We have talked to a number of shares of pinterest lucid group coming out with its earnings. All eyes right now on nvidia. A lot still to come with the smartest insights. How much better could profit and revenue have been better than what the street was expecting? Bang in line with estimates, we will have full and instant analysis. It all starts Friday on bloomberg.

Context changes everything. All right. Welcome back. It's time now for our Stock of the Hour. A closer look at Morgan Stanley. The shares at one point thinking about 7% on the day and just a span of about 40 minutes. This on the back of some headlines out of The Wall Street Journal about a probe into the company's wealth management business Sonali Basak. Joining us right now with some more

details here. What exactly did the journal reports? Finally, there are a few things are multiple regulatory bodies. Taking a look into this, according to the journal, the SEC, the SCC and divisions of the treasury department are all taking a look at Morgan Stanley's wealth manager and the vetting of certain clients. So this goes to the idea that the SEC has sent letters, according to the journal that has listed certain clients and asking about the background of those clients with potential ties to very sensitive businesses, for example, in Russia or even, for example, an individual who claims that she was based in the US but had potentially been sanctioned by the U.K. So the background of US based clients, as we know, Morgan Stanley is a US based asset manager and wealth manager. But unlike a lot of the other rivals

that they have in wealth management, their business is U.S. wealth management primarily. And so their clients in the US with potentially behaviors abroad that had led to certain legal violations. So this is a really ignorant question. How big a deal is this?

Well, it depends on how far this goes, right? If they were to face significant enforcement actions and again, that we don't know how far along these regulators are in this process, but if they were to face enforcement actions, how deep does that go? How costly could that be? It's interesting because the wealth manager, remember, there are a lot of questions about it, in particular when it pertains to growth. And it's not just the potential of any potential fines that could come with legal actions, but any potential reputational damage that could come with any wealth management issue. And we have to put this in context, and we should just point out, too, we have reached out to Morgan Stanley for comment, and so far they have not actually given us a statement yet. So there's still a lot that we have to sort of figure out what's going on. But also, we should point out they've

got an earnings date coming up next week. They got a new CEO who just took over. What do what what is the messaging going to be around this without necessarily knowing Shonali, what the messaging is going to be around this? Well, that's the big question. How are they going to address any potential issues and are they going to address these particular probes head on or will they? But don't they have to? Because when I first saw the headline, what jumped out at me wasn't Morgan Stanley. It wasn't Morgan Stanley Wealth Management. This was the crown jewel for this company for years.

This was Gorman's baby. Exactly. And remember, they really had a lot of doubts at the beginning, but then came out swinging and commanding a premium valuation across all of Wall Street because of this wealth manager. Now, with James Gorman stepping down, really, this is the second quarter that Ted Pick is stepping into the first full quarter of him as CEO. He didn't come from the wealth business. He came from investment banking and trading.

And so the question is, what does the wealth management look like under him because he didn't come from there. So Morgan Stanley stock, even before this probe was reported about, was down about 2% or so this year. Now it's down almost 7% on the heels of this probe, which is also proved. Succession is hard no matter which way you slice it, even though they did it all the quote unquote, right way. And I great work. Thanks very much. You got to go.

You got to get some sleep. You have busiest day tomorrow, actually, Investec joining us there. Speaking of quite interesting, I don't know how jazzed I am about Jp morgan, but I am more jazzed about, say, Goldman Sachs this week. I'm trying to get jazzed about Jp morgan tomorrow. You're jazz. Yeah. Jp morgan. We already know it's going to be the same old, same old.

There'll be no jail time and we'll say something interesting and then the stock will rally and then I'll sell off two days later because I won't be concerned about rinse and repeat. We can fast forward to Tuesday. All right. Come out, bring you down to the closing bell. Joanna Barton, portfolio manager of Morgan Stanley Investment Management, will be joining us next as we look to a market rebounding from yesterday. Unbelievable move is the close on

Bloomberg. This is the countdown to the close Romaine Bostick alongside Alix Steel with 10 minutes to go. Alex a big sell off we had yesterday who basically reclaimed almost all of the losses we have from yesterday. And the Nasdaq 100 is up almost 2% at this point. The Russell also outperforming. I do want about one stock though, that I

love and that's Fastenal. It basically makes the bolts that put together the things that you buy. So it's a really good read into the final end demand. And their quarter was not great, their outlook was not great, and that stock is down by over 6%. So I have to wonder all the optimism, the growth is okay as a manufacturing number is okay. And then you get the number from Fastenal and it's not okay. This gets a broader question or two

about what exactly what type of economy are we really looking at right in the idea that this is a economy that's a lot more layered than maybe what it was in the past? You're going to have pockets like the Fast and L's and the server, the companies that they service do a lot worse than maybe than some of the other companies. I don't know. Does it matter anymore? Shouldn't it, though? It should. We had a chance to catch up with Dan Greenhouse earlier over at Solus Alternative Asset Management, and we asked him about this and this was his view on the strength of the economy. I think we need to stop saying it's

surprise to the upside. The economy's doing well, full stop. Even with rates where they are and earnings growth is doing more or less fine. Even with yields where they are. This idea that somehow if the Fed only cuts two times this year or only cuts one time, I fear that that's some catastrophe for the market. I don't think that's borne out, especially by the performance of the first quarter, everyone. And that was Dan Greenhouse, who helped kick us off to the close just about an hour ago. And here to help take us to the Bells is Donna Barton, portfolio manager and co-head of Specialty Solutions at Morgan Stanley Investment Management.

And Janet, I mean, I feel like every time we see a data point, an economic data point, it shows the resiliency of the economy. Everybody looks that gift horse in the mouth and says something's got to be wrong. Is there something really wrong with our economy right now? Or can we just take it for what it is? I say you take it for what it is. The economy is strong. We got data points over the past week that continue to support that idea.

You had non-farm payroll numbers that were really strong, consumer confidence numbers, obviously, CPI number yesterday. I think you take it for what it is and it's not bad news. In fact, I think it continues to demonstrate that the economy is supportive of the fundamentals that have driven the market to the levels that we are at today, which I think is bullish. And it could be and we start and we head into earnings season and the official start, if you will, tomorrow morning here. I mean, what are your expectations?

I've seen a lot of wide ranging numbers. Some people saying 10% EPS growth for the S&P. Some maybe putting that a little bit lower around five and six. Yeah, I think what you're seeing is the expectations for first quarter is about 3% earnings growth, which actually will mark the trough for the earnings as we continue throughout the year. I'm seeing the same numbers that you're seeing, which is the expectation of about 1015, which is what you just mentioned for the rest of the year.

The expectations are for $243 as we approach the end of the year. But the market is expensive, right? So as we go through the earnings, which are set low, the bar has been set low. I think there are pockets of opportunities and there are pockets of risk that we need to decipher through. I think the leadership that you've seen today continues to be the most fundamentally strong pocket of the market.

I'm talking about consumer discretionary, tech and services area. On the flip side, you do have risks. And the three risks that we're watching is obviously concentration, valuation and sentiment. And we can go into those in a little more detail, if you like.

Right. So if you go counter to that, that would support maybe the cyclicals, maybe small caps in terms of sentiment already being so negative, etc.. But then when you have rates that are higher. Right. And I wonder if the higher rates are really going to mess up the rotation that we've all been expecting, Like, is that where the conversation needs to go? I've been asking myself the same question, Alex, because if I look at the beginning of the year and ten year treasuries that were at about 3.6% or so, and now we're at 4.57 and change, you've had back up in yields near 70

basis points and you've had all the wrong sectors lead, meaning growth, momentum and the leadership that you wouldn't have expected in the face of higher rates. And one can't help but wonder if maybe the baton has been passed from this, you know, monetary policy sensitivity to earnings and fundamentals, which is great for active stock-pickers. So we're excited to see earnings come through because I think that deciphering and variance between the haves and have nots will be even brighter and better for the companies that are executing. All right. So what's the have nots right now? The have nots are the ones that don't have cash. So ultimately it comes down to profitability. If you look at Q1, S&P 500 operating profit margins, they're expected to be around 11 percentage points, which is quite healthy and continues to increase. But in the areas such as tech from

services and consumer, it's near twice that level. On the flip side, some of the cyclical areas of the market and even staples in health care, it's significantly below that. In fact, their earnings and revenues are under pressure. So we continue to favor sort of, you know, a balanced approach approach which has some of the growth areas with a little defensive as well with growth. So defensive quality growth. I am curious as you sort of look deeper

into the year and there's been a lot of discussion about whether we're kind of pulling forward gains or whether there is that sustainable sustainability, not only in price action, but of course in corporate fundamentals supported by the economy. That's in spite of the concerns about an election, despite some of the concerns about geopolitics. At what point, if at all, do you factor that in? All of those are risks. You know, I always talk to my team and

we're always talking about assets and liabilities. On the liability side, as you mentioned, we have significant geopolitical risk that's going on. And I'm not even talking about the election, which brings in a whole host of other risks that are not easily, I guess, you know, could be easily imported into the model. But as I mentioned, there are other risks to the market right now.

The concentration is a legitimate risk. You've got top ten securities representing a third of the market cap. Thank goodness that the highest growth and most profitable companies, but nevertheless, nevertheless, it is a significant risk. You have a price risk, meaning if you look at history on any given year, on average, the S&P 500 has a sort of a cleansing period, which we refer to as drawdown of about 14 percentage points. Today, as you guys started talking about it, we've had 2 to 3% weakness and then quick recovery. So we haven't had that. And ultimately sentiment, everyone is really bullish.

You look at AA, I survey other sentiment surveys, they're very, very bullish. So you just want to pick your spots. And I think that's ultimately what you need to do. And that's what we do in our portfolios,

which is take a very diversified approach and being selective. Are you going to have to leave it there? Jana Barton, portfolio manager over at Morgan Stanley Investment Management with us. About two and a half minutes, Alex, until the close stocks holding the gains, about half the S&P in the green, the other half in the red. Unbelievable. We just do not want to go down. I mean, with 3% total drawdown so far in the last few weeks. And then here we are, we're stabilizing good volume.

We should point out it is a little bit lopsided here with only about six of the sectors in the green financials on the back foot. Stick with us as we take you to the bell and beyond. Beyond the Bell. Bloomberg's Comprehensive cross.

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 and here they'll take us beyond the bell. It's a global simulcast with Scarlet Fu in the TV studio Carol Massar intense dynamic on radio as we welcome our audiences across our Bloomberg platforms. And of course, welcome also all of our viewers watching us on YouTube. Carol Massar a quite a turnaround from what we were talking about just 24 hours ago in this equity market. Almost all of the gains of yesterday

erased. It's like what happened right in 24 hours. It's pretty remarkable. And I feel like the Magnificent Seven are getting back together again because not all of them have been seeing kind of some of the moves to the upside. Apple alone, right. Its biggest move up the most in almost a

year here, 11 months. There's a lot of there's some are a story by Mark Gurman about what they're doing with some of their computers. Maybe a reboot when it comes to the max, but nonetheless that stocks up more than 4% in today's session. It's interesting this happening on a day where we see yields at least on the long and of the curve continuing to move higher. It's something I asked Cathie Jones over at Charles Schwab about because she is the chief fixed income strategist and she says, okay, well, we still see, you know, two rate cuts this year. But her and this is not her base case, but she said that yields on the ten year could kind of test those off, you know, 4.8%, 4.85% by the end of the year, not

base case, but we could still see rates move higher. We've seen this before where equity investors shrug off whatever is happening with eco data because they say, look, the economy is doing well and corporate earnings are going to deliver. Whether we get first quarter earnings growth of 3.9% as one consensus has it, or something much larger as it usually happens because everyone mobile is it people are counting on earnings, especially from those magnificent seven names to deliver and keep pushing prices up. Yeah, and of course all seven of those names are in the green solidly on the day with Apple up 4% here.

Some other big gainers out there include Paramount and Broadcom. The big drags right now coming from names like Fastenal, which Alex was just talking about a little while ago. As we get the closing bells here in New York, the S&P 500, phenomenal day, a phenomenal turnaround from yesterday, up 38 points or about 7/10 of a percent, recouping most of the losses from yesterday. The Nasdaq composite, though, recouping

all of the losses from yesterday and then some up 274, 72 points excuse me, or about 1.7%. The Russell 2000 also higher here on the day are up right now about six, 7/10 of a percent here on the day. And the Dow Jones Industrial Average, Carol, actually sitting this one out, down about three points. We'll just call it unchanged on the day,

unchanged on the day. Back to the S&P 500, kind of an even split 232 names to the upside, guys, 270 to the downside. Nasdaq, though, Nasdaq 100 scarlet, almost all the names, 75 gaining in today's session, 25 lower. Yeah, and that's reflected in the sector

performances as well. You look at the IMAP and it's a pretty much a split, although there's a big chunk of green and that belongs to infotech communication services and consumer discretionary. So it's like the fourth quarter all over again. All the MAG seven, all the big tech names are in the green.

The laggards here are financials. That's Morgan Stanley right there, and health care stocks as well as consumer staples. All right. Let's get to some of the individual gainers. Going to go back to Apple, if I may, because that's your number four gainer on both the S&P 500 and the NASDAQ 100.

We talked about Mark Gurman out with his story about them overhauling the entire Mac line with a new family of in-house processors designed to highlight air. So there's that story out there. Apple shares finishing the day up 4.3%. Also interesting, I saw this on the Bloomberg Apple growing interest from a hedge fund. Investors seeing potential for a high linked upgrades to its iPhones and as a slump in its shares reduces the stock's valuation premium. This was coming from Jp morgan Chase analyst. So some attention certainly on Apple today. Rent the runway.

We were breaking down their earnings. This is like off the charts. But keep in mind the stock closing at $19 and change up 161% in today's session, a record intraday gain. I'm assuming it's going to be a record gain overall, but this is after the company came out, fourth quarter revenue and adjusted EBITDA topping the average analyst estimate. Again, we broke this down yesterday. Shares had slid nearly 90% in the past two. Wednesday's closed stock did have a pretty decent and high short position. So fair to say, as we said yesterday,

maybe some short covering going on. And Paramount Global just wanted to mention that number one gainer in the S&P 500 day up more than 7%. SKYDANCE slated to meet with Paramount management to begin due diligence next week. This was coming from CNBC. They did not cite exactly where that information came from. And Adweek out saying Paramount Global has hired, it looks like a law firm or firm to explore the sale of VidCon, citing an unidentified person there.

Just it feels like there's a lot of stuff going on. This is not a distressed asset according to the person in the know, but it does feel like things are maybe slowly moving forward to that final deal, maybe between Paramount and certainly Sky dads. We should also also mention just all out of court, they're on your board with Amazon closing at a record high could. Yeah, great. First high first record highs. Since going all the way back to 2021 there, I believe. Let's talk about some of the decliners here. Morgan Stanley closing down 5.25%.

It did fall as much as 7.2%. This after a report that a group of U.S. regulators are scrutinizing the firm's efforts to prevent potential money laundering by wealthy clients. We're talking about the S.E.C., the Office of the Comptroller of the Currency and other Treasury Department offices digging into whether the company has done enough to investigate the identities of risky clients. The Wall Street Journal wrote, citing unidentified people familiar with the matter. We did already know that the Federal Reserve was looking into these controls last year. And after you guys saw this, I think

it's the most read story now on the Bloomberg terminal in the last hour. It's about the insurance company. Globe life glossy. It's in the S&P 500 by far the worst performer on a percentage basis in the S&P 500 down 53% today, sinking by a record after the second short seller this month called out the company shares the company felt wow, more than 50%, a record drop that took it to the lowest level in years.

The selloff followed a critical report from Fuzzy Panda Research, which said it had a short position in the company. We should say representatives from Globe Life did not respond to requests for comment. The company is scheduled to report earnings later this month and the report comes in the wake of another another individual over at Orso Partners. Calling out Globe Life as a short idea just kind of amazes me that they haven't come out at this. I mean, this has been going on for like

two weeks now. Ten days, right? This is well, that first report. Yeah, the first the first was called out of the phone conference last week. And then this fuzzy panda report came out today. But 53 there was halted several times, two for volatility. And then let's talk CarMax real quick,

down 9.2%. The company did fall intraday, the most in more than 18 months. It reported profits that missed Wall Street expectations. High monthly payments, potentially scaring off would be used car buyers. All right. I'll second look at the bond market here because stuff did not really happen. You if a 30 year auction that didn't go very well at all, but yields were only up by about four basis points. Now, keep in mind, this is adding on to

the big move that we saw yesterday. So all in all, you're looking at, what, 20 to 25 basis points over the last couple of days. But you did start to see some buying in the front end, guys. So clearly there are yields that people are willing to step in and buy and looks like 4.94 for the two year is potentially one of them. All right, guys, I don't know about how you felt when y

2024-04-20 04:30

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