Stocks Wiped Out Gains Amid Tech Rout | Bloomberg Markets: The Close 4/15/24

Stocks Wiped Out Gains Amid Tech Rout | Bloomberg Markets: The Close 4/15/24

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There is tensions hold at a simmer. U.S. retail sales bubbling over and equity markets remain caught in the middle. Live from Studio two here at Bloomberg headquarters in New York.

I'm Romaine Bostick and I'm Scarlet Fu. We're kicking off to the closing bell here in the U.S. we have the s&p 500 falling below 5100 right now, 5067. That's down 1.1%. We are at session lows right now. That retail sales report Romain just mentioned pushing out the idea of Fed interest rate cuts even further. You're seeing a sell off in treasuries as well with the ten year yield moving up to 4.62%. At one point, the two year yield got

super close to 5% as well. As we know, Jp morgan and Wells Fargo, among other banks selling investment grade bonds following their quarterly earnings. So some competition there for treasuries. We also seeing nice mixed crude. Now, little change on the day was interesting because for most of the session, oil had shrugged off Iran's attack on Israel.

But now you're seeing it come back a little bit at about 85, 64 WTI and dollars sees a strong bid. You actually have yen hitting a new low of one 5445 watch, 155 remain. There's a lot of options with a strike price at 155 set to expire today. Yeah, a lot to watch today.

But let's zoom in for just a quick second on that ten year yield that Scarlet had up ten basis points higher here on the day in that renewed seesaw in Treasury rates, really reminiscent of some of the swings that we saw back in early 2023. As yields spike, so too does the volatility. The MOVE index as of Friday was already up 30% over the past two weeks, not far from the highest levels of the year. The only thing more volatile than the yields themselves, though, are the opinions on Wall Street as to where they go next.

Bank of America's Mark Cabana seeing opportunities to go long duration, say, look, there are no Fed heights really in the cards right now. Gennady Goldberg over at TD Securities, he's staying long, five year real rates and favors cautiously buying duration on those dips. However, Barclays strategists, they're maintaining a short position on the ten year because of what they say is still sticky inflation.

Meanwhile, massive volatility today in the metals market that includes the biggest intraday swing in aluminum prices since that $200 peak to trough move back in October of 2022. New sanctions from the Biden administration barring delivery of Russian aluminum, copper and nickel to the LME and the Chicago Mercantile Exchange. While that ban only covers a fraction of the transactions out there, the fear is we could see a significant reduction in Russian flows into some of those more lucrative Western markets. This has put a strong bid under US metal

stocks, with Alcoa up as much as 7% today. Century aluminum is up as much as 9% and Southern copper at one point trading above its record high. Now that news on metals dropped on Friday just as the market was bracing for an escalation in Iran. Israeli tensions now we headed into the past weekend with the market on edge about geopolitics. Some of those concerns alleviated, but a

lot of those concerns still open for question. But for now, Scarlett, the worst case scenarios have yet to materialize, and that's leading to maybe a little bit of a pause in the safety trade, which we saw last week with everybody rushing into VIX and gold treasuries and of course, into oil itself. Absolutely. The strong bids into oil, as remain just mentioned, driving a leadership change in the stock market. Yes, the equity markets resilience often

credited to big tech, but actually in the past month or so, it's big oil that deserves a shout out. So take a look at the white line. That is XLE, the ETF that tracks energy stocks up about 15% in 2024 versus a six and a half percent gain in the Nasdaq 100. That over the course of today's trading has shrunk to about 5%. Now, investors are adding a geopolitical risk premium to the price of oil remain. It's anywhere from 5 to $10 at a time when OPEC plus is keeping supply pretty tight. Absolutely.

We're we're going to stay on that topic and kick things off to the close here with Greg Bruce over at the Eurasia Group, an analyst focusing on the geopolitics of oil and gas. He's the author of Petroleum and Progress in Iran, as well as a relatively new book out, along with David Panter called The Struggle for Iran. Greg, great to have you here on the program.

I think all of us were on edge heading into the weekend waiting for that attack. We did see that attack on April 13th, unprecedented, to be sure, the first time that we've seen Iran launch missiles towards Israel using its own forces from its own territory here. The big question, though, Greg, everyone wants to know is that is this over? Well, absolutely. Thank you so much for having me on. Indeed. An unprecedented attack from Iran against Israel. Hundreds of drones and missiles launched from Iran directly at Israel. But a few things to note and I think

reasons why the market kind of took things in stride when they reopened this morning. First of all, Iran heavily telegraphs this attack. There are coherent reports indicating that Iran notified regional states and also the United States through intermediaries of its plans to attack Israel on Saturday.

This gave the United States and other states ample time to put in place air defenses that allowed Israel to shoot down virtually all of Iran's drones and missiles, the result of the attack being relatively little damage to Israel. This attack, as you mentioned, was largely baked in. I think the price of oil had already added a risk premium as we went into the weekend, so it largely met expectations. Right now, concerns are what will Israel do in response? Well, every waiting for a sign that Israel will retaliate against this attack.

Well, that's what I'm curious about. I mean, we heard from the IDF chief of staff a little bit earlier. I guess he gave a speech at an air base over there, basically making it clear in his words here that Israel has no choice right now, Greg, but to retaliate in some fashion. The question is, what does that retaliation look like? Is this going to be one of those minor tit for tat where they hit maybe a site in Syria or somewhere else? Or is this a possibility that we could see much more of a direct attack on Iranian territory itself? That's really the crucial question. I mean, Iran, by retaliating for the Israel attack on its consulate in Damascus by retaliating directly against Israel, Iran has now moved the threshold for action and placed a great deal of pressure on Israel to respond in a similar way.

Now, pressures are coming from the United States as well as other states in the region, pressures on Israel to try to reduce escalatory pressure, to try to keep the Israeli response within the bands of this crisis, to keep it from escalating further. I think we are certain to see an Israeli response. I think that response will come quite soon. Israel has to respond to this a direct attack on its own territory. The question of whether it attacks targets within Iran is the crucial one because Iran has historically had attacks against its own territory as a red line, one that, if crossed, will prompt an immediate and significant response. So there's Israel's response, and then there's also the US response as well, Greg. President Biden has promised a

diplomatic response to Iran's attacks. However, since he became president, we know that he's relaxing enforcement of U.S. sanctions on Iran, which allowed Iran to increase its oil output. What do Biden's options really look like right now, especially given that it's an election year? Well, I think President Biden is focused first and foremost on trying to get the Israeli response to be calibrated, to be limited to prevent this from escalating further. I think we've seen consistent action from the administration over the last six months to suggest that it does not want escalation in the Middle East, and that includes escalation against Iran, even though there's been pressure on Biden to try to tighten sanctions, sanctions enforcement on Iranian oil exports, that oil continues to flow regardless of the fact that Iran has been supporting its allies, regardless of the fact that Iran supports Hamas, that oil continues to flow. It's largely going to China.

I think Biden wants to continue to avoid a situation where he has to clamp down on Iranian oil exports because that would have an immediate physical impact on oil markets, which of course, would reverberate throughout the global market. Also, if Iran feels that its oil exports are being threatened, it could very well escalate against oil flows in the region that would disrupt oil through the Strait of Hormuz. We would go for 1.5 million barrels of Iranian oil being affected to as many as 20 million barrels being affected. That's the whole supply coming out of

the Persian Gulf. Right. And it's really important to keep in mind that for now there is no actual oil shortage at the moment. Oil is flowing, as you pointed out. So given all of that, when we think about OPEC, plus the producers of oil, does it have enough spare production capacity to control a price rally if the worst case scenario does result? Well, opaque is sitting on around 3 million barrels a day of spare capacity that it's taken off of the market.

That's a pretty decent cushion to absorb an immediate shutdown or a significant disruption. If the disruption becomes huge, like if we start to see a lot of barrels being disrupted, then that would create a pretty significant crisis. But as we've mentioned, I mean, OPEC is sitting in a pretty good position right now. The price is roughly where it wants to be thanks to this risk premium. It has spare capacity that it can bring back in case of a disruption. But it's also watching fundamentals. I mean, demand growth this year has been

a little bit stronger than anticipated. Prices were already starting to climb before we saw a major escalation between Iran and Israel. So I think right now it's a little early to talk about bringing supply back on the market. If anything, they're going to sit tight and watch crude continue to rally on the back of these tensions. All right, Greg, got to leave it there. Greg Brew, a razor group analyst. And we should point out WTI crude, which spent most of the session in the red, now poking into the green with stocks hitting session lows.

As we kick you off to the close here on this Monday afternoon. A discussion up ahead about big banks and a big beat for Goldman Sachs. The Wall Street giant recording a 28% jump in net income last quarter. A read on the latest bank results. Plus, Salesforce, the worst performer in the Dow Jones Industrial Average and S&P 500 on news, the software company may be dipping its toe back into M&A. It is our Stock of the hour and a check on the global supply chain. Greg Hewett, U.S.

CEO of DHL Express, joining the big program in just a second. Stick with us. All that and more coming up in a bit. This is the close on Bloomberg. J.P. Morgan and Wells Fargo kicking off a likely parade of Wall Street's biggest banks topping the U.S.

bond market. Joining us now is when he sees our global head of strategy over at credit sites and winning. It's not just the big banks. You have.

Regional lenders also set to sell bonds in the coming days once they've reported their quarterly results. Overall, is bank credit seen as a value play the same way that bank equity is seen as value play? I think that a lot of investors are still looking at bank bonds as a pretty attractive place to put capital to work, especially in the corporate credit market, where spreads are objectively tight across the board. But there is still some relative value left in banks, especially for some of the smaller regional lenders. But even for some of the larger banks like Citigroup right now, they're all taking advantage of it right now. You mentioned tight spreads. We've seen a record pace of issuance in the US investment grade primary market, even as rates are staying higher for longer.

Issuers clearly are taking advantage of that, that tight risk premium, the tightest since 2021. What kind of catalysts do you see? Do you foresee widening these spreads? Well, we had initially expected that these elevated rates and the rates market volatility that you were talking about a little bit earlier on the program would start to shake loose spreads. Now, what we probably didn't appreciate as much was the all in yield environment or corporate credit, especially for investment grade. It's still really attractive. We have yield above five and a half percent in aggregate, closing in on 6% for a triple B, and those are level. But investors have not been able to

consistently cash to work in the investment grade market for really quite some time. So that all in yield level is still very, very compelling. Now, what could shake it loose is some sort of expectation that we're not actually going to get a Fed that is able to start to cut rates at some point this year. Right. And that would be especially damaging if it also seems like maybe fundamentals are not as strong as people think they are right now. How strong is that correlation right now

when in between what we're seeing on the corporate side spreads there and the potential moves in actual Fed rates and Treasury rates? So if not as strong as we would maybe expect that, you know, we have seen a pretty massive repricing of that expectation. At the beginning of this year, people were thinking, oh, maybe five, six cuts in 2024, bring the policy rate down almost to 4% now, maybe two cuts, bring the policy rate down closer to 5%. And instead we've seen spreads quite resilient and kind of holding a very narrow range, close to cyclical type.

So it's been an interesting breakdown in those two market components. I talked to so many people winning. I keep saying, you know, how things how attractive things look in the corporate space, particularly, I know on the investment grade side how cheap even I've heard that word tossed around here. But there's got to be certain pockets out of there that maybe you might want to avoid, maybe because it's gotten a little bit to stretch anything you're saying there. Sure. I think that the thing that we're most concerned about is the focus on credit over duration risk. Credit risk has had a tremendous rally. We've seen high yield outperform investment grade pretty materially red tightened to very high levels. Triple C credits that are not expected

to default are kind of viewed as going concern trading at very tight level. And we're a little bit concerned that perhaps the optimism there is a little bit too much. And instead we do like buying duration at these elevated Treasury yield levels. And when we look at the adjustment in spreads or some of the very deeply discounted bonds, which tend to trade a little bit tighter, that adjustment is less than it was in March of 2023. The duration is definitely looking much more attractive in our opinion.

All right. When always great to talk to you. When he sees are there a global head of strategy over at credit sites. Closer look at what's been going on in the corporate bond market and that is on the back of those record results that we got out of Goldman Sachs. David Solomon getting his mojo back. We're going to recap the Wall Street banks blowout first quarter with the CEO there touting the results on this morning's earnings call. Reflects the strength of our world class

and interconnected franchises and the earnings power of our firm. This performance was aided by the swift actions we took last year to narrow our strategic focus and play to our core strengths. 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 Reddit. A number of analysts starting coverage on the social media company after last month's IPO.

Needham analyst Laura martin given a buy recommendation and a $55 price target, citing the potential of AI. Martin says Reddit has a vast library of human conversations spanning nearly two decades, making it the best source to train large language models on how to respond to questions. Though she is nevertheless getting caught up in the downdraft, a 4% drop on the day. Next up, Chip Astro Labs also getting a start of coverage today. This after a trading debut in March.

A buy rating coming from Jefferies, A price target set at 85, but the analyst calling Nazara an A-plus growth story. It has several company specific drivers, according to the analysts, on top of robust AI server unit growth, creating a path towards more than $1 billion in annual sales. Those shares also moving lower on the day. Let's end on aerospace company Triumph grouped up and upgraded to neutral from underweight this over at Jp morgan, which says the outlook for defense stocks actually starting to look attractive. Daniels hailing Triumph's longer balance sheet, stronger balance sheet, I should say, and a focus on manufacturing and repairs. However, the analyst does see some risk, including from the Boeing 737, where Triumph supplies roughly $300,000 worth of content.

The shares moving lower by about 7/10 of a percent. And those are some of our top calls. Now, we do want to pivot back to what's been going on in the banking sector as those earnings continue to trickle out. We got Goldman Sachs this morning with a big focus on money management and deal making, leading to a record 28% jump in net income last quarter, even as analysts had braced for a drop from a year ago. Joining us now to dive a little bit deeper into the report is Gerard Cassidy, head of U.S. Bank equity strategy at RBC Capital Markets. He has a sector perform rating on the

shares of Goldman Sachs. All right, Gerard, this surprised a lot of folks, not just 28% growth, but you talk about some of the individual metrics, an r y of almost 15%, Gerard, way above what most people were expecting. No Romania. They put up very strong results and Goldman Sachs really delivered in its core businesses. As we all know, the company has struggled with its consumer banking business. It's exiting many of those businesses. But here they delivered today what everyone knows Goldman Sachs is capable of doing, which is being very strong in investment banking and trading. The particularly strong number and

trading was the fixed income currencies in commodity trading known as FIC. That was unusually strong in the quarter. I am curious as to what you think has actually happened inside Goldman Sachs over the last year or so to see such a turn. Is this just basically about better management or is there something else going on behind the scenes that we don't know about? I think it's a combination of factors. The management team is essentially the same. So I don't know if we could say it's

better management, but I think management's decisions that they've made over the last couple of years to exit the money, losing consumer businesses, which were a real distraction, I think that's the real change. And so the potential we don't know for certain we're outside, as of course, but the speculation that there was infighting within the company over their expansion into the consumer business is is ending as they exit that business. And everybody's focus now is focused on the businesses that they do very well, which again, investment banking and trading, as well as wealth management and asset management. When you bring up wealth management, because I'm looking at Morgan Stanley shares and they're higher today even with the overall decline in the equity market. How does Goldman's results set us up for Morgan Stanley's results, given that there's so much more of a focus on wealth management at Morgan Stanley? Escala. It's a good point you're making because

it is the real story of Morgan Stanley and that James Gorman's leadership was to broaden and diversify that franchise. And he did it very successfully when he took over back during the financial crisis. And he recently as retired now. Ted Pick, of course, has taken over. But what's also interesting, Scarlett, is that Charles Schwab put up very strong numbers today, and that's more akin to the E-Trade business of Morgan Stanley. So I think the combination of Goldman's institutional business, which, of course Morgan Stanley has, as well as the Charles Schwab business, it bodes well for some decent numbers for Morgan Stanley this quarter. Got it. Got it. So, Gerard, if we take a step back and

just consider bank earnings season, so far we've seen banks release some of the some of the reserves for potential loan losses that they had previously set aside. Is this justified? Could this come back to haunt them, do you think? It really depends on one's outlook for the economy. And if you look at what the Federal Reserve in Atlanta did today, based on the retail sales number, they lifted the real GDP number for the first quarter, the growth to close to 3%. So that looks pretty darn good for the economy. And many of the banks last year were

factoring in a recession when they set up those reserves. So why you're seeing some releases today is because the reserves were based upon the potential for a weaker economy and we're not seeing it yet. So there's always the risk of doing it. But right now, the outlook, even though with all the geopolitical risk, with what's going on in the Middle East, it still looks like the U.S. is got a healthy and resilient economy. I am curious, Gerard, as some of these banks try to expand their businesses.

Goldman talked a lot about a broader push into private markets, and we've heard similar stories from some of the other major banks. We know Jp morgan has been working on this as well. How much, if at all, can that actually be maybe an added tailwind for these companies? Roman, I think you're on to something because the banks are kind of in a defensive mode over the last, let's call it, 12 to 18 months. Now they appear to be more on the offensive mode when it comes to leverage lending and getting involved in more opportunities to lend into the private credit markets and be a real competitor to the private credit markets. So I think that's also now possibly a

tailwind, as you point out. And I think that's another factor that we all have to consider as the banks go to retake some of the market share that they've lost to the private credit markets. All right. Gerard Cassidy, really appreciate your joining us. Gerard Cassidy RBC Capital Markets, giving us a bit of a read here on the banks, especially as most of the big ones have already reported. And we make our way towards the regional banks to report remain. So far this week, we're going to see 53%

of the regional bank ETF report results. So that'll be interesting. Yeah, I think that's going to be a lot more interesting than the big banks. I mean, the big banks, they're always healthy, right? Yeah, right. But the regional banks, particularly coming off of last year, it'll be interesting to see whether they're still seeing that kind of dearth of deposits. Yeah, absolutely. And how sticky that deposit base is or if people are just fleeing to go get the 4.67% API somewhere else. Yeah, I hope.

And it's not offering zero zero or less than 1% because people of that remain nameless. Exactly. All right. Coming up, we've got consumer demand for online purchases, teeing up some growth opportunities for logistics firm DHL. Greg Hewitt, the US CEO of DHL Express, will be joining us in the studio.

This is a close one, Bloomberg. Just about 3:30 p.m. here in New York. This is the countdown to the close. I'm Romaine Bostick and I'm Scarlet Fu.

And we're looking at it, huh? You are? I am Scarlet Fu. And I'm here on a down day. I mean, we actually have a day in which the market has direction to the downside. Of course, not the direction you want. But, you know, it was interesting. We had this conversation on Friday about what the market would do after the big sell on Friday, whether you would see the dip buyers come in. It looked like that was going to happen

the first couple of hours of trading, and that's been completely erased. We're basically at session lows, are basically at session lows. And then you can blame the retail sales report for a lot of that, pushing out the idea of a Fed rate cut. Again, let's talk about those March retail sales because they rose 0.7 percent from February when unadjusted

for inflation, suggesting there's plenty momentum heading into the second quarter and boding well for US GDP and the companies that ship products for businesses and consumers. We're talking about companies like DHL. So here now in studio to offer his perspective is Greg Hewitt, US CEO of DHL Express. Greg, good to see you. It is in Scotland. So clearly consumers are spending, but the way they're spending is definitely changing. We're kind of downgrading what we're spending may be trading down a little bit. Your rivals, FedEx and UPS, are seeing

consumers and businesses making a shift to sending mail in packages by ground rather than by air. Are you seeing that, too? I think what we've seen is we've we've come off of a time period where e-commerce and online buying has been very strong, strong U.S. dollar. Americans are consuming. We see fast fashion, a lot of stuff coming in to get delivered, maybe in the traditional segments like automotive, high tech, engineering and manufacturing. We haven't quite seen that momentum in the orders translating into actual shipping in Q1.

So I'm hopeful that Q2 and beyond, we will see a bit of a recovery and some growth. In the meantime, though, FedEx and UPS have cut costs by reducing their workforces. Are you doing anything like that? I think I've been I think I'll say I'm blessed that I haven't had to do any major cutbacks in terms of staffing.

I've been able to reduce things like overtime and some of the weekend work that's allowed me to not have the the pains of having to do major layoffs. But we have seen volume come down and it is having an impact on our business as the volume comes down. Where is it coming down to? Is that just kind of taking us back to kind of pre-pandemic norms or are we kind of getting below? I think we're still well above pre-pandemic. If I look at from 2019, we're well up

from there. But certainly we all saw a big boom through the pandemic where you had personal protective equipment, vaccines and simply lack of capacity that moved all of our volumes up. We're down from those heights, but still well above pre-pandemic levels. Well, just as we were kind of hopefully putting the pandemic behind us and dealing with all of the supply chain disruptions, we now have new issues. Of course, you have the situation in the Middle East, a lot of concerns about boats trying to get through the Suez Canal, the Red Sea. And of course, you have the drought down in the Panama Canal.

Has any of that actually translated into increased business for DHL Express? Haven't seen it yet, but I think some companies will look to be patient. They'll wait to see how that plays out. The traditional peak for air and ocean is really in the summer months, whereas mine is U.S. Thanksgiving through Chinese New Year. So I think what will happen is if things don't recover, you'll start to see some of that pressure around the summer time, which may mean more business for those of us in the fixed networks and express come Q3, Q4. Do you have the capacity to handle that increase? Yeah, we're in a very good position within our own network and then we can leverage commercial lift and charters to supplement. And we've we've shown historically

through the pandemic that when big rushes of volume came on, we were able to manage and handle it. I'd expect would do the same. I would like to see a bit of a peak again where that's my challenge. Managing the capacity Remain was talking about all the snafus in the global shipping networks. What about the collapse of the Baltimore Bridge? Because initially it led to the complete closure of the Port of Baltimore, but we've actually seen them open up temporary channels and it now looks like the port itself will be operational months ahead of schedule. What does that mean for DHL? US express us from the express side? Not a ton. I mean, ultimately that would impact my sister organization on the ocean side more in the immediate. I think the longer term is any time

there are challenges with the supply chain for ocean that can result in increased air usage later on closer to the season where actual inventory needs to be delivered to to consumers. So I wouldn't see that right away. But that increase, it's not sticky, is it? Is it a temporary boost because it's just a workaround rather than a permanent shift? That's very good insights. That's the reality. I think when we saw the pandemic boost in our volume in a lot of companies shift to airfreight, we wondered if some of that would stay. And the reality is we kept a little bit of it, but most of it shifts back to, I guess, the right mode at the right price point that that. That corresponds to that inventory moving and that isn't always express air.

So it isn't sticky, it's temporary. I mean, I know you have to deal with a lot of the day to day issues, but at the same time, you've got to strategize. You've got to think long term. Where's the growth coming from? Like what type of industries do you see really sort of starting to sort of pick up and show a little bit more presence in that space? Well, from from my standpoint, e-commerce has continued to be the growth engine that coming out of the pandemic. It didn't slow down. It didn't come down.

It kept growing. I think what we're seeing is growth both inbound and outbound. We're seeing a lot of small and midsize U.S. businesses marketing their products

around the globe, and we're helping them reach markets they didn't have before. And then as people have moved from a China plus one scenario where they're not just reliant on China for goods to come in, we've been there to help them open up new lanes. So Vietnam, Sri Lanka, India, we're in Mexico. But how does that nearshore in trend, though, affect you potentially negatively? Right. I mean, I understand that if you're just shifting suppliers from China to another Asian nation or just to Africa or somewhere else, you still need transport.

But as you know, the Biden administration here has made a big deal about trying to do more stuff right here within the U.S. Does that have an effect on you? It might over time if if true protectionist policy came in and everything was being made and distributed in the U.S.. I'm an international business, not a domestic one. That would have an impact. But what we've seen is globalization trends.

We did a connectedness survey that showed globalization and global trade is still prominent and growing. It just means different lane shift over time and being in all countries, in all world around the world, it really does put us in a good position to help wherever that trade flow shifts. All right. Well, you certainly have your finger on

the pulse of what's going on, which is why we like talking to you, Greg. Appreciate you stopping by. Greg Hewitt is the U.S. CEO of DHL Express. And Scarlett, I mean, we spent I mean, what probably most of the 20, 20, 20, 21 and 2022, talking about all the supply chain disruptions. And it's interesting to see that we're still kind of dealing with a lot of the same issues. Yeah, I was thinking back to the last time I used DHL and it was because I purchased something from Europe and they had to send it over.

I ended up having to return it and I remember carrying it all over the city. I wish they had one of those, you know, those mobile pop up stores that they have in other parts of the country. But this being New York, it's not available here. Yeah, we're always the last to get everything, Scarlet. But don't worry, once we get it, I'm

sure we'll go to New York or complaining about everything. Yeah, exactly. That's the New York way. All right. Stick with us. A lot more coming up here, a closer look at what's going on in the markets at session lows and some big movers. Salesforce plunging on the news that

it's considering M&A in order to boost its data capabilities. Investors thought they were over with that, but apparently not. It's our Stock of the Hour and it's up next right here on the close on Bloomberg. Spring season is here. I think we're all asking the same question just how much earnings growth they'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. Continuing coverage on Bloomberg Context changes everything. All right. It's time now for our Stock of the Hour.

And we're taking a closer look at Salesforce shares down 7%. Worst day for the stock in more than a year and a half. This after Marc Benioff software company is said to be in talks to buy Informatica as an enterprise value of more than $12 billion.

A Salesforce spokesperson saying the company doesn't comment on rumors and speculation. However, while investors are, of course reacting to it Abigail Doolittle. Joining us right now for a little bit more on this and Abigail, the reaction to this seems to be based on the idea that we thought Marc Benioff, it sort of found some cost discipline here, that he wasn't going to make these big acquisitions anymore. That's certainly a piece of it, because last year he did say that the M&A squad there, that it's off, that they are not looking at big deals, Slack being one of the the big ones not so long ago. Another piece of it is when The Wall

Street Journal initially broke this, they talked about the idea that they would be paying would pay for Informatica less than the closing price on Friday. So, of course, nobody is going to like that. Now, to be fair, Informatica over the

last year up 150%, Salesforce up 50%. So they do have some capital. But a lot of analysts also just saying this is not a great deal for There's not a lot of fundamental reasons for them to do it. Salesforce top line is growing double digits, low double digits, low double digits, Informatica kind of mid-single digits. They already have a company that does

the same thing. It's software and service that I'm not exactly sure what that translates to, but MuleSoft, they bought it. They already have it. So a lot of fans are saying this is a head scratcher. Why why did they do this now? One reason could be 46% is owned by excuse me, 47% is owned by Permira, a private equity firm. The Canada Canadian Pension owns another

26%. Maybe they want out. Maybe that somehow got to Marc Benioff, although that doesn't make sense either, because why would he bow to that pressure? So so how much room there is? Is there a linkage to the overall market sentiment? Because you have the S&P 500 down about 1.2%. Earlier, it had opened higher and did gain almost 8/10 of 1% is a negative sentiment, sentiment around this potential deal that Salesforce would be making part of the bearish market action. I think that that's a great question.

I think it's a good point because I think that the sentiment around this, it's such a head scratcher for most analysts. There's one analyst out there, Oppenheimer, saying that it makes some sense from a deal standpoint, but most of the analysts are saying it just makes no sense whatsoever. So I think that when you have a big company like Salesforce, the last time I've looked, I'm going to pull it up in a Bloomberg right now. It was the second biggest drag on the S&P 500. It's not a huge component that speaks to the level of decline. Well, I misspoke. It's broken now because now we have Microsoft, Apple and video in there, but Salesforce is in the top ten. So I think that helped turn some of the

sentiment around tech. Yeah, and not just in the top ten, too, but I mean, a lot of people do see it as kind of like whatever Salesforce is doing, that's going to have ripple effects throughout the SAS. Yes, stocks overall here. So when you start to hear that Benioff is back on the prowl and again, we should point out we haven't confirmed this is just based on reporting that Salesforce hasn't commented on. But if that is the case, then that means some of these other companies going to have to take a look at their own for sure, because it does put the space into play to some degree today. And you also have to wonder why it goes

back to the why. Because if they want out for some reason, if they're there, they want if they see dark clouds on the horizon, I think that there can be some fear because it just doesn't make sense from a fundamental standpoint. I think that some investors are thinking that this is about cashing out, which is not necessarily a great reason. Yeah, All good points. Abigail, thank you so much. And of course, I mean, one thing to consider as well as if there is some kind of deal or bid being made here, this attracts the attention of antitrust regulators as well. That's the other thing, too. I mean, that's really not been talked about.

I mean, Salesforce luckily hasn't gotten too dinged by that in the past. But as you know, times have changed a lot for the last couple of years. The big getting bigger is something that a plenty of government agencies are looking at very carefully now. All right. Coming up, we're going to count you down to the closing bells. We have a decline on our hands here with the S&P 500 bumping around a session lows below its 50 day moving average at 5061. Tony Roth, the CIO over at Wilmington Trust, will be joining us to give us his take on what you do next. This is the close.

I'm Bloomberg. And. This is the countdown to the close on Romaine Bostick alongside Scarlet Fu. 10 minutes until we get to the closing bell. Scarlett not just a big sell off, but actually another broad based sell off, if you will hear. We're off the session lows, but still we're looking at 1% losses across the board and a sharp, sharp turnaround from what we saw this morning because when markets opened, we had the S&P 500 gaining almost 9/10 of 1% before turning around completely. Now it's below 5100 and it's falling below its 50 day moving average.

It's short term trend line and bumping along the bottom here as treasuries continue to sell off as well, with the two year getting really close to 5% and the ten year, of course, moving up to 4.61%. Yeah, this gets into the big question here of what's actually being priced in. And I guess to a certain extent it's a little bit of everything, whether it's the economic data, whether it's Fed, whether it's geopolitics.

We had a chance to catch up with when he sees our a little bit earlier at credit sites. Here's what she had to say about the yield environment so that all in yield above all, is still very, very compelling. Now, what could shake it loose is some sort of expectation that we're not actually going to get a Fed that is able to start to cut rates at some point this year. Right. And that would be especially damaging if it also seems like maybe fundamentals are not as strong as people think they are. All right.

For more insight, let's bring in Tony Roth. He's a CEO over at Wilmington Trust. Joining us to help count you down to the closing bells. And as we focus on the equity market, Tony, a lot of folks are focused. Folks right now are focused on what we have been seeing in the Treasury space, and that's a resurgence in yields higher here now, setting some of the highest levels that we I guess, going back to November or October of last year. Are you buying into that? You think that this is a move that's going to stick? No, I don't think it's going to stick. We'll start with the equity markets.

We haven't seen a real correction in the equity market in over a year, and we have an opportunity now to see a catalyst for a drawdown in equities to bring us a little bit healthier territory and probably back down below 5000 on the S&P, which we believe is going to be a buying opportunity. And the reason is that the higher yields that we're seeing in equity markets falling on to that with weakness in technology, which typically does not respond well, does not correlate well with higher yields, is all being driven by the narrative of, yes, a strong economy, but also much stronger inflation unexpected. In fact, when you look at the core picture, which is the Fed's preferred measure, we are already on a 12 month basis in the range that the Fed has predicted for the end of this year, around three and a half percent. And so when you look at CPI, which is heavily dominated by a shelter and shelter is coming down, it comes down every month to lower levels of price increases by around 15 to 20 basis points per month. It's just going to take a while to get

to the destination on a CPI basis, but later this month will get the CPI numbers and those numbers will be, I think, a little bit more constructive for a loosening cycle starting, we still believe, starting in June with a total of 100 to 125 basis points of cuts this year. And so the markets really reacting to a very short term narrative. Tony. So 100 to 125 basis points this year starting in June. I mean, you know, that's a pretty bold

call, not just because of the number of cuts that that would entail, but also the fact that they would be doing that in a relatively short span, six months and in the middle of an election cycle. Well, the cuts don't have to be consecutive in the sense that once they start to move, they can make cuts bigger than 25 basis points, of course. But we still have two major sets of data to come in before we have the June meeting.

So whether we start in June or whether we start in July, once they start in earnest, there's plenty of time to get into 100 to 125 basis points of cuts this year. And when you consider that inflation is being driven primarily by premiums on automobiles and shelter within the CPI, and then you move over to the PC and you don't have nearly the same impact on shelter. Medicare costs came down, in fact, on an inflation basis over the last cycle, on a CPI basis, it's all shaping up for, I think, a compelling case to start cutting sometime over the summer. You said that it doesn't have to be a consecutive 25 basis point cuts, but wouldn't a half point base, a half point cut be something fairly alarming for an equity market that has priced in a no landing scenario? No, not necessarily. If you look historically at when we have inflection points in monetary policy, whether it be a listening or tightening cycle, we almost never get consistent 25 point cuts.

We start about 25 point cuts or increases, as the case may be. And then once the Fed realises they fall behind the curve, then we'll then move to bigger increments for a period of time. That's almost always what happens again, whether it be a tightening or loosening cycle. And so the key is that if we continue to see strong for equity investors, if we continue to see strong momentum in the economy, we don't even necessarily need to see a big change in the inflation picture from the market standpoint in order for equities to continue to do well. The question around inflation and whether the Fed starts to cut in June and how much the Fed cuts is really more of a positioning question within equities, whether you like a broadening out narrative and smaller caps or whether you like to continue to see the focus on technology and bigger companies.

Okay. So in your scenario, rate cut starting in June, maybe of 100 or 125 basis points of cuts? Where do you want to be within equities, given how much the big cap tech names have moved up over the past couple of years? Well, we still believe in big cap tech as fundamental rails of the economy. So you want to be selective within that area. The companies that are more focused on AI and Cloud and SAS, etc. are the ones that are going to do better

than the ones that are focused on delivering hardware. But having said that, you also want to move into names that will give exposure to a broader cycle from both a cap and from a sector standpoint. So certainly you'd want to move into to small cap names which continue to lag, which continue to get set up for a rebound. I think once you start to see that loosening cycle as well as financials, bank stocks, you saw this year part of the cycle excuse me, you saw part of that as earnings year kicked off. We saw Jp morgan come out late last week with a very, very small miss in their forward looking estimate on guidance for net interest income, which set the stock down considerably, really without without justification when you look at the bottom line. And so that's an area whether it be the. Major money center banks or whether it

be the regional banks that should do well in a broader bank cycle as well as health care, as well as industrials, as well as materials. So there's quite a few areas that I think that are positioned for a rebound trade. In addition to keeping that market weight on some of those core big cap tech names. All right, Tony, great stuff as always. Tony Roth, CIO over at Wilmington Trust, helping us count you down to those closing Bells. We're just about 3 minutes away from that Scarlet year for nine two right now on a two year yield, four six on the ten year yield.

And as far as stocks go, we're still down in the red. Yeah, we're still down in the red, near session lows. The big question is, will the next batch of earnings change anything, change the trajectory as we await some kind of response from Israel following the weekend attacks from Iran? Yeah, You wonder how much of the move today is because of earnings or because of the Fed and rates or because of Israel and the geopolitical situation. Yeah. Or just wait and see until something more definitive comes along.

And this could be a pivotal week for any because it's not just the banks. Of course, we're going to start to get the non-banks, including Netflix, which could be a big barometer for the broader tech sector with a move closer to those closing bells here on this Monday afternoon. Stick with us as we take you to the bell and be beyond the bell. Bloomberg's comprehensive cross-platform coverage of the U.S. market close starts right now. And right now, we are 2 minutes away from the end of the trading day. Romaine Bostick alongside Scarlet Fu. We're counting down to the closing bell

and here they'll take us beyond the bell. It's a simulcast with Carol Massar and tim stanwick. Welcome to our audiences across all of our bloomberg platforms, including our partnership with youtube. Carol, stocks are off session lows, but still we're talking about 80% of the S&P right now deep in the red. Yeah, broad based selling, right? No doubt about it. So a very different tone here. And it has to you know, I just keep

looking at the rates market and where that ten year what about 4.6 holding there again it makes me think. Tim okay. Do you know equity investors have to once again rethink valuations in a higher for a longer and getting higher it feels like when it comes to the treasury trade. Well we just spoke to Ryan Carson over Ryan Detrick rather, over at the Carson group. And you guys know him. I mean, he called it last year.

He got it right last year. Scarlet, he's still extremely bullish. And he said, okay, he called what we're seeing right now, quote unquote, indigestion in the market and that, you know, some type of pullback, 5 to 8% given the run up that we've seen since October, would not at all be surprising. But if this economy avoids a recession, which he thinks it will, then he stays bullish. Indigestion is a kind way of putting it, given how big the losses are today. We what's interesting here, of course, is that we thought we saw most of the selling on Friday, given there was so much anticipation of some kind of attack over the weekend. We got it. And there was a little bit of a relief

initially, but that that didn't hold. So, I mean, how much are we going to be on tenterhooks for the rest of the week because there might be a response from Israel. But then how does Iran respond to that? I feel like we're just going to be in this churn for a while. Yeah. And we should point out, too, I mean, when you sort of pair this with the decline that we had on Friday here, I mean, this is the biggest two day drop that we've seen in the markets going back to late October, at least for the Nasdaq and the S&P.

So I think that's a maybe a little bit different complexion than maybe some of the other sell offs we've seen where we kind of had a one and done and then everybody's back in the pool, not today, but the Dow Jones Industrial Average lower by about 250 points or about 7/10 of a percent. The S&P going to fall about 62 points, roughly down about 1.2% and back below 50 105,061. And change as we wait for these numbers to settle the Nasdaq composite lower by about 290 points or 1.8%.

And let's take a look at the Russell 2000. The cyclicals down about 1.4% here on the day, down 27 points. Right now. The S&P 500 really breaking below its 50 day moving average. Our Bill Maloney, who watches the

technicals here at Bloomberg saying that that was significant. He was watching it Friday. It held Friday going into the weekend, but that's not the case today. Having said that, Scarlette, as Romain mentioned, most names in the S&P 500 lower today, 424 to the downside and you had about 76 gaining some ground today. Yeah, I was just looking at the VIX, a

shot up to past 19 from 17 on Friday. So we're now at the highest level since last October when we had the last big sell off. You're looking there at the map and when you break down the S&P 500 into 11 industry groups, all red, all around tech, real estate, investment trusts and communication services leading the way. The sectors that are doing fairly better or holding up a little bit better here are telecoms services, household and personal products and banks, but just marginally so. All right. Sorry.

But before you move on to the individual movers, I just want to point out is looking it up. So the S&P on a two day basis, this is the worst drop going back to a march of 2023, in the middle of the original bank crisis. The Nasdaq, worst to date, dropped going back to October of last year. All right.

So some significance, right, in terms of what we've seen in a couple of days and that tone and tenor in the S&P 500 and particularly the equity market, having said that, was able to find a few gainers in today's session. Goldman Sachs, of course, out with earnings earlier today at its highs, up 6%, folks. Finishing the day just shy of a 3% gain. Really a stand out among the big banks that have reported so far. GOLDMAN By the way, shares were the number two gainer in the S&P 500. Profit soaring 28%. You probably know this, bucking analysts expectations of a drop. Fixed income traders surpassing even

most optimistic estimates. And we did get some upbeat comments about AIG. David Solomon, the head of Goldman, saying it expects a significant demand from AIG related infrastructure and as a result, financing, which will be a tailwind to their business in particular. All right.

Number two, gainer in the S&P 500, another bank, and we're talking about M&A banks during the most and I believe two years after boosting its 2024 outlook for net interest income. Of course, a key source of revenue. That's what we look at when it comes to these banks. So N.A. Bank up almost 5%, 4.7%. It was up, though, 8% at its highs today.

So finishing off its best levels of the day. Intel looking at the chips today. We did see a lot of chip named chip names. Excuse me, your top gainers in the Nasdaq 100 Intel, the number one gainer in the Nasdaq, 100 city, opening up a 30 day positive catalyst. Watch on the stock, saying Intel is

experiencing negative sentiment due to the foundry business. As we reported about this at Bloomberg in the last week or so. But that given the positive March notebook data of a 44% month over month increase, there is upside to consensus estimates.

So getting a little bit in the weeds, but nonetheless they're upbeat. Citigroup that is on Intel. So that stock easily a standout in today's session. Okay, You have the hard job today, Carol. I had the easy job finding decliners.

Quite a few notable ones, including Tesla, finishing down by 5.6%. This after a Bloomberg reported that several top executives are going to be leaving the company and there will be global job cuts at the company. In fact, the largest ever round of job cuts, reducing global headcount by more than 10%. Our team actually reporting that the cuts could reach closer to 20% in some divisions.

Two people familiar with the matter told our own Dana Hull and Ed Ludlow earlier today. In addition, senior Vice President Andrew Baglino, who's an 18 year veteran of the company, just one of four named executives at the company, four named executive officers of the company, I should say. He announced today that he was leaving shares hitting the lowest since May of last year, also falling today on a percentage basis, the worst performer in the S&P 500. It goes to Salesforce down the most since going back to December 2020. To this, after Bloomberg reported the company is targeting Informatica to boost data capability. That's according to several people familiar with the matter. Some analysts, though, noted that such a

deal may draw regulatory scrutiny. I should note that Informatica shares also fell today by 6% that a software company and DJT Trump Media and Technology Ticker. DJT Of course, Donald Trump social media startup tumbling again today, this time falling close to 20% on the day today.

This after the company took a first step toward allowing the former president and other insiders to capitalize on their stake. The company filed to register shares, including those linked to warrants, and that could ultimately bring forward sales from insiders that are not currently permitted until September. Read Perhaps President Trump. We should note that now former President Trump's net worth is at least tied to this has fallen from more than $5 billion to just over $2.1 billion in a

few weeks. And I just want to point out a couple other big decliners that I'm almost sure you saw it with all of the crypto stocks moving lower up now, back down below that 64. Did you see crypto over the weekend, Ramon? I'm just going to surprise you, Tim, but I actually don't sit I'm not looking at but but it's what happened. Well, given you know, it's you know

people thought it was a hedge against, you know, what could happen around the world and it ended up falling to, what, 62,000 Bitcoin over the weekend on the strike from Yeah. On the week of the having I was talking about it was everything. Anyway let's take a quick look at what's happened in the yield space because that really was where a lot of the volatility was today. Here you're looking at a ten year yield right now back at that four six range, up about nine basis points on the day the two year yield, a smaller move. But nevertheless, at one point it was

just really just a tick or two away from hitting five. Remember, it was just what, back in early February, we were looking at a ten year below four and a two year yield back in mid-January that looked like it was also going to break below four. So a huge reversal from where we were at the start of this year when everybody thought the trajectory for yields was lower and lower and lower. People were going long duration, but the sell off guys now continuing here for what would be a fourth straight week. All right. So that's significant, right? We care about these trend lines and what we see from week to week.

So really important. Having said that, a little bit of, I don't know, levity. I will say this is one of the most read stories on the Bloomberg terminal. It's a Bloomberg opinion piece. And in the headline on his why everyone in finance is getting ripped, it gets into a Goldman Sachs banker over in London.

He's 55 years old. He's got his own podcast. He goes by G Dog, but it just talks about how we are seeing a lot of bankers who spend a lot of time doing their job, how they are now. Again, kind of branching out, looking to spend a bit more time on their wellness and you see top notch fitness facilities at some of the banks that are around the world. And so. Well, that's an understatement. Did you see the pictures of that, Joe,

that they have at Goldman? And I was like and I was a little envious. I'm still have a job here, pretty fancy. And I'm going to have a child. I just kind of like roam around. It's going to be called our dog, don't you? I don't know. You know, I mean, it'd be nice to have a cool nickname, but but it's interesting too, and all series of that story. Yeah. There's been other stories that kind of written about this. How like just the tone of just how

things work on Wall Street, that the idea of taking people out for drinks and other things that were kind of commonplace has now shifted to more wellness activities going for a run or taking people to training with clients rather than going out for a walk. And that's because a lot of clients want that. Yeah, well, it's a recognition that perhaps drinking and going to unsavory

2024-04-18 03:37

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