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Soft Jobs Data, Market Selloff, Tech Earnings · Bloomberg Intelligence

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0:23
Speaker 2: But we're also going to talk about jobs and the
0:26
Speaker 2: economic fundamentals and all that fun stuff. And for that,
0:28
Speaker 2: Michael McKee is joining us. Bloomberg Economics. No, you're not
0:32
Speaker 2: Bloomberg Economics. What your policy correspondent?
0:35
Speaker 3: Well, economics.
0:37
Speaker 4: It is a.
0:39
Speaker 5: Title like that's the.
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Speaker 4: Thing red Sox analysts for I mean there's that too.
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Speaker 2: I gotta ask, are you surprised about the depth of
0:48
Speaker 2: the reaction, like people trying to talk about a fifty
0:50
Speaker 2: bases point cut in September, terminal rates being revised, lower
0:53
Speaker 2: the bond rally.
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Speaker 6: I don't.
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Speaker 3: I don't ever get surprised by market reactions. I love
0:59
Speaker 3: it said this. I've said this before and I'll say
1:02
Speaker 3: it again. The fat has a reaction function. The markets
1:06
Speaker 3: have an overreaction function, and they always go too far,
1:08
Speaker 3: too fast, and then they come back a little bit
1:10
Speaker 3: to sanity at some point. Because you get a hurt
1:13
Speaker 3: instinct when some kind of news breaks and the markets
1:17
Speaker 3: were leaning towards a bad report, and so this just
1:21
Speaker 3: you know, pushed them in a direction they already wanted
1:25
Speaker 3: to go. And I'll leave it to smarter people like
1:28
Speaker 3: just to tell you why they want to do that,
1:31
Speaker 3: but and whether or not lower rates are going to
1:34
Speaker 3: be good for equities or not. But at this point,
1:38
Speaker 3: I think it's today you just kind of look past
1:42
Speaker 3: what happened in the markets, and Monday.
1:44
Speaker 1: You come back.
1:45
Speaker 5: Can't do that, this is the fun part for us.
1:46
Speaker 3: But go ahead, well Monday, Monday, you come in and
1:49
Speaker 3: you start thinking about what does this mean for the
1:51
Speaker 3: overall economy. I'm telling everybody takes Saturday and Sunday just.
1:58
Speaker 7: Well.
1:58
Speaker 8: Have actually Austin Goulsby will be on Bloomberg Television noon.
2:04
Speaker 8: I believe that's on our Eco go page here. So
2:07
Speaker 8: when it comes to someone like that, who's obviously on
2:10
Speaker 8: the federal reserve, what are you looking to potentially hear
2:14
Speaker 8: from him? And what do you want to kind of
2:15
Speaker 8: gauge here now coming out of obviously the Fed decision,
2:18
Speaker 8: and because he at the beginning of July, he was
2:21
Speaker 8: kind of one of the first people that really, we
2:23
Speaker 8: know he's dubbish, but he started indicating that he felt
2:25
Speaker 8: like cuts were coming pretty soon. Yeah.
2:27
Speaker 3: Well, the chairman was very certain during his news conference
2:33
Speaker 3: that everybody was in agreement that they should pause, and
2:36
Speaker 3: I'm wondering if that's exactly true or if he was
2:39
Speaker 3: maybe seeing what he wanted to see. And obviously, the
2:43
Speaker 3: market is saying today that the FED made a mistake,
2:48
Speaker 3: So do they think how do they defend themselves to
2:52
Speaker 3: the idea of a mistake? And does this lock in September?
2:56
Speaker 3: And obviously what do they think of a fifty basis point.
3:00
Speaker 3: I don't think it's something that they want to do,
3:02
Speaker 3: so I don't think that'll be a big deal.
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Speaker 2: I mean, I know that the markets overreact and the
3:06
Speaker 2: FED onder I get all that, But if the market
3:09
Speaker 2: has to price in a fifty bases point cut or
3:13
Speaker 2: even an intermeting cut, then the FED has the enviable
3:17
Speaker 2: job of having to walk back expectations to kind of
3:20
Speaker 2: get that out of the market.
3:22
Speaker 5: How did they do that when they also have to
3:23
Speaker 5: acknowledge like things are going to beeker.
3:25
Speaker 3: That's why they don't want to do that. They they
3:28
Speaker 3: wouldn't do an intermeding cut unless there was some real
3:32
Speaker 3: collapse in the economy. And we did get one hundred
3:34
Speaker 3: and fourteen thousand jobs. It's what the Fed had been
3:40
Speaker 3: looking for. They'd been looking for a more gradual ratchet down.
3:46
Speaker 3: This was a fairly dramatic move, but it's not out
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Speaker 3: of It's not an abnormal result for the economy. And
3:55
Speaker 3: the unemployment rate is four point three percent and that's
4:00
Speaker 3: still historically low. So yes, things deteriorated, perhaps more quickly
4:06
Speaker 3: than they anticipated, but they're not going to panic at
4:09
Speaker 3: this point.
4:09
Speaker 2: Okay, Mike, Actually stay with us, Hank tight for this segment,
4:12
Speaker 2: we're going to bring in Jonny Bailey. She's chief workforce
4:14
Speaker 2: analyst at employee Bridge, joining us now from Florida. Jony,
4:18
Speaker 2: give us your take on the numbers, Like they weren't terrible.
4:22
Speaker 2: I understand the job market's slowing, but what's your take.
4:28
Speaker 9: If you can see that we have a cooling job market,
4:33
Speaker 9: you know, and it's been coming for some time, you know,
4:35
Speaker 9: over the last really even eighteen months. Most of the
4:39
Speaker 9: job growth has been in the healthcare sector, in the
4:42
Speaker 9: government sector.
4:44
Speaker 10: And in leisure and hospitality.
4:46
Speaker 9: But there's been many sectors that haven't been adding that
4:49
Speaker 9: robust job growth. Manufacturing, professional business services has been struggling.
4:56
Speaker 9: The temporary help sector has really been struggling. So I
5:00
Speaker 9: think we're seeing more of the same. But this report
5:04
Speaker 9: showed some signs of real weakening when you look at
5:08
Speaker 9: the unemployment numbers. That is certainly what concerns me the most.
5:12
Speaker 9: That we tipped up to four point three percent. We're
5:15
Speaker 9: up to seven point one million unemployed people in the
5:20
Speaker 9: United States and right now, I can't tell you that
5:24
Speaker 9: that's going to change very quickly. I think we're going
5:27
Speaker 9: to see more of that for the rest of this year.
5:31
Speaker 8: What if any When it comes to inflationary costs or
5:34
Speaker 8: driving people to go back into the workforce.
5:38
Speaker 9: Oh, I think you are spot on when it comes
5:41
Speaker 9: to that. We are seeing people enter back into the workforce,
5:46
Speaker 9: so that that is a good sign. Even labor participation
5:51
Speaker 9: tipped up to sixty two point seven percent, so people
5:54
Speaker 9: are coming back. They have to come back to work,
5:58
Speaker 9: and that is due to inflationationary costs. You know, we're
6:02
Speaker 9: seeing people not only you know, need both parents maybe
6:06
Speaker 9: to work in a family, but some taking second jobs,
6:11
Speaker 9: looking for part time work or maybe gig work to
6:14
Speaker 9: kind of supplement their incomes. So yes, unemployment will continue
6:20
Speaker 9: to grow as we start to see more people participating
6:24
Speaker 9: in the overall workforce. And unfortunately, job openings are starting
6:29
Speaker 9: to decline month over month. I think we're down to
6:33
Speaker 9: about eight point one million job openings and now we
6:37
Speaker 9: have seven point one million unemployed workers. So you know,
6:42
Speaker 9: there's still more jobs than there are unemployed people, but
6:46
Speaker 9: that gap is really narrowing, and it could reverse that.
6:50
Speaker 9: We will have more unemployed people than we do have
6:54
Speaker 9: open jobs in the US in the next couple months.
6:58
Speaker 3: One thing we saw in the report today that would
7:02
Speaker 3: be ordinarily even a red flag is a drop in
7:06
Speaker 3: temporary health services hiring. Basically, are you finding that companies
7:13
Speaker 3: don't want to add anybody at this point?
7:17
Speaker 9: Yes, you know, unfortunately the temporary help sector has been
7:22
Speaker 9: hit the hardest over the last two years.
7:26
Speaker 10: We've been seeing declines.
7:27
Speaker 9: In you know, job growth for gosh, I think since
7:33
Speaker 9: March of twenty twenty two, so again this month is concerning.
7:37
Speaker 9: There was a loss of twenty two thousand jobs in
7:40
Speaker 9: this sector, and you know, it really points to employers
7:44
Speaker 9: are going to let their temporary workers go first and
7:48
Speaker 9: try to hold on to their permanent staff before they
7:51
Speaker 9: need to lay them off, and it has a profound
7:56
Speaker 9: impact on the overall temporary health industry. Has been a
8:00
Speaker 9: softness across the board. Certainly, I see it at Employee Bridge.
8:05
Speaker 9: I'm also the chair of the board for the American
8:07
Speaker 9: Staffing Association, and I can tell you the entire industry
8:11
Speaker 9: is feeling it across the board.
8:13
Speaker 10: We're hopeful, you know.
8:14
Speaker 9: As we look at coming into the holiday and the
8:17
Speaker 9: peak season, that employers are going to start adding to
8:21
Speaker 9: their payrolls and hopefully twenty twenty five is a much
8:25
Speaker 9: better year, but it would point to a challenging economic
8:30
Speaker 9: climate right now and certainly concerns because employers are not
8:35
Speaker 9: adding temporary workers, you know, to their payrolls.
8:39
Speaker 8: Where are we still seeing bright spots within the labor force?
8:42
Speaker 9: Jny, Well, you know, bright spots, I will say, can
8:49
Speaker 9: still be in that healthcare sector. There's a tremendous amount
8:53
Speaker 9: of job growth in healthcare and I expect those trends
8:57
Speaker 9: to continue.
8:59
Speaker 10: You know, we have been seeing construction jobs start to
9:02
Speaker 10: come back, and.
9:03
Speaker 9: If you look at the horizon, I do expect that
9:07
Speaker 9: we will see a resurgence in manufacturing. We're just not
9:11
Speaker 9: seeing that right now, but many plants are being you
9:14
Speaker 9: know built across the country and those jobs will come
9:17
Speaker 9: back in the US. I also think if you look
9:21
Speaker 9: at the breakdown of unemployment, certainly having education, college degree,
9:28
Speaker 9: you know, put you in a much better position.
9:32
Speaker 10: My concern in this.
9:33
Speaker 9: Month's report was actually those lower wage jobs, you know,
9:38
Speaker 9: really not coming back and being eliminated. And when you
9:41
Speaker 9: look at unemployment, we saw the largest jump in unemployment
9:46
Speaker 9: in twenty five years of age and older. For individuals
9:51
Speaker 9: that have not completed their high school diploma. It went
9:56
Speaker 9: almost it went up almost a full point. We saw
9:59
Speaker 9: that up to six point seven percent. So those low
10:03
Speaker 9: wage jobs are certainly being impacted. College degree it's still
10:09
Speaker 9: down to about three and a half percent unemployment, so
10:12
Speaker 9: certainly lower than that four point three percent, So education
10:16
Speaker 9: skills experience, those jobs are still out there and in demand.
10:23
Speaker 3: Is this something the situation we have now with employment
10:26
Speaker 3: that a FED rate cut is going to fix?
10:29
Speaker 10: It will certainly help, you know.
10:32
Speaker 9: I think most employers right now are being very focused
10:37
Speaker 9: on you know, cost containment and where they're investing, and
10:41
Speaker 9: with where interest rates are right now, you know, their
10:45
Speaker 9: purse strings are just a bit tighter. So when when
10:49
Speaker 9: we talk to our customers at employee Bridge and certainly
10:53
Speaker 9: employers across the board, you know, they are saying that
10:56
Speaker 9: they are waiting, you know, for the FED to cut
11:00
Speaker 9: rights and that they're hopeful that when that happens, things
11:05
Speaker 9: will start to pick up and they will start to
11:07
Speaker 9: make those hiring decisions.
11:09
Speaker 10: Again and move forward.
11:11
Speaker 9: So I would say, from everything we're hearing on the
11:14
Speaker 9: front lines, yes, that will help.
11:16
Speaker 8: You know, Jenny willly have about twenty seconds left. But
11:19
Speaker 8: we've seen when it comes to women in entering the
11:21
Speaker 8: labor force coming out of COVID, it's been a bit
11:23
Speaker 8: of a struggle, more so compared to prior to that.
11:26
Speaker 4: But what do we sing on that front?
11:28
Speaker 9: Yeah, you know, I think that there's more flexibility for
11:33
Speaker 9: women in the workforce right now than there's probably ever
11:36
Speaker 9: been before. Employers want to hire, you know, a device workforce,
11:41
Speaker 9: they want women to come back, and they're offering more flexibility.
11:45
Speaker 9: So options are out there, and I do think we're
11:48
Speaker 9: seeing women enter back as well.
11:51
Speaker 8: Great to hear Jenny Bailey, chief Work Analysts here and
11:55
Speaker 8: apparently the chair of the American Staffing Association. Of course,
11:58
Speaker 8: Mike McKee over our own at Bloomberg.
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12:21
Speaker 2: Intelligence Radio, Alex Steele, Paul Sweeny's off on the beach
12:24
Speaker 2: just mentioned is here, as well as John Tucker. Yeah,
12:26
Speaker 2: we haven't seen those chunky moves in the bond market
12:28
Speaker 2: in the front end since guess when, oh twenty twenty
12:31
Speaker 2: three March, the less VB action there, So let's for
12:35
Speaker 2: a perspective on like the type of sort of panic
12:38
Speaker 2: buying if you will, coming into the front end.
12:40
Speaker 8: Also, the Atlanta Fed GDP now for the third quarter
12:42
Speaker 8: coming in around two and a half percent, and then
12:44
Speaker 8: the ECFS you function in the terminot's where you can
12:46
Speaker 8: see the economic forecast for GDP annually as well as
12:49
Speaker 8: quarter over quarter, still seeing strong growth here. So I
12:52
Speaker 8: know people are potentially spooked by this job number coming
12:55
Speaker 8: in below one hundred and fifty thousand, But again, when
12:58
Speaker 8: you're looking at some of the economic projections here, still
13:01
Speaker 8: pretty strong growth here overall for the US.
13:03
Speaker 2: It's such a good perspective, which begs the question, then
13:06
Speaker 2: when you have a sell off that's triggered by that
13:07
Speaker 2: growth scare, what do you do then when the underlying
13:10
Speaker 2: data is still okay? Well Matt Stuckey is chief portfolio
13:13
Speaker 2: manager of equities at Northwestern a mutual Wealth Management and
13:16
Speaker 2: he joins US now, So to that point, when you
13:19
Speaker 2: see the NASDAC off three percent, do you buy the dip?
13:23
Speaker 11: Well, good morning, thanks for having me. Look, I think
13:26
Speaker 11: before you rush into any kind of buying and selling
13:29
Speaker 11: activity on a day like today, revisiting kind of where
13:32
Speaker 11: you're at from a risk allocation is probably where you
13:35
Speaker 11: need to start. And so if your way underweight risk assets,
13:37
Speaker 11: maybe today's a better entry point. But again, I think
13:41
Speaker 11: it's it's important to always kind of center whatever trading
13:44
Speaker 11: activity you make based on kind of your long term
13:47
Speaker 11: risk tolerance, because that's likely to be tested in the
13:49
Speaker 11: coming months.
13:50
Speaker 8: So how are you advising clients to position? What are
13:53
Speaker 8: you suggesting that they buy? What are you suggesting that
13:56
Speaker 8: they sell? When it comes to equities.
14:00
Speaker 11: With inequities, Look, I mean we we have been somewhat
14:04
Speaker 11: vocal about our concern about concentration building in the S
14:08
Speaker 11: and P for the last year or so, and and
14:10
Speaker 11: to kind of counteract a little bit of that growing risk,
14:13
Speaker 11: you know, we've recommended clients kind of use a little
14:16
Speaker 11: bit of a value tilt within their portfolio in the
14:18
Speaker 11: S and P space, maybe an equal weighted exposure as
14:22
Speaker 11: well to mix in some diversification. You know, we also
14:25
Speaker 11: have been somewhat positive about the optionality that we think
14:29
Speaker 11: exists in US small caps and midcaps, where you know,
14:32
Speaker 11: from evaluation perspective prior to July, you know, things were
14:36
Speaker 11: fairly compressed and dislocated versus the S and P, and
14:39
Speaker 11: we thought it could work in a variety of economic outcomes,
14:42
Speaker 11: one being a mild recession which kind of catalyzes some
14:45
Speaker 11: aggressive FED rate cuts, or you know, a soft landing
14:49
Speaker 11: scenario which still allows the FED to cut maybe just
14:52
Speaker 11: by less that broadens out the economic participation into its economy.
14:56
Speaker 12: You know.
14:57
Speaker 11: At this point now, though, you know, I think we
14:59
Speaker 11: got to have longer term horizon for that to play out,
15:04
Speaker 11: because it does look like incrementally the labor market is
15:07
Speaker 11: accelerat to the downside, and we're likely to be in
15:09
Speaker 11: some chocolate of waters here for the next few months.
15:11
Speaker 2: So you mentioned the Russell, and now we're looking at
15:13
Speaker 2: the Rustle down over four percent. We haven't seen this
15:16
Speaker 2: kind of slide since June of twenty twenty two.
15:18
Speaker 5: I mean, I appreciate that it's looking for value. Is interesting.
15:21
Speaker 5: How do you manage? Then we had a minor run up.
15:24
Speaker 2: And then here we are down again, the most in
15:26
Speaker 2: two years.
15:28
Speaker 11: Well, you know, we're talking about our within equity allocation.
15:32
Speaker 11: I think it's important for your listeners to understand that
15:34
Speaker 11: within the global context of our portfolios, our aggregate equity
15:39
Speaker 11: position has been underweight with a preference for high quality
15:43
Speaker 11: fixed income, and so we're thinking about a little bit
15:46
Speaker 11: of offense in that part of the equity portfolio because
15:49
Speaker 11: we have a defensive position in fixed income, which is
15:53
Speaker 11: in a day like today, you know, really proving it's
15:55
Speaker 11: worth from a diversification perspective. So, you know, our message
15:59
Speaker 11: to CLI clients on days like today is that this
16:01
Speaker 11: is likely to be the environment we deal with for
16:04
Speaker 11: the next few months of volatility back and forth, especially
16:08
Speaker 11: in areas like small caps, which not only have higher cyclicality,
16:13
Speaker 11: but also higher beta associated with them.
16:16
Speaker 4: Matt.
16:17
Speaker 8: Something I'm curious about is whether or not, especially because
16:20
Speaker 8: PAL did signal that rate cuts could come as soon
16:22
Speaker 8: as that September eighteenth rate decision here. But Bank of
16:26
Speaker 8: America actually had some interesting data that they put in
16:28
Speaker 8: their flow show for Michael Hartnett this morning, where the
16:31
Speaker 8: S and P five hundred has advanced more than thirty
16:33
Speaker 8: percent in the past nine months, compared to an average
16:35
Speaker 8: gain of just two percent and a dozen prior occasions
16:38
Speaker 8: since nineteen seventy nine leading up to a first rate cut.
16:42
Speaker 8: So I'm kind of wondering when you have such a
16:44
Speaker 8: big run like that in risk assets, how much of
16:47
Speaker 8: that was they sell the news, especially because of small caps,
16:50
Speaker 8: and that run up to what FED was signaling there, Matt.
16:53
Speaker 11: You know, I thinking through kind of prior cycles and
16:58
Speaker 11: kind of connecting that to what the FED has been doing. Look,
17:02
Speaker 11: it's not uncommon prior to the first rate cut for
17:05
Speaker 11: for markets to corrally and make new all time highs. However,
17:10
Speaker 11: to your point earlier about you know, the sell the
17:13
Speaker 11: news kind of message here. You know, rate cuts when
17:18
Speaker 11: they happen for you know, a response to a decline
17:22
Speaker 11: macroeconomic situation which looks like you know, indeed, if it
17:25
Speaker 11: starts in September, that's what the FED is going to
17:27
Speaker 11: be using as the rationale have a very different equity
17:31
Speaker 11: outcome versus rate cuts that are company with the soft landing,
17:35
Speaker 11: and so we'll have to wait and see which economic
17:37
Speaker 11: outcome we get, but it certainly kind of ratchets up
17:40
Speaker 11: the risk profile and the skew of outcomes if we've
17:44
Speaker 11: had so much for a run up into that first cut,
17:47
Speaker 11: And from my perspective, it is somewhat of evaluation driven
17:51
Speaker 11: rebalance there.
17:52
Speaker 2: When you mentioned fixed income, where on the curve do
17:56
Speaker 2: you think still provides the most value on a price
17:59
Speaker 2: appreciateciation basis?
18:02
Speaker 11: Sure, I mean this is kind of the more recent
18:04
Speaker 11: kind of area that we've changed our fixed income allocation.
18:07
Speaker 11: You know, for the last four or five years, we've
18:11
Speaker 11: been under rate duration wise. During twenty twenty three, we
18:15
Speaker 11: moved our duration back into kind of alignment with the
18:18
Speaker 11: Bloomberg Barclays Act in between that you know, five and
18:21
Speaker 11: six kind of year range, and most recently a couple
18:25
Speaker 11: of months ago, we extended even further to an access
18:28
Speaker 11: duration position in our fixed income portfolios. With a very
18:33
Speaker 11: high credit rating of double a plus in that position.
18:37
Speaker 11: And we accomplish that just with a small position in
18:39
Speaker 11: TLT in our model portfolios, which moved our duration out
18:42
Speaker 11: a year or so. And you know, the thought there
18:46
Speaker 11: is is that, you know, as the Fed is starting
18:48
Speaker 11: to ease policy, as inflation is less of a headwind
18:51
Speaker 11: to fixed income pricing, you know, this is a position
18:54
Speaker 11: that's a really nice diversify in an environment like we're
18:56
Speaker 11: dealing with today.
18:58
Speaker 8: All Right, Matt, thanks so much for joining us. The
19:00
Speaker 8: great getting your perspective, especially on a volatile day like today.
19:03
Speaker 8: So Matt Stucky, chief portfolio manager and of equities at
19:07
Speaker 8: Northwestern Mutual Wealth Management, joining us on zoom from Milwaukee, Wisconsin.
19:13
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19:27
Speaker 5: So let's get to the economic part of this.
19:29
Speaker 2: Bill Lee is chief economist in Milkan Institute and he
19:32
Speaker 2: is joining us. Now, Hi, Bill, the market is taking
19:34
Speaker 2: this job. Support is like a total disaster, like a
19:37
Speaker 2: complete growth scare, is that the right way of looking
19:39
Speaker 2: at it.
19:40
Speaker 13: I spend my entire career warning people not to overreact
19:44
Speaker 13: to one data point, and it looks like the markets
19:46
Speaker 13: that continuing to do that market is never disappointed and
19:49
Speaker 13: always overreacting in right now, all I can say is
19:51
Speaker 13: that how can you have a recession when the entrepreneur
19:54
Speaker 13: rate is between four and four and a half, which
19:56
Speaker 13: most people think is where the natural rate is supposed
19:58
Speaker 13: to be.
19:59
Speaker 6: The second thing is that the.
20:02
Speaker 13: Numbers are showing that the unapployment rate has gone up
20:05
Speaker 13: because the labor force has grown more than the population.
20:09
Speaker 13: The layoffs are starting to mount up this month, but
20:13
Speaker 13: this is the first month of layoffs that we've seen,
20:16
Speaker 13: So for me, I think the recession calls and your
20:19
Speaker 13: fears in the markets are way overreaction.
20:21
Speaker 8: And I'm glad you brought that up, Bill, because Alex
20:24
Speaker 8: and I earlier were talking about the latest alien fed
20:26
Speaker 8: GDP NOW number for the third carter coming in at
20:29
Speaker 8: two and a half percent, and as you know that
20:30
Speaker 8: those numbers can be volatile, but still, when you're looking
20:32
Speaker 8: at kind of the trajector you're here for, economic growth
20:34
Speaker 8: still looks pretty solid when you're talking about the dynamics
20:37
Speaker 8: within the labor market and particularly the participation rate.
20:40
Speaker 4: How much does that plan into.
20:42
Speaker 8: Especially when you see a number drop like that, as
20:44
Speaker 8: far as who's coming into the workforce and who's leaving it, that's.
20:47
Speaker 13: Really critical, Jess, And I'm glad you brought that up,
20:49
Speaker 13: because as much as people point to the SAM rule
20:52
Speaker 13: and the unopplanneer rate rising as being a recession indicator,
20:55
Speaker 13: a lot of indicators and historical relationships like that have
20:58
Speaker 13: just not worked so well long as the you'll curb
21:00
Speaker 13: been inverted, for example, and people have said, oh my god,
21:02
Speaker 13: that's always a good indicator that in a receect. So
21:05
Speaker 13: so I think we have to look at carefully at
21:08
Speaker 13: that composition of the labor force. And what we see
21:11
Speaker 13: is that immigration and other factors have and people just
21:14
Speaker 13: wanted to work now because it's easier to get to
21:17
Speaker 13: work uh, and there are more jobs readily available, so
21:20
Speaker 13: people are encouraged to participate and try to try to
21:24
Speaker 13: try to get more jobs.
21:25
Speaker 6: Now.
21:25
Speaker 13: The bad part about this is that consumers have been
21:28
Speaker 13: spending like crazy, as we know, uh, and savings rates
21:31
Speaker 13: have been dropping. Now the rich people have been dipping
21:33
Speaker 13: into savings. But you know, median worker and the lower
21:38
Speaker 13: half the population have really been resilting to a lot
21:40
Speaker 13: of credit in order to make ends meet, and and
21:43
Speaker 13: and part of that making ends meet is getting a
21:45
Speaker 13: second and third job, because most jobs that are available
21:49
Speaker 13: right now are leisure, hospitality, and sectors in the economy
21:52
Speaker 13: where they just just aren't that high. So for me,
21:55
Speaker 13: the real problem out there is the growing bifurcation in
21:58
Speaker 13: the population of rich and poor. And I think we're
22:01
Speaker 13: going to start to see more and more of that
22:03
Speaker 13: as we go toward the election.
22:05
Speaker 2: I mean, yeah, that shape recovery. Your economy just keeps
22:09
Speaker 2: getting more ca shaped. Your old Alma mater a city
22:14
Speaker 2: group I came out with their call. It's one hundred
22:16
Speaker 2: and twenty five basis points for this year in terms
22:18
Speaker 2: of cuts fifteen and September fifteen, November twenty five for December.
22:22
Speaker 2: That feels like one of the more dubvish calls out there.
22:24
Speaker 2: Do you think that's an economy that needs that kind
22:26
Speaker 2: of move?
22:28
Speaker 13: Well, I'm glad we're not there anymore because the need
22:31
Speaker 13: to attract client attention is something that I don't need
22:33
Speaker 13: to worry about anymore. And I feel sorry for Andrew Hollendhorse,
22:36
Speaker 13: who's still in the business of trying to distinguish themselves
22:39
Speaker 13: from every other economists out there. I think that's a
22:42
Speaker 13: bit overboard from my experience at the FED. I think
22:45
Speaker 13: the reaction at the Board and among all the district banks,
22:48
Speaker 13: they'll be saying, you know, we're normalizing the economy. The
22:52
Speaker 13: need for large number of rate increases is really not there,
22:56
Speaker 13: and if we were to do it, it would signal
22:58
Speaker 13: to the markets that there's some thing to really worry
23:00
Speaker 13: about and that we're panicking. And the need to panic
23:04
Speaker 13: right now is avoiding the impression of panicking right now
23:08
Speaker 13: is at the paramount for the FED.
23:10
Speaker 6: So I think we're going to see twenty.
23:11
Speaker 13: Five basis points in September, and maybe if the data
23:15
Speaker 13: continue to deteriorate like this, they'll talk about a more
23:19
Speaker 13: continued set of rate increases and probably hint at three.
23:24
Speaker 13: But if the data starts to turn around a bit
23:26
Speaker 13: and stabilize and normalize and we don't see an acceleration
23:29
Speaker 13: in the worstening, I think they're going to say, you know,
23:32
Speaker 13: possibly too.
23:33
Speaker 8: Where do you see average job growth coming in over
23:38
Speaker 8: the next twelve months? With the expectations that the FED
23:41
Speaker 8: is going to begin its rate cutting cycle.
23:45
Speaker 6: Yeah.
23:45
Speaker 13: I think when we look at where the payrolls are weakening,
23:49
Speaker 13: it's exactly in those sectors where the FED wants it
23:52
Speaker 13: to weaken, the intrasensitive sectors. In fact, one surprising part
23:55
Speaker 13: of the numbers is how strong construction continues to be.
23:59
Speaker 13: But I think the FED is going to start saying,
24:01
Speaker 13: if we are successful in normalizing interest rates and normalizing
24:04
Speaker 13: the economy, we'll see payrolls and household employment growth somewhere
24:09
Speaker 13: in the one hundred thousand, tw one hundred and twenty
24:10
Speaker 13: thousand range.
24:11
Speaker 6: That's normal.
24:13
Speaker 13: And so everything we've seen up until now at the
24:16
Speaker 13: two hundred level is way above normal and not sustainable.
24:20
Speaker 5: Here's my broad question. Also, how it relates to tech.
24:25
Speaker 2: Hyper scalers are spending gazillions of dollars that's a technical
24:29
Speaker 2: term in terms of spending for AI. Can we have
24:34
Speaker 2: a meaningfully weaker economy with that kind of capac spend?
24:41
Speaker 13: Great point, because as we see in the numbers this month,
24:44
Speaker 13: one of the surprising sources of job of job decline
24:49
Speaker 13: payroll decline is in information systems. Now, fortunately, most of
24:53
Speaker 13: that almost half of that is because of broadcasting and
24:56
Speaker 13: newspapers and publishing. But there is a component that talks
24:59
Speaker 13: about where the hyperscalers are and that also shows a
25:04
Speaker 13: small set of job the payroll declines, and I think
25:08
Speaker 13: what we're seeing is that companies are having to rationalize
25:11
Speaker 13: their finances and to say, if we're going to spend
25:13
Speaker 13: a lot on capex, that means that we're using capital,
25:17
Speaker 13: AI and other types of innovations to substitute for labor,
25:22
Speaker 13: and especially labor that's very expensive labor. So right now,
25:26
Speaker 13: if you don't have the right skill set in the
25:28
Speaker 13: IT high tech industry, your jobs are on the line
25:31
Speaker 13: because you can have to prove to the employer that
25:35
Speaker 13: you're you're going to be a value added producer going
25:38
Speaker 13: forward in a world where AI threatens to take over
25:43
Speaker 13: a lot of the skilled jobs, skilled jobs like you know,
25:46
Speaker 13: entry level programmers, where software itself is being written by
25:50
Speaker 13: the AI software that's being installed.
25:53
Speaker 8: So with Jackson Hole obviously coming up at the end
25:56
Speaker 8: of this month, so we'll have a lot of different
25:58
Speaker 8: FED speakers between now and then in LX a few weeks.
26:01
Speaker 4: I know Alex is excited about that obviously. That September eighteenth, decision.
26:06
Speaker 8: Being the next meeting for the Federal Reserve WIL to
26:08
Speaker 8: decide on rate cut expectations. But how many rate cuts
26:11
Speaker 8: are you really forecasting, either for this year or over
26:14
Speaker 8: the next twelve months, Because, like we've been talking about
26:16
Speaker 8: so much, Alex and I, the economy is still strong.
26:18
Speaker 8: I mean, it doesn't seem like this is going to
26:20
Speaker 8: necessarily need to be an aggressive rate cutting cycle like
26:23
Speaker 8: something you would have seen during the pandemic or the
26:25
Speaker 8: Great Financial Crisis or coming out of the dot com
26:28
Speaker 8: bubble bursting here with the economic growth still pretty sturdy here,
26:32
Speaker 8: So what are you for seeing here?
26:34
Speaker 13: That's a great question, because I think the real boat onus,
26:37
Speaker 13: on shairpal Now is at Jackson Hole to calm Lamarks
26:42
Speaker 13: and say we're not in a recession, we're not panicking.
26:45
Speaker 6: We are in a normalizing situation.
26:47
Speaker 13: That has to be as primary message, and in doing
26:49
Speaker 13: so he will try to hint more at the expect
26:53
Speaker 13: two cuts possibly three for the rest of this year,
26:57
Speaker 13: and nowhere near the levels of fifty pace points initially,
27:00
Speaker 13: and we'll front loaded with two the COVID of two cuts,
27:05
Speaker 13: and we'll have to continue with two more for the.
27:07
Speaker 6: Rest of the year.
27:08
Speaker 13: That would be the wrong message to said, because right
27:10
Speaker 13: now markets are way over excited about the possibility of recession.
27:15
Speaker 13: I think his job in Jackson Hall will be calm
27:18
Speaker 13: to the markets and calm expectations, and to restore a
27:21
Speaker 13: sense of historical perspective as to what is normal and
27:25
Speaker 13: what is a normal FED reaction to what's going on,
27:28
Speaker 13: which is moderating interest rates because they are restricted right now,
27:32
Speaker 13: there's no question, But we don't need to panic and
27:35
Speaker 13: cut them so aggressively.
27:37
Speaker 2: All right, Bill, we appreciate it was great to talk
27:38
Speaker 2: to you again. It's been a while for me, Bill,
27:40
Speaker 2: the chief economist at Milk and Institute.
27:42
Speaker 5: Really good to get that perspective.
27:44
Speaker 2: So sort of walking that tightrope then of having to
27:46
Speaker 2: work back some expectations now for more FED cuts, but
27:50
Speaker 2: keep showing that the economy does need a little bit
27:52
Speaker 2: of support. That is another kind of tight rope balancing
27:56
Speaker 2: that the Fed's going to have to do over the
27:57
Speaker 2: next few weeks.
28:00
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28:18
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28:20
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28:21
Speaker 2: finance and economics, and we are live from Interactive Broker
28:24
Speaker 2: Studio right here in Midtown Manhattan. Also check us out
28:27
Speaker 2: on YouTube. All right, you just heard a market check there.
28:30
Speaker 2: It is ugly out there. I go back to Cameron
28:33
Speaker 2: christ Macroman. He writes her Bloomberg that says, who's going
28:35
Speaker 2: to save the market?
28:36
Speaker 5: Help me be one? You're my only hope.
28:38
Speaker 2: Who's the only hope? Is it going to be Nvidia?
28:41
Speaker 2: Is it going to be Powell? Is it something else?
28:43
Speaker 2: Ben Emmons is chief investment officer and founder at fed
28:46
Speaker 2: Watch Advisors. He joins us, Now, Ben, what saves the market?
28:51
Speaker 12: Yeah, it would be the feth if I say feed
28:53
Speaker 12: Watch Advisors, because you know, this is clearly a Loucal
28:57
Speaker 12: for fifty basis boys right now, right because of this
29:00
Speaker 12: week Bayrold data. Then again, you know, drilling the report,
29:04
Speaker 12: it's a lot about technology jobs. I guess this is
29:06
Speaker 12: what Powell really said. It's like the leags are showing
29:09
Speaker 12: up in the economy, right. The variable lags of policy
29:12
Speaker 12: and technology gets hit but at the most and guess what,
29:14
Speaker 12: that's social down the most today in the market. So
29:17
Speaker 12: I think alex is a fifty base boy cut that
29:19
Speaker 12: the FED would have to deliver. Of course it's not
29:21
Speaker 12: going to do it, but I do think that this
29:23
Speaker 12: report sets us up for the September media for sure,
29:26
Speaker 12: as Powell's sort of signaled it, so Marcus will eventually
29:29
Speaker 12: rebound from this. It looks like to me it was
29:31
Speaker 12: obviously overshooting to the downstrom both yields and stars, and.
29:36
Speaker 8: Especially coming off the back as you know, beIN from
29:39
Speaker 8: how signaling that those rate cuts are coming as soon
29:42
Speaker 8: as a September Here, I mean, how much of this
29:44
Speaker 8: really changed from the last forty eight hours, because obviously
29:47
Speaker 8: we did get that manufacturing data yesterday. Of course we
29:50
Speaker 8: had the jobs dated this morning, but we already saw
29:53
Speaker 8: this decline really ramping up yesterday after a huge balance
29:56
Speaker 8: at a huge rally with the NASDAC up around three
29:59
Speaker 8: percent on Wednesday, and obviously the S and P five
30:01
Speaker 8: hundred posting it's best FED day in about two years here,
30:04
Speaker 8: So how much of this is kind of like a
30:06
Speaker 8: re rotation here moving into other corners of the market
30:08
Speaker 8: when you had speculative areas like small caps really get
30:11
Speaker 8: ahead of themselves, especially in July and now moving maybe
30:14
Speaker 8: toward these kind of divid in paying corners of the
30:15
Speaker 8: market here.
30:17
Speaker 12: Yeah, I think it's totally right. Yes, you know, there's
30:20
Speaker 12: a really nice rotation function on the Boombook terminal that
30:23
Speaker 12: shows exactly that you see precisely deportation playing out the
30:27
Speaker 12: sextici you described. So it is also about that people
30:30
Speaker 12: look at this like, you know, there's an election playing
30:33
Speaker 12: out here too. You know, Harris catching up really quick
30:35
Speaker 12: to Trump in the polls, raising a lot of money.
30:37
Speaker 12: So the Trump trade that's fading, and that Trump trade
30:39
Speaker 12: was very associated with small caps against the backdrop of
30:42
Speaker 12: an economy that's just softening. I don't think this is
30:45
Speaker 12: the two thousand and seven suddenly we're in a recession
30:49
Speaker 12: moments right with the back then the idea, But I
30:52
Speaker 12: do think the yuk of steepening indicates, yeah, the eclumns
30:55
Speaker 12: on a much slower path and you're getting lower payrolls.
30:58
Speaker 12: And you know, small caps don't do that great initially
31:00
Speaker 12: on that type of news. So there's a combination of two.
31:04
Speaker 12: I think that rotation will continue. That's why I think
31:06
Speaker 12: that the shell of the tech stocks is probably getting
31:09
Speaker 12: overshot to the downside, makes these stocks over sold, and
31:13
Speaker 12: that's why I think you can expect the rebound coming
31:15
Speaker 12: in once they settle out there.
31:17
Speaker 2: When you mentioned this is a clear call for the
31:19
Speaker 2: FED to cut like right now, gun calls for fifty
31:22
Speaker 2: basis points now from City JP Morgan, you also mentioned that,
31:25
Speaker 2: I guess my dumb question here is why.
31:27
Speaker 5: I mean, I understand that the report wasn't great.
31:31
Speaker 2: There's obviously you can look at some potential seasonality, like
31:34
Speaker 2: the permanently unemployed people. A lot of them are temporary unemployed.
31:39
Speaker 2: In terms of the overall number. You could also make
31:42
Speaker 2: an argument there is a weather factor, even though I
31:45
Speaker 2: understand some of the headlines showed no, but why the urgency?
31:50
Speaker 12: Yeah, And that's the puzzle of it. Alex like to
31:52
Speaker 12: know why that sentiment shifts suddenly. But I think that
31:55
Speaker 12: people are looking at maybe the accumulation of data and
31:58
Speaker 12: so claims are steadily rising, The full we gaverage is
32:01
Speaker 12: steadily rising. We're closer to that Zamble trigger, not exactly.
32:05
Speaker 12: You know, Mike and kea at a nice spreadsheet this
32:07
Speaker 12: morning on the show, and it says like you're just
32:10
Speaker 12: a tenth of whatever percent away from that trigger. But
32:12
Speaker 12: I think that's that it's a psychology ultimately, even the
32:15
Speaker 12: Poul says that that rule is just a statistical measure,
32:18
Speaker 12: nothing else. So it's psychology here that plays a role.
32:21
Speaker 12: And you know, ultimately it's about like the fat can
32:25
Speaker 12: really cut rates one and it could move more of
32:28
Speaker 12: the restriction. And if you're drill the reports, you say,
32:31
Speaker 12: there's definitely reasons why you don't have to cut with
32:34
Speaker 12: like slashing rates because espaceally, you also have strong job
32:38
Speaker 12: gains in healthcare and construction and financial activity and leisure,
32:42
Speaker 12: which which have been engines of growth in the economy
32:44
Speaker 12: the last several years. So that's not by the weakness
32:47
Speaker 12: systems really the technology jobs in itself. So I think
32:50
Speaker 12: it's more about psychology that we're fed, you're behind the curve,
32:53
Speaker 12: you got to move. Why people are trading the fifty
32:56
Speaker 12: base point cut, which as we know, is unlikely to
32:59
Speaker 12: be delivered September more than twenty five. So it's more
33:02
Speaker 12: like the Fed now gets enough evidence to remove the
33:05
Speaker 12: restriction of this policy, and this report just cements that
33:09
Speaker 12: that that goal for the to.
33:11
Speaker 8: Alex's point, JP Morgan City seeing basically these FED dealing
33:16
Speaker 8: two half point rate cuts, but then also you have
33:18
Speaker 8: Goldman Sacks over there they added a third quarter point
33:22
Speaker 8: rate cut in November to their prior forecast. Also Bank
33:25
Speaker 8: of America, who had been holding out for rate cuts
33:27
Speaker 8: in the beginning of December, they said they now see
33:29
Speaker 8: to look for the first move in actually September here,
33:32
Speaker 8: So when you're looking ahead over the next couple of
33:34
Speaker 8: weeks for other indicators when it comes to the economy,
33:37
Speaker 8: next week's a little bit lighter on the economic calendar,
33:39
Speaker 8: but we still have some services related data coming out
33:42
Speaker 8: as well. But then the week after that, obviously we'll
33:44
Speaker 8: have another update when it comes to CPI on August fourteenth.
33:48
Speaker 8: So what are you looking ahead between now and then,
33:50
Speaker 8: because next week's also a huge earnings week still on
33:53
Speaker 8: the back of coming out of these big tech earnings,
33:55
Speaker 8: because you have a lot of consumer focused names that
33:57
Speaker 8: are going to be reporting.
33:59
Speaker 12: Yeah, I would look at those because that's where I
34:01
Speaker 12: think the issue is currently. Right, if you look at
34:03
Speaker 12: the current sell of today in the S and B,
34:06
Speaker 12: what's the worst performing as sectors The consumer discretionary, right,
34:10
Speaker 12: So I think that's where the economic pain point is
34:13
Speaker 12: currently today in the markets. So these are earnings from
34:16
Speaker 12: these consumer companies are obviously key to watch for any
34:19
Speaker 12: kind of significant demand slowdown. Neil McDonald's was I think
34:23
Speaker 12: it kind of a wake up goal earlier this week
34:25
Speaker 12: that it showed, like, you know what, these consumers aren't
34:28
Speaker 12: so out there, you know, eating left and right everything,
34:31
Speaker 12: and are more conservative or getting more conservative, so that
34:34
Speaker 12: I think it was the first precursor for what the
34:36
Speaker 12: consumer sectors really showing that it is this slowdown that
34:39
Speaker 12: we've been anticipating, against the sentiment that you once again highlight.
34:43
Speaker 12: It's amazing, right, all of a sudden, we're getting a
34:45
Speaker 12: repurported Every bank jumps all over one another to add
34:48
Speaker 12: more raycuts. Well at first they were reluctant to put
34:51
Speaker 12: out ratcuts, right. So I think it's that combination of
34:54
Speaker 12: that that bit of the you know, exaggerated sentiment that
34:58
Speaker 12: we know over all these years of aline oshaps after
35:01
Speaker 12: favoral reports, against the true economic environment, which is slowing.
35:07
Speaker 12: I don't think this is the recession moments, but we
35:09
Speaker 12: definitely have to concefen is probably overtightening here, therefore they
35:12
Speaker 12: can change.
35:13
Speaker 5: All right, Ben, we gotta leave it there. Thanks a lot.
35:15
Speaker 2: Ben Emmons joining us there from fed Watch Advisors. He's
35:19
Speaker 2: the founder and CEO of that.
35:22
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35:26
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35:30
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35:33
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35:36
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35:40
Speaker 2: All right, let's get to Amazon. Isn't a tech company?
35:43
Speaker 2: Isn't an e commerce company? I feel like this is
35:44
Speaker 2: always a question. Putam Goyle is joining us. She's senior
35:47
Speaker 2: US e Commerce and retail analyst at Bloomberg Intelligence. Amazon
35:50
Speaker 2: stock is down by about twelve percent. I know it's
35:54
Speaker 2: a tough tape, so it's hard to really parse out,
35:56
Speaker 2: but put them help me understand why the decline in Amazon.
36:00
Speaker 7: The decline is largely due to the operating margin guidance,
36:03
Speaker 7: which came in below street expectations, as they're investing more
36:06
Speaker 7: in Capex, which is really on the AI site to
36:09
Speaker 7: support the cloud business. Now, you could argue that they
36:13
Speaker 7: did also talk about the consumer and it being weaker
36:15
Speaker 7: and it trading down. But I think you know, when
36:17
Speaker 7: the consumer trades down, Amazon can still do well and
36:20
Speaker 7: take share because they press the pedal on price and
36:23
Speaker 7: convenience pretty hard, which draws them the attention that they need.
36:28
Speaker 8: So when you look at Amazon and mov function, maz
36:32
Speaker 8: and is the ticker symbol on this. So, like Alex
36:34
Speaker 8: was talking about down twelve percent, it's actually the worst
36:36
Speaker 8: performer in the S and P five hundred and also
36:38
Speaker 8: dragging down the com communication the consumer discretionary sector down
36:43
Speaker 8: over five percent right now.
36:44
Speaker 4: So when it comes to especially when you think.
36:46
Speaker 8: Of spinders that feed into in video, because that was
36:49
Speaker 8: something that when it comes to those customers, because we
36:51
Speaker 8: won't hear from Nvidia until August twenty eighth, so a
36:54
Speaker 8: lot of people coming into this week we're looking toward
36:56
Speaker 8: in Vidia's customers because if you looked at say Amazon
36:59
Speaker 8: or even Meta Alphabet and others who you know, if
37:03
Speaker 8: you combined their CAPEX spending over the prior four quarters
37:06
Speaker 8: before this earning season, it was around one hundred and
37:09
Speaker 8: fifty billion dollars. So the thing was, well they pull
37:11
Speaker 8: back or not. For the most part, we still saw
37:13
Speaker 8: a lot of spending. So I'm kind of wondering from
37:15
Speaker 8: that equation, Punam, what are you seeing there as far
37:17
Speaker 8: as what this could potentially mean for a stock like
37:20
Speaker 8: in Video because obviously this is more of a discretionary
37:22
Speaker 8: type company when it comes to Amazon. But when it
37:24
Speaker 8: comes to the spending, how do you parse.
37:26
Speaker 10: That sure stuf? For Amazon?
37:28
Speaker 7: The one thing you have to keep in mind that
37:29
Speaker 7: there were behind the AI wave, right, so they're investing
37:33
Speaker 7: more into AI than maybe some of their peers, and
37:36
Speaker 7: we think that's the reason that you're seeing a tickup
37:38
Speaker 7: in the second half from the thirty point five billion
37:40
Speaker 7: in the first half. Now, when it comes to some
37:43
Speaker 7: of their counterparts, they've been ahead of the curve and
37:46
Speaker 7: they could, depending on where their sales come out and
37:48
Speaker 7: where consumer demand is, they could continue at a steady
37:52
Speaker 7: pace or even pull back a little because they are
37:54
Speaker 7: somewhat ahead of the curve.
37:55
Speaker 2: This is a super basic, dumb question. As they ramp
37:59
Speaker 2: up their AI stuff, how does that help them with
38:01
Speaker 2: e commerce? And so that's such a huge chunge of
38:02
Speaker 2: their business. Like I know that the AWS is a
38:05
Speaker 2: sexy growing part, but when you look at revenue, whether
38:08
Speaker 2: it's e commerce or online stores, it's still double what
38:11
Speaker 2: AWS brings in.
38:13
Speaker 5: How does AI help that?
38:15
Speaker 7: AI is actually a big big deal in the retail
38:18
Speaker 7: space and the e commerce space. So when you think
38:20
Speaker 7: about AI, what it helps them do is it helps
38:22
Speaker 7: them across all facets of their e commerce business, whether
38:25
Speaker 7: that's search, right, So you go into the Amazon search
38:28
Speaker 7: for and let's say you know you're used to typing
38:30
Speaker 7: in I want to black dress, but now you don't
38:32
Speaker 7: have to. You can say going to black tie event, right,
38:35
Speaker 7: and they should be able to populate addresses that gover that.
38:38
Speaker 7: So conversion is one of the biggest pain points in
38:41
Speaker 7: e commerce. You're going online to browse more than you
38:44
Speaker 7: are to buy, whereas you're going in store to buy
38:46
Speaker 7: more than you are to browse. So I think as
38:49
Speaker 7: what AI can do in a meaningful ways improve conversion
38:53
Speaker 7: because you can get the results that you're looking for faster,
38:57
Speaker 7: you can improve the shopping journey, you can get customers
39:00
Speaker 7: to find what they want more easily, and not just that. Right,
39:03
Speaker 7: they're using AIA just for the search, but they're using
39:06
Speaker 7: it in customer service, they're using it for inventory, they're
39:08
Speaker 7: using it and they're automated shopping platforms like the Roofs
39:12
Speaker 7: or the Alexa. So there's a lot that's happening with
39:16
Speaker 7: generative AI, especially which we think will help drive retail
39:21
Speaker 7: higher for a long time.
39:23
Speaker 8: We only have about a minute left here, but you've
39:25
Speaker 8: talked about also how when it comes to the margin
39:27
Speaker 8: equation for Amazon, how you're seeing that expanding over the
39:31
Speaker 8: long term. And as you know, Alex, when you think
39:33
Speaker 8: of the discretionary sector margins coming out of COVID, that
39:36
Speaker 8: was such a big issue because of the inflationary pressures.
39:39
Speaker 8: So I'm wondering Punin when you're thinking about that, because
39:41
Speaker 8: if you're not an Amazon, or maybe like a home
39:43
Speaker 8: durable like a home depot, a lot of those other
39:45
Speaker 8: retailers are struggling. So what are you seeing from the
39:48
Speaker 8: margin aspect maybe more broadly, or what can Amazon tell
39:50
Speaker 8: us kind of moving forward what that means for discretionary
39:53
Speaker 8: type of companies in the retail space.
39:56
Speaker 7: Sure, so remember Amazon is a retail company, but it's
39:58
Speaker 7: also a tech company, right. The marketing opportunity for Amazon
40:02
Speaker 7: really comes from the tech side. So the cloud business,
40:04
Speaker 7: which is about one hundred billion dollars, we estimate that
40:07
Speaker 7: going into two hundred billion dollars with a forty percent margin.
40:10
Speaker 10: There you go.
40:10
Speaker 7: You just added another forty billion dollars in profit. And
40:13
Speaker 7: then when you look at the AW, when you look
40:15
Speaker 7: at the advertising business, fifty billion dollars run rate going
40:18
Speaker 7: to one hundred billion dollars, which we think carries higher
40:21
Speaker 7: margin than AWS, you're looking at adding about another fifty
40:24
Speaker 7: billion at the minimum or more operating income. So right
40:27
Speaker 7: there alone, you're reaching about one hundred billion dollars in
40:30
Speaker 7: operating income in the next five years additionally to what
40:33
Speaker 7: you have today. And that's the profit driving part of Amazon.
40:37
Speaker 7: And you can argue that ads are supported by the
40:40
Speaker 7: growing retail business.
40:41
Speaker 5: Punam, we got to leave it there up against a break.
40:43
Speaker 5: Thank you very much.
40:44
Speaker 2: Putnam Gooyle, Senior EUS Commerce analysts for Bloomberg Intelligence.
40:49
Speaker 1: You're listening to the Bloomberg Intelligence Podcast. Catch us live
40:53
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41:02
Speaker 1: Just say Alexa playing Bloomberg eleven thirty.
41:07
Speaker 2: This is the Bloomberg Intelligence Radio. So the latest right
41:10
Speaker 2: now is that city adjusting its fed rate call. They
41:12
Speaker 2: see a fifty basis point cut in September and November,
41:15
Speaker 2: and twenty five basis points in December. So things are
41:18
Speaker 2: moving fast and furious. What's also being fast and furious
41:21
Speaker 2: is Intel stock. I just want to start there because
41:24
Speaker 2: it's whenever you have a company like Intel mentioned something
41:27
Speaker 2: like liquidity very high up on their earnings, that's never
41:30
Speaker 2: really a good sign. That stock is now plummeting twenty
41:33
Speaker 2: eight percent. I want to bring an anarag Rana Bloomberg
41:35
Speaker 2: Intelligence senior technology analyst.
41:37
Speaker 5: You can also hit on Apple as well, but anarag
41:40
Speaker 5: I just what happened here?
41:43
Speaker 11: Yeah, I mean.
41:44
Speaker 14: Mentel is going through restructuring right now, so I mean
41:47
Speaker 14: this is just a fallout from that, because remember right now,
41:51
Speaker 14: data center is where all the investments are going in
41:53
Speaker 14: and in Vidio GPUs is what everybody wants. So that's
41:56
Speaker 14: really not playing in the you know, sweet spot of
41:59
Speaker 14: what Intel does, big turnaround story, and you know, it
42:02
Speaker 14: seems some issues there.
42:04
Speaker 8: And as you know, that stock has already been under
42:06
Speaker 8: tremendous pressure.
42:07
Speaker 4: This year alone too.
42:09
Speaker 8: So usually when there's cost cutting efforts, when you hear
42:11
Speaker 8: those kind of magic words, usually investors will gravitate toward that,
42:15
Speaker 8: especially when you think of say, as you know, Hona
42:16
Speaker 8: rog Meta at the end of twenty twenty two when
42:19
Speaker 8: it first announced, it's a big tranch of job cuts
42:21
Speaker 8: and cost cutting efforts. But with this and especially the
42:24
Speaker 8: intricacies that you were just talking about, what exactly is
42:27
Speaker 8: it that investors need to see in order to have
42:29
Speaker 8: more conviction for a stock like this.
42:32
Speaker 14: I think sales growth needs to pick up because at
42:34
Speaker 14: the end of the day, unless you see that, you know,
42:36
Speaker 14: that's not going to translate into.
42:38
Speaker 6: Cash flows and bottom lines.
42:40
Speaker 14: You know, in the case of Meta, you know there
42:42
Speaker 14: was exus spending, but at the same time, you know
42:44
Speaker 14: their digital assets were still being used very aggressively by public,
42:48
Speaker 14: you know, whether it's Instagram or WhatsApp, and mean, there's
42:51
Speaker 14: no shortage of assets over there. So two different and
42:54
Speaker 14: distinct stories in the tech land.
42:58
Speaker 5: What do you make of Apple?
42:59
Speaker 2: Then it wasn't terrible at all if you're taking a
43:01
Speaker 2: look just at the opening market, considering the selloup that
43:04
Speaker 2: we're having, and Apple stock is actually up two point
43:06
Speaker 2: four percent best stainer as today in.
43:07
Speaker 4: The S and P five hundred, Yeah, it was.
43:10
Speaker 14: You could say that tech is right. I mean Apple
43:12
Speaker 14: is right now the cleanest story in techland only because
43:15
Speaker 14: they are not spending billions in capex. They are seeing
43:18
Speaker 14: some improvement on their top line and with the promise
43:22
Speaker 14: of potentially a refurs cycle on the iPhone coming over
43:25
Speaker 14: the next twelve to twenty four months, So things are
43:28
Speaker 14: looking good for Apple from a on a relative basis
43:31
Speaker 14: when you look at companies like Amazon or Microsoft.
43:35
Speaker 8: That's right, and especially because Apple in the first quarter
43:38
Speaker 8: it was worst performance relatives to the S and P
43:40
Speaker 8: five hundred one of it is worse since the dot
43:43
Speaker 8: com bubble burst. But if you look at where it
43:45
Speaker 8: was from mid April to now, up almost thirty percent
43:48
Speaker 8: in that span.
43:49
Speaker 4: So even though there were concerns.
43:50
Speaker 8: About China and is the latest earnings report still there's
43:54
Speaker 8: more optimism on all the other side of that. So
43:56
Speaker 8: what improvements when it comes to China?
43:57
Speaker 4: Have you seen there?
43:59
Speaker 8: Yeah?
44:00
Speaker 14: I think April is when the company came out and
44:02
Speaker 14: said that there, you know, numbers in China are not
44:05
Speaker 14: as bad as news agencies and analysts were making it
44:08
Speaker 14: out to be. And I think that led to a
44:10
Speaker 14: reversal of the stock at that point, and since then
44:13
Speaker 14: they did a very big AI event, which surprisingly went
44:16
Speaker 14: very well because Apple's been criticized over the past few
44:20
Speaker 14: years of not innovating enough. So I think those two
44:23
Speaker 14: factors really changed the investive perception of Apple in terms
44:28
Speaker 14: of as a company and its fundamentals. And now we
44:30
Speaker 14: are waiting for the iPhone sixteen you know presentation, which
44:34
Speaker 14: is going to be somewhere around the September time frame,
44:36
Speaker 14: and with that will come the next level of you
44:39
Speaker 14: could say, hardware refash cycle. So things are looking good
44:42
Speaker 14: for Apple, not so much for the other tech players
44:45
Speaker 14: at this point.
44:45
Speaker 2: Before we let you go, I mean, I understand you
44:48
Speaker 2: said that Apple's not spending boat loads in the same
44:49
Speaker 2: way on AI, but don't we want them to do that?
44:52
Speaker 5: Like at some point are they going to be behind
44:53
Speaker 5: on that then?
44:55
Speaker 14: So think about it this way. People are dying to
44:58
Speaker 14: have their large language model on the Apple distribution network.
45:02
Speaker 14: They don't have to spend the money opening I can
45:03
Speaker 14: do all of that spending. They will just license it
45:07
Speaker 14: and to have it on their phone. This is another
45:09
Speaker 14: way for them to say, why do I need to
45:11
Speaker 14: make data centers when I can rent the data centers
45:13
Speaker 14: whenever I need them. So they have a fairly different
45:16
Speaker 14: strategy when it comes to capital allocation as compared to
45:19
Speaker 14: the other companies.
45:20
Speaker 5: All Right, I super appreciate it.
45:22
Speaker 2: Thanks a lot on our ground up Bloomberg Intelligence senior
45:25
Speaker 2: US technology analyst joining us.
45:27
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