Latest / The Financial Exchange Show / Productivity is booming. AI may not be the reason.

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Productivity is booming. AI may not be the reason. · The Financial Exchange Show

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1:03
Speaker 1: This is the Financial Exchange with Mike Armstrong and Paul.
1:07
Speaker 2: Lane, Happy Friday out there from the Financial Exchange. Hope
1:14
Speaker 2: everybody's doing well. It is a job's Friday. We got
1:16
Speaker 2: the report ninety six minutes ago and that's where we
1:20
Speaker 2: will be kicking off our day here. So Paul, as always,
1:25
Speaker 2: we have some good, some bad, a little bit ugly
1:28
Speaker 2: in any of these jobs reports, but generally speaking, this
1:31
Speaker 2: is one of the cleanest ones we've gotten since the
1:33
Speaker 2: government shut down, and generally speaking, I think people are
1:36
Speaker 2: taking it away as a bounce back report after a
1:41
Speaker 2: few bad ones leading up to the holidays. So let's
1:45
Speaker 2: dive right in here. As always, this is a jobs
1:49
Speaker 2: report for the prior month. It measured data back in
1:51
Speaker 2: the month of December, prior to the holidays. It is
1:55
Speaker 2: comprised of two separate surveys that the government does. One
1:59
Speaker 2: as a survey of households, one is a survey of businesses.
2:02
Speaker 2: They indicate completely different things. They're not intended to be
2:07
Speaker 2: read as a combined report, although they obviously you know,
2:11
Speaker 2: very frequently do get reported as such. Where do you
2:14
Speaker 2: want to kick things off? In terms of the most
2:16
Speaker 2: relevant data here for the jobs I think.
2:18
Speaker 3: The area that everyone was most focused on was the
2:21
Speaker 3: unemployment rate. So let's sit the stage with this. The
2:24
Speaker 3: the unemployment rate for the month of November's jobs report
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Speaker 3: was four point six percent. That has been revised down
2:30
Speaker 3: to four and a half percent. And then the report
2:32
Speaker 3: that we just got an hour and a half ago
2:35
Speaker 3: not revised that number, but the number came in slightly
2:37
Speaker 3: lower at four point four percent. So we went from
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Speaker 3: four point six printed to revise to four point five
2:43
Speaker 3: to four point four percent today. So that was encouraging
2:47
Speaker 3: to see. Largely anticipated that we were going to get
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Speaker 3: that point one percent decrease there on the unemployment number
2:53
Speaker 3: of the unemployment rate, but that really was the primary
2:55
Speaker 3: focus going today on the jobs added. That's another component
3:00
Speaker 3: of the job support that we focus on so much.
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Speaker 3: We saw about fifty thousand jobs added in the month
3:04
Speaker 3: of December, that was below expectations of seventy three thousand,
3:09
Speaker 3: and then one slightly not so positive piece was going
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Speaker 3: back to October where there were job losses. There was
3:18
Speaker 3: a further significant revision there where the initial print was
3:21
Speaker 3: one hundred five thousand jobs that were lost for the
3:24
Speaker 3: month of October. That was arise down further to one
3:27
Speaker 3: hundred and seventy three.
3:28
Speaker 4: Thousand, So yeah, I mean good, bad, ugly.
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Speaker 2: Here, Let's start with that unemployment rate piece, because when
3:34
Speaker 2: the November data came out and we saw four point
3:37
Speaker 2: six percent print, what I immediately voiced here on the
3:40
Speaker 2: Financial Exchange was, at that level, you are getting close
3:43
Speaker 2: again to a Psalm rule recession indicator. That is, when
3:46
Speaker 2: the three month rolling average on the unemployment rate passes
3:50
Speaker 2: half a percent higher than the three month rolling average
3:54
Speaker 2: of the low over the last twelve months, we were
3:56
Speaker 2: getting there. This indicates that we are not getting there.
3:58
Speaker 2: This indicates that a data was actually revised back downward
4:02
Speaker 2: and the December number came in better. A four point
4:05
Speaker 2: four percent unemployment rate, while significantly weaker than pretty much
4:09
Speaker 2: anywhere we've been over the last three years, is a historically.
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Speaker 4: Very low unemployment rate.
4:16
Speaker 2: I just want to drive that home for a moment
4:19
Speaker 2: from the Fed's perspective of unemployment, from anyone who has
4:24
Speaker 2: lived through and worked through the last thirty years in
4:26
Speaker 2: the labor market, a four point four percent unemployment rate
4:30
Speaker 2: is quite low. I recognize if you're a twenty two
4:34
Speaker 2: year old, that doesn't feel that way. For a twenty
4:37
Speaker 2: two year old, the average unemployment rate is closer to
4:39
Speaker 2: nine percent. But for you know, an overall economy to
4:44
Speaker 2: be experiencing a four point four percent unemployment rate, it's low,
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Speaker 2: borderline inflationary. So I think that's the context here. Is
4:51
Speaker 2: really solid number from that perspective, does not indicate further
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Speaker 2: labor market weakness that the FED would need to respond to.
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Speaker 2: Right the job creation number, that's where I get to
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Speaker 2: a very mixed bag, like, yeah, I like to see
5:06
Speaker 2: the December bounce back, but wow, was October bad?
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Speaker 3: Really bad? Yeah, And part of that where it's worthy
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Speaker 3: to note that the deferred resignation program of the government
5:17
Speaker 3: that they had put together that is influencing the number
5:20
Speaker 3: that we're seeing there.
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Speaker 2: So perhaps it can explain that because it's been a year. Right, so,
5:27
Speaker 2: spring of last year the federal government offered buyout packages
5:32
Speaker 2: and did layoffs of a bunch of government workers that
5:36
Speaker 2: effectively went so that they had paychecks until September. October
5:41
Speaker 2: was the first time that they were counted in this
5:43
Speaker 2: report as not working, and so that was a big
5:46
Speaker 2: number in October. I think again, to your point, that's
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Speaker 2: pretty explainable one time event, not something that is going
5:54
Speaker 2: to likely repeat itself. I think the overall message though
5:59
Speaker 2: on the pay job creation that I would take away
6:02
Speaker 2: is in the first six months of twenty twenty five,
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Speaker 2: we were averaging about eighty two thousand jobs per month
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Speaker 2: getting created. I don't see exactly where we are for
6:14
Speaker 2: the last six months of the year, but it is
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Speaker 2: well below that, right, It is well below that and
6:20
Speaker 2: has showed a continued weakening in the pace of hiring
6:24
Speaker 2: on behalf of private companies and public organizations like the
6:27
Speaker 2: federal government.
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Speaker 3: To me to further kind of your statistics there, the
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Speaker 3: stark difference between twenty twenty four and twenty twenty five
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Speaker 3: was pretty significant when I looked at it in terms
6:37
Speaker 3: of the average number of jobs added through twenty twenty five.
6:40
Speaker 3: So this encompasses the first six months you talked about
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Speaker 3: and the second half. It was about forty nine thousand
6:45
Speaker 3: jobs that were added over the course of twenty twenty five.
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Speaker 3: That number in twenty twenty four about one hundred and
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Speaker 3: sixty eight thousand.
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Speaker 2: So we're running half right, and twenty twenty four was
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Speaker 2: about half of what twenty twenty three was, And so
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Speaker 2: you can draw a pretty clear trend line there, and
7:01
Speaker 2: if it were to follow that trend line, we would
7:03
Speaker 2: see net job loss in twenty twenty six if you
7:07
Speaker 2: just kind of drew a line there and continued it. Obviously,
7:10
Speaker 2: that is top of mind for the Federal Reserve. Now
7:14
Speaker 2: the interesting piece on this is, in spite of those
7:18
Speaker 2: pretty weak hiring numbers, which again did bounce back in December,
7:23
Speaker 2: we have investors taking a look at interest rate policy
7:26
Speaker 2: and saying, well, this sure thing is up for that
7:29
Speaker 2: January twenty is.
7:30
Speaker 3: Immediately where I went to after the report came out,
7:33
Speaker 3: within fifteen minutes.
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Speaker 4: Yeah, so here's a state of play yesterday.
7:37
Speaker 2: When you take a look at the Chicago Mercantitle Exchange
7:39
Speaker 2: CNB group, you can take a look at FED fun futures.
7:42
Speaker 2: There they were pricing in an eleven point one percent
7:45
Speaker 2: chance of a rate cut at that January meeting.
7:48
Speaker 4: Immediately cut in half. Now a five.
7:50
Speaker 2: Percent chance of a rate cut at that January meeting.
7:53
Speaker 2: I tend to agree. I think it was unlikely in
7:55
Speaker 2: the first place, now extraordinarily unlikely the Fed cuts rates
7:59
Speaker 2: at that meeting. Why the unemployment rate is what they
8:04
Speaker 2: think is the best indicator for this labor market right now,
8:08
Speaker 2: They have said it over and over again. A they
8:11
Speaker 2: don't trust the job creation numbers. B They don't feel
8:14
Speaker 2: like they have a really great grasp on the state
8:17
Speaker 2: of labor supply in the country right now. They have
8:20
Speaker 2: open questions about how good their surveys are. Given the
8:23
Speaker 2: pace of immigration change net migration change into the United States.
8:27
Speaker 2: They are not really certain how many sixty five plus
8:31
Speaker 2: year olds still want to work in this labor market.
8:34
Speaker 2: And so they are really looking at that job creation number,
8:37
Speaker 2: which by the way, is about to get their annual
8:39
Speaker 2: revisions and probably look even weaker than it was before.
8:43
Speaker 2: And they're just saying, look, we don't think that the
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Speaker 2: job creation number is the best one for us to
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Speaker 2: get a sense of how tight the labor market is.
8:51
Speaker 2: We need to be looking at other things like that
8:54
Speaker 2: unemployment rate, like the Jolts report too.
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Speaker 4: That's another good indicator.
8:57
Speaker 2: And I think this report really confirms for them that, hey,
9:02
Speaker 2: further rate cuts right now probably not needed on an
9:07
Speaker 2: emergency basis.
9:08
Speaker 3: Yeah, you wouldn't need to see that unemployment rate, which
9:11
Speaker 3: would have been a shock tick upwards to have the
9:14
Speaker 3: semi futures and for the Fed fund cut at the
9:17
Speaker 3: end of the month dramatically change, And that wasn't the case.
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Speaker 3: And that was my interpretation, Mike, looking over this report,
9:23
Speaker 3: this is further evidence that it probably makes sense at
9:26
Speaker 3: the end of January to stay the course and allow
9:29
Speaker 3: for more data to trickle in before making any other
9:31
Speaker 3: decisions on the rate front.
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Speaker 4: Grade this thing for me, what are you giving it?
9:35
Speaker 3: I would say B minus.
9:37
Speaker 2: I was at a B B plus. Maybe they drop
9:40
Speaker 2: into the unemployment rate. I think gave me a slightly
9:43
Speaker 2: better grade on that. But this job's report is one
9:47
Speaker 2: that at least kneecaps the argument of a rising unemployment
9:51
Speaker 2: rate and a PSALM rule recession again, and I think
9:55
Speaker 2: you're seeing some of that positivity maybe in early trading here. Again,
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Speaker 2: it did not set off alarm bells with investors that hey,
10:03
Speaker 2: we're heading towards a recession, at least so far. So
10:07
Speaker 2: the jobs report for December again headline news here, four
10:10
Speaker 2: point four percent unemployment rate, job creation pace of fifty
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Speaker 2: what was it, fifty four thousand, fifty for the month
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Speaker 2: of fifty thousand for the month of December. That job
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Speaker 2: creation was lower than anticipated, but got some help from that.
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Speaker 4: Lower unemployment rate.
10:26
Speaker 2: And I think that's really the piece that investors are
10:28
Speaker 2: taking away today.
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Speaker 4: Let's tay a quick break.
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Speaker 2: When we come back, I want to stay on the
10:32
Speaker 2: idea of the labor market, specifically moving over to the
10:37
Speaker 2: positive productivity boom that we have seen over the last
10:40
Speaker 2: few years. Is AI causing it? Can we continue to
10:43
Speaker 2: expect it? That's next. On the Financial Exchange.
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11:37
Speaker 2: Two somewhat breaking news stories.
11:40
Speaker 4: One Supreme Court. It was theorized they might.
11:44
Speaker 2: Be announcing their ruling on the tariff President Trump's tariffs today.
11:49
Speaker 2: It's been clarified that they will not be doing that.
11:52
Speaker 2: Tariff ruling today. Presumably they've already ruled, they're just not
11:56
Speaker 2: announcing the ruling so far. So we'll keep you tune there.
12:00
Speaker 2: But I mean, looks like it could be any day now.
12:02
Speaker 4: Sure.
12:03
Speaker 2: Second big breaking news story for all our New English
12:06
Speaker 2: is this just a new England company. I don't know
12:08
Speaker 2: where they are located.
12:09
Speaker 3: Their headquarters is Manchester, Connecticut.
12:12
Speaker 2: Bob's Discount Furniture looking for an IPO in twenty twenty six.
12:16
Speaker 2: So we were talking yesterday about how could be a
12:18
Speaker 2: heating up IPO market this year and you.
12:21
Speaker 3: Know, SpaceX anthropic Bob Bob just.
12:25
Speaker 4: Toss them right into the same group.
12:26
Speaker 2: Yeah, So I want to talk about productivity. So first off,
12:30
Speaker 2: we have to kind of define it. It's pretty obvious,
12:33
Speaker 2: but productivity is measured by, you know, how much dollar
12:38
Speaker 2: output there is per hour worked. And this is kind
12:42
Speaker 2: of the holy grail when it comes to an economy
12:45
Speaker 2: because it's how an economy develops. I know, there are
12:49
Speaker 2: plenty other good measures of you know, well being in
12:53
Speaker 2: an economy, but if you're trying to figure out, hey,
12:55
Speaker 2: can an economy truly grow? This is the holy grail
13:01
Speaker 2: because it is improving quality of life if you get
13:04
Speaker 2: productivity booms. You can also get growth out of a
13:08
Speaker 2: growing population, obviously that will do it. But the productivity
13:12
Speaker 2: piece is a huge one. And so we have seen
13:15
Speaker 2: a productivity boom for the last several years, and as measured,
13:20
Speaker 2: we've been coming in at.
13:22
Speaker 3: Two point three percent two.
13:25
Speaker 2: Point three percent over the course of the last few years.
13:29
Speaker 2: That compares to a one point one percent productivity piece
13:33
Speaker 2: of increase during the twenty tens decade, right, And so
13:38
Speaker 2: you know, obviously everybody's throwing up their hands and saying, Okay,
13:40
Speaker 2: what's causing this? We can measure it, we can measure
13:42
Speaker 2: the output of it, but anything in terms of figuring
13:46
Speaker 2: out what's causing it is a guess at this stage.
13:49
Speaker 4: Obviously, the first one.
13:50
Speaker 2: That anybody wants to blame it on is a yeah, right,
13:54
Speaker 2: why wouldn't you want to blame it on AI? We're
13:56
Speaker 2: spending trillions of dollars on developing this technology. Hopefully we're
14:00
Speaker 2: getting something out of it, and we may be. You know,
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Speaker 2: I think there could be something to that. Here are
14:08
Speaker 2: the counter arguments to it being an AI story. One,
14:12
Speaker 2: The surge in productivity start in the spring of twenty
14:15
Speaker 2: twenty three. Raise your hand if you're listening and we're
14:19
Speaker 2: using chat GPT in March of twenty twenty three, because.
14:23
Speaker 3: It was released in November of twenty twenty two, So
14:26
Speaker 3: that means you were in the first adopter.
14:29
Speaker 4: Yeah. And furthermore, keep your hand raised if you can
14:32
Speaker 4: measure how.
14:33
Speaker 3: Much money you're driving to keep it on the wheel.
14:35
Speaker 4: Well, yeah, if you're driving, keep it on the wheel.
14:37
Speaker 4: Good point, Paul.
14:38
Speaker 2: But keep your hand raised. If you can measure how
14:40
Speaker 2: much more productive you were from chat GPT in your
14:45
Speaker 2: paid job.
14:47
Speaker 4: Oh, that's that's one in a million. That's very few people. Yeah,
14:51
Speaker 4: So I don't know that.
14:54
Speaker 2: Maybe we can blame the continued productivity boom on AI,
14:58
Speaker 2: but the early ones I don't think so.
15:00
Speaker 3: I'm not even willing to go there with it at all.
15:02
Speaker 3: I just think it's too early in the adoption period
15:06
Speaker 3: for it.
15:06
Speaker 4: To be even in twenty twenty six or twenty five.
15:10
Speaker 3: Yeah, I don't think I can. I really don't think
15:12
Speaker 3: I can get there yet to explain such a broad
15:15
Speaker 3: I mean, we're talking about size of an economy as
15:18
Speaker 3: massive as the US to have such broad adoption that
15:22
Speaker 3: we increase productivity by a pretty significant clip. I'm just
15:26
Speaker 3: not willing to say that it if it's part of
15:31
Speaker 3: the pie at all, it's a really small piece of
15:34
Speaker 3: it if anything. And I'm just not sure we can
15:36
Speaker 3: get there yet, because yes, there's more, there's the use
15:40
Speaker 3: has picked up a lot, but that productivity measurement, I
15:44
Speaker 3: just find it a little harder to believe. I think
15:46
Speaker 3: that the factors that you could lean on a little
15:48
Speaker 3: bit more heavily as to why we're seeing that productivity
15:53
Speaker 3: output increase is the capital tightening cycle that we went
15:57
Speaker 3: through where we were in an economy with very very
16:00
Speaker 3: low interest rates, and there was a tremendous amount of
16:02
Speaker 3: labor hoarding that came out after that period. So the
16:06
Speaker 3: pandemic hits interest rates come down significantly, You then have
16:09
Speaker 3: the economy reopen and a ton of demand to hire workers.
16:13
Speaker 3: Back during that low interest rate environment, you had people
16:16
Speaker 3: spending and barring at a very high clipped businesses running
16:20
Speaker 3: at unprofitable levels. But when that tightening capital tightening's changed
16:24
Speaker 3: where interest rates went up to five percent, there was
16:27
Speaker 3: a lot more efficiency and looking in scrutinization by companies
16:31
Speaker 3: on their balance sheets and on their businesses to perhaps
16:34
Speaker 3: not take on as much hiring. It to be a
16:36
Speaker 3: little bit more efficient and look at productivity a bit
16:39
Speaker 3: more part of it. I'm not saying that's all that.
16:41
Speaker 2: Yeah, so that has been one three that's been tossed
16:44
Speaker 2: around to hey. In twenty twenty one, two, twenty twenty three,
16:49
Speaker 2: it was tough to find workers. So if there's a
16:52
Speaker 2: way you can make your workers more efficient, it paid
16:55
Speaker 2: to do so because you didn't need to hire another
16:56
Speaker 2: person and pay them a signing bonus and a really
17:00
Speaker 2: wage in order to get them on board.
17:02
Speaker 4: This is how boring my mind is.
17:05
Speaker 2: But like, the garbage truck was driving around my neighborhood
17:08
Speaker 2: today and I was looking at it and thinking through
17:10
Speaker 2: myself like, huh, it's a very different garbage truck than
17:13
Speaker 2: the Sopranos garbage truck that had two guys in the
17:15
Speaker 2: front seat plus a couple guys in the back haul
17:17
Speaker 2: and the trash into it. No, it was one guy
17:19
Speaker 2: with a mechanical arm that grabs the trash cans and
17:23
Speaker 2: tosses it in there. What used to be between two
17:26
Speaker 2: and four workers is now one for at least this
17:28
Speaker 2: one garbage company. So I can buy that there's probably
17:32
Speaker 2: bigger investment in robotics and modernization in the workforce in
17:37
Speaker 2: the early stages of COVID for all sorts of reasons,
17:41
Speaker 2: social distancing, you know, requirements that states were putting into
17:44
Speaker 2: place to say, hey, you can't have all your workers
17:46
Speaker 2: congregating in this one area. So perhaps that forced towards
17:52
Speaker 2: efficiency during COVID, part of which might be robotics, part
17:55
Speaker 2: of which might just be you know, innovative ways of
17:57
Speaker 2: getting people more productive. Maybe we're seeing some of that now. Again,
18:01
Speaker 2: these are all theories, right, I don't have any better
18:04
Speaker 2: one than anybody else is proposing. Other economists are calling
18:07
Speaker 2: something a ten year dividend, kind of like this idea.
18:10
Speaker 2: So here's the idea. Companies over the last few years,
18:14
Speaker 2: because of that tightness in the labor market, really worried
18:17
Speaker 2: about losing their workers. We talked about labor hoarding. Now
18:19
Speaker 2: we're talking about individuals who are job hoarding, who are
18:22
Speaker 2: hugging their jobs and not wanting to leave. The theory
18:26
Speaker 2: here would be, hey, if the tenure at your company
18:30
Speaker 2: is now much longer because there's not this labor turnover
18:33
Speaker 2: story that you're seeing back in twenty twenty, for example,
18:37
Speaker 2: and now you have these workers that have been in
18:39
Speaker 2: their jobs and not leaving for three, four or five years.
18:42
Speaker 4: Do they just get better at the jobs?
18:44
Speaker 2: They're just naturally better at the jobs and more efficient
18:48
Speaker 2: than they were in year.
18:49
Speaker 4: One when you hired them.
18:51
Speaker 3: I think most of us can agree that you do
18:53
Speaker 3: get better at your job as your experience grows. It's
18:56
Speaker 3: certainly a first year to a third year that's a
18:58
Speaker 3: massive difference.
18:59
Speaker 4: D'arn well better.
19:01
Speaker 2: If you haven't gotten more efficient in your job after
19:03
Speaker 2: five years, then you're not likely going to have a
19:06
Speaker 2: job for very long. So look, I think any and
19:09
Speaker 2: all of these can be contributing factors. And I just
19:11
Speaker 2: broke another pen because that's what I do when I
19:13
Speaker 2: get excited. But I how many pens have you witnessed
19:19
Speaker 2: me break?
19:19
Speaker 4: And just little pieces of it just go flying off?
19:22
Speaker 3: You come into our studio and the amount of pens
19:25
Speaker 3: that are broken.
19:25
Speaker 2: It's pretty fascinating. We've got to take quick break. Wall
19:29
Speaker 2: Street Watch coming up next.
19:41
Speaker 1: Like us on Facebook and follow us on Twitter at
19:44
Speaker 1: TFFE show. Breaking business news is always first right here
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Speaker 1: on the Financial Exchange Radio Network.
19:52
Speaker 4: Time now for.
19:53
Speaker 1: Wall Street Watch, a complete look at what's moving markets
19:56
Speaker 1: so far today, right here on the Financial Exchange Radio Network.
20:02
Speaker 5: The December jobs report is here and markets are modestly
20:06
Speaker 5: in positive territory after the Labor Department reported fifty thousand
20:11
Speaker 5: jobs were added last month, softw than forecasts of seventy
20:15
Speaker 5: three thousand. The unemployment rate fell to four point four percent,
20:19
Speaker 5: better than the four point five percent estimate. Right now,
20:24
Speaker 5: the Dow is up nearly four tenths of one percent,
20:26
Speaker 5: or one hundred and eighty eight points higher. SMP five
20:29
Speaker 5: hundred is up just over half a percent or thirty
20:32
Speaker 5: seven points higher. NASDAC up over two thirds of a
20:35
Speaker 5: percent or one hundred and fifty nine points higher. Russell
20:39
Speaker 5: two thousand is up by about a third of a
20:40
Speaker 5: percent ten. Your Treasure reeled down one basis point at
20:43
Speaker 5: four point one sixty nine percent. Crude oil up nearly
20:47
Speaker 5: two and a half percent higher, trading at fifty nine
20:50
Speaker 5: dollars and seventeen cents a barrel. Intel stock is up
20:54
Speaker 5: over eight percent now after President Trump said the government
20:58
Speaker 5: is taking a new ten percent stake in the chip
21:01
Speaker 5: maker after discussions about the company's future. Meanwhile, nuclear power
21:05
Speaker 5: companies including Vistra and Ochloo, both rallying fourteen percent after
21:10
Speaker 5: Meta announced agreements with the companies in addition to terror
21:14
Speaker 5: Power as part of Meta's efforts to secure necessary resources
21:18
Speaker 5: for its AI ambitions. MetaStock, by the way, is up
21:21
Speaker 5: by about a half a percent. Elsewhere, General Motors revealed
21:25
Speaker 5: they would record a seven point one billion dollar loss
21:28
Speaker 5: for the final quarter of twenty twenty five, primarily from
21:32
Speaker 5: its investments in electric vehicles. Last month, competitor Ford said
21:36
Speaker 5: it expected to take nineteen point five billion dollars in charges,
21:41
Speaker 5: mostly tied to its EV business. JAM shares it down
21:45
Speaker 5: over three percent, and Johnson and Johnson agreed to lower
21:48
Speaker 5: drug prices for US patients in an agreement with the
21:52
Speaker 5: Trump administration, similar to other pharmaceutical companies like GSX, Merk
21:57
Speaker 5: and Novardes, Jane J. Stock is flat at the moment.
22:01
Speaker 5: I'm Tucker Solvan.
22:02
Speaker 4: That is Wall Street Watch. I love love pieces like this.
22:07
Speaker 2: Wall Street Journal reports that the stock market rally isn't
22:09
Speaker 2: just about tech anymore. Funny enough, we were talking about
22:12
Speaker 2: themes for twenty twenty six on one of the last
22:15
Speaker 2: shows of the year, Chuck and I were, and I
22:17
Speaker 2: brought this up as one of the themes that I
22:19
Speaker 2: think many experts are talking about is, Hey, we're going
22:24
Speaker 2: to see the stock market rally broaden out into other areas,
22:28
Speaker 2: and I kept hearing it, and I really continue to
22:31
Speaker 2: see very little evidence of it. I think it's possible,
22:35
Speaker 2: but I would just say, let's all treat all this
22:41
Speaker 2: with a heavy dose of skepticism.
22:43
Speaker 3: Because this is ridiculous, This is so absurd, this is
22:48
Speaker 3: I feel like doing the show now for several years.
22:51
Speaker 3: I don't know what the tally is that they've run
22:53
Speaker 3: this playbook. You kind of get through a cycle where
22:56
Speaker 3: the Santa CAUs rally pieces come out, and then you
22:58
Speaker 3: go to the beginning of the year. We've had six
23:00
Speaker 3: trading days so far, and they're quoting performance of different
23:04
Speaker 3: sectors saying that, you know, industrials and energy have outperformed tech.
23:09
Speaker 3: It's been six days. Can we at least run this
23:13
Speaker 3: story when it's been six months. Six days is not
23:17
Speaker 3: a reasonable sample size to say that now it's not
23:20
Speaker 3: techt turn anymore.
23:22
Speaker 4: By the way, it's been like five and one quarter
23:25
Speaker 4: of the day.
23:25
Speaker 3: Okay, thank you for the adjustment. Look back at the
23:30
Speaker 3: last seven years of the S and P five hundred
23:33
Speaker 3: sector performance and you will see that the technology sector
23:37
Speaker 3: has been either number one or number two in terms
23:40
Speaker 3: of performance for the five of the last seven years.
23:43
Speaker 3: And oh, by the way, when it was number two
23:45
Speaker 3: for two of those seven years, the telecommunication sector, which
23:49
Speaker 3: is far from your traditional AT and T and Verizon stuff.
23:53
Speaker 3: It's basically Facebook and Google and Netflix, those were the
23:58
Speaker 3: number one. So this idea that it's not about tech
24:02
Speaker 3: anymore because of five and a quarter days of trading
24:05
Speaker 3: tries me absolutely insane that they write this piece like
24:10
Speaker 3: I'm just not willing to have I'm not willing to
24:12
Speaker 3: have I guess I just had the conversation about it,
24:14
Speaker 3: but I'm not willing to buy it until we get
24:17
Speaker 3: it at least six months, and then I'm willing to
24:19
Speaker 3: give it an ounce of credibility.
24:21
Speaker 4: Yeah, this story is preposterous.
24:23
Speaker 2: Yeah, just gonna throw it out there, and not to
24:26
Speaker 2: pooh pooh any utility investors out there or people who
24:29
Speaker 2: are really excited about the energy sector maybe, but to
24:35
Speaker 2: write a piece that says, again the headline, the stock
24:38
Speaker 2: market rally isn't just about tech anymore after five days
24:44
Speaker 2: and an hour and eight minutes of trading.
24:47
Speaker 3: Really, you're really into the precise measurements that you had
24:49
Speaker 3: ninety six minutes on the Jobs report when you.
24:52
Speaker 4: Let off with it today, Yeah, you said six days
24:54
Speaker 4: of trading.
24:55
Speaker 3: It's dead wrong.
24:57
Speaker 4: You're just wrong.
24:58
Speaker 2: So I thought it was important to correct you on it.
25:00
Speaker 2: It's it's a preposterous story to write. I hope we
25:03
Speaker 2: do get a broadening out that that would make me
25:05
Speaker 2: feel a little bit better about the rally that we've
25:07
Speaker 2: been on for the last three years. But to be
25:10
Speaker 2: very clear, the rally that we have been on over
25:12
Speaker 2: the last three years has been all about tech, and
25:14
Speaker 2: specifically all about AI. Right, And when you buy you know,
25:21
Speaker 2: an index that tries to replicate the you know, the
25:25
Speaker 2: the market weighted stocks of the US stock market, you
25:30
Speaker 2: are making a bet on AI, plain and simple, like
25:34
Speaker 2: you go take a look at any of this stuff.
25:36
Speaker 2: And that's where I think stories like this are not
25:38
Speaker 2: only foolhardy, but they're a little bit dangerous to is
25:40
Speaker 2: because when you go buy, for instance, you know, the
25:45
Speaker 2: sm you can't buy the S and P five hundred index,
25:48
Speaker 2: but you can buy you know, funds that replicate it,
25:51
Speaker 2: you are putting you know, close to half of that
25:54
Speaker 2: money into big giant tech companies that are making massive
25:59
Speaker 2: bets on artificial intelligence. And so to paint it as
26:01
Speaker 2: anything else I think is disingenuous. Right, hopefully it broadens out,
26:05
Speaker 2: hopefully it changes. But stop writing stories five days into
26:09
Speaker 2: trading that are going to tell me how the markets
26:11
Speaker 2: are going to perform for the rest of the year.
26:13
Speaker 4: Because last year it wasn't this story, it was a
26:15
Speaker 4: different story.
26:16
Speaker 2: It was, Oh, well, the stock market went down for
26:18
Speaker 2: the first three days of the year, and when that happens,
26:21
Speaker 2: lookout because this is what happens, you know, for the
26:23
Speaker 2: rest of the year. When this happens, and guess what
26:25
Speaker 2: stocks went up, like seventeen percent for the year.
26:27
Speaker 4: Yep.
26:28
Speaker 2: So don't tell me, Yeah, don't don't tell me this.
26:32
Speaker 2: This is this is preposterous. As we mentioned earlier, the
26:36
Speaker 2: Supreme Court, when will they be ruling on tariffs?
26:39
Speaker 4: I don't know, but not today.
26:40
Speaker 2: But I was asked, you know, I was speaking with
26:43
Speaker 2: a Portland affiliated and an interview this morning and.
26:47
Speaker 4: Folks over at WGA and thanks for listening.
26:50
Speaker 2: The question was raised like, Okay, what the heck does
26:54
Speaker 2: this mean if it does happen, like what happens if
26:57
Speaker 2: the Supreme Court comes out tomorrow and says, yeah, the
27:00
Speaker 2: tariffs that President Trump put into place, in April are illegal,
27:05
Speaker 2: and we are striking them down.
27:07
Speaker 4: What are the next order? Questions about all of that?
27:10
Speaker 3: Great, what did you say? But I didn't get asked it.
27:15
Speaker 2: So my answer was, first and foremost, I don't know
27:17
Speaker 2: which way the Supreme Court is going to rule. I
27:19
Speaker 2: think obviously they have provided a fair bit of deference
27:23
Speaker 2: to the executive branch over the last few years, so
27:25
Speaker 2: I don't think there's any foregone conclusions.
27:27
Speaker 4: About which direction they rule.
27:28
Speaker 2: You can look at recent rulings one way or the
27:31
Speaker 2: other to say that we're going to rule one way
27:33
Speaker 2: versus the other. They ruled against Joe Biden on the
27:36
Speaker 2: idea of student loan.
27:39
Speaker 4: Cancelation.
27:40
Speaker 2: That was a fairly big expansion of executive power, as
27:43
Speaker 2: is this, So you know which way will they rule?
27:46
Speaker 4: I don't know. I have no sense to dogs the question. Well, no,
27:50
Speaker 4: but then the next order.
27:51
Speaker 2: The next question after that is, Okay, what happens to
27:54
Speaker 2: all the tariffs that were already collected? That's the first
27:57
Speaker 2: order question in my mind, is Okay, you're resetting the
28:00
Speaker 2: clock on all these companies. What about the tariffs that
28:03
Speaker 2: have been collected for the last nine months?
28:05
Speaker 4: That was a tens of billions dollars billions of dollars.
28:12
Speaker 2: So are we going to suddenly refund that and just
28:15
Speaker 2: inject stimulus into the economy of a few hundred billion dollars?
28:19
Speaker 2: Maybe I don't have an answer here. How are you
28:22
Speaker 2: going to do it? It's been insinuated that would be
28:25
Speaker 2: tossed to the lower courts to figure out.
28:27
Speaker 4: So probably nothing immediate.
28:31
Speaker 2: Second question immediately after that, Okay, what is the White
28:34
Speaker 2: if they are ruled overruled?
28:36
Speaker 4: If they're not overruled, then we're right backwards as usually.
28:40
Speaker 4: But if they are.
28:40
Speaker 2: Overruled, Uh, then what does the White House do? Is
28:45
Speaker 2: this going to continue to be something they pound the
28:47
Speaker 2: table on because there are plenty of other methods for
28:50
Speaker 2: the White House to pass new tariffs on all sorts
28:54
Speaker 2: of different products, probably not in the same way country
28:58
Speaker 2: by country as they did. But are they going to
29:01
Speaker 2: stick with this as the issue that they want to
29:04
Speaker 2: basically campaign on as they head into twenty twenty six
29:07
Speaker 2: or do they basically say, Hey, Supreme Court ruled against
29:10
Speaker 2: there's nothing we can do about it.
29:11
Speaker 4: We're going to move on to the next important thing.
29:12
Speaker 4: When it comes to affordability.
29:14
Speaker 3: I don't know it would be hard to It'd be
29:16
Speaker 3: hard to imagine that they do that. You had mentioned
29:18
Speaker 3: that they do seem to have some other arrows in
29:21
Speaker 3: their quiver in terms of attacking this terror issue, because
29:24
Speaker 3: I'm not as certain as to what the recourse my
29:26
Speaker 3: I have viewed on this has always been right. If
29:29
Speaker 3: they turn it over, then I'll dive in and try
29:32
Speaker 3: and figure out what the next step is.
29:34
Speaker 4: I mean, as the market always does.
29:36
Speaker 2: They're looking forward on this, and I don't think you know,
29:38
Speaker 2: there's no stock market investor that has a There might be,
29:41
Speaker 2: but there's no stock market investor that knows which way
29:43
Speaker 2: the court's going to.
29:44
Speaker 4: Rule on this.
29:45
Speaker 2: They're weighing and betting on the possibility of this being
29:49
Speaker 2: overruled and largely seeing that as a net positive for
29:52
Speaker 2: publicly traded companies.
29:54
Speaker 3: Sure.
29:54
Speaker 2: Sure, and so if their terrors stay in place, it
29:58
Speaker 2: does beg the question or raise the question, I don't
30:00
Speaker 2: know which. Are there some companies that are overvalued right now?
30:05
Speaker 4: So?
30:06
Speaker 2: Yeah, could you see some drop off in stock prices
30:08
Speaker 2: if the tariffs are upheld? I think that's an open
30:11
Speaker 2: question as well. Let's take a quick break when we
30:15
Speaker 2: come back a little bit. Fed talk is next on
30:18
Speaker 2: the Financial.
30:18
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31:10
Speaker 2: So we talked a little bit about the FED following
31:13
Speaker 2: the jobs report this morning. Again for the highlights, four
31:15
Speaker 2: point four percent unemployment rate, fifty thousand jobs created, and
31:20
Speaker 2: just that this federal reserve that's in place today unlikely
31:24
Speaker 2: to act in terms of interest rate changes based on
31:27
Speaker 2: a job's report like that, and that's being priced into
31:30
Speaker 2: markets now that han't been said this fed chair and
31:37
Speaker 2: fed this chair. This Federal Reserve board is having some
31:42
Speaker 2: you know, senior year kind of senioritis at the moment
31:48
Speaker 2: because they are on their way out.
31:50
Speaker 4: At least J.
31:51
Speaker 2: Powell is on his way out. His last Federal Reserve
31:54
Speaker 2: meeting that he oversees will be in April. And so
31:57
Speaker 2: the question is then being raised, Okay, you have no
32:01
Speaker 2: matter who is appointed to the Federal Reserve, because we
32:03
Speaker 2: don't have an answer for the chair person, you are
32:06
Speaker 2: very likely to have somebody who sees much more eye
32:10
Speaker 2: to eye with the president, or at least claims that
32:11
Speaker 2: they see more eye to eye with the president when
32:13
Speaker 2: it comes to interest rates setting policy. Therefore, I would
32:17
Speaker 2: expect lower rates because of that. But will we get
32:22
Speaker 2: it that that is, I feel like this is being
32:26
Speaker 2: overstated in terms of the likelihood that rates continue to
32:28
Speaker 2: come down in a dramatic fashion.
32:32
Speaker 3: Because people not being aware of the consensus approach that
32:34
Speaker 3: they need to take.
32:35
Speaker 2: Well, not even the consensus approach. It's a vote right,
32:38
Speaker 2: twelve person vote. Even if you're not a good consensus builder,
32:41
Speaker 2: even if you are the best consensus builder out there,
32:44
Speaker 2: it's not some conversation that then you know.
32:48
Speaker 4: They well seems to me like agree with me.
32:52
Speaker 3: The jurors and locked in and right to come out
32:54
Speaker 3: with a verdict one way or another.
32:55
Speaker 2: So it I don't think is as much a foregone
32:59
Speaker 2: conclusion that rates are going to be dramatically lower by
33:03
Speaker 2: the end of this year. When we do take a look,
33:06
Speaker 2: you know, fast forwarding all the way to the December meeting,
33:09
Speaker 2: and this does assume a new appointment at the head
33:12
Speaker 2: of the Federal Reserve. The most likely outcome, which again
33:17
Speaker 2: this isn't this isn't terribly useful for actually determining what's
33:20
Speaker 2: going to happen, But the most likely outcome that people
33:22
Speaker 2: are betting on right now is that rates are half
33:25
Speaker 2: a percent lower than where they are today.
33:30
Speaker 4: It's not a lot of cutting.
33:32
Speaker 2: The appointees that President Trump has been talking about Stephen Myron,
33:35
Speaker 2: who's on the board now, who's a Trump appointee, they've
33:38
Speaker 2: been talking about one and a half percent rate cuts.
33:41
Speaker 2: So you know, markets are clearly not buying it, I
33:44
Speaker 2: think is the message here, and it also helps explain
33:49
Speaker 2: some of the actions that the President announced either this
33:52
Speaker 2: morning or overnight when it comes to bond buying and
33:56
Speaker 2: boat rates that we'll be covering later in the show.
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35:09
Speaker 2: Paul, you ever heard of the company, gily not until
35:12
Speaker 2: this morning, so most as Happy movie with Ben Affleck
35:18
Speaker 2: and Jennifer Lopez.
35:20
Speaker 3: Chili that was back in the two thousands.
35:22
Speaker 4: Yeah, spelled slightly differently.
35:24
Speaker 2: So this is a Chinese car maker, and I agree
35:27
Speaker 2: with you, most people have never heard of him, but
35:30
Speaker 2: they are wide owner of a whole bunch of brands,
35:34
Speaker 2: including it's Volvo right that they own in the United States.
35:39
Speaker 3: Definitely heard of them and drove that car around for
35:41
Speaker 3: many years.
35:42
Speaker 2: So the announcement from Gilla, the rumors from Gilea is
35:47
Speaker 2: that they intend to expand into the United States or
35:50
Speaker 2: at least make an assessment to do so within the
35:52
Speaker 2: next twenty four to thirty six months. Now, there's a
35:55
Speaker 2: reason that you don't see any Chinese branded cars sold
35:58
Speaker 2: in the United States today because we tear if the
36:01
Speaker 2: living hell out of them. So there is no ban
36:05
Speaker 2: on Chinese may Chinese owned cars being sold in the
36:08
Speaker 2: United States.
36:08
Speaker 4: Because again, if.
36:10
Speaker 2: You drive a Volvo today, you own a Chinese owned car.
36:14
Speaker 2: It's a you know, it's a division of gile but
36:17
Speaker 2: it is wholly owned by or majorly owned by Gilely,
36:20
Speaker 2: and they direct the company what to do. They just
36:23
Speaker 2: happen to get manufactured here in the US. Why I
36:27
Speaker 2: think this is interesting and relevant. One is the timing, right, Like,
36:30
Speaker 2: you know, we are trying to improve relations with China,
36:33
Speaker 2: make sure we can still source rare earths. Might this
36:36
Speaker 2: be an alive branch that the Trump administration is considering, Hey,
36:40
Speaker 2: come invest in domestic manufacturing here and we'll actually let
36:43
Speaker 2: you sell your cars here.
36:44
Speaker 3: You think he would allow? There's no chance, right a
36:48
Speaker 3: Chinese EV.
36:49
Speaker 4: What's the difference?
36:51
Speaker 2: They own Volvo, They direct them exactly what to do?
36:57
Speaker 3: Do you we don't know necessary. I mean that still
37:00
Speaker 3: has like a Swedish sort.
37:01
Speaker 2: Of it's all on subsidiary, like you know what.
37:06
Speaker 3: I don't know if he'd go I don't know if
37:08
Speaker 3: he'd go for it.
37:09
Speaker 4: In either case.
37:10
Speaker 2: Why I think this is fascinating Jim Farley after visiting China,
37:14
Speaker 2: I think in twenty twenty four his quotes he's the
37:17
Speaker 2: CEO of Ford, the experience was the most humbling thing
37:20
Speaker 2: I have ever seen. Chinese evs are far superior in technology,
37:24
Speaker 2: cost and build quality. They pose an existential threat to
37:28
Speaker 2: Western automakers and dominate the global EV landscape. Yeah, that's
37:34
Speaker 2: what American car makers are up against, because like it
37:38
Speaker 2: or not, I think a combination of hybrid and more
37:41
Speaker 2: electrification is probably the future for even the US auto market,
37:46
Speaker 2: or a larger portion of it. And you just I mean,
37:50
Speaker 2: like I think gas powered cars are going to be
37:52
Speaker 2: around for thirty years. I just think that evs are
37:54
Speaker 2: going to slowly make up a larger portion of the total.
37:57
Speaker 3: I mean, if these Chinese ones come through a twenty
37:59
Speaker 3: grand didn't proliferate throughout the United Sates.
38:01
Speaker 2: Wouldn't because you'd have US workers manufacturing them. But this
38:06
Speaker 2: is an interesting one, I think, something to keep an
38:09
Speaker 2: eye on, and I'm not as convinced.
38:11
Speaker 4: That they will continue to be banned as Paul seems
38:13
Speaker 4: to be. Quick Break A lot more to cover in
38:15
Speaker 4: the second hour. The Financial Exchange