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Will stocks crash in 2026? · The Financial Exchange Show

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  Speaker 1: Lane and Mark Vandetti.
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  Speaker 2: Paul Lane, Mark Vendetti, Tucker Silver here with you as
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  Speaker 2: we kick off the eleven o'clock hour, taking a look
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  Speaker 2: around at markets and relatively mixed territory. Not a tremendous
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  Speaker 2: amount of movement either way. Dal Jones off about one
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  Speaker 2: hundred and seventy five points in the S and P's
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  Speaker 2: up about eight points at the moment. The big focus
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  Speaker 2: for today's program, as well as the rest of the
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  Speaker 2: week is the labor market. We're gonna get several reports
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  Speaker 2: that is going to give us a pul says to
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  Speaker 2: where the labor market stands at this point. Most notably
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  Speaker 2: on Friday morning, we will get the Bureau of Labor
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  Speaker 2: Statistics Job support for the month of December. But we
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  Speaker 2: did get some important reports this morning, one of them
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  Speaker 2: being the JOLTS Report, which is the United States Job
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  Speaker 2: Openings and Labor Turnover Survey, and that number came in
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  Speaker 2: lower than expected. This is for data for the month
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  Speaker 2: of November. The job openings in the United States fell
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  Speaker 2: three hundred and three thousand to seven point one four
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  Speaker 2: million in November of twenty twenty five. We also had
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  Speaker 2: a downwardly revised October number which was previously about seven
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  Speaker 2: point six million. That was revised down to about seven
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  Speaker 2: point four five million, so again indicating that there is
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  Speaker 2: not a tremendous amount of job openings out there. There
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  Speaker 2: has been a decline in that number and it is
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  Speaker 2: certainly well off its peaks that we saw three years
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  Speaker 2: ago where that number topped off at about twelve million. There.
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  Speaker 2: We also had a labor report come out from ADP,
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  Speaker 2: which does a focus on the private employment market. In
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  Speaker 2: terms of jobs added, we saw about forty one thousand
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  Speaker 2: jobs that were added for the month of December according
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  Speaker 2: to ADP. That was slightly below expectations of around mid
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  Speaker 2: forty thousands, but higher than the November numbers that we
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  Speaker 2: had seen, which was a loss of twenty nine thousand.
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  Speaker 2: So really what it comes down to you Mark I
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  Speaker 2: highlighted some of those reports that we received this morning.
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  Speaker 2: We're going to get another job. Another labor report I
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  Speaker 2: believe tomorrow as well with some jobless caam's figures, But
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  Speaker 2: the headline is certainly Friday's report where it seems as
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  Speaker 2: if that unemployment rate the percentage is probably going to
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  Speaker 2: be of most significant focus for listeners out there. We
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  Speaker 2: sit at about four point six percent unemployment. The estimates
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  Speaker 2: have that the December jobs report will show that that
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  Speaker 2: has come down to four and a half percent.
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  Speaker 3: We care mostly because this will drive the fed's estimate
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  Speaker 3: of how much slack there is in the labor market
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  Speaker 3: and how much demand they can risk creating, which is
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  Speaker 3: what they effectively do by printing money lowering interest rates.
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  Speaker 3: It's meant to stimulate demand. You could think of the
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  Speaker 3: FED as controlling, even though I'm being a little bit
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  Speaker 3: fast and loose here, the FED controlling the demand side
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  Speaker 3: of the economy, and structural forces controlling the supply side
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  Speaker 3: of the economy. If FED can't do anything about supply
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  Speaker 3: and shocks to supply, that's a different topic. So the
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  Speaker 3: question is is the labor market merely normalizing. You pointed
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  Speaker 3: out that the ratio of job openings to unemployed people,
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  Speaker 3: which you can think of as a ratio of jobs
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  Speaker 3: demanded to people supplying jobs, that ratio is now about
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  Speaker 3: where it.
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  Speaker 2: Was before COVID sub one.
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  Speaker 3: Before that period, though, which was a pretty hot economy's
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  Speaker 3: twenty seventeen, twenty eighteen, twenty nineteen, that was fairly hot.
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  Speaker 3: That ratio went up before that. The ratio is more
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  Speaker 3: zero point seventy five. So the question is like, what's
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  Speaker 3: normal there and our values of that ratio, quotient, whatever
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  Speaker 3: you prefer, there's the thing on top of the thing
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  Speaker 3: on the bottom of dividing them. That's why we keep
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  Speaker 3: saying it's a ratio. What value is consistent with stable inflation?
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  Speaker 3: Is the labor market still hot? Doesn't seem to be
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  Speaker 3: still hot. No, it seems to be cooling down. It
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  Speaker 3: seems to be normalizing. Is it getting too cool? Is
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  Speaker 3: the Fed right to be stimulating the economy right now
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  Speaker 3: in the face of ongoing elevated inflation. Jury's going to
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  Speaker 3: be out on that for a while.
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  Speaker 2: Where do we fall off the cliff and get to
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  Speaker 2: a point where it's it's too it's too cold. I'm
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  Speaker 2: thinking of like the three little three little bears, the yeah, yeah,
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  Speaker 2: where it's just too it's just too cold. Where does
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  Speaker 2: that point hit? And that's what the Federal Reserve has
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  Speaker 2: to continue to sort of juggle here, is what is
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  Speaker 2: the appropriate monetary policy to, you know, deal with all
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  Speaker 2: those factors. Inflation has sort of moved to the background,
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  Speaker 2: is not at the forefront of their focus. The labor
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  Speaker 2: market is, and so we'll get more information as the
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  Speaker 2: week progresses, and you really do.
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  Speaker 3: Have to sympathize with the FED. It's it's a very
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  Speaker 3: imprecise tooled. Monetary policy has become the policy of choice
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  Speaker 3: over the past thirty years. Used to be fiscal policy.
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  Speaker 3: Fiscal policy just means spending or taxing, spending more or lesser,
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  Speaker 3: taxing more or less. Monetary policy is what the FED does.
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  Speaker 3: That may sound like too simple a thing to have
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  Speaker 3: to even say, but I'll tell you right now.
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  Speaker 4: Jack Ken couldn't.
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  Speaker 3: Remember which was which when he was being briefed on
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  Speaker 3: these things after being elected president. So it's my point is,
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  Speaker 3: I don't think you could be too straightforward when you're
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  Speaker 3: trying to set the terms for a discussion like this.
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  Speaker 3: FED can only control the rate of money printing and
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  Speaker 3: the FED Fund's target rate, and those have effects that
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  Speaker 3: operate with lags. Like Milton Friedman set a very long
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  Speaker 3: time ago, long legs and variable lags. Most economists still
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  Speaker 3: believe that, so not only are they flying blind, it'd
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  Speaker 3: be like deciding what to wear a year from now,
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  Speaker 3: just based on climate forecasts. It could be fifty degrees today,
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  Speaker 3: a year from now it could be minus two degrees today.
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  Speaker 3: You just don't only within very broad contours, can you?
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  Speaker 2: Can you know it's probably gonna be cold in January?
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  Speaker 2: Won't need to But it could.
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  Speaker 3: Also be fifty degrees, I guess, is my point. So
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  Speaker 3: the economy could be slowing down. The rise of un
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  Speaker 3: employment rate and falling job openings could be indicative of
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  Speaker 3: something more alarming, or it could just be normalization. We did,
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  Speaker 3: after all, just have two spectacular quarters of GDP growth,
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  Speaker 3: unsustainably high GDP growth, but spectacular.
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  Speaker 2: Nonetheless, Will stocks crash in twenty twenty six? A fantastic
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  Speaker 2: headline here from the Wall Street Journal. I'm not sure
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  Speaker 2: if the actual content that belies the headline is as fantastic,
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  Speaker 2: but certainly is something that is always on investors' minds
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  Speaker 2: if we will see a crash in the upcoming year,
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  Speaker 2: and I think Mark, you'll be helpful in maybe we're
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  Speaker 2: not sitting here as armchair quarterbacks who are gonna say, well,
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  Speaker 2: I guess it would be not armchair because we're looking
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  Speaker 2: forward to predict. But we're not, no Sradamison going to
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  Speaker 2: predict what's going to happen in twenty twenty six. That
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  Speaker 2: is impossible to do, but really more giving the historical
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  Speaker 2: context in terms of when we have seen on average
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  Speaker 2: drawdowns of a certain percentage when you look back at history.
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  Speaker 2: This piece goes into describe that they ask people to
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  Speaker 2: estimate the chance of a thirty percent drop in the
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  Speaker 2: S and P five hundred over the course of the
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  Speaker 2: next twelve months. The average guess was that there was
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  Speaker 2: a thirty one percent probability percent chance that we would
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  Speaker 2: see a thirty percent drop in the S and P whatever.
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  Speaker 2: You know, The results are that that's I don't really
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  Speaker 2: care if you're just interviewing people from different firms on
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  Speaker 2: their projections, but really what the thing I would take
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  Speaker 2: away more is that if you look at history. Here,
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  Speaker 2: the chief US economists at TS Lumbard, Stephen Blitz, stated
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  Speaker 2: that the probability is more like eight to ten percent,
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  Speaker 2: or every ten to twelve and a half years, from
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  Speaker 2: a historical standpoint, you'll see that type of drop.
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  Speaker 3: Yeah, I would have said more frequently, but it would
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  Speaker 3: have been off the top of my head, I would
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  Speaker 3: have said a little more frequently. It's possible that when
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  Speaker 3: you take the last twenty five years, which have been
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  Speaker 3: an unusually aside from the recession, in COVID, and I
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  Speaker 3: know those are two big A sides, but stock markets
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  Speaker 3: have become less I'm gonna get in trouble if I
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  Speaker 3: say this, not with anybody listening, because it's it's too obscure.
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  Speaker 3: But if you have a PhD in finance, turn off
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  Speaker 3: your radio for a second, because what I'm gonna say
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  Speaker 3: would not impress you. Last twenty five years have been
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  Speaker 3: a little bit less volatile than the prior period. I
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  Speaker 3: would have said a one in five chance of a
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  Speaker 3: thirty percent draw down. But if you the past, I'll
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  Speaker 3: just say the past several years have been unusually like quiescent,
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  Speaker 3: So it makes it seem like those drawdowns are more
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  Speaker 3: rare than they actually.
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  Speaker 4: Oh, yes, and right, is.
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  Speaker 2: That a good hope?
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  Speaker 4: Is that capture?
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  Speaker 2: If the finance PhDs kept their radio on to hear
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  Speaker 2: a little.
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  Speaker 3: They certainly know they know that way, they wouldn't be
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  Speaker 3: appresed to that either. But I think a frequency approach
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  Speaker 3: is the right approach here, because otherwise you're just pulling
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  Speaker 3: stuff out of an orifice. Like just how often has
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  Speaker 3: it happened historically? Like most of the time, annually east
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  Speaker 3: like over seventy percent of the time, or roughly seventy
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  Speaker 3: percent of the time stocks go up, So that should
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  Speaker 3: probably be like, it's a loaded coin seven out of
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  Speaker 3: ten times you flip heads, and he's being good here.
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  Speaker 3: Maybe that's the right way to answer that question. If
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  Speaker 3: you're a financial profe, I should like, what would you
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  Speaker 3: tell a client?
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  Speaker 2: The best way to encapsulate this this whole piece is
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  Speaker 2: the end of this Wall Street journal piece where they
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  Speaker 2: quote star fund manager Peter Lynch, where he is observed
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  Speaker 2: that far more money has been lost by investors trying
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  Speaker 2: to anticipate corrections or trying to time the market than
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  Speaker 2: has been lost in the corrections themselves. I feel like
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  Speaker 2: that is a pretty good way to sum it up.
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  Speaker 2: Is this idea of trying to time or predict a
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  Speaker 2: crash is often not worth it. It's really it's boloney, Lynch.
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  Speaker 3: Wait a second, when we've had fifty percent crashes when
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  Speaker 3: stocks started with a market cap of twenty trillion, don't
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  Speaker 3: you can't tell me that people avoiding people mistiming market
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  Speaker 3: cycles has resulted in bigger No. No, no, that can
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  Speaker 3: miss time, Lynch, You miss timing? Didn't I say that? No?
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  Speaker 2: No, think Lynch.
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  Speaker 3: I think he's quotable, but he's full of it on
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  Speaker 3: this one. There's no way market timing has cost more
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  Speaker 3: people than the actual drawdowns cost everybody.
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  Speaker 4: Think about that?
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  Speaker 2: Oh yes, yeah, think about that well, because you're picking
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  Speaker 2: on the people who sold out, right, which it's a
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  Speaker 2: few Yeah.
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  Speaker 4: What could that be?
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  Speaker 3: A trillion dollars out of current market cap of fifty
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  Speaker 3: If we have a fifty percent draw down, twenty five
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  Speaker 3: to thirty trillion gets wiped out. Think about the magnitudes,
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  Speaker 3: is what I'm saying.
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  Speaker 2: Magnitude, yes, but I think you understand. The point is
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  Speaker 2: more so those people lost out.
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  Speaker 3: No, it's a sensational point. You remember, it's also good advice.
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  Speaker 3: It's good advice, but the underlying argument is baloney.
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  Speaker 4: If you dig into it for a second.
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  Speaker 2: You're tough. You're tough on old Peter Lynch here.
• 11:25
  Speaker 3: I love I love him, and I think he's he's
• 11:27
  Speaker 3: doing the right thing. Just be a good salesman and
• 11:29
  Speaker 3: tell people to stay invested. But actually, there might be
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  Speaker 3: a better way to make that point that's more numerically correct.
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  Speaker 2: We'll see what twenty twenty six brings. We're going to
• 11:38
  Speaker 2: take a quick break here on the financial exchange When
• 11:40
  Speaker 2: we come back, we're going to be talking with Ted
• 11:42
  Speaker 2: Rossman from bankrate dot com and he's going to be
• 11:45
  Speaker 2: going over the twenty twenty six interest rate forecast that's
• 11:48
  Speaker 2: coming up right after this break on the Financial Exchange.
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  Speaker 2: As promised, we are joined by Ted Rossman from bank
• 12:48
  Speaker 2: rate to give us a preview of twenty twenty six
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  Speaker 2: in terms of an interest rate forecast, Ted, thanks so
• 12:53
  Speaker 2: much for joining us today. Appreciate it. Good to be here,
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  Speaker 2: Thank you, Ted. Always a very difficult challenge this time
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  Speaker 2: of year. You have a lot of people sort of
• 13:02
  Speaker 2: pinned down to make projections on what the market's going
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  Speaker 2: to do or an interest rates going to do. And
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  Speaker 2: you acknowledge that here and the piece that it is challenging,
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  Speaker 2: but you look at it from a couple of different realms.
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  Speaker 2: So let's start first with mortgage rates. What are you
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  Speaker 2: seeing in terms of a forecasting from the thirty year
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  Speaker 2: fixed mortgage heading into twenty twenty six. Keeping in mind
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  Speaker 2: that all that should take these predictions with the grain
• 13:23
  Speaker 2: of salt, right as it's very hard to do this accurately.
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  Speaker 6: Right now, the average thirty year fixed mortgage rate is
• 13:31
  Speaker 6: six and a quarter percent. It hasn't been below six
• 13:34
  Speaker 6: percent since the summer of twenty twenty two. I believe
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  Speaker 6: we will soon go below six percent.
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  Speaker 2: I think this year we're going to.
• 13:41
  Speaker 6: See rates move sometimes a little below six, sometimes a
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  Speaker 6: little over six, maybe trading somewhere in a five and
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  Speaker 6: a half to six and a half percent range.
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  Speaker 2: Mortgage range tend to.
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  Speaker 6: Be a bit more volatile than other financial products because
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  Speaker 6: they're tracking ten year treasuries, so they're kind of at
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  Speaker 6: the whims of the markets here. There may be sometimes
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  Speaker 6: that we get a bit of a growth scare rates
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  Speaker 6: may go lower. We also may have times that inflation's
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  Speaker 6: rearing its head or economic factors are pointing to somewhat
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  Speaker 6: higher rates. I believe the Fed's gonna cut three times
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  Speaker 6: this year. I'm forecasting three quarter point cuts from the Fed.
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  Speaker 6: That doesn't directly influence mortgage rates as much as it
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  Speaker 6: does some other products. So I would say kind of
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  Speaker 6: in general, a slow drift downward for mortgage rates could
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  Speaker 6: be volatile, though sometimes higher, sometimes lower, but around six.
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  Speaker 2: That's an important point to make, and maybe we could
• 14:37
  Speaker 2: just examine that a little bit further. Just for listeners,
• 14:40
  Speaker 2: is that you know, when the Federal Reserve is talking
• 14:42
  Speaker 2: about cutting interest rates, they're cutting the shorter end of
• 14:45
  Speaker 2: the curve. And from what I've read ten and you
• 14:48
  Speaker 2: can correct me if I'm wrong, there's not a direct,
• 14:50
  Speaker 2: of course, one to one correlation that, hey, they cut rates,
• 14:52
  Speaker 2: all of a sudden, mortgage rates go down, because as
• 14:54
  Speaker 2: you mentioned, they are tethered more closely to the US
• 14:57
  Speaker 2: ten year treasury. But is there some sort of impact
• 15:00
  Speaker 2: that the Federal Reserve cutting interest rates can have on
• 15:03
  Speaker 2: that longer end.
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  Speaker 6: Some impact, definitely not as direct as some other products,
• 15:08
  Speaker 6: like credit card rates, home equity lines of credit. Those
• 15:11
  Speaker 6: move pretty much directly in line with the FED. Like
• 15:14
  Speaker 6: if the FED cuts a quarter point, your credit card
• 15:16
  Speaker 6: rate is going to go down by a quarter point soon.
• 15:18
  Speaker 6: It's not as direct for mortgage rates. Certainly, the FED
• 15:22
  Speaker 6: is one of the inputs that investors are weighing when
• 15:24
  Speaker 6: they set tenure treasury rates. But one of the interesting
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  Speaker 6: things about this year, and one of the things that
• 15:29
  Speaker 6: makes this year so uncertain, is what happens with the
• 15:33
  Speaker 6: new FED chair, Jerome Palace. Termins a day. We know
• 15:36
  Speaker 6: the president's pushing for someone who's going to substantially lower rates.
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  Speaker 6: If the FED moves too fast, though, and lower short
• 15:43
  Speaker 6: term rates too much too fast, it could actually give
• 15:46
  Speaker 6: us a headfake with long term rates, things like long
• 15:49
  Speaker 6: term treasuries mortgage rates, they could actually go up. In
• 15:53
  Speaker 6: a scenario where the FED cuts too much too fast,
• 15:56
  Speaker 6: it stokes inflation, It stokes fears that the FED it
• 16:00
  Speaker 6: may not be as independent from political pressure as it
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  Speaker 6: used to be.
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  Speaker 2: So we want rates to be falling for the.
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  Speaker 6: Right reason, namely that inflation's coming down and the economy
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  Speaker 6: is relatively stable. So that's one of the kind of
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  Speaker 6: wildcard factors that we need to watch this year.
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  Speaker 2: You mentioned some of the areas that would be more
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  Speaker 2: impacted by interest rate cuts, home equilines of credit, money markets,
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  Speaker 2: auto loans. Any commentary that you have on any of
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  Speaker 2: those three, you pick where they would go with the
• 16:29
  Speaker 2: premise that, hey, perhaps you're projecting three interest rate cuts,
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  Speaker 2: what direction it looks like for any of those three
• 16:34
  Speaker 2: categories heading into twenty twenty six.
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  Speaker 6: Here, I believe that rate cuts will have the biggest
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  Speaker 6: influence on the housing market. So we already talked about
• 16:41
  Speaker 6: mortgage rates. Rates below six could stimulate some buying activity.
• 16:45
  Speaker 6: Falling rates for home equity borrowing are beneficial for people
• 16:49
  Speaker 6: that are maybe looking to fund some home improvements or
• 16:52
  Speaker 6: maybe looking to consolidate debt or use that equity for
• 16:57
  Speaker 6: other purposes. People are sitting on record amounts of equity,
• 17:00
  Speaker 6: and these rates, while they're not as low as they
• 17:02
  Speaker 6: were a few years ago, you're not getting a four
• 17:04
  Speaker 6: percent home equity line of credit right now. The fact
• 17:08
  Speaker 6: that you could be looking at one in the sixes,
• 17:11
  Speaker 6: maybe especially if you have good credit or maybe around
• 17:14
  Speaker 6: seven percent on average, that actually is spurring some activity.
• 17:21
  Speaker 6: You contrast that with something like a credit card, where
• 17:23
  Speaker 6: the rates are high and they're going to stay high.
• 17:25
  Speaker 6: The average credit card charges almost twenty percent. If that
• 17:30
  Speaker 6: falls to nineteen percent, people are hardly going to notice.
• 17:34
  Speaker 6: Auto loans are another area where we're facing high affordability challenges.
• 17:39
  Speaker 6: It's actually not so much of a rate problem with
• 17:43
  Speaker 6: cars as it is that prices are high, insurance costs
• 17:47
  Speaker 6: are high, repairs maintenance. Auto loan delinquencies are at a
• 17:51
  Speaker 6: fifteen year high, But it's not really loan rates that
• 17:54
  Speaker 6: are to blame. It's more some of these other factors.
• 17:57
  Speaker 6: So when we talk about falling rates this year, I'd
• 18:00
  Speaker 6: say the biggest impacts are likely to be on mortgage
• 18:03
  Speaker 6: buyers and refinancers and somebody seeking a home equity loan
• 18:07
  Speaker 6: or line of credit.
• 18:08
  Speaker 2: Great information. Ted Rossman from Bank Rate doing a twenty
• 18:12
  Speaker 2: twenty six interest rate preview with US. Ted, thanks so
• 18:15
  Speaker 2: much for the time, Really appreciate.
• 18:16
  Speaker 6: It, no problem, Thank you.
• 18:19
  Speaker 2: Taking a look around here at markets again still relatively
• 18:24
  Speaker 2: in sort of mixed territory here there really hasn't been
• 18:27
  Speaker 2: a tremendous amount of movement from the major industries here
• 18:31
  Speaker 2: as we continue to digest the US and Venezuela and
• 18:35
  Speaker 2: sort of what that means from a political standpoint. Taking
• 18:38
  Speaker 2: a look around at some of the major stocks making headlines,
• 18:41
  Speaker 2: Intel is up over eight percent today, and you've got
• 18:44
  Speaker 2: the NASDAK in general rallying about ninety points at the moment,
• 18:49
  Speaker 2: up about zero point four percent. Oil that certainly has
• 18:53
  Speaker 2: been in the headlines quite a bit recently, has slipped
• 18:55
  Speaker 2: down a little bit. As we talked about earlier in
• 18:59
  Speaker 2: the program, we're going to receive an increased supply of
• 19:02
  Speaker 2: oil from Venezuela. I believe it was was it fifty
• 19:05
  Speaker 2: million barrels mark that they had said that we're coming
• 19:08
  Speaker 2: our way, So not a direct cause of that, but
• 19:11
  Speaker 2: we do have oil West Texas Intermediate down at about
• 19:14
  Speaker 2: fifty six dollars a barrel. It's off about one in
• 19:17
  Speaker 2: a third percent today, and the metals continue to make
• 19:20
  Speaker 2: headlines in terms of their volatility, with gold off close
• 19:23
  Speaker 2: to a full percent and silver is off about five percent.
• 19:28
  Speaker 2: We'll have more of this here right after this break
• 19:31
  Speaker 2: with Wall Street Watch, and we'll also be doing trivia
• 19:34
  Speaker 2: right after this break on the Financial Exchange. Stick with us.
• 19:41
  Speaker 1: Bringing the latest financial news straight to your radio. Every day.
• 19:45
  Speaker 1: It's the Financial Exchange on the Financial Exchange Radio Network.
• 19:51
  Speaker 1: Time now for Wall Street Watch a complete look at
• 19:55
  Speaker 1: what's moving market so far today right here on the
• 19:58
  Speaker 1: Financial Exchange Radio.
• 19:59
  Speaker 5: Netw Markets are mixed as investors react to the JILT
• 20:03
  Speaker 5: report posted earlier this morning, where the number of available
• 20:07
  Speaker 5: positions decreased to seven point one five million in November
• 20:10
  Speaker 5: from a downwardly revised seven point four to five million
• 20:13
  Speaker 5: in the prior month, marking more than one year low.
• 20:19
  Speaker 5: Right now, the Dow is off by about a third
• 20:21
  Speaker 5: of a percent, or one hundred and fifty six points lower.
• 20:24
  Speaker 5: SMP five hundred is up only five points, NASDAC up
• 20:28
  Speaker 5: over four tenths of a percent or ninety nine points higher.
• 20:31
  Speaker 5: Russell two thousand is off by about a half a percent.
• 20:34
  Speaker 5: Ten year Treasure reeled down three basis points at four
• 20:37
  Speaker 5: point one four to two percent, and crude oil down
• 20:40
  Speaker 5: just over one percent lower, trading at fifty six dollars
• 20:43
  Speaker 5: and fifty cents a barrel. The Financial Times reported that
• 20:46
  Speaker 5: Chevron and Quantum Capital are planning a bid to buy
• 20:50
  Speaker 5: Luke Oil's international asset. Chevron stock is edging higher on
• 20:54
  Speaker 5: that news. Meanwhile, Warner Brothers told shareholders to reject Paramount's
• 20:58
  Speaker 5: amended hostile bid for the company. He's saying its existing
• 21:01
  Speaker 5: deal with Netflix is stronger. Warner stock is up modestly,
• 21:05
  Speaker 5: and Intel stock is rallying eight percent after the chip
• 21:08
  Speaker 5: maker unveiled next gen AIPC processors at the Consumer Electronics
• 21:13
  Speaker 5: Show in Las Vegas.
• 21:15
  Speaker 2: I'm Tucker Silvan.
• 21:16
  Speaker 5: That is Wall Street Watch, and we are gonna do trivia.
• 21:19
  Speaker 5: Now we haven't done that yet, so here we go
• 21:21
  Speaker 5: on this day. In twenty nineteen, Amazon surpassed Microsoft to
• 21:25
  Speaker 5: become the most valuable company in the world. At the time,
• 21:29
  Speaker 5: Amazon was valued at seven hundred and ninety seven billion dollars. Today,
• 21:34
  Speaker 5: both companies are well into the trillion dollar company list.
• 21:38
  Speaker 5: So trivia question today, how many US based companies are
• 21:43
  Speaker 5: worth one trillion dollars? Once again, how many US based
• 21:47
  Speaker 5: companies are worth one trillion dollars? Be the third person
• 21:53
  Speaker 5: today to textas at six one, seven, three, six, two
• 21:55
  Speaker 5: thirteen eighty five with the correct answer along with the
• 21:58
  Speaker 5: keyword trivia and win a Financial Exchange show T shirt
• 22:02
  Speaker 5: once again. The third correct response to textas to the
• 22:05
  Speaker 5: number six one, seven, three, six two thirteen eighty five
• 22:08
  Speaker 5: with the correct answer along with the keyword trivia will win.
• 22:11
  Speaker 4: That T shirt.
• 22:12
  Speaker 5: See complete contest rules at Financial Exchange show dot com.
• 22:16
  Speaker 2: One trillion or greater. I guess right, would be h yeah, okay.
• 22:21
  Speaker 3: Also, as of what twelve thirty one, probably twenty, Tucker's.
• 22:25
  Speaker 2: Gonna shut he's no more questions about trivia.
• 22:28
  Speaker 3: Yea, Well it's Ben Ben rids they so I'm kind
• 22:30
  Speaker 3: of directing this to him as of twelve thirty one,
• 22:32
  Speaker 3: twenty twenty.
• 22:32
  Speaker 2: Five, no suit for me.
• 22:35
  Speaker 3: If you're googling that, which mostly I would do that
• 22:38
  Speaker 3: to answer this question.
• 22:39
  Speaker 4: It might have some integrity, It might have some please integrity.
• 22:43
  Speaker 2: For the sancrety of trivia. It's supposed to be off
• 22:45
  Speaker 2: the top of your dome. No googling.
• 22:47
  Speaker 3: Yeah, I couldn't do it. And also I need to
• 22:49
  Speaker 3: know as of when, because market cap changes.
• 22:52
  Speaker 2: But we'll write our we'll write our guests down. I
• 22:55
  Speaker 2: think it's.
• 22:55
  Speaker 3: A fluid concept here at the Financial Exchange, we're talking
• 22:58
  Speaker 3: about time is a fluid concept. For Ben Kitchen, we.
• 23:00
  Speaker 2: Were talking about US markets but emerging markets have been
• 23:05
  Speaker 2: in tremendous focus last year, rallying upwards of thirty four percent,
• 23:10
  Speaker 2: nearly doubling the return of the S and P five hundred,
• 23:13
  Speaker 2: breaking a trend where the emerging market category had well
• 23:17
  Speaker 2: underperformed US markets for at least a decade.
• 23:21
  Speaker 4: What feels like twenty years.
• 23:22
  Speaker 2: Yeah, it feels like twenty years, but I can say
• 23:24
  Speaker 2: with pretty sound certainty for the last decade. Of course,
• 23:28
  Speaker 2: this is an area where typically if you talk to
• 23:31
  Speaker 2: people about portfolio construction, whether it be within a four
• 23:35
  Speaker 2: or one K or at asset allocating in general, there
• 23:37
  Speaker 2: has been often this idea that you need to have
• 23:40
  Speaker 2: global diversification and have a slug of your portfolio, say
• 23:45
  Speaker 2: twenty twenty five percent as a rough figure, into emerging
• 23:49
  Speaker 2: markets and international equities.
• 23:51
  Speaker 3: International.
• 23:52
  Speaker 2: There is you know, counter arguments to be made that
• 23:56
  Speaker 2: with some of these US companies that you're dealing with
• 23:59
  Speaker 2: within the S and P five hundred, that they do
• 24:01
  Speaker 2: have global exposure, that they don't just sell their products domestically.
• 24:05
  Speaker 2: They sell them. Yeah, half of their products are sold.
• 24:08
  Speaker 2: I think sales come from overseas, so you are getting
• 24:11
  Speaker 2: exposure there. In terms of the reasons for the strong
• 24:15
  Speaker 2: performance last year. One of them is the weakening dollar.
• 24:18
  Speaker 2: We did see the US dollar weekend relative to foreign
• 24:21
  Speaker 2: currencies last year. You also had the confluence of areas
• 24:25
  Speaker 2: like semiconductors in particular. If you look at semiconductor manufacturing,
• 24:30
  Speaker 2: Taiwan Semiconductor is a company that is really has significant
• 24:34
  Speaker 2: market share there and they have their stock has done
• 24:37
  Speaker 2: tremendously well. They represent a very heavy percentage of emerging
• 24:40
  Speaker 2: market funds out there. That was an area that benefited.
• 24:43
  Speaker 2: Commodities and materials had a great year too, and that
• 24:46
  Speaker 2: can loop in some countries like Brazil and Peru and
• 24:49
  Speaker 2: others that are a little bit more heavy in sort
• 24:52
  Speaker 2: of the materials side of things. But mark your thoughts
• 24:56
  Speaker 2: just on emerging market performance and perhaps some drivers for
• 25:00
  Speaker 2: growth for the twenty twenty six here.
• 25:05
  Speaker 3: That's a big topic. We can talk about EM growth,
• 25:08
  Speaker 3: which has been disappointing. EM company based profitability is a
• 25:12
  Speaker 3: slightly different story. Historically, the argument for the argument for
• 25:17
  Speaker 3: any asset class, which is a fancy way of saying
• 25:19
  Speaker 3: something that's investable. So large cap stocks are an asset class,
• 25:22
  Speaker 3: and they also have to be distinct in a sort
• 25:24
  Speaker 3: of a correlation sense the correlation is not perfect, or
• 25:26
  Speaker 3: it shouldn't be for something to be a distinct asset class.
• 25:29
  Speaker 3: So large cap stocks US that's the S and P
• 25:31
  Speaker 3: five hundred, more or less, medium sized company stocks the
• 25:34
  Speaker 3: S and P six four hundred, excuse me, or the
• 25:37
  Speaker 3: Russell MidCap twenty five hundred some I think it's twenty
• 25:39
  Speaker 3: five hundred. International stocks are a distinct asset class, and
• 25:45
  Speaker 3: then within an international there's developed which is Europe and
• 25:49
  Speaker 3: in Developed Asia, and then there's emerging. So overall US
• 25:52
  Speaker 3: stocks are about seventy percent now of global market capitalization.
• 25:56
  Speaker 3: That's just the total value of the shares of all
• 25:58
  Speaker 3: US companies, which means thirty cents out of every dollar
• 26:02
  Speaker 3: invested in equities worldwide is invested in non US companies.
• 26:06
  Speaker 3: So that's an important asset class because it's big. This
• 26:08
  Speaker 3: is why if you have a target day fund in
• 26:10
  Speaker 3: your four one K, one of those kind of set
• 26:12
  Speaker 3: it and forget it suckers that rebalances and reallocates automatically,
• 26:16
  Speaker 3: you'll see twenty ten to thirty percent I should say
• 26:19
  Speaker 3: maybe twenty being an average. In foreign stocks. It's an
• 26:22
  Speaker 3: important asset class. So last year Gangbusters for em emerging markets.
• 26:27
  Speaker 3: That is, we've seen this story play out before in
• 26:30
  Speaker 3: the early two thousands when EM returns were consistently spectacular,
• 26:35
  Speaker 3: drew a lot of people in, and they've more or
• 26:36
  Speaker 3: less been disappointing ever since. Really, part of the reason
• 26:40
  Speaker 3: for that is that the ration I gave a general
• 26:44
  Speaker 3: portfolio construction to use your phrase rationale for EM, which
• 26:47
  Speaker 3: is it's out there and it's investable, and it's imperfectly
• 26:50
  Speaker 3: correlated with US assets, so it should be considered. That
• 26:53
  Speaker 3: is an uncontroversial statement. You'll find it in any finance textbook.
• 26:57
  Speaker 3: The story advanced by proponents of VM, people that manage
• 27:01
  Speaker 3: you money and want your money, is that growth potential
• 27:04
  Speaker 3: is higher for demographic reasons, right, because for a long
• 27:08
  Speaker 3: time these were basket cases by rule of low standards,
• 27:11
  Speaker 3: and they've since gotten their act together. But that higher
• 27:15
  Speaker 3: growth is not materialized GDP per capita in Mexico, Argentina
• 27:20
  Speaker 3: and other countries in this hemisphere come to mind, they've
• 27:23
  Speaker 3: had flat per capita GDP for like ten years.
• 27:26
  Speaker 2: Right, right. The valuation is a big part of this
• 27:30
  Speaker 2: story too, where right now you have the emerging market
• 27:34
  Speaker 2: equities trading at nearly a forty percent discount to US peers,
• 27:38
  Speaker 2: one of their lowest for PE differentials, more of than
• 27:41
  Speaker 2: the decade. Again, price to earnings ratio is what they're
• 27:43
  Speaker 2: talking about there that has been sold. If you're someone
• 27:46
  Speaker 2: who is in the emerging markets space, that has been
• 27:50
  Speaker 2: a big sale. So certainly it'll be interesting back toe
• 27:53
  Speaker 2: how emerging markets fares for twenty twenty six.
• 27:57
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• 29:03
  Speaker 2: Final word on the emerging market value.
• 29:05
  Speaker 3: Yeah, the valuation differential was historically chalked up to the US,
• 29:11
  Speaker 3: of course being the most stable in addition to largest
• 29:16
  Speaker 3: and consistently among the fastest growing economies in the world,
• 29:19
  Speaker 3: which is remarkable given our size. The reason why commentators
• 29:24
  Speaker 3: and some economists wring their hands a lot about the
• 29:26
  Speaker 3: deficit and about monetary policy independence. The deficit continues to
• 29:31
  Speaker 3: spiral out of the debt continues to spiral a lot
• 29:34
  Speaker 3: of controlled deficit was actually was actually down a little
• 29:38
  Speaker 3: bit like one last year tion yeah, something like that,
• 29:42
  Speaker 3: but it was actually down because of tariffs. It was
• 29:44
  Speaker 3: actually down a little bit, so but nevertheless still like hemorrhaging, hemorrhaging,
• 29:49
  Speaker 3: right ink. So I probably shouldn't make too much of that.
• 29:51
  Speaker 3: But the reason why we talk so much about monetary
• 29:53
  Speaker 3: policy independence, like you don't want a president dictating what
• 29:56
  Speaker 3: interest rate should because any president would want lower interest
• 29:58
  Speaker 3: rates that don't want to crush the econom the.
• 30:02
  Speaker 2: Long term health.
• 30:03
  Speaker 3: Only human and natural. The reason economists sound the alarm
• 30:08
  Speaker 3: about deficits and monetary policy independence and other things consistency
• 30:12
  Speaker 3: in administering the laws is that those are the factors
• 30:15
  Speaker 3: that have created the environment which have allowed, arguably allowed
• 30:19
  Speaker 3: valuations to rise to the level that they've risen to.
• 30:21
  Speaker 3: In the United States, many people are writing about this
• 30:24
  Speaker 3: sort of equalization now of standards and norms. Is policy
• 30:28
  Speaker 3: in the US becomes less stable. You could say you
• 30:31
  Speaker 3: love it. You want Trump to run monetary policy. You
• 30:33
  Speaker 3: want him to buy public you want him to take
• 30:35
  Speaker 3: shares in companies. You want him to reward friends and
• 30:38
  Speaker 3: punish enemies. You love that style of leadership. That's That's
• 30:41
  Speaker 3: not what I'm talking about here. I'm just talking about stability.
• 30:44
  Speaker 3: You can't argue that there's less of it now than
• 30:45
  Speaker 3: there was. Can we have the same valuation advantage relative
• 30:49
  Speaker 3: to other economies if they are catching up to us
• 30:52
  Speaker 3: in terms of I'll just say governance, standards and institutional quality.
• 30:57
  Speaker 3: That's an important question for a long term investor estimating
• 30:59
  Speaker 3: capital market returns. It's not a question we're going to
• 31:02
  Speaker 3: be able to resolve here today.
• 31:03
  Speaker 2: Yeah, definitely an interesting question to pose. We're going to
• 31:05
  Speaker 2: take a break here on the Finished Exchange. When we
• 31:07
  Speaker 2: come back, a little bit of stack Roulette right after
• 31:09
  Speaker 2: this break.
• 31:10
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• 31:47
  Speaker 5: The Financial Exchange is incredibly proud to be a partner
• 31:50
  Speaker 5: of the Disabled American Veterans Department of Massa Choose It's
• 31:54
  Speaker 5: planning as well underway for the twenty twenty six dav
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• 32:29
  Speaker 5: Trivia question in the previous segment was how many US
• 32:32
  Speaker 5: based companies are worth one trillion dollars? That would be
• 32:35
  Speaker 5: nine and Nvidia, Apple, Microsoft, Alphabet, Amazon, Meta, Berkshire, Hathway, Broadcom,
• 32:41
  Speaker 5: and Tesla all worth one trillion dollars. Ben from Belmont,
• 32:46
  Speaker 5: New Hampshire is our winner today, taking home a Financial
• 32:49
  Speaker 5: Exchange Show T shirt. Congrats to Ben, and we play
• 32:52
  Speaker 5: trivia every day here in the Financial Exchange. See complete
• 32:55
  Speaker 5: contest rules at Financial Exchange Show dot Com.
• 32:59
  Speaker 2: Time little Bit of Stock Roulette, Mark, I will let
• 33:02
  Speaker 2: you beat lead on.
• 33:03
  Speaker 4: I'm gonna try to provoke you here.
• 33:04
  Speaker 2: Okay from the AI Battle.
• 33:06
  Speaker 3: From the Financial Times. AI will free households from chores
• 33:10
  Speaker 3: and boost hidden productivity, says open AI. You've seen the story.
• 33:15
  Speaker 2: Seen the story.
• 33:16
  Speaker 3: This doesn't this seem a little so the crux of
• 33:19
  Speaker 3: the argument, let me see if I can summarize it
• 33:20
  Speaker 3: in a couple of sentences, is this AI may not
• 33:23
  Speaker 3: show up in the data anytime soon, but you're gonna
• 33:25
  Speaker 3: have so much more free time. We got to find
• 33:27
  Speaker 3: a way to your well being is going to be
• 33:29
  Speaker 3: so much higher because of AI. We just we we
• 33:32
  Speaker 3: at open AI are going to find a way to
• 33:34
  Speaker 3: measure that GDP is not going to do it. Productivity
• 33:38
  Speaker 3: may not show up. I'm exaggerating a little bit here.
• 33:41
  Speaker 3: This study was done by Aaron chatter Gee. I think
• 33:44
  Speaker 3: I'm pronouncing his last name right. He's a Berkeley PhD.
• 33:48
  Speaker 3: So he knows how to do good research. But doesn't
• 33:51
  Speaker 3: this seem a little self serving and desperate?
• 33:53
  Speaker 2: To you? Yes? It is, what's what's it?
• 33:57
  Speaker 4: But you have a different feeling on it.
• 33:59
  Speaker 2: So just on this one in particular, Well, the debate
• 34:03
  Speaker 2: you and I always get into, and I was thinking
• 34:05
  Speaker 2: about it as you had sent me a piece last
• 34:07
  Speaker 2: week when we had done the show basically stating what
• 34:10
  Speaker 2: you just allude to there is that in the data,
• 34:12
  Speaker 2: and I'm not disagreeing with it. We haven't seen any
• 34:16
  Speaker 2: significant economic data that points to that AI is leading
• 34:20
  Speaker 2: to a widespread transformation and productivity or earnings growth for
• 34:25
  Speaker 2: many companies out there that are trying to incorporate it.
• 34:28
  Speaker 2: And so heading into twenty twenty six, that is the
• 34:31
  Speaker 2: big focus, right is are we going to see instances?
• 34:34
  Speaker 2: And I could point to cherry picking two or three
• 34:36
  Speaker 2: of them to combat that argument, but you could come
• 34:39
  Speaker 2: back and meet and say, well, Paul, those are two
• 34:41
  Speaker 2: or three instances. The broader data set isn't pointing to that,
• 34:44
  Speaker 2: and so it becomes the argument of I'm taking from
• 34:47
  Speaker 2: the stance of as a long term equity investor, I
• 34:50
  Speaker 2: am optimistic about the technologies potential because believing in being
• 34:55
  Speaker 2: long US stocks or Internet stocks in general, we need
• 34:59
  Speaker 2: this technology to provide productivity gains.
• 35:03
  Speaker 3: I mean, I'm a bullish long term as well on
• 35:06
  Speaker 3: the economy and of course on equities. But why do
• 35:08
  Speaker 3: we need this particularly to pay off? Maybe it'll be
• 35:11
  Speaker 3: something I'm not saying. I don't think it will, by
• 35:13
  Speaker 3: the way, right, it's probably a seventy percent chance that
• 35:15
  Speaker 3: it is widespread and transformative is its proponents. I'm not
• 35:18
  Speaker 3: sure that existing players will be the ones to benefit
• 35:20
  Speaker 3: from that, but I don't doubt that it'll be pervasive.
• 35:23
  Speaker 3: But why is it so existential?
• 35:25
  Speaker 2: Not existential? But if that is what it's the it's
• 35:30
  Speaker 2: the dark horse to bet on, right. If you're hoping
• 35:32
  Speaker 2: for future gains for the market, is if this technology
• 35:36
  Speaker 2: can be truly transformative and help all sorts of companies,
• 35:40
  Speaker 2: you know, reduce increase efficiency, reduce costs, generate more profitability.
• 35:46
  Speaker 3: So yeah, Or I guess a lot of investment that
• 35:49
  Speaker 3: goes nowhere that could have been used to I don't know,
• 35:51
  Speaker 3: cure cancer or.
• 35:52
  Speaker 2: Power well hopefully this or invest in.
• 35:54
  Speaker 3: More nuclear power plants, which thank god we're moving ahead with.
• 35:57
  Speaker 3: Or I worry a little bit about it averting too
• 36:00
  Speaker 3: much from other possible growth engines. Are you putting all
• 36:04
  Speaker 3: your eggs in one basket?
• 36:05
  Speaker 2: Putting all your eggs in one basket is a reasonable
• 36:08
  Speaker 2: argument there's going to be a significant amount of investment.
• 36:11
  Speaker 2: But could it be the case It's always lazy to
• 36:14
  Speaker 2: use kind of the broadbend parallels of the late nineties,
• 36:16
  Speaker 2: but that does keep I keep coming back to that
• 36:20
  Speaker 2: example of overinvestment for sure, but then had companies benefits
• 36:24
  Speaker 2: significantly from the umber investment.
• 36:27
  Speaker 3: But the productivity, the broader economic benefits petered out after
• 36:33
  Speaker 3: arguably well the productivity benefits ended in two thousand and four.
• 36:36
  Speaker 3: That's well documented. Now you could say economic growth would
• 36:39
  Speaker 3: have been even slower. This century, economic growth has been
• 36:41
  Speaker 3: about GDP per capita a little less, that is, per
• 36:46
  Speaker 3: head overall GDP growth about two percent, about two thirds
• 36:50
  Speaker 3: as fast as the prior century. I'm obviously not saying
• 36:53
  Speaker 3: it's because of that bubble. Maybe without those investments, growth
• 36:57
  Speaker 3: would have been even slower. We can't run that alternative
• 37:00
  Speaker 3: history type experiment.
• 37:03
  Speaker 2: Yeah, I'm just going back to your piece of like, hey,
• 37:05
  Speaker 2: where would you divert the capital to? And you had
• 37:08
  Speaker 2: mentioned nuclear in some other areas.
• 37:10
  Speaker 4: To seems to be being driven by that, But that's
• 37:13
  Speaker 4: catching me.
• 37:13
  Speaker 2: I could make the argument that there was a piece
• 37:15
  Speaker 2: the other day that within healthcare there is a tremendous
• 37:18
  Speaker 2: amount of incorporation of our official intelligence and maybe from
• 37:21
  Speaker 2: a diagnostic standpoint, that helps people sort of figure out
• 37:25
  Speaker 2: more of the I thought Tucker was giving me the.
• 37:30
  Speaker 4: My eyebrows.
• 37:33
  Speaker 2: I have to brush my eyebrows. But there's been a
• 37:37
  Speaker 2: lot of I was like, what's okay, what's so controversial
• 37:40
  Speaker 2: about investing artificial because they're giant eyebrows.
• 37:46
  Speaker 3: That's not nothing wrong with giant eyebrows.
• 37:50
  Speaker 2: I guess we still so. I guess we're not so
• 37:53
  Speaker 2: different after all? Is the bottom lines you're still optimistic on?
• 37:57
  Speaker 4: Oh yeah, I think it's going to be a future transfer, okay.
• 37:59
  Speaker 3: I I think it's going to send economic potential GDP
• 38:03
  Speaker 3: from about two where it is today to three. I
• 38:06
  Speaker 3: mean maybe, but if it does.
• 38:08
  Speaker 4: That, it's going to suck investment from other places. Don't forget.
• 38:10
  Speaker 3: You can't just change one thing and not change others.
• 38:13
  Speaker 2: That's all the time that Mark and I have for
• 38:15
  Speaker 2: this debate for this edition of the Financial Exchange, But
• 38:18
  Speaker 2: we'll be back at it tomorrow at ten am to
• 38:20
  Speaker 2: discuss more on the economy. Thanks so much for joining us.