It is showing how much power these businesses have to move the index in one direction or another, outweighing technology. As we look at the valuations 2000, the big underperformer today, relative to the median forward valuation on the s p 500, the ratio looks ugly, we are back down to the lowest we have been. I dont know if that is the denominator of the s p 500 continuing to decline. It could be both of those. It has been a downward trajectory, and we have yet to see it. Calls forwe have got questions to be asked of our guests as well. You are a growth investor. There are queries from viewers whether this can be sustained. We have been talking about the heady heights and valuations. You think the nasdaq 100 may have hit a wall here, or can it pull higher . I think we can continue to go higher for no reason at all other than sentiment. As a fundamentally biased investors, you believe you need to have some cyclical rally that comes through for most of these sectors to come to fruition. I mentioned that because growth is outperforming value like 35 year to date. That is the historic spread. I think apples market cap is higher than that of all russell 2000 together. It tells you about these distortions in the market. Present opportunities to go perhaps in areas that have not participated. Something we only look at with covid, but not all industries have done well. It is trading at a 20 discount today. I would suggest health care would remain an important part of our daily lives and therefore companies that are in the pharma and biotech will be bid up because of the fundamentals. I want to ask you an esoteric question about the types of people in the market and whether that is having an effect on the winners and losers on a daytoday and week to week basis. Is there this sense that whatever is driving this market, retail investors, algorithms and quants, that is having an outsized effect on the type of outperformance we are seeing . Yana the short answer is i believe so, but i have no proof of it to date. You can look at the moves in the stocks you mentioned to date. The moment they get moving higher, there is the bidding that takes hold, this momentum trade that supports that trend activity. When you look at the mega cap , they represent the russell 1000 growth, the names you mentioned, the top five are almost 40 of the benchmarks. It is an Asset Allocation before even investment decision. There is something going on, but i dont have proof of that. Great to haveys it with us for the close. Now more markets coverage coming up next on bloomberg markets, the close. We will look at how one gauge of u. S. Inflation expectations took five months to triple from march lows. This is bloomberg. This is bloomberg. Quickne lets get a check of how the markets closed, because it was quite the close. Record highs for the s p 500, the nasdaq and the dow joining in the party. Looking at the shakeup of that index. It was technology in charge. Netflix up 12 . Facebook 8 . It is a phenomenal oneday move. On a longer dated range, you are starting to see an upward movement in some of those yields. 10year yield rising back above the 50 day moving average, 69 oris points on the 10 year longer term break out, you wonder if it does remain likely with no inflation. We have the fed involved in this market and more and more we are areing the Fund Managers saying yields could really start to rise. I want to bring in brian. What is the consensus about rates on the long end starting to turn up a bit . You made it sound interesting. It is true we saw a big move earlier in the day, and it is a fiveyear option potentially, people seeing and thinking that the fed is going to hold rates at zero for the next five years or so. It is a question of inflation. The question is whether this move in breakeven rates real. It is reverting back to the norm 2 . Rend inflation, 1. 5 to still not getting to the target range. Romaine what is the explanation . When you look at the treasury supply coming into the market and where rates have been, secondly on the long end of the curve, it kind of is a head scratcher. Column that broke down the real yields and the breakevens, and a lot of it is the tips market trying to return to a more normal level of liquidity. It broke down in march and took a while to get back to normal. Now it is reverting back to where it was to start the year inflation wise. There is not a huge reason to believe we will see a massive pickup in inflation. As we will hear from jay powell, the fed would welcome it. The question is will we get it . Caroline how will you set up are jay powell tomorrow and the new Strategic Vision that might be painted . Sayingquees from pimco we will get some of the curve steepening, a selloff in the longer end, others tuning into that particular move. Steepening, the question will be will the fed allow it, because it has the ability to step in bigtime and say we will compress yields, they used operation twist back in the day. How far theimit to steepening can go. As for inflation, the fed has done a tremendous job of compressing yield spreads across on markets, bond markets, injecting liquidity, but they cant control Consumer Prices at the end of the day. It is not as simple as setting up a facility. They are not completely in control of that. Whether they say we want higher than 2 inflation, what they can do besides saying they want it is yet to be seen. Think trying to explain this in simple terms, the breakeven looks great. You take out the liquidity, and you realize inflation has done nothing. I am here talking about inflation starting to rise up. I am curious as you see that on the horizon, when would we get an answer . Do we think liquidity issues would be resolved, and we have a real measure of inflation . When do you see an answer to that . Brian i think basically right now we have erased everything in terms of the liquidity premium and gaunt gone beyond that. At, if youever it is see it go up from there, then you could start to say the fed might have success in inflation. Maybe the deflationary risks are not the thing we should be on the lookout for. As for now it seems like trend inflation is the expectation kind of like we have reversed course from the covid crisis. Romaine i know you cover fixed income, but can you draw the correlation to equities, and maybe we can connect with where yields are and if we see them rise, if the explanation you gave holds true, what would be the effect on equities if we saw yields rise . That will be the real question. Right now yields are doing not a lot. Despite what taylor said. Muchnot really sure how the bond versus stock dynamic is going to play a huge role in the past when the 10 year yield reached 2. 5 or 3 . People are saying we might take chips off the table in equities. 75 basis points, i am not sure they will. One of those things. Romaine like a metal . Taylor we did a huge poster. [laughter] romaine thank you always as always. That is brian chappatta. Heck out his columns they are always fascinating. Caroline what did you get romaine i will. Caroline as opposed to wallpaper. Romaine they dont even bother to create it. Lets get over to mark crumpton. That . O i have to follow hurricane laura is now a category for storm. The National Four storm. It is extremely dangerous. Forecasters say the system could cause what they say would be vivablertable 20 unsur 20 foot storm surges in louisiana and texas. 145ould bring wind up to Miles Per Hour over the gulf of mexico which could inflict 25 billion of damage. An arrest has been made in the shooting of two people last night in kenosha, wisconsin. Police in illinois have arrested a 17yearold on suspicion of firstdegree intentional homicide. The town is a few miles from kenosha, which has seen unrest since the Police Shooting of a black man. The president said he is sending the National Guard to kenosha to help with the unrest. Grim statistics from californias governor, gavin newsom says there are more than 700 wildfires burning across the state of that have destroyed more than one million acres. Some of the wildfires are the biggest california has ever seen. They have come earlier in the season than expected. Smoke from the huge fires is visible as far away as kansas. Russia says it doesnt want the illness of the kremlins Opposition Leader to affect relations with the west. Pressure is mounting on russia to investigate his condition. The 44yearold is in germany in a,. Doctors say he was posing. In a coma. Doctors say he was poisoned. Leaders around the world including in the United States are demanding a transparent investigation. Global news 24 hours a day on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. I am mark crumpton. This is bloomberg. Opening up has always been a key strategy of chinas growth over the last 40 years, and that is true for the financial sector. Tensionse all of these , or the talks of decoupling, the opening up pace as often as marked has often accelerated in the last year and since the beginning of this year, in terms of lifting the applicant cap of falling Financial Firms operating in foreign Financial Firms operating in china, we have made a huge stride. Do you think that pace will accelerate . That is a good question. I think it will accelerate. Really several reasons. ,ne is the chinese economy despite the challenge of covid19, has actually recovered quite nicely. The last few weeks or so i went how chinpao, four cities in the last three weeks. Based on my own observation, the economy seems to have quite fully recovered. When i was in one of the cities, for vacation, all the hotels were full. It was incredible. Consumer power of the chinese economy is just amazing. So,in about six months or chinas economy will again be the locomotive of growth. So i think the Capital Markets china will continue to be i continue to expand. That provides the basis for foreign participation. And for our Capital Market, progress to really develop into an effective Capital Market for highquality economic growth. They need foreign participation in our market. We need Higher Quality financial services. That is something that foreign firms can provide. And for the stock market, china is very high saving economy. There are a lot of investors. That was behind the active trading in the market this year. Know,vestors, they dont they are not very good at determining the value of the stocks. We need a lot more Institutional Investors in our market. And the foreign money are usually coming from Institutional Investors. We have seen that they have a much better sense of what a stock is worth. The presence of foreign an anchors provided in the valuation of the market. So the continued presence of Foreign Investors will help promote the quality of the stock market. We welcome more participation. Those both from a demand and supply point of view, i expect the participation in our market, whether it is in providing services or capital will accelerate. The vice chairman there speaking exclusively with bloomberg. Lets get you to the business flash headlines. Data provides evidence is Coronavirus Vaccine produces antibodies in older people. Results from a stage one trial were presented today. The vaccine is now at its last final stage. Really hate that picture. Samsung Companies Got more than 1 billion in coronavirus aid from the u. S. Government. Adjacentnter of Six Districts in the chicago area. 81,000 grants were approved even though only 19,000 the sba said it was under pressure to move quickly. And new york could cut subway rail service if it doesnt get the aid it needs. It has been drowning in red ink since the markets that is your business flash update. Romaine time for smart charts with abigail doolittle. We look at timely topics. I am looking at the record highs on the stocks. Incredible. Lly joining us is the chief Technical Strategist at macro wrist advisors it is incredible, stocks going, going beyond belief of everyone. You think trend is our friend. I do. I believe the trend is our friend. So long as the Broader Markets hold on to their trend support of the 50 day moving averages, we need to give markets the benefit of the doubt. Abigail and what is below the 50 day moving average, do you think we could see a selloff for pullback . John it is only about 5 pull off between here and the 50 day. That would be normal for a full bull market. If we stop working on 50, which it hasnt on underneath, if i remember quickly correctly back in april, yeah. It is a buying opportunity. Abigail lets look at the multilayered chart that is making many cases for why you think stocks will continue higher even off of this 50 rally from the march lows. John the first charge that i have shows, i think it is a breadthsualization, of of participation in the marketplace. If this continues higher, what could derail that, i think the breadth could do that. That could be a risk. The correlation between the Broader Market and the 80 line line wentive a. D. Negative. It did that before the pandemic bear market, but it did go negative in march of 2019 has september and october of 2018 and even 2017. This is something to be mindful of particularly as markets are trading at alltime highs. 3500 is an important resistance for the s p on a shortterm basis. When i see her dissipation narrowing like it at narrowing, we talked about a replay of 2016 where the markets broke out to alltime highs after that bear market and then only held it for a few Percentage Points and sold off 7 in two the election. Keeping a close eye on the breadth here is important. Abigail it seems like a lot is resting on the megacaps, 25 of the s p 500. Lets ring rates into the picture. Goes risko rates, so area i always bring in Interest Rates. I think they are on a longterm downtrend but on a short basis, they are projected to move up to 80 or 90 basis points. That is all i can give you on the chart perspective. The need to break out of of 1 they need to breakout above 1 . Interest rates and high beta tend to ebb and flow together. If Interest Rate will breakout, it is good. What is low beta . It is the big five. That is the safety trade, to hide in technology. If the economy will improve, it will be demonstrators shown to us through Interest Rates. Lets go further out on the risk curve, beta flow perform. You have type this into breadth and participation. If we are at alltime highs, trying to figure out should we be at alltime highs, with the election the only way you will have it is through participation. Certainly a topic on the minds of many watching the markets. Great analysis as always, thank you for joining us. Taylor make sure to stay with us because that does it for me, bloomberg markets, the close, but stay tuned area what did you miss is coming up next. Romaine how did you work that out . Taylor i got the long straw. Caroline you might be anchoring more news in the day. Taylor this is why it were show, but next up is my second favorite show. Joe weisenthal will join caroline and remain. This is bloomberg. Caroline from bloomberg world headquarters, i am caroline hyde. Romaine lets take a look at where we left off in the markets today. Straight record high fourth Straight Record high for the s p. Joe what did you miss . Caroline yesterday the s p 500 posted another record, and from the economic data, coming in hot. A report from one Forecasting Center might frame rally for you. They say the present contract between booming sales and retail and consumer goods, and the dire straits of others is exceptional. Haves. Tale of two have and have nots. Joe you have some companies doing well. Meanwhile we know numerous Small Businesses as you go down the size scale, arguing worse and worse. Mom and pop are struggling, but you can see it here. Here is a trajectory of earnings for large caps, midand small caps. You can see how the estimates have come down 25 where is the is down 60 . We are not even talking about actual mom and pops but the actual listed equity, you see this bifurcation. Romaine when you get down to those, you are talking about the heartbeat of our economy. More than half of the private workforce in the u. S. Employed by Small Businesses. You can see the pain. 30 million Small Businesses existed prior to the covid19. A number are open, declining as well as well as the Small Business revenue declining. This from the forecasting institute. Rosalind lets bring in joe lets bring in a Research Director of the Forecasting Center. Everyone is marveling at this rally and explanations. Is a huge part of the story, lower rate contributing to increased multiples. How much is this sort of essentially Big Companies overall taking profits that would have been in a different environment more evenly distribute with smaller competitors . Most things are there, but what came in the Second Quarter [indiscernible] if you take the scale of the stimulus, the second order was obviously, even though there was stimulus, and could not be spent because things could not go out. In the Third Quarter you are getting the rebound, the national rebound from covid. Plus all the stimulus money being spent. The combination of that is what is propelling corporate profits higher overall. The scale of stimulus is so big you wont have a rebound in the Third Quarter no matter ominously completely dont renew any of that extra unemployment benefits. Backstory. The basic what has happened on top of that is you have the incredibly lopsided distribution of growth funds. That lopsided distribution of profits is happening because of the nature of the recovery from skeweds still heavily towards goods. People are having to depend on services. , dutyation, travel parlors, eating out, all the back, even if it is towards consuming goods, it means a huge boost and goods consumption. If you look at the durable goods shares over all the income, it is shut up. Scale of shift towards goods. Largeends to be all three companies. All very large companies. Amazon, walmart, home depot and manufacturers of those goods. That is the main thing. Romaine how can policy caroline how can policymaking, or indeed government policy, if we ever get some sort of new Fiscal Relief package, how can it be targeted at smaller businesses to make sure the money put in individuals pockets can be more specific . The ppp program was not that. Nothing is perfect, but it was not bad at all in getting money to the Small Businesses and ensuring they could stay afloat. Even if you give up all the money in the world im sorry. Caroline well saved. Even if you give all the money in the world, people cant go out unless the covid scare goes away, going to eat outcome of the salon, those kind of things. The policy should be to keep those businesses afloat so the cap when the covid scare goes away, they are able to come back. In the meantime you will see this lopsided narrative. Rings] i am really sorry. Has run out,money there is no way for these businesses to keep surviving in that environment. That is really the problem. I dont know how that can be we get covid under control. Romaine it is interesting because the policy response seems to have kept over Small Businesses whether intentionally or not. The question is, what is the fallout with if we get to a stage with uneven ,ecovery, more capitalized larger corporations tend to be the last people standing and these Small Businesses dont bounce back anytime soon, does that create tangible ramifications to gdp and the labor market . Much more to the labor market, but it was to gdp, because they are labor intensive. If you look at the conglomeration of these momandpops, they are not the labor Market Recovery will be stunted. Number two, the Small Businesses mean more for the local communities in terms of the taxes they pay and in terms of the property markets, the commercial properties. It is not just a retail sales tax but the commercial properties. If no one is renting, these taxes will not go through. Other things, local parking permits, all kinds of things, restaurants, everything being businesses. These it puts pressure on these local governments and big governments which are on they have large employers, and they have started to lay off people. You combine that and create a problem for the economic recovery. It cannot be a recovery that depends on large companies. That might be fine for the market at least temporarily but in the longer term, it wont be good either because people have jobs to spend. Joe lets say we dont get a fourth round, and there is not much evidence they are making progress on this or will it will be of a scale. When does this start hitting the road . This could be a fairly substantial fiscal tightening after the expansion. When would you expect it to show up in the data . This is where it is not clear. Jpmorgan just came out and said there is no evidence so far from the credit card data, spending up is down. E people are pointing down out that by debit cards that are marked captured in the standard credit and debit card metrics. Fromhey are showing data the proprietary data showing huge falloff in those. Walmart noted there was a clear drop of spending. We are at this point where the data are not clear. We have to wait. The retail sales data, when it comes out in september, will get a better picture. Retail sales data will be tainted by the Fact Services will not be created in this environment. Emergeusive picture will. Maybe by september and october. For now people are drawing down in savings. The savings rate did shoot up in the Second Quarter. People did build up from some bad balances, they could be spending on credit cards, increasing drawing towne bank balances. Drawing down bank balances. It is hard to be clear about the point. As we go into the fourth quarter, it is possible. Certainly september and the late fourth quarter. Always smart research, appreciate you coming on. The Research Director with the jerome leavy are testing center. We will continue our team of equality and economic recovery digging into the Real Estate Market and how empty stores and offices are hurting the market. This is bloomberg. Romaine our theme, talking about this uneven economic inovery, highlighted really stark contrast year to date with stocks hitting record highs. Residential housing surging. But you look here at the businesses that still remain shuttered, offices empty, it will be interesting to see whether that actually comes back. Joe the only time we have seen an incredible stock market boom and yet critics in parts crickets in parts of manhattan. Here is a chart that shows the issue, a longterm look at the white line which is occupancy and proxy for commercial real estate. It has been trending down for a while in the retailates. Retail rates the question is if we will see a further plunge in commercial real estate, occupancy further hitting major investment. It is one of the huge question marks of what the return to normal will look like. Caroline and when people come back to the office. What we have been hearing from the higherend real estate, like the empire state building, really calling for the return of those who work within manhattan world we live within because that is what will help the manhattan momandpop shops. The will help the vibrancy come back. That will help the vibrancy come back. Joe for more on the commercial real estate landscape, we are oined by your debbas pierre debbas. When i tried to get a handle of what is going on with commercial real estate, my question is like squee is not even a bid e spread. There is no agreement on figuring out the value of this property. ,aybe things are Getting Better but i am curious, in your view, is the industry in a state of paralysis or total uncertainty . Thank you. It is a question everybody is asking of the marketplace. It is too early to answer. A lot of us are of the mindset once there is a vaccine and we come to the end of the year and businesses are reopening, like caroline was alluding to, the workforce is not back. Your retail storage, restaurants, coffee shops, bars cant survive without having the workforce and reaching to the local economy. When contributing to the local economy. We will have the answer in six months, but i think this pandemic will restate reshape how real estate is managed, when you talk about the Office Sector and retail. This will have detrimental longterm effects on the market. Romaine i am curious. When you look at development not only in new york but other major cities, over the past decade, it has been about the melding of commercial space with office space and residential, all of these buildings being built, want to have components of everything. Does the calculus change now coming out of this pandemic and economic recession, the owners of these buildings and landlords maybe have to think differently about what they put in to those spaces . Yeah, i think you will see repositioning a restructuring especially on the retail and restaurant side. We will have a trend where fine dining doesnt have a resurgence for a number of years. When you talk about development, certain sectors will remain strong. ,ulti families have done well where people are bullish on multifamily moving forward albeit we have had a significant amount of lease defaults. That is going to be expected. Besides multifamily, there is a question of how Office Retail and Office Spaces will be repositioned. Looked at in the next one or two years. Are peopleow rewriting contracts, putting in assurances to put in new rate clausesto make break to make people comfortable coming back . As ae you could imagine real estate lawyer, my phone is ringing every day about this issue. There is no lease in america that could have contemplated for a pandemic we have lived through. It might the initially tenants will be successful in negotiating certain language that could hedge risks for a future pandemic for the longer term it is not something you will see in lease agreement. It becomes an inherent element of a dusting conducting risk. You see people utilize the space where there could be negotiations on reducing real estate holdings. Starbucks closed a number of stores over the summer and they are restructuring it as a to go concept, accommodating the virtual and Technology Mindset as opposed to sitting in a cafe. You will see more of that as opposed to language and leases that doesnt. When you look at statistics, the wall street journal had a stat that 37 of the employees that maintained on the space the office this can work remotely. Businesses are going to have to kind of reenvision how they utilize their space and the amount of overhead they are taking on. We going to see commercial evictions or will the calculus be, in these places, there will not be any new business coming in to replace it andight as well wait it out until the future . Pierre it is a great plan. You will see a significant increase of commercial evictions. The way we are counseling landlords and tenants, it does not behoove anybody to go down that road yes. We are trying to get both people to the table to talk about rent for business, whatever we can to keep the people of looked. From a landlord perspective, it depends on the number of holdings. If the landlord has several holdings, we are seeing more reluctance on the larger institutional landlords that are worried creating precedent. If you are the owner of a small building with maybe a few apartments, you are not going to be able to withstand the loss of any assuming the vacancy will be for a Long Duration of time. I think a lot of people especially in new york city are anticipating a large vacancy rate for the next few years. If we are not successful in that, you can see an increase in eviction. Caroline thank you. This is bloomberg. Is bloomberg. Joe we are talking about the unequal economic recovery today. You can see this in the stock market by comparing the s p 500 and the smaller cap russell. The russell bounces from the bottom. Continued underperformance. You see it again today with just todays action, as is the outperforming the nasdaq, the nasdaq outperforming that. Lets bring in cross asset reporter katie greifeld. Another extraordinary day. Facebook was up 8 . These were large moves. Is the story we have been seeing the past couple of months where you see the tech names lead the charge and drag the index is higher. If you want to tie that to a macro level, it ties into the rates story. Even today with shares of Companies Hitting record highs, as youre seeing real rates , to new lowswer that is hoping to justify valuations across the equity especially in the tech sector where they are lofty. End . E how does this all you would think there would have to be a catchup in fundamentals. Is there a thread or yardstick or you can use that would give people insight as to how long this can go on . I am working on an answer. It was the inflation story, the yield story, start to dent stocks. What i am hearing talking to investors is what the fed with the fed conceivably on hold for five or seven years, you will see low rates for longer stories continue with equity valuations, but you have shops like Morgan Stanley saying you could see 10year yield at 1 , 1. 5 next year if the economy continues to improve. If we get to those levels in a quick matter, that could start to change the calculus as to how we are thinking about how the companies are valued. Caroline always great to get your perspective on the seismic moves in the markets. While we have been on air, you have been unable to miss the fact is standing taken by athletes over the Police Shooting of jacob black at kenosha, wisconsin, individual shot by racine police, the Milwaukee Bucks did not come out on the court today with the orlando magic. All of tonights nba games will have been postponed. These are big statements being taken about athletes by athletes about police brutality. Nbaine we have seen the out in front of this through the Milwaukee Bucks, one of the guards was involved in a Police Incident in 2018, based on video camera footage seemed to suggest maybe it wasnt an old properly. He soon and has been at the 4 sued and has been at the forefront of a lot of this. Kenosha is 45 minutes south of milwaukee. Athletes have power because the world is watching them. Availability to boycott a game the ability to boycott a game is a poor for way of bringing attention to this incident. Romaine we had the report from cnn all of the other teams are joining in. We have a lot of wall streeters who own these teams. It will be interesting to get their perspective. Caroline that is all for what did you miss. Joe Bloomberg Technology is up next. This is bloomberg. You doing okay . Yeah. This moving thing never gets any easier. Well, xfinity makes moving super easy. I can transfer my internet and tv service in about a minute. Wow, that is easy. Almost as easy as having those guys help you move. We are those guys. Thats you . The truck adds 10 pounds. In the arms. Okay. Transfer your Service Online in a few easy steps. Now thats simple, easy, awesome. Transfer your service in minutes, making moving with xfinity a breeze. Visit xfinity. Com moving today. More voluminous hair instantly. All it takes is just one session at hairclub. Introducing xtrands. Xtrands adds hundreds or even thousands of hair strands to your existing hair at the root. Theyre personalized to match your own natural hair color and texture, so theyll blend right in for a natural, effortless look. Call in the next five minutes and when you buy 500 strands, you get 500 strands free. Call right now. upbeat music emily welcome to Bloomberg Technology. Emily chang in san francisco. Stocks extending a streak of record gains amid rising expectations for loosen Monetary Policy while the economy shows signs of recovering from the pandemic. We are watching bad weather on two fronts. The ongoing dry and windy conditions in california,
comparemela.com © 2020. All Rights Reserved.