Poster children for growth. Today we are going to take a shot of these Growth Stocks. See if he could be a signal of the rotation away from growth and towards value. Notable today, Energy Financials outperformed. Are warming to the possible switch after the u. S. Elections. Netflix declined today. Could it be a precursor of things to come . Joe it is finally happening. October 20, finally the great rotation. Who knows . But one thing is clear. Netflix had an absolute boom with a huge surge of people that didnt have anything to do, so they got netflix. That is slowing down. The stock is down. Romaine you joke about this being the day. The fact that you said it out loud, maybe it will be the day. But you take a look at this next chart and we have seen a little bit of that value trade catching up with the tech trade, the growth trade. That bottom line there, the vanguard etf. Little bit of a catch up here. I guess the question is whether this is going to be a sustained rotation. Joe if today was the turning point, that was a serious comment. If not, it was a joke. In the meantime, want to bring in rob arnott. On do a lot of work different factors and when and why they work. Lots of people wondering, when are we going to get a sustained turn . The category that we call value is historically the catalyst for rotation that lasts . The catalyst is always something that takes the vast majority of investors by surprise. Otherwise it wouldnt be a catalyst. It is something of a parlor game to try to guess catalysts. We can do that. But it is only guesses. Theres a lot of possible catalysts out there. The biggest one is relative valuation. The value stocks have been savaged this year. They were 40 Percentage Points behind the Growth Stocks. Just an enormous spread. You have to go back to 1831 to see a spread that wide. The growth side of the market looks an awful lot like it did in the year 2000. All the talk then was about a new paradigm, that you didnt need earnings, didnt need underlying profitability in order for Growth Stocks to be spectacular. All you had to do was have it taken out at a higher price later. We have to be careful on the valuation front. This resembles the tech bubble in many ways. By some measures, it is even bigger than the bubble in 2000. By other measures, it is merely close. Caroline do you basically advocate that people who want to get into value have to hold their nose . You cant be a day trader. You cant look at the markets day by day, week by week. You have to have a longterm. Rob unless you have a supercomputer that uses Artificial Intelligence to pounce on every twitch, you are playing into their hands. Ultimately, ben graham famously said that the market in the short run is a voting machine and in the long run a weighing machine. Look at the pricetobook value of Growth Stocks versus value stocks. At the peak of the tech bubble, it got to a 101 spread. Today it is 121. That is without precedent. Price to sales ratio, almost a stretch. When you are looking at these valuations, the Growth Stocks have to perform extraordinarily well to justify current valuations. Implausibly well. The value stocks have been savaged in no small measure because of covid. Anothereristic characteristic is that Profit Margins are thinner. When you are looking at the value stocks, with the covid lockdown, the skinnier margins, the preexisting headwinds, the National Fear is, a lot of these are going to go bust. So far, relatively few have. Isthe covid situation resolved in the months ahead, we will see how many bankruptcies you get. But you literally have to have half of the value stocks go bust in order to justify todays valuations. Romaine when you do get to that day where you see a broader recognition of whatever value is and whatever investors interpret it to be, does that create a situation where it pulls money out of growth into value, or is there enough money on the sidelines where you could see money rush into those value names without it being at the expense of those Growth Stocks . Rob it can be both. One of the things that fueled the growth bubble this year was stimulus payouts. Checks going out to people, sporting events closed. People take their sports gambling over to robinhood. That is all well and good, but we havent seen Retail Investors have the kind of influence that theyve had this year since the 1970s. It is really quite remarkable. With the stimulus being very doubtful that there will be large additional stimulus in the months ahead, maybe there will be, maybe there wont, but it wont go on forever. There may be another round, but there wont be additional rounds. Once that stops, the speculative buying of the tech names disappears and it becomes more thoughtful investors, institutional investors, weighing the relative Growth Opportunities and valuation opportunities. So simply a lack of renewed stimulus could be all the catalyst you need for value to rebound. Romaine we want to get your thoughts a little more on what is going on in washington. We need to take a commercial break here. We are sticking with rob. We will be back. Joe sometimes it sounds like they are closer to a deal, sometimes not. Schumer says they are going to try to keep talking. Who knows . But yes, they are still talking. Caroline meadows weighing into all of this, talking about how the white house stimulus sits at 1. 8 trillion, and it seems as though nancy pelosi sticks to her 2. 2 to 2. 4 trillion. Not much meeting of minds, but we have heard that Mitch Mcconnell is engaged and we still have a ways to go in terms of the stimulus deal. Thattle earlier to breaking news we spoke exclusively with House Speaker nancy pelosi. Take a listen to what she said. Speaker pelosi we all want to get an agreement because people need it and it is urgent and our economy needs it. We had a bump in the road with the appropriations committee. We are starting to write the bill and then we can have the negotiation. But im optimistic. Want to bring back our guest, rob. In the last block, we were talking about this rotation potentially and you said it has to be something nobody sees coming. A change in Political Landscape stimulus, big fiscal everyone thinks it could be very high possibility. Could that be a catalyst for meaningful change if we are to get some huge spending bill, something that really lifted gdp in the shortterm . Would that potentially change the stocks that investors flock to . Rob it could. Economy a nuance in the that is very interesting in the academic community. Linkage between deficit spending and subsequent process in the corporate sector. And that linkage is almost one to one historically. Of deficit usually leads to 1 trillion surging corporate profits. Given that weve done 3 trillion of stimulus, there is a surprise that may be out there with earnings next year and the year after being quite impressive. If youve got a Company Trading from 100 times earnings to 70 times earnings, it doesnt necessarily move the needle. ,ut if youve got a cheap stock youve got a difference. Impossible. I wouldnt view it as an upside surprise necessarily for moving the market higher. I want to get your thoughts on the election. Daytodayot on the over whether the market will rally based on who wins after november 3. Is there some sort of material affect of the election outcome on markets . Yes ine short answer is the short run, not so much in the long run. Ok, thise sense that, election, about 40 of the electorate really dreads a trump win and about 40 really dreads a biting win. That means 80 of those metrics are very worried and are therefore more riskaverse than normal. When the election is over, the 40 who dread one or the other, one of those groups is going to have its unease lifted. This is why you often see the effect that, in a closely contested, contentious election, the market rallies no matter who wins. It is a very common phenomenon. But on a longterm basis, it matters less than you think. Donors,ties favor their which means crony capitalism. Often wellmeaning but accomplishing less than was intended. Socialism can, lead investors to fear overregulation, tax hikes, expropriation, and where will the investors put their money if they are fearful . Stocks and existing businesses. At the other extreme, unfettered capitalism can lead investors to push into new initiatives, new enterprises. This is great for future economic growth, but where will they get the money to do these initial entrepreneurial investments . From stocks of investing businesses. This is one of the reasons you find that stocks actually can do surprisingly well under surprisingly liberal regimes. The french stock market rose when the socialist was president. Caroline interesting take. So potentially dont start taking your money off the table. What then in terms of sectors . The market does try to front run the election. The polls are suggesting more of a democratic sweep. Are lookingwhen you at your research, do you try and front run the results or not . Rob i dont generally do that. There is a very simple reason that i dont. Which sectors are likely to benefit in the next administration, whoever that might be, is something that you can guess with reasonable reliability, but so can the market. Guessou have to do is more insightfully than the market. That is the challenge. What is likely to happen in a Biden Administration or a trump administration. The market knows what is likely to happen and is discounting that already based on the probabilities of those outcomes. If the market already made that move, why would i want to pile on in the hopes that the move is bigger than the market is expecting . Caroline always great to get your perspective. Great to have his thoughts. We are looking at snap jumping 20 as they managed to add more users than expected. Also, we saw thirdquarter revenue rising 52 . This would be a record high for snap. Joe so may be the rotation isnt quite here yet. , thirdquarterup earnings tomorrow after the bell. We will get a preview of tesla, next. This is bloomberg. Caroline today we are focused on value versus growth. If netflixs decline is a sign joe, s to come, joe just ignore the data that doesnt fit the story. Caroline right now we want to focus on growth. Weve got tesla tomorrow. Joe tesla shares have been slumping a little bit, but put that in context. The stock just had an incredible run. But going into the earnings the last five days, down 5. 5 . Incredible year. Incredibly high expectations. Romaine im just waiting for it to go down so we can make the joke. Joe those never get old. Romaine furthermore, this is my queue or maybe it is your q joe for more, what for you is the number one thing you want to see in tomorrows Earnings Report . I am hoping that tesla will carsear about how many ye they are going to deliver this year. They said they would comfortably exceed 500,000, then they walked it back. Half a million cars for a Company Everyone thought was going bankrupt two years ago would be this incredible psychological milestone. The other thing that investors are looking for is, everyone is expecting tesla to report another profit. But is it profitable because of the debt credits or without them . T is this key stepping Sticking Point ever since the last quarter when people thought they were going to get in the s p 500 and they didnt. Are they really profitable onlyng cars or are the profitable selling regulatory credits . That is a thing to look for. Quite the money spinner. Bloomberg intelligence thinks they could make Something Like 500 million in credit sales. Of elonthe playbook musk right now . Hes been cutting the prices of model s and the like. Is he getting the number of cars out to the masses which he envisaged . I think hes been very clear that his goal is to be slightly profitable and focus on growth. Theres been this incredible run this year. In china, they are building a plant. Theyve got a plant in austin texas. It is really playing growth. It is sort of about keeping margins high, showing profitability, ideally getting into the s p 500. But then it is all about reinvesting into growth. He says he wants to make 20 million cars a year or 10 million cars a year and dominate the auto industry. The ambitions that he has for tesla as a brand are very high. Nuts, think hes kind of but ultimately, this is what he is about. Hes not going to rest until a fleet of cars switches from internal Combustion Engine to electric. We are hopefully going to hear more about the growth trajectory. When are they going to start making the model y in china, for example. Caroline quite fascinating. For all their naughtiness, when you are looking at 400 increase, it is tough to argue with. As always, trying to keep track on the latest earnings out of tesla. That is all from whatd you miss . Right now. Joe Bloomberg Technology is next. Romaine have a great evening. This is bloomberg. In sanim emily chang francisco and this is Bloomberg Technology. Coming up in the next hour, the biggest antitrust suit in two decades. The u. S. Justice Department Says google has an unfair advantage. We will have reaction from all sides. Btflix shares slide