Market outlook 2023: A look at inflation, stocks, the Fed, housing and more

Yahoo finance investors were polled and gave us some of their predictions for the markets into 2023 and then there were some intriguing ideas about who will make and lose money and what might be different by the end of next year so here to break down some of those responses we've got Yahoo finance senior com columnist Rick Newman take us into the numiverse uh in what we got in some of these responses yeah we got thousands of responses so we've asked some Basics about where do you think markets will be where do you think inflation will be next year uh our audience expects modest improvements in the s p and the NASDAQ single-digit games there uh in general our audience does think we're going to have a short uh and Mild recession at the beginning of the year but they're very optimistic about uh what the end of the year might bring so in addition to just asking things like where do you think inflation is going to be the stock indexes we asked just an open-ended question blank sheet of paper fill in the blank um tell us what do you think the big story The Big Business and economic stories we're going to be will be next year here and then I scanned through almost 4 000 of those to figure out some of the recurring themes and I've got a couple of them for you here so first of all lots of lots of our audience members think the second half of the year we're going to see a nice bounce um in the in stock markets we're going to be Beyond whatever the little itty bitty recession is that comes at the beginning of 23 and inflation will be under control so um you know you know maybe around four percent or so let's say so that is a pretty good scenario for markets I think as long as it seems like we're finally going to get to the point where interest rate hikes aren't determining everything Rick yeah all that work paid off this is now on the top 10 most viewed or looked at or read stories on Yahoo finance right now so I had tip to you Rick well hat tip to our audience because uh because uh they actually we have a we have very smart uh readers and I like to know what's on their mind a lot of the times where are they thinking about on tech stocks to that point I mean a lot of these viewers and investors on our platform they log in they check Apple they check Amazon Google these are the only stocks they have historically owned and they've all been battered this year yeah so another recurring theme in this open and two I'll give you here so I've got 11 predictions I put together on a story that's on the site right now but we do have a significant number of Yahoo finance people who think big Tech will make a comeback um that uh you know the big Tech play is not over even even though the NASDAQ has gotten hammered this year more than the broader stock market uh but they say look you know Apple's dominance is not over Microsoft's dominance is not over and then one other prediction we just had an investor telling us he's short uh the short meta I didn't hear him say he's short the metaverse he said he's short meta but we have some audience members who say the metaphors is finally going to catch on in 2023. now I think I think it depends how you define metaverse um so I'm not sure you two guys are going to be wearing VR goggles at the desk here by the end of 2023. hold on let me get my information maybe 2025 I don't know but uh I'd like what what our investor said just in in the prior segment he said you know the metaverse is not necessarily going to be this cartoonish idea where people are sitting around these VR goggles and somehow they're in a conference room in Hong Kong you know that it's going to have more to do with better ways to do social media and stuff like that and that's actually uh what I saw in some of these comments that social media is going to have problems like look at what's happening to Twitter and that's an opportunity for the metaverse to come in and offer something better as long as we're all not replaced by some artificial intelligence deep Faith then that's perfectly fine I think I guess careers I feel like it's coming but you know hopefully not next year let's keep that at Bay for now but when we think about next year and kind of bringing together where you continue to cover in what's happening inside the Beltway in Washington DC and where that overlaps in terms of equity markets and just public policy relating to business practice as well what did some of the readers kind of put together or at least correlate between let me let me bring it back to inflation um uh because we saw in a way the craziest inflation we saw saw this year was in used cars first half of the year we saw used car inflation as high as 40 percent so one of the things that came through in all these open-ended comments was we're going to see the opposite the mirror image effect in 2023 which is a Plunge in used car prices perhaps back to where they you know back to levels they were before this all this craziness happened because of a new car shortage so Assad you might get to add to your collection well I was at 23. this only fuels the debate on our worst company of the year which you covered with yeah which was carvana um and it's not so much because of what's happening in the used car market per se carvana got way too far over at skis made an acquisition took on too much debt but also did not prepare for what could be a really sharp reversal in used car sales next year so a buying opportunity and then one last one I thought was really interesting a lot of people think the electrical vehicle Revolution EVS is overplayed and that we're going to see this the EV Revolution stall it's going to turn out that we're not going to go all the way to EVS as fast as people think it's you know the fact that they tend to be expensive limited range and Rising electricity prices by the way so the return of the naturally aspirated V12 or maybe yeah sure so that's what you're going to buy on carvana is next year is a Bugatti V12 okay sure that's where I was going with this there'll be plenty of them there for you but you know look what's happening at Tesla stock to end the year and we're seeing uh lucid and rivien look at those stocks struggling so we have a lot of investor-minded you know investors using our site who are looking at all this and saying maybe that's one of the things that's going to happen in 2023 the EV Revolution stalls at least for a period of time well great stuff Rick Newman really appreciate it please do uh give Rick's uh story a big read here and a big show Rick appreciate it companies took a cautious approach to M A this year with good reason Rising interest rates raised the cost of borrowing to less attractive levels potential targets became less sexy as growth rates slowed and there has been a general black flag hanging over any deal in the form of possible of a of a possible recession so will 2023 be any different for deals Emily Feldman professor of management at the Warren school joins us now Emily good to see you so how different will next year look if anything hi good morning yeah I think it's going to be quite similar at least for the foreseeable future right I think at least through the first half um you know sort of given the environment uh the uncertainty around where interest rates are going the volatility in the stock market uh geopolitical factors it's sort of hard to see a quick change uh when the calendar turns so from that perspective I think we're in for more of the same at least for a little while obviously we'll see how things evolve in uh sort of the second half plus of the year but that's at least my prediction for the short term what does that mean for specs this is the entire kind of construct for how some companies were able to tap into the public markets and it was really via the deal making that took place as shell company that would go public and then the dies back and the acquisition of some smaller prospective company that was really kind of targeted as part of the shell company going public yeah it's an interesting question and I think there's two factors right I think obviously the the the market conditions are affecting this right in terms of um in terms of the attractiveness of this uh the structure right of spax uh in general but then also you know as we're sort of seeing uh you know sort of a tightening environment perhaps for uh the entities that might be SPAC worthy in the first place um you know as as uh things get more difficult from that perspective uh that could also be a challenge from the input right there was just an article that was saying that uh this was the greatest uh unwind of specs that we've seen uh basically in in you know in five ten years right so I think um I think from that perspective it's it's a contributor as well to uh sort of the broader m a market but obviously there's a big difference between sort of fact transactions versus you know sort of large corporate deal making that we typically think about family this year really I would say is the year of or has been the one of divestitures Kellogg of course going through their restructure and process G we're talking about G Healthcare getting ready to be spun off in early January will we you see more than next year especially if we get a recession absolutely and I I really think that this is actually the trend to uh to look out for uh in the coming months right so yes we've seen a ton of this activity already and I would argue that that's not necessarily as much linked to uh sort of the the macro environment and the conditions that we're facing but now that things are tightening so much right I think we can expect to see this and there's really two key drivers here right so one factor is of course uh the fact that liquidity is going to be much more constrained uh and so divestitos can often be used as a source of liquidity for companies depending on how they're structured so that's one big factor that should prompt more divestiture activity but the other is you know sort of a broader issue which is that you know when conditions tighten the value of focus within organizations becomes even more significant so you have a company that has a lot of different business units what's your core what's your strategy where are you investing your Capital where are managers and Executives spending their time and attention what's really Central to the company's strategy becomes a really critical question and so one of the big reasons that divestitures are valuable is that they can help companies to achieve this Focus that that is especially important in this kind of environment so for both of those reasons right the liquidity and the focus arguments I would say that we should really be on the lookout for more of these transactions in the coming months here valuable insights from someone who literally wrote the book on divestitures Emily Feldman professor of management over at the warden school thanks so much for taking the time we're here with us today and uh early happy New Year to you as well same to you thank you so much joining us now we've got Michelle Connell who's the Porsche Capital Management owner Michelle great to have you here with us and an early happy New Year to you a year that many investors want to put behind them in 2022 and now looking squarely at 2023 where should we be finding some sources of perhaps optimism for 2023 well first off thanks for having me on Brad and happy New Year to you and all investors um I still despite the tape looking you know a little bit more optimistic today looking out at least through the first half definitely the first quarter I'm still a little bit cautious here I think we're going to be looking at more softness from a consumer and that means that we're probably going to be looking at softness when companies come out and Report first and second quarter and they're you're going to see revenues probably down and margins taking a little bit of a hit here so I think that we have still have some tough Waters in front of us the beginning of the year at least Michelle on the cautious part where do you think the land mines are going to be this earnings season what sector is really going to surprise investors negatively I think it will be the areas where consumers have the largest impact that will be maybe even Consumer Staples Consumer discretionary I think as you're seeing more people trying to keep up with inflation by tapping out their credit cards we saw that at the end of the third quarter a 40 billion dollar increase that's huge and people are starting actually to tap uh taking hardship uh withdrawals from their 401ks and you look at all that combined and also with how heavy portfolios have been hit I think people are going to you know get through the Christmas and holiday season and say open up start looking at their Investments and going okay what now so I think people are going to take their time waiting back in and taking risk so consumer discretionary and Consumer Staples I think you're going to see softness there I still like energy and I still like I think bonds are a good area to start looking at no there's no harm in getting seven percent in you know some good strong bond funds and while you're waiting to take on more risk when your customers reach out to you and clients want to have a conversation about where they should stay invested right now what have you been advising them you know I've been fortunate because it's an education process with your clients you know you you always are reaching out to them and telling them what's going on and where you are seeing some potential opportunities as well as risks and clients want to know that they are protected from more downside at this point and that they're going to be able to make their retirement goals especially and so they want to make sure that what they've saved up to this point there's not going to be any more damage so talking them through the strategies and also trying to steer them away from being more short-term focused which all of us are as human beings to more long-term focus and you know the end game what they want to accomplish when we think about the number of people who are set to retire in 2023 you know how does that really impact impact rather the the equity markets as well if they're starting to pull some of that off the table in order just to make sure that additionally at least on the onset of retirement that there is enough cushion for themselves you're having more individuals that are near retirement who are you know wanting to go to more safety in their portfolios uh individuals either want to go towards more bonds or more real estate or even cash so you can't blame them at this point and you even have individuals I've had people come back to me and say do I have enough am I going to have to go back to work these are individuals that are either retired or close to retirement and so these are things that in you know individual investors are really concerned about going forward how are they going to meet these goals especially if these goals are necessary in the you know intermittent in the near future Michelle Connell Porsche Capital Management owner good to see you have a Happy New Year [Music] and as we continue to count down the days to the New Year our next guest says a mild recession is coming in 2023. we're joined my we're joined now excuse me by Gus Foshay who is the PNC Financial Services Group Chief Economist Gus I was putting all the green up on the screen trying to tee this up for a really positive and bright conversation but you're saying mild recession has come in 2023. what what kids um yeah that's right I mean obviously we've seen a big increase in both short-term and long-term interest rates throughout 2022 we're already seeing a significant contraction in the housing market and I think we're going to see a greater drag on consumer spending on business investment from those higher rates and that will lead to a mild recession probably starting sometime in the spring but it should be more similar to the recessions that we experienced in the early 1990s or the early years of this century rather than either the Great Recession from 2007 to 2009 or the coveted recession Gus is the housing market collapsing um it is Contracting very very quickly so uh we've seen housing starts we've seen existing home sales Fall by about 30 percent we're starting to see uh house prices decline throughout the nation I mean that's not surprising given that the 30-year fixed rate mortgage went from below three percent in the fall of 2021 to up close to seven percent now affordability is a big issue this is what the FED is trying to do by raising interest rates they're making it more expensive for potential home buyers to borrow that slows economic activity and the FED is trying to cool off economic growth in the hopes that that will slow inflation well to that end do you think we get an economic soft Landing next year I think it's going to be very tough to achieve that I think given the rapid increase that we've seen in rates given the fact that inflation is still well above the fed's two percent objective uh we are seeing very strong Services inflation right now that's being driven by strong wage growth and so the FED needs a labor market to cool off we really haven't seen that happen very much uh so I think we see more interest rate increases from the FED in early 2023 I think we see a further drag on interest rate sensitive Industries and I think by the time we get to the middle of the year the economy will be in recession okay so what's a consumer to make of all this I mean we've been talking about a recession for what seems like already seven eight months let's talk about growth Brad I want to talk about growth right and so for consumers who have now mentally had to weather through the reality or the risk of a recession for eight months until the end of the year and then until it actually really hits at some point in 2023 what's the consumer mindset going to be like by the time it actually really hits I I think consumers are actually in fairly decent shape right now many consumers still have adequate savings given the stimulus programs and limited opportunities to spend during the pandemic the job market is still very good wage growth is still very strong aren't they taking any more debt right now I'm sorry aren't they taking on more debt right now isn't that showing up in how they're spending that's showing up in the credit card data that we're seeing come across clearly they're looking for Alternatives and their mechanisms of spending as opposed to some of that cash no absolutely but they're starting from a very good point so although Consumer Credit quality is deteriorated somewhat it's still very good uh they still have a lot of savings even though they have spent down some of that savings uh and so I think that consumers are you know pretty well positioned heading into a downturn this time around certainly much better than what we saw for example in 2007-2008. uh the other thing is is that I think businesses are going to be reluctant to lay workers off this time around given the current tightness in the labor market and they don't want to be stuck when the economy comes out of recession in late 2023 with not enough workers so I think that job losses will be fairly limited and that the downturn is going to be concentrated in housing and consumer spending on durable goods and then business investment Gus is uh is this going to be the recession that most of us just won't feel and I'm looking at let's say I go to a Starbucks right now Gus over the last week and I was run over by 15 year olds the place was packed yeah no ABS absolutely I mean you were talking about the the theme parks for example and people are still spending there um you know people haven't been spending they haven't been going out because of the pandemic so they're still spending there I think that this should be a pretty mild recession I think for uh you know this is going to be more like the recession of 2000 2001 or the recession of the early 1990s that is going to cause pain particularly for people who are in housing related Industries people are in heavy manufacturing but I think that many consumers will will hardly feel this to be honest with you all right let's see if there are PNC Chief Economist Gus Foshay always good to see you happy New Year [Music] the feds fight against inflation yielding some visible results but it is also setting up the market to anticipate a pivot earlier than expected the lagging effects of rate Rises plus sagging employment could mean a good outlook for markets but maybe not for the economy joining us now with more we've got Joshua wine who is the Hennessy funds vice president and portfolio manager great to have you here with us this morning break down your thesis for us of course we know that economy markets not the same thing but both of them very much are in reaction to the fed's policy pathway that is that is continued to be put forward here do you expect that we'll see any type of pause or or a pivot in 2023 sure good to be with you good morning yeah I think that you know the the last year has been you know whether it's good good economic news or bad economic news the Fed was going to raise rates we all knew that and they did they raised several times 75 basis points in our in a phase where it's 50 basis points I think that the back half of 2023 uh will look a little bit more normal from the perspective of bad economic news could be good market news to the extent that the FED either pauses pivots maybe cuts at the end of the year if the economy indeed slows as much as many expect and certainly uh certainly I do as well Josh what changes to the portfolio or portfolios have you made in the last week of the year we haven't made any changes so we're incredibly disciplined uh By Design you know in the Hennessy midcap 30 fund you know we are looking at uh earnings growth valuation stock price momentum uh we have not made uh any changes uh of late continue to you know remain you know invested in you know energy consumer discretionary stocks uh you know Industrials uh no changes what happens to those stocks if there's a recession next year I think that you know it might not be bullish for their Top Line their bottom line but I think that the bigger picture isn't the next 12 months for for any company in particular I think it's more the outlook for interest rates and that effect the effect it has on the present value of future cash flows so I think that you know what I think the thesis behind you know being bullish on the market largely is to some degree what you were all just talking about which was Tesla and many other stocks that have taken it on the chin and I think that that kind of reversing of the wealth effect you know we saw an incredible bubbling up in the economy around new home purchases and and Auto Sales and the like I think that largely reverses some of that is the decline in home prices uh lower activity uh within residential real estate and ultimately commercial real estate which we'll see in you know coming up as fewer people working in offices and also just the market you know the Market's down anywhere from 10 on the Dow to 30 percent Plus on the NASDAQ and I think that that perceived or real feeling of wealth that people have had has started to dissipate so I think that you know the economy slowing down is is not a big stretch next year it seems like it's going to be a year where companies themselves need to tap some of their cash balances and and perhaps quite considerably as they navigate whatever a recession does look like and of course they've already instituted some of the cost restructuring that they can right now but what type of cash crunch do you think we may see across Equity Market companies as they begin to report next year and and really get into the throes of of a recession yeah that's a great point I mean I think that you know broadly you know the S P 500 there's about seven just over seven trillion dollars in cash on the balance sheet of s p 500 companies I think looking through that number because certainly some of that cash is the result of raising debt in the in the market or taking on loans so net debt uh you know is in good shape especially when you contrast that with with operating cash flow so you know this past year you're looking at that relationship and it's quite strong so of course operating cash flow could start to weaken in a recessionary environment but I think the larger point is that it would have to weaken quite a bit for there to be any kind of liquidity issue or any kind of talk uh you know real talk about companies struggling to make ends meet uh you know Capital markets are still alive and well I mean we've had a lot less deal activity than in the past and I would also say that you know interest rates have backed up quite a bit but you know we're nowhere near a 1980 scenario where you know people are paying digit interest rates on you know on borrowing so I think that I think we where we were was artificially low I think things are starting to look a lot more normal now uh notwithstanding an inverted yield curve and and certainly you know interest rates well below where inflation has been of late given all the concern concerns out there Josh what what sectors do you really hate really hate I can't say I hate anything I mean I I think that you know there are certainly names you know I think large cap Tech it's hard to get a handle on earnings expectations and so you know with a name like Tesla you know it is interesting that the multiple uh the Ford multiple is starting to look you know somewhat normal and and perhaps attractive I think what is problematic for names like Tesla that have you know come on the scene very quickly and and even to date don't have that much competition it's just hard to get a handle on where the earnings would be next year and Beyond I think that there's not a lot of stability there uh you know same thing with kind of your classic social media type stocks or or advertising Revenue focused stocks you know it's just hard to know what that looks like the the multiples are starting to look more attractive but I uh I have a hard time uh getting some clarity around where things might look you mentioned that you haven't made any significant changes to your portfolio over the last two or few weeks going into the end of the year in the start of 2023 but if there's one trade that you hope to be able to initiate and the factors that would set that up in 2023 what would that be I don't think there's one trade I mean I definitely would not want to be heavy in cash as the FED starts to change their language and people start to see their way toward uh the idea of a Fed cut I mean one thing that is interesting about this rise in rates of late is that now the FED has something to do if there's a legitimate recession if there's a shock to the system so uh you know they might not you know quantitatively ease but certainly a rate cut is in the offing uh maybe later in the year in terms of a trade I would put out just some names that kind of fly under the radar uh super micro computer which is in our Hennessy Cornerstone mid cap 30 fund uh trading uh about eight times forward earnings they you know are a distributor and manufacturer of servers and storage equipment uh for you know large corporations you know not terribly sexy not very exciting I don't hear anyone really talking about names like this but I think Super Micro computer is interesting and then also in the commercial and Industrial Packaging space uh Sunoco products uh you know a nice about three percent dividend yield that's growing ten times forward earnings you know very stable business uh you know don't see you know much that you know makes this hard you know kind of to hold on to for the long term so I think that names like that especially when you know we get into a more normal kind of fed environment more normal inflationary environment and cooler heads prevail I think these names are set up for a nice a nice run yeah I never heard that uh super micro good call out there Josh I'm going to spend my weekend checking in on that one Joshua wine Tennessee funds vice president and portfolio manager have a happy New Year appreciate it it has been a brutal year for the IPO Market with 2022 marking the slowest year on record since 2008 that's according to research from the University of Florida and proceeds have fallen off a cliff too to the lowest level that we've seen in more than 30 years here to break it down what exactly happened what it signals for the new year we want to bring in Jay Ritter University of Florida Finance professor and IPO expert Jay it's great to have you back here on Yahoo finance so the decline the year-over-year decline has been pretty striking here for everyone that's been following the IPL Market closely I guess what do you make of the huge drop that we have seen in activity this year uh day has turned to night uh last year was the biggest boom in the IPO Market since 2000 and and things have fallen off a cliff this year uh the stock market is down but uh interest rates are up but even more importantly uh the valuations on growth companies collapsed a major reset uh and uh that that affected uh lots of IPOs uh last year that was one of the things driving uh the big activity the high valuations a lot of the companies were able to get I told them now is a great time to go public and with this reset and valuations lots of them said well we missed the window last year well I'm looking at one of your stats here um the we had the lowest number of IPOs in 2022 in any year since 1979 that was another year of high inflation that was during the volcker FED we could say a lot about that but just wondering how much of this is because of the business cycle and I guess the contrary the flip side of that do you expect once the FED gets a handle on monetary policy it gets a handle on inflation can we go back to the norm what does that new Norm look like well 2008 actually had fewer IPOs than this year but actually more money was raised that year uh uh the IPO Market is is not super sensitive to business Cycles uh for instance uh in the last decade about 30 percent of all of the IPOs have been biotech companies and they're not going to have revenue for five or ten years if ever from product sales so that they're not very sensitive to business Cycles uh but the IPO Market is quite sensitive to the ups and downs of the stock market uh and and that definitely uh was a major damper on the IPO Market this year NJ what about the focus just from an investor perspective uh or really from the big Banks just in terms of growth and profitability that's what people are more focused on right now rather than the growth at all costs which have been the strategy that had been working I guess at least from an Investor's eyes over the past several years yeah uh last year in particular 2021 the low interest rates uh led to a situation where investors were looking at growing companies that were losing money uh and not focusing on the short term they were thinking about uh future potential profitability but uh basically in investors got over optimistic there was just too much money chasing a lot of these companies whether it was in public markets or especially in private markets Venture capitalists just had so much money to throw at these companies and and that led to the escalation of valuations to unsustainable levels uh it's it wasn't as bad as it was back in the internet bubble of 99 and 2000 but in retrospect uh at 2021 was approaching those levels in terms of the optimistic valuations being put on a lot of young money losing growth companies we saw this year almost the death knell of the SPAC Market that special purpose acquisition companies uh this was maybe a loophole a loophole an area of the law where they could skirt certain requirements uh in terms of four disclosures uh or they were limited by the IPO market in terms of the Ford disclosures they could make and now that loophole has been closed we haven't seen a lot of activity in spax almost nothing this year wondering if that chapter is closed on this Market or if you expect a resurgence well it's it's temporarily closed but this you're uh 101 mergers uh occurred where a private company did go public by merging with the SPAC and that's the second largest number ever uh only the previous year 2021 I had seen more than that but uh all of the trends are down uh way fewer SPAC IPOs went public this year lots of dispatched that went public the last two years that had not found a deal yet or not completed a merger uh are instead liquidating and in fact this month before some tax block changes there's a rush to liquidate uh already 80 spax have said we're giving money back to an investors uh you know we're giving up on trying to find a merger partner all right we've got to leave it there but uh did you have one we're going to leave it there thank you for that Jay Ritter [Music] U.S pending home sales fell in November with contract signings declining in all four major regions according to the latest data from National Association of Realtors but with mortgage rates falling throughout December is a housing market rebound coming in the New Year we're joined by cytus AMC managing director and former Fannie Mae executive Tim Rood to discuss Tim thank you for joining us here today uh your overall assessment of the U.S housing market it's been uh it's been depressed this year what's the outlook for the new year yeah we'll get to see you on that and happy New Year so 2022 I think we often forget came in like like a lion king I mean we were crushing it on every level in terms of existing home sales record low interest rates record low um originations even record year record uh for the last cycle at least existing new home construction so I mean everything that we talk about when you start hearing things that say are down below that's off of a trend that was incredibly high so I think it's important that as we hear like oh my God you know month over month so and so is down or that's down it's really down just in terms of its trajectory you're still going to end the year both from an existing home standpoint Anthem a new home standpoint fairly strong in the sense that you've still had home price appreciation in both categories the volume of each is down um 30 odd percent for existing homes and then for new homes it's down around 15 or 20 percent but to your question that leads to that flywheel going going into 2023 what you're seeing now the best leading indicator that we have is that mortgage originations for purchasing a house are down about 40 percent per the year right so we're ending at a low Point 40 lower than it was last year we kicked that into what would be pending home sales which is the next leading indicator it's down about 35 so you can see you're heading into 2023 softer and it's really up to really Jerome paddle I would say in large part right now how's his hand is he feeling lucky are we feeling lucky because he's gambling with at least 20 percent of the population's capital right now so Tim 2023 lots of debate out there about whether or not it's going to be the great housing bust how significantly the market is going to weaken is it safe to say that that won't happen and then they guess going off of that if it doesn't happen in terms of the drop that we could see in home values what does that more specifically look like heading into the new year it's a great question look it's something everyone's trying to figure out and I think the easy way to look at it is probably following the track of interest rates if interest rates continue to go or go start going back up towards say seven percent right now they're at um you know six and six and change six and a half percent it seems to be that if they get closer to seven that's when things really start to break down as interest rates got back to the lower sixes you saw far more buyer enthusiasm and energy so as if interest rates go up this is that one track you can ultimately see prices soften and you're going to see the amount of inventory increase because there'll be fewer transactions I don't take softening as a 15 to 20 collapse for a number of reasons we can go into later if you have time but the other trajectory which is really where places like Fannie Mae Freddie Mac the National Association of Realtors people who are really in the knower saying hey look we've seen a trajectory that looks closer to six percent five and a half percent interest rates if that were to happen and then you're going to have far lower amount of inventory because you're going to have more sales happening and you're going to have property values they're going to see much more sticky and in some places of the country particularly on the East probably go up in 2023. and when it comes to the supply of new home sales where are we because it looks like there might have been a bit of overbuilding but I think we're still at historically lower levels at least in terms of the historical range can you can you update us on that yeah the problem is is that it's certainly gone lower the builders learned their lesson in the 1980s they learned them in the mid 2000s that when they get over their skis and they over build basically for anticipated demand then whatever the exogenous event is the Black Swan event they found themselves Uber committed with too much production too much unfinished production too much inventory and quite frankly a fair a number of them ultimately go out of business this time however as soon as they start seeing interest rates go up and demand go down they pulled back you saw permits drop by 70 percent this year toward by the end of this year so they pull back they're like guys let's just get rid of the stuff that we've got in the pipeline finish building it let's get out of this put our hands in our pocket and see what 2023 has to bear so don't expect the building is to bail us out of this predicament I think in 2023. all right we got to leave it there but great information there Tim Rood thank you [Music] let's also look ahead to the coming year for markets China's reopening remains a big story as we close out 2022 this amid growing concern that Rising inflation in the world's second biggest economy could impact fed policy and that much discussed pivot rather here to discuss is Max Wasserman who is the Miramar Capital co-founder senior portfolio manager uh great to have you here with us today you heard our last conversation and what to look out for in 2023 I mean if there was one big theme that you put on 2023 going into the year what would it be uh thank you for having me here number one thing I look at is you have to know what you're investing in we're more bottom up so we're not trying to time this market so I would say focus on good companies and good dividends and we're dividend investors so I would pay less attention to the market indexes and more at the company level people forget that the S P 500 is a market cap weighted index which is has been for the last multiple years more of a NASDAQ 100 portfolio so it's mainly technology and your previous guest on the show was making comments about you could just throw a dart well when there's no cost of capital when interest rates are zero you basically could throw a dart and a rising tide lifts All Ships if you will we look at a little bit differently because the market environment's changed I mean the one-year treasury is 4.75 and now the FED is Raising and worldwide tightening I mean the bank of England the European Central Bank has all raised interest rates so we think it's going to be a tougher environment for earnings it's going to be a tougher environment for technology and these high multiple stocks going forward identify value and Tech at this point well again we focus on dividend right to stock so we're looking at companies that are paying you uh growing dividends we're looking for companies top line revenue strong balance sheets and market dominance that being said technology is not cheap I mean you're looking at the average great they're great companies the Microsoft the apples which we have investments in there are 20 21 times earnings and you can afford to pay that when interest rates are zero but as interest rates go up there's multiples contract which is why we last year we're telling our clients you know underweight the large Cap Technology you still can have exposure but we saw a problem with the NASDAQ given rise in interest rates the multiples were way too high in this new environment um so let's talk about what you do like then a little bit more max um you you sent us two picks one of them is Advanced Auto Parks which um certainly the valuation is not that of a tech stock but it's also a you know an industry that has been a little bit troubled given some of the terminal that's gone on in Auto so what do you see for 2023 from that business for that business you're looking at a company to train at 12 times earnings paying you over four percent dividend they ran into a little trouble this year with the fact that their inventory was low their inflation issue as a supplies because they were sourcing out of Taiwan and the dollar basically had a great appreciation which is killing them that being said the business they're in is in tremendous the average age of a car is 12.2 years used cars cost anywhere from 800 to a thousand a year from maintenance and so we see the aftermarket auto replacement parts a great place to be now it's going to take a while for them to get through the last quarter which they disappointed but we think at 12 times earning in a growing environment if you look at a slowing economy more people cannot afford new cars with higher interest rates so they have to keep their cars even longer and they have to keep them repairs so we like an Advance Auto Parts here we also have an investment in general Parts Corporation which owns the Napa centers so but with that part of the business we still think are very strong and will be in a slowing economy all right we'll leave it there Max Wasserman Miramar Capital co-founder and Senior portfolio manager we'll talk to you soon [Music] as we approach the Year's End we're taking stock of a tumultuous 12-month period that delivered a global energy crisis a crypto implosion and more Elon Musk headlines than you can shake a stick at what's in store for 2023 you may ask now here to discuss is Yahoo finances [Laughter] what's your recipe Target two more days so we have seen some targets start to roll in I mean what's clearly on the docket as we get into or at least have our site set on 2023. I mean something I wrote about a couple weeks ago is that everybody's consensus forecast for next year is well first stocks go lower and then they eventually I guess go up to go flat basically and I know of Julie you love talking about price targets and I'm a lot more sympathetic to analysts than you are just because you know everyone has a job their job is to make a prediction tell their clients here's what we think is going to happen here are the reasons why and you as the client are free to base your model on that disagree Etc to make a market you know the sell side is in the service industry they're not actually in the prediction industry they're just in the here's our best guess at what we think could happen and I feel like I've noticed last few years everyone does the three scenarios bull base bear and no longer do you really have people saying I think I know where stocks are going to be you know in in 12 months time listen I'm not unsympathetic to people setting their targets I get why they do it I get that it's like part of the whole stick for lack of a better word that's probably it's their job to do it and it's fun for us to talk about their targets and whether they got it right or wrong and yes they do change it during the year I I understand the utility of it but to your point like I think directional Direction makes more sense and is more relevant to investors than like that specific finite number destination in the path yes some things to use J Powell's framework yeah there you go that's exactly something like that and and you so when you're looking at your themes um investing matters I guess is the one that's most relevant to what we're talking about what do you mean by that well I mean what I mean is investing is okay what I mean is investing is actually serious business and the way that we go let's go back to 2021 you have the whole meme trade and it's basically a joke it's like any idiot can do this and honestly from Summer 2020 and until what October 2021 I guess November we were you know first starting to roll over in 2021 kind of felt like that right I mean you go from like Dave Portnoy picking stock tickers out of a basket pretty much getting winners out of that um everyone's getting rich in the stock market everyone's getting rich in crypto we can talk about that in a second and I think there was this sense coming out of a decade of the bull market which was really driven by the West Coast driven by VC thinking driven by the Top Line saws instead of the bottom line and it said all you need to do is find you know I mean we have multiple analysts on this show going back to 1819 who would say well all you need to really do is find the biggest ham and pick someone who's going to grow into that Tam most aggressively total addressable market so find the biggest Market find the winner in the market you can't go wrong and I don't know I'm looking at categories like food delivery which is a pretty big market and the winners in that market haven't exactly been winners for investors and I think it's uh you know it's a paradigm shift it's cliche to say it but it's very obviously really a change in the investing environment and one that moves from like everything's a joke stocks only go up to well I guess maybe this is a real business now you're also watching the VC Community models and they've really had a really terrible year do they have a comeback year next year especially where they can do some shopping just given where valuations have been just hammered this year well I mean the thing with the VC Market is that they don't do shopping in the same way that someone who picks public equities can go do shopping I mean you are trying to work relationships you're trying to get you're basically trying to do marketing it's getting deal flow so that you can hopefully find the next Uber when it's in its seat or you're doing its follow-on seat or whatever and so I was looking at some data from pitchbook which had this from 2021 this was the biggest winners of 2021 for VCS companies that went public names in here include are forensic coinbase rivian Roblox Robin Hood uipath um you know coupon these are stocks that haven't exactly hit it out of the park and these were the big wins from the VC Community going back to last year now you know someone can of course come and tell me that oh you invest in series a it doesn't matter that the com you know let's take Robin Hood comes public 40 billion valuation 30 billion dollar now it's 5 10. um so I mean the Stock's at eight nine bucks so that can be a winner if you invested when they were worth 500 million dollars sure but the whole point of the business is we find the best companies we bring them public we change the Paradigm and yes Robin has certainly changed you know they have forced Fidelity to change how they think about their customers which is you know not nothing but the stock chart doesn't exactly scream value creation for shareholders and so to your points to us about going shopping it's like yeah sure you can go to Stanford's campus and go find a bunch of guys who want to start the next tech coming with something maybe you end up with mongodb or whatever you know one of these big Winners but you know that's that's not really like going shopping that's just working relationships and trying to find deal flow it's not like going saying I love Under Armor and I think they're going to Triple or you know go to PayPal or whatever I'm not saying it I'm just and you're not saying it all these companies you go through Kathy Woods list right all the stocks are down 90 this year one of them is going to Triple next year so there's an opportunity there for someone but that's not really the game that VCS are playing right or that that ETF is playing yeah you would need to pick the one I know we open up the hole oh yeah I'm just saying you could kind of throw a dart at Yahoo finance and find stocks that are down 80 this year and uh you know that's so good luck to everybody out there that's my take on 2020. 2023 my price Target on Friday thank you so much miles Upland joining us here on set we appreciate it our Market's hoping to shake off 2022's Gloom with investors looking to optimism in China's reopening and a less hawkish fed joining us now with more we've got John stolphus who is the Oppenheimer Chief investment strategist John great to have you here with us today you look out into 2023 and you think about some of the things that we hope to leave behind in 2022 which of those factors do you think will still Loom large as we move into next year though well I I thanks for having me on the show really it's great to be here on Yahoo finance uh would have to say when when we look at the picture here the risks remain uh things like uh covid China policy towards coven uh issues related to uh Russia's uh incursion into Ukraine and how that will turn out uh so when we consider that uh we've got to think that uh with the FED still in a right uh hike cycle uh plenty of uncertainty remains on the table that said we think a lot of this has been priced into the market this year we'd have to suggest uh that indeed the market has been oversold uh whether it's the NASDAQ whether it's the S P 500 uh or the small caps so we would have to think that next year the 2023 is likely to be a better year I think the fed's going to keep raising okay but we think the the adjustments will be modest we're not looking for a pivot we're not looking for a pause at least through the first quarter into the second quarter and but we do think that companies have shown that they can be highly resilient in challenging markets since the financial crisis through the pandemic and thus far in these rallies that we see hey John it's Julie here um you tend to be I would say more optimistic of the folks that we talk to and I'm curious as you look at the next year since you're already looking at a less worse year not like gangbusters but less worse what could go even better right what are what and you list some of these upside risks in your uh look ahead note but what to you is potentially the most likely the thing that you'll be watching most closely well I I would have to say that the the consumer will likely prove to be more resilient as uh they're still based on the Jones index plenty of jobs uh for those uh who are unemployed to consider at the very least uh and in the meantime uh consumers are keeping spending even though they're relying more on credit cards uh the reality is uh that the the consumer May whether it's for what is it uh for experiential Joy or for buying things the American Consumer remains uh positive uh related to to spending and I think has a fairly realistic view in terms of inflation I I also think that I think the FED will will once again be proven to to be successful ultimately it's prone to make mistakes but ultimately the FED fed is the Arbiter uh in terms of setting interest rates buy ads Benchmark rate uh monetary policy is you can see it in those housing numbers that we saw uh earlier this week and the numbers today that you were just talking about uh it it's they're they're beginning to have a genuine effect on this inflation that has been at 40-year highs John if we get stagflation next year uh and no recession does the market does the S P 500 let's single that out recoup all its losses from this year and perhaps even more well you know it's the stagflation question is when we'll have to see what what happens uh with uh the job market in terms of how that really comes out but based on what we've seen over the over the last uh 15 20 years uh and even longer we publish within our weekly piece and our monthly chart book The the effects on on the S P 500's performance of interest rates uh not only Market interest rates but also fed policy we'd have to think that there's a real good chance that we are going to see uh at least somewhat of uh of uh well what we would call a do-over year I don't know if it's going to look like 2019 remember 2018 the Bears uh ruled in the fourth quarter they thought uh first quarter was going to be terrible boy were they wrong and the the markets came back powerfully uh that year through the whole year uh so we think you have to be if anything we think upside risk is probably greater than downside risk here the the biggest problem for the Bears is they tend to project whatever is negative today they projected forward uh into infinity and you know the world and Cycles are what they are things can change who would ever thought that President G would cut out the the zero covid policy so fast how long that lasts well of course you know that's up to president XI so John all these factors considered what's your top idea for 2023 what is the area that for investors they've heard about how defensive they needed to be in 2022 in 2023 where would you say that they should perhaps kind of pivot their attention to the over call Still Remains by growthier value and garpier growth so we like when it comes to technology and we think Tech has been grossly abused this year uh you want to own those companies that are deep their services or their products are deeply embedded in the lives of both business as well as the consumer a lot of those stocks are deeply on sale and some of them even pay dividends modest dividends and sometimes even better dividends we continue to like chips last I looked the the chips were still uh doing uh well from the October 12th uh lows uh up double digits I think about 12 percent is what I recall over the top of my head list I checked my screen this morning uh and would have to say you want on consumer discretionary don't bet against the U.S consumer when times are flush they spend like Sailors on leave after a long uh a tour of Duty at sea but when times are tough the American consume tumor validates uh their work and and their existence by shopping they'll just move to uh you know private labeled Goods uh discount stores or what have you and so we we think look at the consumer technology and of course we continue we've been adding for years now uh exposure to Industrials the industrial sector looks like a great place to be not only from a defense position but also power generation as well as Aerospace both commercial and defense uh and uh we have to think that with most of Home Appliances now uh connected to uh there are many connected to the internet of things that it's a good space to be in and financials still looking very cheap here if we can get away from all this fear about the uh pending recession that everybody is certain about uh we can probably see the financials have another period of a nice balance John just real quickly here where do you stand on The Great Bond come back of 2023 that everybody seems to be talking about Julie I think this is Central to it that what all the fuss and must about this that happened this year was it was the end of free money is what the FED uh was saying we had uh we had Easy Money during the uh during the financial crisis and coming out of it we went to free money in the pandemic that's not good Bond Bond issuers are beginning to pay for the privilege of borrowing money giving something to bond buyers uh for the risks they take related to credit call ability and uh uh uh uh uh the default risk and so we've got to say it I don't know if it's a 60 40 play but maybe a 70 30 70 25 with uh fixed income at the very least uh uh of 15 to 18 exposure in in a model that we follow John always great to catch up with you Happy New Year to you the good to talk Outlook with you John solvis is Oppenheimer Chief investment strategist thanks thank you [Music] all right as 2022 comes to a close we are focusing in on some 2023 forecasts that we've heard from Wall Street this year we are expecting an economic slowdown and with that slowdown we're expecting inflation to also come down pretty much everyone is expecting a recession right now the labor market doesn't look like it's on the verge of a recession in fact it looks like a market that still needs people to come off the sidelines we do think the peak in inflation is behind us but inflation is likely to remain elevated into the first half of next year any acceleration in 2023 from this year is going to be quite grudging and uh it's just not going to be broad-based we think that they'll probably start cutting rates in December of next year so there's a lot that people sort of disagree on going into this year when will the FED start to slow down how much will the economy actually slow down but directionally there's an enormous amount of agreement right inflation is going to start to decelerate um and we are going to see the economy really decelerate as well as the FED uh interest rate increases start to bite I took a look look back at the end of 2021 to see what the predictions were like for this year I wrote about it in today's morning brief you always get strategists like making their forecasts then they adjust throughout the year but the forecast that they make going into a new year they tend to not be spot on of course and so now as we look ahead to 2023 and you look at the forecast I think the median forecast is somewhere around 4 000 for the S P 500 is what we're looking at now 4009 is the average year um so we'll see where we actually end up an anemic increase is what most strategists are looking for yeah I think if there are two things in terms of where the FED is going to be focusing or continuing to focus its attention and taking it from that perspective of their dual mandate and looking at employment and then looking at pricing on prices and price stability it's really a matter of where you see these stickiest areas of inflation within prices starting to retrace a bit and that's around Necessities that's everything from what you're paying to fill up the gas tank but also what you're paying on your electricity what you're paying just in your housing and so with all of that it's going to be the continued deceleration in price increases there and then the retracement hopefully of some of those prices as well so that consumers can feel a tad bit better at least year over year but we're going to have to see a trend lock in place there and then on unemployment they've said that look they're willing to or at least expecting to see unemployment and the unemployment rate tick up as a recession is a very real kind of inevitability that many economists that we've discussed as you saw through that clip had point it out and so within those dual mandates that the FED does have I think those are the two key areas that the Market within any data that we continue to get is going to latch on to just looking for a trend and what that trend is whether it's three months or five months that's exactly where we could see some actual uh reaction from the equity markets here too yeah two things come to mind listen those comments one all that is a super sad and depressing you know it just makes me sound depressed you know it's a Wednesday you know it's a holiday season number two is a time to empty out my savings account and go all in on stocks I mean this is one of the most well telegraphed recessions we may or may not get next year you have the s p down what close to 20 this year of Tesla down 70 getting hammered we know all these things are coming and you know that proverbial saying on Wall Street do stocks climb stocks often climb a wall worry is that what we might see coming out of the gate next year when we don't get a recession yeah that's a big question going into next year and a lot of people trying to position their portfolio aptly going into 2023. after getting a bad rap over the last decade hedge funds seeming to redeem themselves this year several in the industry reporting major gains so far this year Yahoo finances Alexander seminova joins us now with more and Alex I guess some of these hedge funds really capitalizing on the changing market conditions that we have certainly seen throughout the year exactly Shawna the hedge funds have been scrutinized over the past decade and rightfully so because performance has been lackluster and they charge them with the highest fees in the investment business just taking a look at last year's performance hedge funds returned an annual 10.3 percent according to the hedge fund research weighted Composite Index meanwhile the S P 500 returned about 27 percent and sure different hedge funds employ different strategies so it's not necessarily fair to compare them this way but when you're looking at the industry broadly and seeing that unmanaged regular stock indexes are outperforming the industry when they're charging such high fees that's really not a good look but this year however did set marks in what of a reputational turning point for for the industry Citadel was among this year's standouts it's on Pace for its most profitable year ever as of November it's Wellington fund is reportedly up 32 percent year-to-date uh around that time the S P 500 was down 14 percent now down even more and at Citadel performance was so good that Ken Griffin actually took uh his employees to Disney World he paid for ten thousand of a good year his employees and their families for three trade a three-day trip to Disney World and then you have others like de the D Shaw Group Millennium management all set for double-digit returns and another point to make here is the Texas teachers retirement system actually performed much better than some than some of its pension fears because of its hedge fund allocation so it was able to offset some of the losses in its stock and bond portfolios now to be sure it wasn't all good you know there were a lot of hedge funds that did severely underperform you have tiger Global Management which met heavily on tech stocks down more than 50 percent year-to-date Melvin Capital completely shutting its doors a lot of others that didn't do as well as Citadel and some of the good ones but the point here is that this year's market drawdowns and the unexpected geopolitical risks that we've seen have really helped hedge funds reassert their place in investors portfolios during a really challenging year so I know Coldplay played at that Citadel party I heard I heard about it but you know what does this means for the industry going forward you know people looking at how can I trade like a hedge fund I mean can you I don't think you can but where does industry go now after such a banner a year in 2022. yeah so the struggle for hedge funds really started after the global financial crisis we've seen a period of really easy money policies stocks generally on an uptrend and you know investors doing quite well this really a limited dispersion in the equity Market which is the range of possible outcomes for an individual investment and now that we're seeing the FED Titan conditions and you know we're not expecting the bull markets that we've gotten in the past hedge funds May really play a role in investors portfolios going forward you know Warren outfit in 2007 famously bet that over the 10-year period ahead the S P 500 could outperform hedge funds that he was right if he made that bet over the past 10 years he'd still be right but over the next 10 years might not be the case we're probably not going to get the type of bull markets that we've seen with higher rates ahead concerns about growth geopolitical tension still high so hedge funds might be a you know shining bright coming ahead well they could hedge my checking account at some point anyway Alexander seminova thanks so much [Music] let's continue our conversation now on what to expect in the coming new year of 2023 the FED set to Pivot away from hawkishness next year but the turn in policy comes as the market finds itself in a very different place from The Staggering growth we saw in the decades starting in 2010. here with Morris Michael Antonelli Baird managing director and Market strategist and Michael uh you're stepping out in front of it I guess and offering some predictions always risky as we know but but they're they are they are important to do and also can be fun to do so um your first prediction for the next year does have to do with the fed and its timing talk me through what you expect yeah they're definitely going on a limb here predictions are part of uh part of a strategist job but ultimately you know just trying to make really good guesses trying to make really good probabilistic views so I think the fed's done hiking at the next meeting I I this is a little bit out of um you know a little bit of consensus I think they're done at the next meeting that would be the Feb one meeting and I think they're going to end at 4 5 4 50 to 475. I think that's where they'll end we're at 425 to four and a half right now so that's a 25 basis point hike and I think we get one more CPI report I think that will be enough for them to say uh okay we need to we need to see what the effects are of these hikes uh so that's my first my first kind of prediction for next year is that uh one more CPI report one more fed heck and then they hit the pause button all right Michael gotta by the way great to see you here uh got to get to prediction number two and this has to do with yields and inflation now a lot of analysts for over the last month or two been tripping over themselves to declare the end of the about of inflation say it's going to come down precipitously some not so much thinking that it will they'll fall fast but if inflation does fall what happens to yield because I think that's a crucial differentiator here right so my second my second yields inflation I do think inflation Falls I think it continues to fall for all the reasons that we've already seen it falling Auto prices commodity prices oil prices remember shelter lags will start to get that shelter decline next year so that's when inflation I think really starts to fall I think it yields stay high which is that I don't think as inflation Falls we see yields just go down with it I think what you're going to see is yields kind of stay higher and that's a good investment thesis I think for for uh individuals next year so look into the bond market is there anything I'm missing from the bond market and if if I'm right and yields stay high and that kind of 2010's mindset of low yields doesn't come back then you know Fang stocks aren't all that interesting either right now you're looking at those tech stocks and saying maybe I can't hide out in those and just wait for the market to go higher uh I think exploring the bond world will be my second prediction next year I think a lot more people will be doing that yeah certainly a lot of people have been talking about that Mike um the other thing that you're looking for is gains in stocks in 2023 you're not alone there the average forecast I'm looking at is about 4009 for strategist survey but Bloomberg so again but another sort of met year expected so the stock market is very rare for it to go back to back negative very very rare uh it's only happened a couple times since the end of World War II it didn't happen after 07 right 07 was a terrible terrible year and it didn't happen after then so I'm playing the odds here the odds of Any Given year being positive or about 78 74 75 so I'm playing that um I do think that you know again the stock market's all about are things getting better are things getting worse I think they will get slightly better next year I don't think we get any big gains but I do think next year will be somewhat positive and again that is almost playing the odds more than anything it's not really playing a macro theme it's playing a theme that it's very rare for the stock market to be negative two years in a row all right Michael before you go and we got time for one more here where do you see the best opportunities for the new year any particular style sectors you're liking based on the setup right now like defense I think defense is a great sector that's got Tailwinds to it that are kind of geopolitical that aren't necessarily about rates or yields or anything like that and I also do like I do like housing to come back housing is one of those things that you might say why would you do housing when rates are high uh there's just kind of a real endless demand for housing and we're going to have to meet that in this country so I would stick with housing and defense would be my two my two for next year all right really appreciate you stopping by here Michael Antonelli Baird managing director Market strategist thank you as we continue to count down to the new year and look toward 2023 we welcome in our first guest this morning says the themes of inflation and recession will be sticking with us well into the coming year joining us now is Sylvia jablonski defines ETF CEO and CIO Sylvia good morning it's good to see you happy holidays um not a very happy holiday message I guess that we're going to be dealing with all this stuff going into 2023 right but it does seem like especially on the inflation front that things are at least getting better or getting less bad what are going to be the implications for the markets in early 2023 hi Julie great to great to see you again and thank you for having me well look it's not actually all bad news I think that you know where we're at today is probably where we're going to be in a couple of months right we have a Fed that remains hawkish he wants to get to that five percent plus terminal rate we'll see if he actually gets there because a lot of the work that the FED has done you know hasn't really impacted the economy just yet there's a little bit of a lag to that as there is to job numbers and some of the data that they look at so who knows but let's take them for their word and assume that it's going to be a couple of uh a couple of rough months to start the year but the good news is that inflation has fallen from a peak of 9.1 percent to 7.1 percent it's trending lower um you know you're starting to see some softness in the housing market so you do see this rolling recession that's actually happening out there consumer sentiment is terrible retail spending although the consumer is resilient and starting to give a little bit so a lot of this tells us that the FED might not have to do as much as as you know he says says and I think that on the other hand though if we have a recession it's likely to be a soft Landing because although the numbers are softening they remain resilient whether it's production the consumer and otherwise but the good news is sort of the spin on this is every single time a market Falls three to five percent if you're a young person or if you're someone who has a retirement account and you're not retiring for another decade or so these are great times to gather up stocks and create some value so it's not all bad well let's talk about some of the areas where you might be seeing some opportunities in early 2023 I'm looking at your list here travel stocks and some defensive names because you're going a little bit more detail there yeah sure so I think when I think about 2023 2023 the first half of the year just based on you know what I mentioned before will probably be a little bit defensive so I'll look at things like healthcare you know a lot of these companies pay dividends there's a massive aging baby boomer population they're going to continue to consume Medical Services Pharma biotech things like that and they tend to do well in recessions anyway you know you're not any less sick if the market pulls back right in terms of the travel trade uh you know it's sort of counterintuitive because if we go into a recession perhaps you know people might not spend as much but I do think we're talking 2023. if you look at the outlooks and and the last earnings calls from companies like Delta for example and Norwegian you know they're talking about doubling their revenues for the next year they're talking about increased demand so you sort of already have that information from them and you know that the next quarter or two might be okay there I also like Alternative Energy you know we're talking a lot about diversification we're talking about looking at Commodities that have done well and when you look at as space like hydrogen for example you know it's it's a growing area that is actually picking up some steam so you have these companies that are building out major hydrogen you know plant cell stations we're talking about Bank of America by 2050 saying it's an 11 trillion dollar Marketplace um the renewable energy agency saying that 12 of our electricity will come from hydrogen right now that number is zero so these are areas where I'm going to look to allocate next year um I want to pick up on hydrogen I have to admit for people who saw Glass Onion perhaps over the holiday weekend there was a little bit of a hydrogen theme in there although it wasn't necessarily A positive one I'll I won't go further for fear of spoilers but what I will say is that it may get to that size by 2050 but it still feels pretty early in that space so what do investors need to keep in mind I mean these past couple of years saw a burning of investors who were trying to get in on disruptive Technologies um and so what do they need maybe need to keep in mind when they're investing in spaces like this yeah so that's a great point and I think you know when when we think about disruptive Technologies we're still thinking about companies that are around today and generating revenues right so while I I believe that Quantum Computing is going to be you know a massive Innovation the next decade the companies that are just starting out in that space are companies like Google and IBM that are going to benefit from their existing business lines while they innovate right so it's not so much you know think about this small company that's going to be you know absolutely whacked by interest rates that's that's sort of not what we're looking at in terms of hydrogen it's the same thing it's companies like Fuel and Ballard and plug you know that have these massive contracts with Amazon to run their forklifts and things like that but you know to answer your question a little more specifically I think if you're looking at true you know just of Technology of like startups that are just on the map perhaps just have gone public not a lot of liquidity I mean they are absolutely going to suffer for the next couple of years there's no doubt about it you know they need to borrow and interest rates are going to be high but if you're talking about Innovation and disruption with companies that already exist our Quality Companies you know sizable market caps the ibms microsofts Googles Amazons in the world I mean for those companies I would argue who are absolutely on sale and you know you gave some great stats before about how long it took them to kind of recoup their performance uh you know I don't think it's going to be two or three years I think that this is going to be you know the end of 2023 when you start seeing some of these companies start to recover because they're just too good I mean they have too much cash and they're part of every single thing we do uh in our day-to-day lives all right uh some uplifting uh an uplifting tone there I would say overall and thanks for that thanks for being with us on a Tuesday morning here I really appreciate you stopping by as always Sylvia jablonsky November new home sales released this morning showing a slight uptick in sales compared to October of 5.8 percent but down 15.3 percent compared to November of 2021 supporting the monthly uptick mortgage rates did fall recently over six consecutive weeks according to Freddie Mac now sitting at 6.27 and for a 30-year mortgage uh what can we expect for this Market in 2023 we need to bring in our next guest to get his perspective Ben Miller fundrise co-founder and CEO uh Ben how are you viewing this latest downtick in mortgage rates uh does this have any lasting support for the market and just wondering what your fundamental drivers are right now yeah I think we're getting close to the actual the bottom in credit markets so what happened was interest rates and credit markets really drove down in housing um prices they drove down housing prices because mortgages and interest rates became so expensive and now that you see the 30-year treasury the 10-year treasury um all mortgage rates basically falling and spreads falling as well I mean the spreads are tightening I think we're going to cycle into the capital markets opening up in q1 and that will restart the housing market in probably late to queue is what my expectation is where do you think rates will kind of settle in let's say middle of next year and to your point do you think that'll be enough to get buyers Sellers and investors off the sideline at what point do rates get people back in yeah I mean it's I think it's sooner than people might expect there's we you know we work across the United States we have we own 20 000 residential units we're buying thousands of units uh across every quarter and we're seeing already an inflection point in the last couple weeks we work with eight of the top 15 biggest home builders in the country we're seeing uh a bottom in new home new home construction pricing uh so I I think it's it's going to surprise people the way things move these days everything was faster than it ever did before and so I think mortgage rates I mean eventually they they end up in the low fives that's where you know today they're let's say treasury's at gonna be three percent long-term treasury you know 175 uh bibs above that it's gonna be around five and I think that is very healthy for the market uh we were just showing some of your top primary markets on the screen there uh wondering if you could go break down some of the trends that you're seeing with regard to some of these regions and maybe add on some of the secondary markets too that you're tracking yeah the the funny thing about real estate real estate's a levered investment on GDP so it deliver the country's growth the state's growth the city's growth and the neighborhood and so those cities listed there essentially make up a million people a year of population growth last year uh Texas Florida North Carolina and South Carolina those four states grew a million people one year and the whole country only grew 1.3 million people so it's something like 75 of population growth happened in a very few number of states and in those States it happened in eight cities so eight cities are making up probably 65 percent of all growth in the country and so you want to be investing in those cities and then you want to be investing in the best neighborhoods in those cities and then you're just getting you know most of the United States's growth in a concentrated geography yeah but it's remarkable the dominance of the southeastern region in particular North and South Carolina on everyone's top 10 list for next year you talk about regions there what about sectors that you think are sure to Boom in 23. well I'm not going to say sure because at the beginning of this year you know Ukraine uh War happened so it's there's uh but I would say that um residential is I I I think by the end of q1 Q2 approximately we're going to have seen the bottom and residential is going to make a roaring turn back sometime mid next year and Industrial I mean the winners keep on winning that's the nature of tech this nature of real estate the best markets and the best assets keep winning and then office and Retail are gonna just continue to decline I mean we have a generational decline or obsolescence and essentially half of the real estate market which is office and Retail that's really interesting I like these generational Trends they can they kind of play out over the secular time frame maybe over a decade or more just wondering how do you see the inventory uh situation right now with respect to satisfying the demand by Millennials and now gen Z's forming new families in that Trend and how that might evolve in the coming decade yeah generational trans is exactly the right way to think about it because um if you think industrial Industrial in the 80s was like you know not a hot a part of the economy and then e-commerce really transformed it and e-commerce has been a generational change to help people shop how people think about uh Commerce and the same thing's happening with residential work from home to Revolution is changing the way people live and work and it's accruing to the benefit of single-family housing most of all and so you take talking about a trillion dollars of Office Value being transferred to residential rental real estate probably mostly and that's that that's like a 10 15 20 year Trend and I think it's going to be the biggest thing happening real estate this decade all right we're gonna have to look out for that really appreciate your time here Ben Miller Rising costs debt written balance sheets and renewed focus on profitability weighed on the embattled media sector as investors quickly punish companies struggling to turn a profit you know fine says Alexander Canal joins us now with the breakdown thanks size it's been a wild ride for media companies this year Netflix down 50 percent Disney and Paramount Global same story there down roughly 45 percent but that's nothing compared to Roku which has dropped 80 percent on the year with Warner Brothers Discovery and Spotify sinking more than 60 percent and this year alone the stock market wiped a whopping 500 billion plus off of the market caps of major media Giants with more pain expected in 2023. so how do we get here and what could happen next let's start at the very beginning 2022 post covid post-state home trade and we saw subscriber growth levels slow Netflix lost users two quarters in a row during the first half of the Year while NBC's peacock saw Zero growth at all in the second quarter so amid that slow down couple with those declines seen in linear television and a shaky macro environment investors shifted Focus to profitability are you a business that can make money as a result we saw Mass amounts of layoffs hiring freezes massive restructuring efforts and remember these companies were spending tens of billions of dollars a year on just content alone so it was a huge transition but despite it all there were some bright spots in 2022 number one being ad supported Netflix and Disney rolled out their respective ad tiers towards the end of this year a lot of optimism on the street when it comes to how advertising can help add incremental revenue and help hedge against churn especially as competition intensifies so that's something to look out for in 2023 another highlight was that Studios regained confidence in the box office we had some record-breaking movies this year Top Gun Mavericks smashing a 15 year old record by far the top movie of the year and then those Marvel films like wakanda forever Doctor Strange also killed it easily nabbing 100 million plus openers and even though Avatar 2 did Miss extra expectations industry Executives still say the film will outperform and continue to add box office dollars throughout the holiday season and into 2023 so theatrical not fully back to those pre-pandemic levels but not as pessimistic as things seem to be in 2021 and then finally another thing to watch will be more media mergers and Acquisitions as profitability is pressured M A is often the go-to solution there's lots of talk on the street that Paramount could be unloaded Disney what will Bob Iger do with ESPN and Hulu and what about wbd could that be a potential acquisition Target down the line so there will be assets for sale it's a direct result of this soul-searching moment for the industry in 2023 it's going to be a year of tough decisions and I think it's safe to say not every media company is going to survive that well I guess we'll see what that means for this uh coming year that was how I can find this is Alec and now breaking down the year in media we'll be watching to see what 2023 of course holds for the industry [Music] well as we wind down this turbulent year in the markets our next guest emphasizes downside risk in 2023 driven by significant looming risks including another hit to corporate profits stick your inflation and of course issues with the fed's pivot let's bring in Dana diorio investment PMC co-chief investment officer good to see you so as we look at some of these downside risks obviously some were Black Swan events we couldn't we couldn't predict like Russia's invasion of Ukraine but what is going to carry over into 2023 hi thanks so much for having me yes uh I think unfortunately a fair amount of what we're we're looking at right now is on the on the tap for for next year as well certainly for the first half of the year um we've we've encountered a period of time where the the market seems intent on expectations of a Fed pivot I think we're finally getting to the point where the market is a little bit more weary and cautious around that um you know my my expectation just looking at the information is is that you know maybe second half of the year but I think the FED has been pretty clear they've been very consistent about the fact that they don't want to have stop and go policy we've seen you know in the past that that does not work well um the employment Market remains strong another jobless report coming in uh you know just just confirming this wages remain sticky it's the piece of inflation that's really uh kind of kind of really uh Staying High and sticky so I I do think that you know the risk that we've had the second half of this year continue on into the first half of 10 next year for sure top of the list we have to continue to fight inflation even as a lot of it is peaking and the FED will continue to do that we have seen investors at some points getting a bit ahead of themselves with every sort of data point that comes out but you say it's possible that the FED pivot doesn't materialize in the way that the market expects how so well I think yeah you know I think the market has been expecting Maybe we terminal rate uh lower than five um you know maybe even January we're not seeing an increase and I just I just don't think that that's going to be the case I do think that we continue to see increases you know January meeting expectation of an increase there and also that even if we if we remain flat we're not actually easing and I think to a certain extent for a while there the market was sort of expecting that you know just kind of a turn around and that the rate is coming back down pretty quickly in the course of 2023 I think um again I I just don't see that happening in the near future um we do we do know that you know historically wages jobless claims right this kind of stuff can get hit more towards the end uh you know so the fact that jobs unemployment is still low now is not so surprising right we would expect maybe 12 18 months in to start to see the pain from the unemployment and you know more of the recessionary conditions that we would associate outside the market happening but you know that that does mean that the FED is empowered to continue kind of taking the stance it's been taking at least as we move into the early part of 2023. and digging into the labor market you say that the bad news is actually good news for the stock market but for the time being at what point does it start becoming bad news for the markets yeah it's a great question I mean it's good news obviously in the sense nobody wants to see unemployment but for the mark from the markets perspective you have to see some weakening in the employment picture because we have to see wages the stickiness of inflation wages start to ease up because that we know that's what the FED is focused on so the market is kind of waiting for a report that sort of says okay we're peaking there too um in terms of wage increases we're we're you know maybe getting on the other side of that and that in turn would protect would obviously potentially lead the FED to say okay now it's time to start easing out increases um maybe even pivoting the other way so so that's the reason um that that's the sort of thinking that we have here uh you know I will say right the there's a lot of other indicators of weakness that we're starting to see and you know probably we'll see as we head into 2023 corporate profits probably need to come down a lot um you you're still seeing obviously inverted yield curve you're seeing issues in Russia and Ukraine I mean we're going to be going on a year and I don't think anybody thought that this was going to last as long as it has China's still working through your the segment you just had right great information around just you know China working through its policies so there's a lot of uh issues that kind of loom for um the market in general for for the uh economy in general um you know the labor labor is just kind of this holdout but the fed's Mandate is inflation and unemployment so those are the two things they really focus on so then as we mentioned all those factors that you just laid out there what does that mean in terms of asset allocation what do you do for your portfolio when you have so much uncertainty well the the standard advice of course is you have a good mix of equity and fixed income I think everybody uh really got a startling surprise this year when the 60 40 kind of failed in that respect we saw double-digit drawdowns both on the equity and the fixed income side and of course that's because you had these really sharp run-up in interest rates uh that killed you know um fixed income of course for the most part we're past that huge runoff right so now we're looking more at priced and increases you know maybe staying higher for longer than we'd like but in terms of actual losses and fixed income I think you know the the general consensus is we should start to think about moving back into fixed income even though clients are maybe um you know little have have a little bit of trepidation around that so number one on asset allocation is you know the fundamental advice of being at the right Equity to fixed income ratio in terms of what your risk tolerance can handle is still very much applicable here in spite of what we felt in fixed income markets and then I would say on the equities you're looking probably at defensive stocks at least for the time being if you're trying to react to what's going to happen in the short term so if you're trying to say I I want to feel safer in the holding in the asset allocation that I have you're looking at quality stocks you're looking at low volatility stocks I would say though if you're in the market for the Long Haul as as hopefully most clients are then you know small caps obviously being International you know what markets are cyclical right so it's worked in the last 10 years often times the next 10 years is different we've just had a period of time where U.S stocks have outperformed dramatically so there should be an expectation that you know things can swing over to the international markets just base two on valuations but that might not be as a defensive comfortable place for clients to be so they can stomach that and be you know kind of have that longer term view is probably a good opportunity to diversify into those areas so it really depends on am I looking at this on a short term or longer term basis so then you go check your time Horizon and your risk tolerance a big thank you to Dana diorio investment PMC co-chief investment officer thank you for joining me this morning as many economists have recently began forecasting that the U.S will sink into a recession next year 2023. our next guest made that call early on in early 2022 saying that the economy had significant near-term momentum that would later on lead to Market imbalances that's Deutsche bank's chief U.S Economist Matthew luzetti who joins us now and still maintains that view he joins us here In Living Color Live In Living Color all right so since you predicted the factors that would lead to or trigger recession what would you look towards in terms of the flashing signs in order to lead us out of a recession or the light of the end of the tunnel perhaps sure so I still think there's a lot of uncertainty about the timing of recession we've maintained a call that it's the second half of next year and I think we've seen a lot of evidence that I think supports that in the near term we just saw GDP getting revised up in Q3 we do still think that there's meaningful momentum Q4 growth looks okay I think in q1 you still have decent momentum but as you get towards the middle of next year I think that's where the risks begin to build I think a key part of that is the US consumer and the drawdown in excess savings that that is ongoing and so I think you'll see a consumer that looks a lot more fragile in the middle of next year in terms of what we're looking at I think it's all about the labor market you know when does the labor market really begin to show signs of slowing I think continuing jobs claims are typically our best real-time indicator of recession as we saw this morning they remain very low so you have a labor market with a lot of momentum in the near term I think that'll keep the FED raising rates ultimately though I think that does mean that we have tighter Financial conditions as you head into next year and a Slowdown in the economy in the second half of the year do you still think there's any chance that we get a recession here where we don't see a spike in unemployment or is that you know I mean the FED has said it doesn't think that's going to happen that we're going to start to see unemployment move towards four percent and Beyond yeah I think when you look at the fed's forecast it is as close to recession as you can kind of get without calling without calling it a recession yes uh there's three officials that actually have negative growth forecasted for next year but at the same time it's it would be the lowest unemployment rate rise that you've ever seen in a recession recessions you know typically the unemployment rate Rises by 50 basis points it just accelerates from there um and and so I think a key question is I guess one when does that begin to happen we don't think it really begins to happen to the middle of next year and two how much is the rise in the unemployment rate that we anticipate we expect that you'll see about a two percentage Point rise in the unemployment rate which which does sound like a lot I think but from a historical perspective it's actually a quite mild recession and and I there I think you have employers that have a lot of incentives to keep labor we're still a very tight labor market I think they found out with covid that it was difficult to go back and then rehire if it was a temporary slowdown and so I think some of those kind of hoarding labor hoarding extensions will probably keep a cap on how high the unemployment rate Will Rise um and I was reading a good feature barge and Schoenberger on the year that has been for the FED it's been quite the year as someone who covers the fed and what they do what grade would you give them in terms of performance this year look I think if a year ago if we would have said that they would have hike raced by over 400 basis points this year I think would have been absolutely shocking I think you know the starting point from where they they were they were offsides in terms of where the inflation was as many of us were um yeah in terms of how tight the labor market got how high inflation began to rise I think they did a really good job this year of right sizing monetary policy they caught up very quickly they took bold steps to take 75 basis point ready increases at four consecutive meetings I think that has left them in a good spot at this point it doesn't mean I think that the base cases are soft Landing but I think that they have maximized their chances in in order to get us off Landing for what you're seeing with consumer right now and debt levels you mentioned a moment ago some of the savings are already beginning to be tapped but where is debt starting to pile up on the consumer front and even in the shift of spending right now we're seeing more consumers lean on credit cards and things of that nature in order to get them through to the other side yeah credit card growth has been very strong recently but I think there's important context which is we're basically catching up to pre-covered Trends and levels that we would have seen typically you want to normalize those debt burdens by income or disposable income and the consumer really looks good on those metrics still so the way that I read that data is its early signs that a good portion of the income distribution is beginning to eat through their their savings that they've had it's meant that they are now be needing to fuel consumption by borrowing I think a key data point is what you've seen in the U.S savings rate over the past three months below three percent basically record low levels that's very clearly an indication that that savings are being drawn down very quickly and as we head into next year I think debt is a more important driver of consumer spending Trends Matt as we go into next year and as you have this sort of base case forecast are the risks more to the upside or the downside like the rhetoric feels more downsidy but which which way would you go if you had to guess like where could surprises come from yeah I think if anything the risk to our view is that the recession comes a little bit later that we don't get it by Q3 or the middle of the year that the labor market just has a bit better but momentum that that good momentum feeds into consumer spending that remains more resilient and that pushes out uh the timing of recession I don't think that necessarily tells us that we won't have a recession you know perhaps by barely 2024 I think what that'll mean is that the FED will likely have to raise rates more wage growth will be more persistent price inflation will likely be more persistent but that the whole manifestation of the recession just takes a little bit longer and fun following your work all year appreciate you always coming on happy holidays Matthew lozetti Deutsche Bank Securities chief U.S Economist we'll talk to you soon thanks so much for having me [Music] if you're not your closing bell for Tuesday 20. [Music] [Applause] [Music] ladies day on Wall Street we got some green numbers snap at a four day losing streak the Dow up 92 points the s p just barely in the green but we will take it look at the NASDAQ by the slightest of margins again with the Bleak Outlook we've had my friends we will take it for a closer look at the broader markets let's bring in Barrett Asset Management Chief investment officer Amy Kong Amy nice to see you look they're very slight gains relatively low trading but we'll take it what do you make of it hi guys thanks for having me I hear you it's uh it's one of those days where we'll take it after four or five very tough sessions uh and it's really just um perhaps waiting for that next data point to come out which could possibly be pce numbers coming in on Friday so perhaps that volatility might start to go up higher by the end of this week Amy what are you expecting to see from naparin and then looking out just in terms of how we will likely trade over the next several weeks what are you expecting there sure I think the pce number could come in um very similar to what we saw with the CPI numbers meaning that there is this peak inflation Trend forming uh and that hopefully could support the argument that the FED will likely slow down not stop but slow down into 2023 in terms of its interest rate hikes coming into 2023 you know the Santa Claus rally that we've all been waiting for the chances of that is dimming a little bit although I'm not surprised I wouldn't be surprised let's call it to see perhaps the last trading days pick up a little bit we tend to see that but then of course as we go into the new year there could continue to be volatility as new calendar year people could be taking some gains off the table again and so again that volatility could pick up as we enter the new calendar year and so just to be clear and zero in on what you think the FED will do Amy you think 225s and a pause yeah I think you know right now I don't think a pause is um in the cards yet for the next couple of fomc meetings um right now CPI has come down but it's still very high on an absolute level and so if that continues meaning the trend continues to soften we could see CPI and the FED funds rate start to meet somewhere between that may to July period and that could be somewhere between three and a half and four and a half percent so I think um the next couple of fomc meetings I think they'll consider height continue to hike um I think 50 basis points may be in the cars for January we'll have to see what the next couple of CPI numbers come out with I mean there is some concern out there that the FED has been too aggressive already that it will continue to be too aggressive and then the implications from that are you at all worried about that aspect of this equation yet I certainly am I think you raise an excellent point and one of the biggest risks on our laundry list of worries if you would is fed policy error the FED uses data points that are somewhat lagging to make its financial decisions on monetary policy decisions and while you know they want to fight inflation I think it does take time for past rate Heights to really trickle into the system and the past couple of rate hikes have been very very aggressive so I do think they knew they need to recognize that so while at the same time it is tough because you have to balance the fact that if you were to pause or send the wrong message you can send the markets into into some kind of tailspin and you want to avoid that as well so I think maybe you know that 25 to 50 basis points rate height going into the next several meetings makes sense but I think pausing without seeing the inflation data points I I believe that could be an error and if they do make that error where would it be reflected where would we see it first you'll see it both in the stock market and the bond market I mean the bond market is sending a message to the FED right now that they are probably too aggressive and you can see that with fed funds futures um bond market Traders are expecting rate hikes by the back half of 2023 uh and so there's definitely going to be some reflection there the stock market will also be very responsive in the sense that you know they're hinged on every word Jerome Powell says and so any error or any uh you know confusion if you would in terms of its language I think the markets will definitely show it through volatility so Amy what does all this mean from an investor perspective and what people should maybe be prioritizing or buying at this point sure I think from a stock market perspective we don't think that it pays to be overly exposed to the stock market at this point so we are not allocating any new dollars to stocks at this Junction where we are putting that money is probably in the bond market and we are starting to see yields pick up and we're also starting to expect uh yields to Peak sometime in q1 Q2 of next year so where we have been hiding in very very short-term treasuries over the past 12 months going into the next 12 months we're actually looking to elongate duration in our portfolios meaning we're looking to probably lock in some rates uh perhaps up to five years of maturity so that again if the recession does happen and the FED has to actually reverse course we're actually locking in some pretty decent yields going into the next couple of years and what's your prediction for equities moving forward in 23. that's a tough call right so you know all throughout 2022 we've had a PE contraction uh macro conditions causing that the FED causing that and going into 2023 you know if the P part of the price to earnings ratio is not to move higher because of natural conditions it's really relying on the E portion of the PE and earnings could be at risk going into next year considering that many of the companies we follow have not yet provided guidance so that actually would be an important hurdle for us to get through that we'll obviously see more data in January into February in the next earnings season and we do expect those numbers to come down so our Outlook going into 23 is somewhat cautious considering that the earnings portion is likely at risk I mean when it comes to the consumer the consumer has in fact been relatively resilient when you compare just in terms of the deteriorating economy the higher costs everything that the consumer has been facing up until this point what is your outlook there just in terms of how much the strength of the consumer might be able to offset some of the week weakness that we're seeing more broadly speaking in the economy next year excellent question I think you're right the consumer has held up very well a lot of that is based on two main factors one is just excess savings from the pandemic right the government was basically shoving dollars into our pockets in some form or fashion and that's sort of to some waning a little bit especially with some of the lower income earners I think the other aspect that's been holding up well is wage inflation it's still hovering around that five percent level and has been able to offset some inflation that we're seeing in the food and you know energy at least for the first part of this year and so overall the consumer has been holding up well but we are starting to see cracks retail sales numbers are softening that is a reflection of consumers turning more and more cautious as we head into 2023 and in general the savings rate as a percentage of disposable income has also come down quite a bit so what that means is the inflation part from from wages has helped but then people are saving less to again make up the other half and so what we're seeing is savings rate is now down to two to three percent which is somewhat low compared to what we've seen in the earlier parts of the year or even pre-pandemic which had been somewhere in the high single digits so I think the consumer's still holding up but we're starting to see some cracks in this system all right something to worry about here as we enter the New Year Amy Kong always great to have you thanks so much for joining us here this afternoon as more data comes in showing a struggling housing sector the National Association of Realtors of home builders CEO excuse me Jerry Howard joined the show earlier today to tell us what they see happening listen so cost of construction the cost of capital um it's all playing into it and that's having an impact where we we formally believe that we're in a housing recession right now joining us now to weigh in on this is Lawrence you National Association of Realtors Chief Economist and Senior vice president of research Lawrence nice to see you as always are we in a housing recession and how do we Define it we got caught in that trap with the overall definition of a recession uh recently as well well good afternoon I would definitely say we are in a housing recession uh because it's contributing negatively to the GDP growth it's cutting into it housing starts are down home sales are down there's some layoff in the industry but the most interesting aspect from consumers Point of View Homeowners they're doing fine I mean they have seen substantial growth in their wealth from rising home prices uh very little foreclosure rate mortgage default rate at historic low so we have a Divergence people in the industry suffering due to the lack of activity yet homeowners are doing very well so Lawrence we have housing starts off 16 from a year ago permits are down 22 percent from 2021 in November just in terms of what this is signaling of how much worse the industry could potentially get over the next 12 months what do you think uh well you know that because of the lack of buyers the builders are becoming very cautious now we have to remember we had a housing shortage before covet inventory levels were low then the first couple of years during the covet uh when the home sales boom we had an exacerbated housing shortage with multiple offers widely prevalent but now with the buyers retreating because of much higher mortgage rates mortgage rates are the drivers High mortgage rates buyers retreating uh we still have some degree of housing shortage but definitely is taking much longer to find that right buyer to in order to make that sale mortgage rates up on the screen and they are down considerably frankly from north of seven that's maybe the only good news right now where do you think they settle in at middle of next year uh I would say five and a half percent is probably the case of because you know you have the Federal Reserve who will continue to raise interest rate probably two more rounds but the mortgage rates have already priced that in in that information uh and with the inflation expected to retreat uh you know from the nine percent eight percent seven percent and possibly a four percent inflation by end of next year uh that means that the FED may be able to cut interest rate towards the year end uh which means that mortgage rate may be pricing those future possibility into the current mortgage rate so you could settle down at around five and a half percent once in terms of this weakness that we are seeing in the housing market I guess how long do you expect that to persist before we start to see any Improvement uh I think it's uh one or two additional months of low sales activity because as you mentioned mortgage rates have fallen for five straight weeks and mortgage rate is always the key leading indicator and all that will lead to buyers literally coming back to the market and if the mortgage rate declined further as I expect towards next year then there will be greater number of people entering the market the key question is whether there will be sufficient Supply because again we had the housing shortage and then housing shortage does not appear to be at the present but when the buyers come back we could again face that issue all right we're looking forward to next year and you're showing us the top markets for Real Estate next year Atlanta Raleigh Dallas Fayetteville Greenville South Carolina all pretty much concentrated relatively speaking in one portion of the country what is it that connects these two what's the common thread among these top markets you see for next year the factors affordability they are relatively affordable definitely compared to say California Market or New York uh and the second factor is much faster job creation compared to the rest of the country so a combination of affordability and strong job creation will lead this Market to outperform are these markets that investors are eyeing right now uh there is a more than usual investor activity compared to other markets now the investors are not interested in million dollar home they're interested in those starter homes which they get converted into rentals uh so the investors are present uh but I think the first time buyers they're eager to get into the market uh and given that the prices are relatively affordable if the mortgage rate goes down continuing job creation in the local area boom you have the buyers coming in Orange you just mentioned rentals there what investors might potentially be doing with some of these homes that they are scooping up when it comes to rent prices we certainly have already seen a large jump this year what are you anticipating that we'll see next year uh we have the record high or I should say 40-year high in apartment buildings right now so single family home construction is down so the home builders are suffering but the apartment building is at a 40-year high all this excess Supply coming into the Reynolds Market will come down the rent growth rents have been rising faster than 10 percent uh in some of the private sector data now CPI has not yet incorporate those information but now we have turned a corner rents are rising but at a slower rate than before and this will contribute to actually falling overall CPI but also the fact that the renters will get some relief next year [Music] a lot of talk about the bond market what do we see happening after a brutal year in 22. I agree we're ready to put this here behind us and so let's take a look at where we are in the bond market this is basically the entire history of the U.S and U.S bonds right now on track for their top 10 worst return since the birth of the Republic and here we are all the way over in 2022 here's that negative uh red candle that's basically down 14 15 percent you don't see that often going back 200 plus years now you do see that in this area in here in 1916 to basically 1980 this is not circling right now in here you do have a lot more down years but my point of putting this up is that you can have several up to five down years in the bond market cluster together now when we talk about the 60 40 portfolio that adds some diverse diversification and so if we were to look at what's happened with a 60 40 portfolio since 1950 here's this nasty downdraft that we have right here that's down 22 percent here's March of 2009 down a little bit less now what we had going for us in March 2009 was the Federal Reserve was amping up it was getting ready for bazooka qe1 and stocks took off to the upside bonds didn't do much but we had this balanced portfolio so the question is what happens with correlation now this comes from bespoke and this shows the rolling uh three-month correlation between stocks and bonds over the last five years in the early days of the pandemic we shot up and now we are up here again that means if bonds are going up that means if yields are going down that means Equity should be going up and vice versa and what the problem is we've been having these scary surprises up in bond yield so that means bonds are going down and equities are going down at the same time now here is the critical chart and this comes from Jim Bianco this is where the rubber meets the road this is what the FED is forecasting it's going to do in the blue line versus the market what the market thinks is going to happen in the orange and green line so the FED in 2023 this goes through each month of the year they think they're going to raise rates in the early part of the Year up to about 5.25 percent and then they're going to hold there from May until the end of the year the Market's saying no these lines here are what the market expects both before and after the FED announcement last week they're saying that there's going to be a come to Jesus meeting sometime and uh we're going to see what the difference holds at that point in theory we should get a nice downdraft in yields and because stocks and bonds are still highly correlated perhaps at that point we get that updraft in stocks and then that we get that liftoff that everybody's been expecting but the problem that has happened so far this year everybody's been front running this trade has not happened yet so if it happens in the first part of the year maybe that's something to look forward to but not in the present circumstance guys [Music] well U.S housing starts they were down a half a percent in November to its lowest level since August of 2020 while building permits tumbled roughly 11 percent to their lowest level since June of 2020. the National Association of home builders CEO Jerry Howard is here to discuss Jerry great to have some of your time this morning what we've also seen even in the earnings of some of the companies that have reported for where we are still seeing some weakness it's not just in the number of homes that are starting to be contracted but it's also in the prices that people are willing to pay for homes where do you expect there to be some strength that the industry can eventually see especially as the FED is continuing on its own pathway in this rate policy well first of all the area of strength is one that um is always strong and that's the very high end of the market those who are buying second homes and the very wealthy they have money now they can afford it and they're still buying so the builders that focus in that segment of the industry are doing relatively well uh the rest of the market is not looking very strong for 23. I'm particularly concerned with the first time home buyer quadrant and I'm concerned with that because that really dictates the health of the entire chain of Housing and so the it's very very difficult to build uh at that price point right now and it's something that we're watching very carefully and so Jerry it's Julie here what changes it is it just a matter of when the FED stops raising rates that things will be allowed to improve well the fed and their interest rates has an impact up and down the the the chain obviously um in the first time home buyer Market it's also the fact that cost of construction is still like 10 higher than the inflation rate is so cost of construction the cost of capital um it's all playing into it and that's having an impact where we we firmly believe that we're in a housing recession right now Jerry uh some commentary recently from uh rhceo of course at the high-end Home Furnishings company that CEO says the housing market uh is collapsing do you share that view I think we're in a housing recession right now I do think that it is going to be different from 08 I don't think people should Panic here and the big difference is in 08 we had a glut of supply here we do not have a good of Supply in fact we have a supply shortage and that's going to limit how low prices can drop so I think we're going to be in for a rough year in 23 but I think um the the floor is a lot higher than it was in 08 and will come back a lot faster we're looking for a turnaround early early 24. what will lead that turn around I think what will lead that turn around is going to be a reduction in interest rates and I think will ultimately get our supply chain back in order which will help bring down construction costs and I also think that policy makers are starting to realize that a lot of the policies we have at the local state and federal level are adding to the cost of housing and I think they're finally going to do something about it National Association of homebuilders CEO Jerry Howard good to see you happy holidays as we continue to wind down 2022 and look ahead to the New Year our Focus much like the feds remains on inflation and according to our next guest as inflation improves more financial conditions loosen making the fed's job even harder here so joining us now to break down all of this and much more is Jason Katz's UBS managing director and private wealth advisor Jason good to have you here with us on this holiday week given what we've seen in the markets leading into these final weeks of the Year all the focus now is clearly on 2023 and just what the fed's pathway may be what what are your biggest expectations and the tenor that the FED is going to strike going forward once we get into the new year yeah look if you annualize inflation over the last three months we're actually looking at headline inflation at around three and a half percent but that's not the two percent inflation Target so we have this Catch-22 the reason manufacturing inflation is down is the reason service inflation's up we're not at home buying stuff we're getting out and doing things and the real Catch 22 is the more that headline inflation improves the more financial conditions loosen and the more that those conditions ease it makes the fed's job all the more harder so there was no surprise of what was said or done for that matter at the FED meeting and the Market's reaction suggests that investors are getting the memo the FED is saying what it means and meaning what it says and they're unapologetically hawkish and I don't think they're going to relent on tighter policy until inflation's under control what they may relent on is what that Target ends up being it may be a four three and a half percent Target get not necessarily two we shall see Jason maybe I'm getting inspired by that really cool Bull on your wall there which I'm going to take this offline I need to know where you got that thing but what stocks should people be bullish on after a very challenging year this year yeah I mean listen you want to find industries that are thematic in nature and I think there's some investable areas regardless of whether we have this recession how deep and how long it lasts you take you know what's happened with the war in Ukraine and the Lessons Learned there companies aren't as focused right now on price and efficiency what are they focused on safety so you think about energy and uh you talk think about cyber security or you think about food and agriculture food for that matter you know getting clean water to polluted areas or companies that boost the agricultural yield by making vertical farms uh so so you're looking at areas that regardless of whether the war persists or inflation rages are going to continue to thrive cyber security is another incredibly investable area we can't be beholden to our enemies for our energy our food and now we need to protect our companies our governments and our schools and cyber spending is a prerequisite for every business leader I speak to Jason I'm going to take the flip side of this what do you think what are you avoiding at all costs going into 2023 well I'm avoiding some of the really crowded trades for instance a lot of the defensive areas like consumer staples or utilities for that matter utilities are very Bond like and listen I manage money for individual High net worth investors and everyone was in the pursuit for safety and yield especially recently and the valuation in an industry like utilities that doesn't really grow earnings and are regulated are hypersensitive to moves and rates and should the 10-year get back over four four and a half percent there's meaningful downside there what type of shift would you need to see in not just the fed's policy but perhaps in the broader environment for technology which has been a sector that has led us through bull rallies and bull markets in the past for that to be a kind of reconcilable decision for somebody to make within their portfolio look investors are creature of of habit and having done this for three decades I see people have the muscle memory of buying what they're familiar with and what has worked I'm not saying to abandon Tech or big tech for that matter but 60 of their earnings come from overseas any strength in the dollar or any weakness overseas or weakness and consumer or ad spending just don't bode well for that industry so for that to get investable growth can't come down as much as as feared and if it doesn't then I think you could definitely see a a resurge in technology but there are far better more investable areas at this point fixed income you know being one of them Point well taken Jason Katz UBS managing director and private wealth advisor good to see you happy holidays you too for more though on the markets we're joined by Offspring Global Investments senior investment strategist Brian Jacobs and Brian always good to see you sir I want to get back to some of that housing news we just read with we're talking about nahb 12 straight months of down readings and the lowest number in a decade other than that blip in early Cove and indicative to you of what yeah I think that it actually is just reflecting the reality of a recession that the United States is likely to go into in 2023 when I look at a variety of different macro factors I think that will there will probably be a an official recession uh probably around Q2 so end of second quarter of 2023. arguably we already had one at the beginning of 2022 so this might be a type of double dip and uh that's been bad for housing you know housing has been down uh for I think it's been more than eight fiscal quarters in a row as far as on an inflation-adjusted basis initially it was due to lack of workers right so there was uh just uh too much work for them to do but they couldn't find anybody to do the work and now we've got higher interest rates and going into a period of time in which not only do you have some of these supply side constraints but also probably some demand destruction that's likely to take place so kind of a triple whammy there for housing certainly housing has been under pressure really the broader Market has been under pressure over the last several trading days the s p now lower for the fourth day in a row Brian is there any chance that maybe we could get a rally into the end of the year any good news may be on the horizon for us yeah so I'm actually somewhat constructive on the idea that we could get an end-of-year rally with some weakness going into Friday's personal consumption and expenditures data which is you know granted looking backwards so it's like what were people spending their money on uh back in November what was income I think that will see some weakness there but then also the the within that report you get the inflation indicator that the FED officially is targeting the pce price deflator and that's likely to show some moderation so if you've got some a weak consumer spending weak income growth weaker inflation that might sound like a horrible mixture there but it actually could be a good thing in the sense that it suggests that the FED might not need to hike quite as much as what people have originally been fearing for 2023. so that could maybe trigger that Santa Claus rally and remember the Santa Claus rally historically it starts after Christmas not beforehand so I think that we could be setting ourselves up for at least maybe a little bit of a bounce back to end the year hey Brian process I want to follow up on that commentary about the fed and rates do you think that the the doves might see some kind of action here because of the fact that we might see some weaker data coming out of January I do and actually I think that when I looked at the summary of economic projections that the Federal Reserve released it was really interesting to see the consensus view for where the FED funds rate should be at the end of 2023. um there were 10 participants that thought that it should be around 5.1 percent or so so right that's a a few more hikes away there were only a handful that really thought that they needed to have go materially higher than that so those are the most hawkish members they're also the ones that tend to squawk the loudest uh the doves have been a little bit quiet but I actually think lail Brainard um as the vice chair of the FED I think she's in that little bit more dovish Camp I I prefer to think about it as the more prudent Camp the thing that we've done a lot already let's maybe take a pause and see how things play out and I suspect that she's actually carrying the majority of the members uh behind her view here and it's just a few outliers that are a bit Fringe with their views quite a burden to carry there all right so the implications given that set up the implications and the layout for the bond market oh well you know my team here at all spring on our multi-asset team we actually have a positive view on the outlook for bonds for 2023. uh it requires a little bit of pain that we experienced in 2022 but uh just historically when we've looked at periods of a recession what oftentimes happens you actually get Bonds doing pretty well what happens when the FED gets closer to their Peak for tightness which I think we're pretty close to there uh you know the end isn't necessarily here but the end is near for rate hikes and that actually tends to be a very bullish indicator for the bond market so here we're actually pretty optimistic about the outlook for the fixed income markets overall and Brian when it comes to ideas what investors should be watching the biggest stories right now outside of the FED of course there's also earnings we have FedEx and Nike after the Bell tomorrow but looking further out into 2023 we certainly have already seen some of those estimates come down just a bit what are you expecting and I guess in terms of the leadership what are you expecting to kind of lead the next like higher potentially sure so I think that we could actually see smaller cap stocks lead the way higher um and not to say that you shouldn't be investing across the capitalization Spectrum you know diversification is wonderful uh it's in the textbooks for a reason but as far as tilts in that I think that actually some of the smaller cap companies could experience a decent rebound but even more so Emerging Markets so when I look at the earnings picture and I think earnings will be the story for the first part of 2023. expectations for the S P 500 on the sell side those are only down maybe six percent from their Peak and so that's not a huge move lower that's about what we saw in 2015 2016 where you've seen a massive repricing and almost kind of a Wipeout of some of the expectations is in Emerging Markets uh there's basically people are expecting no growth in emerging markets and those expectations are down about 24 from where they were at the beginning of 2 2022 so Emerging Markets I think are the ones where you've already seen sort of people just throwing the towel on them and when people throw in the towel on them that's where I want to kind of start picking them up Brian Jacobson thanks so much man all right let's get tip to speed now on the FED a few fed Bank presidents are speaking today and Jen schomberger has the details for us Jen what are we hearing hey there Dave good afternoon San Francisco fed president Mary Daly says she's not convinced on signs inflation may be cooling yet and says we've got a ways to go speaking virtually at the American Enterprise Institute this afternoon daily says the key to Bringing Down inflation is rebalancing the labor market in order to bring wage growth down take a listen the labor market remains quite out of balance we have too many jobs and too few workers so that means that wage inflation is going to be above its long run sustainable average and we're going to have that passing through to prices and that's what we're working on right now is that's why my projection has gone up daily like other fed officials says she thinks the unemployment rate will need to rise to about four and a half percent or slightly higher to restore balance in the job market she says wage growth is still running around four and a half to five percent and needs to come back down to three and a half to four percent Daley says that means higher rates held longer when asked whether holding rates at high levels for some time as fed your pal has said means 11 months as has been the case historically daily called that reasonable but said that the data will determine that now elsewhere New York fed President John Williams told Bloomberg Friday it remains possible the FED raises interest rates more than it currently expects next year adding that he's not expecting the economy to fall into recession now officials have penciled in estimates for rates to Peak around 5.1 percent next year of course they have repeatedly revised higher their estimate it's for rates every single SCP we've gotten this year and pal did not rule that happening out that happening again at the March meeting next year welcome back everyone as inflation continues to ease our next guest says consumers should expect this to lead to more opportunities in the market with data predicting rent increases of four to six percent Walker and Dunlop CEO Willie Walker joins us now Willa great to have you here with us this morning all right so what opportunities specifically should some consumers expect well I think we started to see some optimism about what might happen with rates prior to the announcement yesterday with the inflation report day before yesterday um I will say that chairman Powell did a good job of trying to take away any optimism that came in with that inflation print during his press conference yesterday and the markets are reacting to that um we had thought that maybe there was 50 basis points this time and then we'd get maybe a 25 25 uh chairman Powell yesterday talking about another 50 basis point increase I think has put a lot of downward pressure both in the tech sector as well as in the real estate sector um but there are lots of people like Jeremy Siegel at Wharton who say that the fed's not going to have a choice that the numbers are going to move materially and that will give us some rate stabilization into 2023. in our world unlike the single family world where rates need to come back down for single-family mortgage originations to pick back up in our world we really need rate stabilization um owners of commercial real estate um have been watching the Fed rate increases and rates go up precipitously over the past six months and what we need is for some type of visibility into where the FED is going so that people can make a decision about what type of financing to put on their property and then you'll see cap rates adjust and you'll see transaction volume Begin Again so are you I mean maybe not a freeze but what has deal activity kind of ground to a halt right now as people await that kind of visibility so you're you're sort of in between anyone who has discretion right now is either going with floating rate debt because they think rates are going to come back down in the kind of medium term or they are on the sidelines waiting um what has not happened is you don't have a distressed market right now so what you're not seeing is fire sales to try and raise Capital um been a lot of focus on blackstone's b-read and about the B Reit and what the B Reid has been um doing as it relates to redemptions they put up the gates as it relates to redemptions on the b-read as well as starwood's s Reit um but both of them have those Protections in place so that there isn't sort of a run on the bank and um I would think because of their performance that many long-term investors stay in those vehicles um but yes transaction volumes are down precipitously over clearly a year ago Q4 a year ago you remember the 10-year a year ago today I think was at 144 145 so we've got 200 basis points added to the 10-year right now from where we were a year ago and in a industry like commercial real estate that is so debt driven that is invariably going to slow down transaction volumes Willie are you planning your business next year on the assumption that the FED Cuts rates at some point not Cuts all we need is stabilization so if if the chairman had come out yesterday and said we see inflation abating um we got 50 now and we'll take a look at where we are I think you would see a lot of investors step back in from a commercial real estate standpoint saying I can start to see how much my cost of financing is going to be cap rates will adjust and I can start to transact again I would say that yesterday's press conference probably kept a bunch of investors on the sideline but as I said previously there's no assumption in our business plan that they have to cut in 2023 for us to see volumes pick back up Willie finally I want to ask about rents and what you see happening for rents obviously that's one of the major areas of CPI that we've been focusing on that the FED has been focusing on do you expect to see any kind of stabilization there or even declining rent rates so we've seen rent growth fall off significantly but we still have plenty of rent growth I had Ivy Zellman of zelman which is a fantastic research firm which just in full disclosure walking de la bones um on my weekly webcast last week and I was actually very surprised that Ivy and her team still have a projected Nationwide rent growth number of north of five percent for multi-family in 2023 I would have thought that number would have collapsed down to two to three percent rent growth on an on a national basis um clearly there are Pockets where rent growth is going to be higher than that and others that are going to be lower many of the Sun Belt states that had massive growth over the past couple years are going to see an easing of rent growth and a number of markets where there hasn't been a whole lot of Supply coming in such as California are going to actually see healthy rent growth what we've also seen is platforms like Airbnb trying to get more into the rental space and I think one of the reason announcements really signaled that in the long term stage that they are saying that there is some opportunity for them to kind of play more of an intermediary role in the market what does that signal to to you and your company when you do see a major platform play like that on the technology front trying to get more into the the rental space in the rental market you know I'm asked constantly about competition uh we you know Walker Dunlop which is a firm of only 1500 people goes head-to-head with JPMorgan Wells Fargo and CBRE every day and for a long period of time everyone says you know how are you going to compete we've been able to compete so the technology companies while I do not dismiss them whatsoever um have had a very difficult time penetrating the commercial real estate space single family they've done quite well whether it be Zillow or some of the other uh platforms that have come into the single family space but when you're talking in the commercial space where there's a huge amount of institutional capital and the decisions to either buy or sell a property or to finance a property are tens of millions of dollars we find that the diligence that is needed in the human interface that is needed to make those transactions actually happen has not been disintermediated by technology and so while there's always the we're investing in technology a lot as are those three big Banks and Services firms that I've just talked about but for new entrants Airbnb is an incredible platform but I do believe that people go to Airbnb to figure out where they're going to go on vacation and not necessarily where they're going to rent their next property Willie good to catch up with you Willie Walker Walker and Dunlop CEO thank you thank you [Music] all right there you have it Fed chair Jerome Powell wrapping up his last press conference of the year before the next meeting of course next year post Christmas no real surprises there whatsoever from a remarkably consistent Jerome Powell for the last several months kind of reiterating where the trouble is where the stickiness is check on the markets here they reacted positively momentarily not entirely clear to what but uh look nothing really stands out here other than Shauna remarkable consistency price stability a commitment to two percent and staying in restrictive territory sticking to that 5.1 number nothing should have surprised the markets today at least from my estimation you no exactly you know the FED remaining very hawkish the tone pretty consistent with what we heard from the state what we got from the statement when it comes to the FED comparing that to what we just heard from Fed chair J Powell saying that we still have a ways to go the language keeping pretty consistent Pals saying that we're not at restore restrictive enough a policy stance yet I can't say confidently that we won't move up Peak rate estimates here labor market remaining extremely tight something that he touched on a number of times during that press conference for more on the press conference we want to bring in Brian belski Capital markets Chief investment strategist here on set with us today for fed day so this is exciting this is very exciting live excitement's all over here all on our side sir and spectacularly dressed very very well dressed the part today thank you thank you so much let's start with what we just heard from pal 50 basis point hike 5.1 percent rate by the end of next year much higher than what we had initially maybe anticipated stocks initially dropping on that news what do you make of it I'm gonna go Gianni and it's kind of going back to the sports and use the sports analogy you'll like this I will I'm listening so it's a Alabama football game they're playing my alma mater Saint Cloud State oh this could be ugly yeah 40 points it's 81 to one to three with about five minutes left and Saban's going for two so what's the analogy we know what the outcome is right the fed's gonna win and Alabama's going to win the game and they're just pouring it on here a little bit and the FED to me um in to the market especially when the announcement came out and he calmed some some people down calm down a little bit during during his comments but they're going to follow the traditional fed script and go too far everybody we know this so over Titan over Titan and the fed the market and the economy the economy especially is being stubborn and we've said for several years on your program that you know that we're really good at a lot of things the United States but one thing that we're really good at spending money and I think some perspective needs to be additive so if you go back a year ago um and I remember I was in December the first couple of weeks I was in New York I'm sorry the first couple weeks in December and then we had lockdown again for mamacron we'd never really had a chance to live and be out there and do what we do in December which if you've been in the city last couple weeks it's been nuts and so I think this is going to continue and be that as it may there are people worried about inflation but we are seeing the signs of inflation rolling over now the FED does not meet until February what if what if January and February we finally get month over month declines in CPI I think that's why the market did what it did yesterday did didn't hold on to its gains and it was whether or not you want to buy the room or sell the news whatever happened yesterday happened but clearly the escalator down in inflation is beginning well we really need to see is the elevator down and I think the elevator starts going down when we see month over month declines in CPI so the FED is is saying you know what we're going to defeat this thing but let's really defeat it in doing what it usually does is go too far he's been clear they would rather over tighten than come up short but the difference with the football analogy which I love by the way we know when that game is going to end we know when Alabama is going to crush your alma mater it's not entirely clear when Jerome Powell is going to win this and get inflation anywhere near two percent It's a Wonderful way to put it and you know frankly and we've said this uh the last six months or so we've been wrong we thought that inflation would roll over a lot faster and it has been stubborn and I think the FED has recognized that as well that it has been stubborn and continues to to be stubborn with respect to inflation but the tide is beginning to turn we are starting to roll over and the rest of the world is slowing down too in terms of its economy that's why even with this you know stocks lead earnings which lead the economy markov's on 25 the next shoe to drop is potentially earnings but not to the tune of 20 like most people are saying it's going to be less than that and I think that along with um comments and things like happened today we're still involved with a momentum and reactionary market and that's why you're seeing these these reactions here but I really believe in our work shows it in terms of the fundamentals of the United States stock market we really believe that U.S equities are the most stable Equity asset in the world and we do think flows are coming back to the United States and what's really interesting to me doing this now for my 33rd year and um you know I started when I was nine Doogie Hauser of Wall Street people don't know that reference anymore but um I've never seen cash flow prowess I've never seen balance sheet strength and I've never seen earring stability like I have right now across the market cap Spectrum small mid and large that's why we like small mid going into 2023 be that as it may I do think we're going to see some volatility because it's not going away especially the next couple of months I mean we don't have a Fed meeting till February let's think about what we could see until by then we're going to see fourth quarter in year end 2022 numbers from earnings in early January into February then we'll start hearing more about real definitive forecasts for 2023 which are going to be squishy remember we have reared now an entire generation of CEOs that under promise and over deliver and kind of are more conservative first and I think they're going to be probably a little bit more conservative into their 2023 earnings and that could make the market a little bit squishy the first couple of months of the year I don't think it's going to be the full first half of the year I think you probably have a better buying opportunity I don't like the time the market very early on in the year and I do think that we are higher by year end next year how much higher by year and more specifically when you're trying to identify certain opportunities are you looking for those beaten down names from this year more specifically maybe some of those Tech or communication Services names that have really lagged the broader Market we are overweight communication Services we think it is the quintessential barbell sector and kind of pear trade sector you know we love we added Netflix to our value portfolio and I got beat up uh in May June so we like Netflix and Google and on the other side of the kind of the barbell 18t and Verizon and Disney actually now recently has become more of a value type name but we're not buying the the long duration High multiple assets with respect to Tech in our technology Holdings we're kind of matching up so let's just talk about semiconductors for instance Nvidia we match up with Qualcomm in the portfolio and so we don't want to have just the high multiple stuff we want to match it up with a lower multiple kind of value-ish type Tech But to answer your question I think we're entering into a prolonged period of more normalized trading everyone's been talking about normal we've talked about normal now for six months I think the path to normalization is a lot of things it's high single digit to low double digit performance in the market it's single digit earnings growth it's three to four percent um 10-year treasuries and in two to three percent GDP that's a pretty good environment for stocks I think that's what we're going for the next three to five years in in Canada and the United States by the way and so um that stability uh I think will really draw investors back here and then we'll see re-globalization and things like that but onshoring and restoring is a major theme we wrote about it last week and that's why we want to focus more on domestic names and so therefore small mid and more value-ish over the next couple of years because of that set up you're underweight where and why utilities and Consumer Staples so you know people I say belski have an opinion about everything well one of one one of the opinions that we have that is actually quite contrarian is we do not believe that Utilities in Staples are defensive now on page 72 of your Rutgers uh manual manual on investing it says be defensive and buy staples and utilities but what our work shows is that the relative multiple not just earnings cash flow not just earnings but cash flow and sales a relative multiple on consumer staples went up in 2022 the most it's ever had in history in history and from a stability standpoint they are their earnings are no longer stable in fact technology companies in totality are more stable in earnings than Staples no longer defensive okay so your Campbell Soup your General Mills you know the end of the world's coming you have to have your you know Cinnamon Toast Crunch um but on the Utility side of things utilities people complain about long duration assets being technology but if you take a look at just multiples right the multiples and utilities are very expensive so I don't see those as defensive names now what's going to end up happening is we'll have some softness in the market you're probably going to see one more spike in utilities and Staples that's that's going to be a beautiful exit point so that those are the names we think you should be avoiding well Brian then given that investment thesis where do financials fall are you still seeing opportunity there and more specifically I guess what do you like when you compare some of those larger Banks to some of those more reasonable place we love the larger Banks because of the multi-divisional asset parts of their businesses meaning some some quarters wealth management work some quarters Capital markets work some quarters the Commercial Bank work and I think the regional banks are going to be a little bit tougher especially given the balance sheet opportunity of a Bank of America or even the Canadian Banks coming down with the big balance sheets to do Commercial Banking loans we also like small mid cap financials like Raymond James and LPL because the brokerage businesses have been very strong and remember too that brokerages do very well in a rising rate environment because believe it or not investors still trade on margin in the United States especially and so the spread with respect to that they can charge on the interest rate side it goes up and those companies earnings have been very strong so we love Financial we think financials are the quintessential value sector heading into 2023. Healthcare looks very good as well however we saw we've starting to see some Health Care deals and that worries me a little bit uh and also we're well I think everybody's there and they're kind of using that is kind of their growthier momentum area in biotechs obviously have done terrible in the beginning either but now they're doing a lot better so from a multiple perspective again looking at cash flow earnings and sales they're still below historical Norms but we've seen a big spike in how they've been valued so we're overweight we're just a little bit more selective we like kind of life science companies some drug companies and some device companies saying Cloud State's finest BMW markets an honor Ryan belski let me just drop an early merry Christmas on you Merry Christmas time I've said that but we'll see you next year so much we appreciate it good to have you here you got to join us back in studio again yes mid mid-January every January leave that jacket around for me I appreciate that thank you [Music] all right now we're joined by Dartmouth College economics professor and former Federal Reserve board special advisor Andrew Levin nice to see you again sir first do our reaction to the uh decision by the fed and the language yeah I think that what's great about the fed's communication is they have the stay bed which almost zero changes today there's literally like two words that are minor uh of course the actual change in the funds rate but what's important is the new projections that they've released and some pretty notable changes since September um what I would emphasize here and somewhat distinct from the previous guests that you were speaking with is um I see the risk in a different direction going forward um the the latest Atlanta fed assessment is that GP for this quarter is going to grow at around three percent which is well above the kind of normal sustainable rate unemployment rate is still low jobless claims uh we'll get a new batch tomorrow but they're still running very much like normal um of the financial conditions are used a lot what I think could happen over the next six months to a year is the economy continues to be pretty robust and resilient uh business fix investment continues to expand retail spending holds up pretty well um and in that world workers still want constant living increases nominal wage growth can get to continue high and that's going to lead to continued pressure on on prices in the service sector so with the feds alert to I think you can see it out in their Dot Plot is they got a ways to go there's a benign case where inflation comes down a lot next year not just in Goods but in the service sector and in nominal wage growth but I think the scenario investors should be alert to is the possibility that even going above five percent isn't enough um that the economy is going to more or less continue um humming along next year and that it's going to turn out if it has to go further so Andrew how much further than do you think the FED is going to have to go 5.1 percent isn't high enough how much higher do you think is necessary well so um the Cleveland pen has a new survey of inflation expectations of consumers because I asked Ordinary People kind of how much of a wage increase would you need over the coming year in order to compensate you for the cost of living and the interest in those surveys are on the order of seven to eight percent um that's pretty consistent with some other measures too the nominal wage growth is very strong right now three percentage points above uh the pre-pandemic levels so um if you ask me where does the FED need to go if the economy continues to be strong next year I'd say six seven maybe more we'll see the we're in unchartered Waters here in the in the wake of the pandemic so we should be really careful here just to recognize that there's a lot of distinct risks and we should be alert to those risks I just want some clarity you don't think the FED will go to six or seven percent do you I think there's a there's a very good chance of that in fact I will tell you a year ago I was on this program at a time when most professional forecasters and Market investors thought that they would only hike once or twice this year and I said a year ago that I thought they might have to go up to three or four or more and you and your colleagues were kind of in shock and I think but but looking back it was clear the risks were to the upside so I just want to say again here we'll look forward over this coming year and um that could go in the other direction but right now I don't see the risk of recession as nearly as significant as the possibility that the services inflation continues to be far higher than the fed's target well check the tape man we believe you absolutely Mr Levin but I'm curious there are some who feel the FED may be forced to call it a victory around three and a half to four percent do you think that's possible I think if inflation stays high for another year and high here could be four percent that would still be twice as high as their target um then we get into a presidential election year and the fed's going to be in a tough spot at that point a year from now um are they going to be willing to tighten the law further and potentially cause the recession in advance of a presidential that would be a really tough decision to make so the possibility that this gets further and further entrenched for the next several years um is definitely part of the concerns that I have so Andrew where do you stand then on the labor market how much job loss or weakening we need to see on that front if any in order to get inflation under control and to be in a better position than we are today okay that's a great question and I think one thing that's important to recognize is that when the job Market's growing steadily and right now the the what we call primates workers which are people in their about 25 to up to around 55 or 60 years old most of them are back to work now the ones who were working before the pandemic now that most of them are back to work in that sort of environment we shouldn't be expecting to see job growth of 200 or 300 or 400 000 the normal kind of job growth that you need to have to sustain the labor market um it's probably more like a hundred thousand so my expectations we should and almost have to see job growth declining over the next six months nine months to around a hundred thousand and we should not view that as a tightening of monetary policy or a sign of a recession and it's just going to be in the normal pattern of um at this stage of a recovery what happens to the monthly job numbers what would you like to hear from the Fed chair today if he keeps reinforcing the message that they're not done and that they're willing to do what it takes to bring inflation back they got to be careful they ideally would like to avoid a recession or at least a severe recession um they should take a balanced approach uh to both parts of their legal mandate maximum employment approximately but given that Services inflation is heading still in the wrong direction we need to hear from chair Powell reinforcing underscoring that commitment month to month to month to month until we really see progress on this Andrew when it comes to raising rates how quickly the FED could potentially do that you said that maybe we'll see uh somewhere around six to seven percent outside or I guess looking ahead to next year the next fed meeting are you expecting a another 50 basis point hike or how do you see them getting to that potential six to seven I think that's a good question so they are alert to the data coming in and some of the data around the holidays it's harder to read um but I think that um probably it would make sense for them to make another 50 at the end of January given what they've just shown in their Dot Plot today I think if they didn't do another 50 it might undermine their credibility but going forward beyond that um that could start moving to 25s or if the service inflation date is continue to come in stronger and the nominal wage growth going into the New Years looks like it's picking up even accelerating then they'll have to keep doing 50s for a while um and again the communications here is really critical to um to keep updating the public and the markets um how the FED sees all of this Andrew Levin always great to have you we're going to have to have you back here in order to follow up on today's projection you were right last time we'll see if you're right this time around thanks so much for joining us this afternoon all right we've actually seen some deals announced this week biotech firm Amgen buying Horizon PE firm BDT Capital Partners taking Grill maker Weber private and software maker Koopa bought by Tama Bravo that one's been speculated upon for a bit but the flurry of deals may not Herald a shift in appetite for more on their outlook on mergers and Acquisitions heading into the new year we have Vito RBC Capital markets go ahead of global mergers and Acquisitions and poof it has been quite a year hasn't it veto so um are things shifting at all I mean that's just anecdotal right that we've had a couple deals this week but still no and I think when we'll talk about it I think these transactions highlight some of the trends we're seeing and some of what we're looking forward to in the coming year I mean it's certainly been a tale of two halves if you look at the first two quarters of the Year versus the second half of the year I mean keep in mind the volumes we've seen the last two quarters on a quarterly basis is lower than we typically see and we you'd have to go back well below well before the pandemic to see these types of so we're going to end up the year at about probably 1.6 trillion in the U.S which is well down from last year off about 43 percent but if you put it in perspective it's only off about 10 percent where the pre-pandemic levels were and you saw in 21 when the market just was exceeding expectation it was primarily driven by the fact that there was so much pent-up demand and you had when the market reopened you had everybody accessing the market so if I look into 23 right now certainly the first quarter is going to be challenged I think all of us are looking forward to the news later today and try to see the tone that's going to be put out there by the FED but until there's a some stabilization there it's going to be difficult to get a regular Trend going I do think the second half of next year is going to be extremely strong primarily because we're going to see a lot of deals that people are planning to bring out and so if I look at our own pipeline right now there is a significant amount of value that's expected in the second half of next year but you know as we look at our team our team is working as hard as they ever have because there's many clients preparing to hit the window when it opens and so if I look at next year I certainly think it'll be at least in line what we saw on average pre-pandemic and likely higher because you're going to see some deals that didn't happen now flow into next year I think a lot of folks are waiting for a series of big deals in the tech space notably in software some of these valuations have been absolutely hammered this year is that one sector that investors should look to that will see a big pickup mixture uh Tech is always leading the way from a m a volume perspective if you look at the lbos that have happened this year I think like a little over 35 percent of them have been software and Tech focused um I think the deal that you just mentioned earlier in terms of Toma buying Koopa is a great highlight of what you see in the marketplace certainly a darling early in the pandemic and was trading at levels well above where where it is now at the start of the year was almost double what the deal price is today and it gotten beaten down during the year and you see someone like Tomah who just raised and closed on three funds totaling over 32 billion dollars in new fresh Capital executing on a significant transactions now if you dig in though part of what you're seeing is that they're finding different ways to get the deal done so versus the Traditional Bank financing you'd see for the debt they went to direct lenders so 19 parties provided 2.6 billion worth of capital that's pretty significant they did 3 billion through direct lending when they bought Anna plan earlier in the year and so that Marketplace has taken taken prominence while the traditional financing sources aren't really available with the volatile environment now I do expect it to go back I mean if you look back at the the start of the pandemic you saw the private Equity firms doing a lot of pipes in the public companies and they were doing alternative deals as soon as the market came back and they could do traditional lbos they went right back to that right and so there's too much Capital to spend not to go back to that market once it reopens which I think second half of the Year feel of next year feels like it's going to be a good time period less of an easy money environment deals for some of the Acquisitions that publicly publicly traded companies are making they're going to be scrutinized more because the investors are going to be looking across how much of that money is going out the door and what growth or what creativeness some of those deals carry as well and so what role will the financing of these deals also play in 2023 yeah I think if you're you know Brad if you're referring to sort of what public companies are doing sure um I think if you look at someone like an Amgen and Horizon it highlights the fact that you have a party with significant amount of capital on their balance sheet I think they have over 11 billion dollars of cash on their balance sheet now obviously some of that sits in foreign jurisdictions and it's hard to access but they're also an investment grade borrower and they're also a a leader in their sector and so parties are going to look at that and that those are the parties are going to do well now in a volatile environment they're able to do deals we often track cash on balance and we look at the S P 500 as an indicator pretty interesting if you go back to the 0809 credit crisis the S P 500 had about a trillion dollars of cash on their balance sheets it peaked at about 2.1 trillion uh at the end of 21 right now it's at 1.9 so it's almost double the amount it was before and I think CEOs have tended to be more conservative they've wanted to be more liquid they don't want to get caught again like they did in 0809 and if you look at the sectors where have the largest cash piles Tech in healthcare if you look at the sectors that are the most active from an m a perspective Tech and Healthcare and so it just works in that fashion and I think we're going to see a fair bit more from a technology consolidation perspective but then also biotech is a hot sector I mean amgen's buying access to a certain number of products that they they cup it yeah videos Perdido RBC Capital markets co-head of global mergers and Acquisitions a lot to track going into next year thanks for tuning this up for us we've got a lot to keep our eye on thanks thank you for having me [Music] well this morning's inflation reading came in softer than expected up just 0.1 percent from the previous month we did see stocks pop on the release well now it's over to the FED which looks to set height or set to hike rate again tomorrow with a downshift of 50 basis points widely expected approaching a new year with recession bets Rising isn't what anyone who wants but the fed and Wall Street do seem to be on different pages as to how 2023 is likely to play out morning Stars weighed into the debate with this Outlook it sees the possibility for stagflation it says the emphasis for portfolio should be planning over prediction we are joined by Marta Norton Chief investment officer for the Americas at Morningstar Marta good to talk to you today let me just first get your reaction to what we saw on the market today we saw that CPI print come down Dow futures popping on that are we back to kind of getting ahead of ourselves before we hear from the FED tomorrow I think that's always a risk I keep going and thanks so much for having me I think that's always a risk when we have huge Market reactions to a single data point now I do think there there's some sense to a celebratory dance the FED has said that it's watching inflation prints closely it's looking for a tangible sign but we're at an inflection point in this war against inflation and when you add November's print on top of October's print and you see some of this cooling or some of those kind of pullback from these Peak levels of inflation I think there's good reason for the market to say that you know potentially we could see the FED back away from some of the extreme moves it's made on the right side and this year but I do think that that we want to be careful about extrapolating too much from one or two data points and we know that's the same feeling that the FED has they clearly want to see more consistent data that inflation is calling but we did see the headline number as you mentioned they're 7.1 percent um for headline inflation six percent for core inflation and that's versus the 6.1 percent that was expected as well for people who are trying to sort of plan for what to do with their portfolios then what should they be looking at right now well I think there's two major questions Rochelle that the market is still needs to Grapple with one relates to the labor market and seeing some cooling there which hasn't really taken shape the same way that we've seen some pullback on inflation prints and then I think the other thing that the market needs to Grapple with investors need to Grapple with relates to the impact of these fed moves on um on the overall economy and what that means for a recession so from our perspective from the from the perspective at Morningstar the range of outcomes remains fairly wide and where we see inflation level off and in the long run what we see happen on the economic side in terms of a recession those are our sources of volatility for the market and we don't necessarily have answers for those so when we talk about planning over prediction what we're really thinking about when it comes to portfolio construction is creating a range of different asset classes that can respond differently to different outcomes so imagine an environment where inflation remains sticky tips and some area years of energy might you know continue to make sense in a portfolio at the same time if you start to see disinflation and a cooling as we're seeing in inflation we could start to look at some areas you know in the value spectrum of equities or within fixed income that could do reasonably well in those environments so it really makes sense in our view to have this kind of spectrum of asset classes that can do well in a range of different environments how do investors determine just what kind of exposure to have I mean you just put it up four big scenarios it could really go in any direction that's right so uncertainty remains very high so I think the the the real wisdom here is not the plan for one particular environment it would be really tempting if you start to see the market recover you start to see these inflation prints start to cool off a bit to really go hard and to risk assets so loading up on all types of risks whether that's high yield bonds or whether that's equities across the risk spectrum and our perspective is that it makes sense to to take some caution and to move a little bit more slowly than you otherwise would and not say that this is an all-in putting all chips into the center of the table type of environment but rather thinking about how is this asset going to do relative to that asset and that's where the real Nuance of portfolio construction comes into play and Marty just quickly in terms of some of the the geopolitical some of the international impacts that might be having on U.S portfolios anything that people should be keeping an eye on or that might be under the radar right now right I wish I could say that question around International is an easy one to answer but we also seek some kind of mixed signals um overseas as well so valuations you know the price that you're paying for the assets that you're getting they look pretty attractive whether you're looking at non-us currencies or whether you're looking at the actual local assets and so I look at areas like China I look at areas like the UK like Germany European financials broadly all of those areas look pretty attractive to us when we take into account both the currency and the local assets but as you know there is some uncertainty over there when we're talking about the geopolitical attention when we're looking at things like how the European energy crisis could play out when we're thinking about some of the troubles that the UK has had and so from our perspective it makes sense to start to you know be overweight some of these areas but again to do so with a bit of caution or with a a bit of kind of a steady hand so not going kind of to a full overweight but having some exposure because the valuation suggests that that we should a cautious balance everyone should take their morning Stars Martin Norton thank you so much for joining us this morning an interesting finding out of redfin's predictions for home sales in 2023 released today our home prices will see their first year-over-year decline in a decade and home sales will fall to their lowest level since 2011. we're here with more on the future of housing is Mark Norman associate dean of the shack Institute of real real estate at NYU School of Professional studies good to have you on so I first want to get your take on these findings from Redfin are you seeing Trends going in that same direction uh we are seeing Trends going that same direction thank you for having me by the way um but at the same time we have a supply problem with housing so there's still so much housing that's Out Of Reach for Americans that we'll we'll see the price declines but I think the income gains that we're seeing lately still aren't keeping up with the prices that we're seeing in the market in most markets and as you mentioned that Supply issue then how how much imbalance is there between the buyers and sellers demand and selling right now yeah I mean it's really interesting because there's been this sort of uptick but we for the last 20 years have underbuilt the housing I think the housing crisis actually exacerbated that um in 2008 right we saw that the sort of demand go down um but it never came back in terms of supply and now that we're in this inflationary environment I feel like we're in a place where the housing can't um keep up with the demand so even though we see this decline in prices I don't know that we've seen more people that can actually afford houses and that's really the issue right now because there really was that fear of coming out of the housing crisis that led to the underbuilding really not sure what was going to happen with the housing market but I want to ask you in terms of policy wise is there something whether it's zoning or other ways that could help perhaps alleviate some of these stresses yeah I mean I think there are a couple of things and I think it's interesting because it's less on the uh the federal level and more on the state and city level and that's trying to increase that supply and also trying to sort of ease some of the restrictions on Builders so that that housing can be built quicker so that at our current capital markets conference um you know the mayor of New York announced you know a number of different ways that they might work to speed housing we're also seeing in places like California uh this switch to allow multi-family units in single family neighborhoods um and then we also see alternative lenders coming in to say um we'll actually you know evaluate buyers in different ways than the traditional Market might so maybe not looking at a steady income over time but um creating a space so that those gig workers and contract workers uh that might have steady incomes but but not as legible as a you know a standard worker might be able to have access to housing in ways that the banks aren't really underwriting and that could be a real game changer because we know how tough it is for first-time home buyers at the moment and even when you look at mortgage rates we're seeing that the average 30 year fixes roughly doubled from the start of the year what are your expectations going into 2023 in terms of affordability and what we might see with mortgage rates yeah I mean I think mortgage rates are going to stay high um and you know and actually when I say hi they're going to go back to probably what's a new normal right I think we really got used to a low interest rate environment over the last 12 years um but if we look at the last 30 we're actually coming into a place that's more in line with traditional mortgage rates but I think we have to get used to that it's going to take probably a number of years to for prices and housing stock to adjust to that kind of mortgage environment but the you know six to seven percent interest rate isn't an anomaly unless you're just looking back at that last 10 years I think one of the other things though is that we don't build starter homes in the way we used to um so homes got bigger prices increased and the market met it there but that really put housing Out Of Reach for a lot of uh first-time buyers especially and Mark I do want to ask you about the rental market because obviously renters also being squeezed as there isn't enough for supply for them to be able to get into houses what are your expectations there and any sort of policy things we know that in parts of Asia and Europe there are some regulations on rent growth that could help people anything that potentially could help here in the US yeah I mean once again it's so City by city in the sense of right California New York have rent stabilization programs that might keep the sort of inflation and rents in check but also my constrained Supply um other places you don't have those uh sort of limitations on you know how rents can increase but you also in places like Texas actually have that increase in Supply that keep prices relatively um stable um except of course hot markets like Austin and now Dallas but um but it really is a matter of supply and to the extent that we don't have the supply I think we need the supports um we're also seeing those support some of those supports uh diminished right so the eviction moratoria or the pandemic programs that that helped uh renters get through this period are going to be expiring so I think we're going to see a little pain in the housing markets for a while especially among the low and moderate income uh renters and and borrowers for for mortgages tough times ahead indeed a big thank you for joining us Mark Norman associate dean of the shack Institute of real estate at NYU thank you for bringing your insights investing with a Twist it's a simple yes or no when it comes to kaushi a cftc regulated exchange that allows investors to trade events like stocks the group has offered over 2 000 markets since opening The Exchange in July 2021 with over 10 million contracts traded a month let's look ahead to 2023 with kaushi's co-founder and Co tarek monsor Trek good to see you in studio here before you even talk about next year how does this platform work yeah it's super simple so uh gosh is like a CFC regulated exchange the same thing as the CME or ISO on the New York Stock Exchange it's an exchange the only difference is that we don't trade on traditional assets like equities or Commodities or other people are trading an asset called event contracts where the underlying is not your typical stock or Bond it's the occurrence of non-occurrence of an event so it could be on things like economics like inflation or fed decisions geopolitical events climate and weather and a variety of other things so when it comes to things like we talk about all the time right like CPI coming up this week the FED decision coming up this week um the predictions I believe for those two events are pretty much in line with the market how often do you see Divergence from conventional wisdom or conventional markets and what you see on calci it's actually pretty phenomenal I was looking at the numbers so for inflation you have two main numbers that Wall Street looks at today there's a Bloomberg Economist survey that come comes out I think once two weeks ago and then there's the fed the Cleveland fed Now cast that came out at 10 A.M today I think 30 minutes ago so right now now because it's at 0.47 and the calcium markets are forecasting point three percent for November inflation so there's quite a bit of Divergence around 0.2 percent difference um and so we are forecasting lower than expected inflation lower than what the market is expecting and just for uh I guess the sake of credibility we've been more accurate 10 out of the last 12 times than any other data points that Wall Street looks at today what is the appetite or is there an appetite among your end users for being able to look at even like cryptocurrency events there have been some significant ones of course with FTX most recently if there were other events happenings or some of the expected occurrences that they could have a position on what would that look like in the future absolutely yeah so I think there's two ways that this has manifested our users did ask us about uh happenings or you know uh Forks or these types of sort of core events that impact the ecosystem more broadly and the second actually finally the Second Use case that for a year a lot of our users have been sort of pounding the table we want this is being able to short cryptocurrencies easily well because today it's not super easy to do that if you're not crypto native so to speak we have not touched crypto yet as an exchange we can talk a little bit about this our ethos has been fully regulated from the start and you know we're going slow and steady with respect to new assets uh with regards to what happened to FTX what if any impact is out on your business uh it had it had no impact so for um you know a little bit of background So Cal State is a fully regulated exchange we're regulated by the cfdc the federal government um we actually took three years to get ready data from before launching any market and that has been sort of Luana microphone and I has been we've been very very focused on doing things right from the very beginning um and it's really interesting because in it's really in those times that those types of decisions actually Bear an impact uh because you know a year ago uh sometimes you question like you know what is the purpose of Regulation what is what is the difference right when you see a lot of exchanges notably FTX and others you know climbing the climb that they've had and a lot of volume and you know there's a lot of zeitgeist and excitement people don't really care about regulation those times it's really in these times when people come to you and ask where is my money and you tell them it's you have to see regulated Clearinghouse in a segregated member account with proper oversight and audits from a federal regulator that people care and people feel comfortable and you know our growth has been better than ever and people feel very safe keeping their customer funds with us so just to sort of break down and explain what you're talking about so you guys are a cftc regulated exchange and then you have a Clearinghouse that clears your trades the Clearinghouse is actually really an FTX related entity but because it's a regulated entity it's still operational and it's not seen the same sort of spillover exactly that some of the other FTX entities have seen precisely so it's very interesting so the entity is ledger X Ledger X is acquired by FTX back in uh fall 2021 that tracks has been operational for seven years now so Ledger X interestingly is one of the or maybe the only I don't have the full data but I know it's one of the very few fully regulated entities that FTX owned so contrary popular I believe even FTX us is not regulated like ledgerac Ledger X is regular by the cf2c they have balancing requirements customer fund segregation requirements and as you see you know the pretty much all the FTX Empire went into bankruptcy uh Ledger X is one of the caveats the drugs is still fully operational they're serving their customers as usual and you know the executive team is there's the highest level of Integrity so it's been great working with them what are some of the most popularly traded event contracts that that you have on the platform right now and how does that build up the target audience that you're even expanding into because you're still are you in beta right now or emerging from that right now yeah so so we launched uh you know the growth has been amazing you know a lot of the customers are getting as Traders also Traders some of them are individual for their own personal account others is smaller funds up to some of the you know bigger funds that you might be familiar with um I think the um So currently today actually our most popular Market is inflation and it really ties to usually where trading volume is it's where people's worries and concerns are and I think inflation has been really top of mind for a lot of people it has had a lot of impact um you know we've had a peak this year we're starting to see the sort of tapering um and the interesting thing about inflation in terms of differentiated product is that there's no easy way to trade on short-term inflation today the only way is to set up an is that with a bank super expensive product process there's lawyers involved takes a few months at least and on calcium you can just sign up a few minutes and you can put on the trade so it has been a very exciting market and finally just quickly I wanted to ask you not directly related to FTX but just what we've seen in the market right in the public and in the private markets you guys are a startup has it been tougher raising Capital like what's the environment like right now yeah so so we're very well capitalized we're very lucky we've raised you know much you know we have close to 10 years of Runway right now as a company uh very healthy financials uh what I would say is what we see from peer companies is obviously the private Market has tightened uh you know we have seen kind of a an unbelievable wave at the end of 2021 beginning of 2022. capital was very very cheap and it was very abundant and you could see that a lot of a lot especially with crypto companies so crypto crypto companies were using it you know record valuations I do think that the private markets appetite has largely lessened now um and you know people are looking at local more quality evaluations um we are not raising we're not in the market fortunately but for some people that are in the market it's definitely tougher yeah it's a good place to be be for you guys all right Tara good to see you tarek monster is founder and uh co-founder and CEO of calci appreciate it let's get chip speed now on some key economic data out today excluding food and energy the core PPI which measures what companies get for their products essentially up point four percent that is hotter than the expected 0.2 percent a 38 surge in wholesale vegetable prices help push the food index up 3.3 percent the same number by which energy costs declined now the Consumer Price Index is due out Tuesday morning so we'll get a better glance but we also got an update today on consumer confidence the University of Michigan index rising to 59.1 from 56.8 in November far better than the expected 53.3 joining us now to discuss this and the state of the private Equity Market is Scott Sperling Thomas H Lee Partners co-ceo Scott nice to see you let's talk about that economic data we got out this morning if you're the Fed chair how do you look at it I think you remain concerned about inflation as something that will be more persistent than we like we know that inflation is one of the more Insidious problems in the economic sphere people talk about the toothpaste uh getting out of that tube and the impossibility of getting it back I think when we look at the various elements of inflation one has to continue to be concerned about wage push inflation uh about the fundamentals behind some of the key Commodities and inputs into our economic activity principally policies uh in the United States having to do with um with uh not just the energy portion of oil and gas but also the fact that those are major feedstocks for a lot of Industrial Products so I think that there are fundamentals that one has to be concerned about the thing that has been holding inflation back to some extent has been the fact that I think people anticipate a recession economic activity in many ways has slowed down in a number of sectors and that is putting a little bit of a cap on it how the FED balances those two things I think will be really interesting it may be that that the Market's not wrong in the sense that the FED will ease up uh on the amount of um uh of interest rate increases that they do it at each of the appropriate meetings to that 50 basis point next time maybe to 25 basis points after that but we may have these higher interest rates go a bit higher than the markets currently predicting and they may sustain for longer than the market is currently predicting Scott when it comes to inflation are you confident that we have seen Peak inflation some of those stickier parts of inflation how long do you think that is going to remain I don't think we fully absorbed again the wage push inflation that we're seeing um you know you can look at some of the contracts particularly some of the new Union based uh uh contracts uh in transportation in particular and um those are reasonably High rates of increases they may be justifiable given inflation of uh the cost of everything uh but we should uh not underestimate the impact that that will have on sustaining higher wage inflation rates um the amount of spending that we'll see into things that increase productivity is going to be very important in terms of managing through some of these things labor shortages are still a big issue and a lot of different parts of our economy automation is going to be really important in helping to close some of those gaps particularly for less attractive types of activities for humans and we're seeing a lot of that occur but um you know we're going to have to be really careful as we manage through this uh and again the fundamentals of things like regulation tends to raise the cost of doing business that has increased dramatically and obviously the energy policy is uh when we're talking about carbon-based uh fuels particularly in the United States but also around other parts of the world uh may be problematic from that aspect I know nothing gets you get you out of bed Scott like an Elon Musk tweet he just now says If the Fed raises rates again next week the recession will be greatly Amplified now again higher rates bad for Tesla down 54 percent this year set that aside um what do you think about a recession and about that prediction well I think uh there are very very few people uh at this point who are not predicting a recession sometime in the next 14 months uh I think the most recent Economist survey um 100 of the economists are predicting that now that may be the best news we can have because it's not likely that 100 of the economists are are technically right but but nonetheless um let's assume that there's a recession I'd also look to uh you know a comment I think Larry Summers made that I don't know why we talk about soft uh Landings because we haven't had one I think that's a paraphrase but but I think that's actually accurate that we you know we we tend not to have soft Landings they're nice in concept but but normally it's pretty rough the question is duration and the more we get ahead of inflation right now I think the shorter the duration of the economic problems that we might have uh will be uh the markets probably still have another leg down or two uh there will be some corrections there will also be some great buying opportunities there uh I I know that as we look at Opportunity sets in the private markets they're becoming increasingly um attractive uh there has been a major migration as you know uh in our economic activity to the kinds of companies that have Superior business models uh more reliable revenue streams the the so-called annual recurring Revenue type type things and business models that tend to do uh better in economic downturns we are seeing more economic activity come back to to the United States um also back to Europe um the nature of investment that we're going to be making in things like semiconductor are crucially important and will be a source of uh economic stimulus so I I think if we can get inflation under control um and we get through the next 12 to 18 months then um you know I would uh hopefully uh see a a a strong uplift after that all right Scott Sperling great to have you hope you have to have you back here on Yahoo finance thanks so much for joining us this afternoon let's broaden it out now turn to what's driving markets both here and overseas it's inflation Trends and fed policy continuing to animate most early Market moves this year this morning but also of course watch for the effect of China's reopening on uh to determine how the remainder of the Year shakes out joining us with more is Luca Paolini he's Chief strategist at peakte Asset Management good to see you Luca thanks for being here so we were earlier talking about the PPI numbers that we got this morning that were hotter than anticipated which kind of maybe shakes the uh thinking the conclusion that inflation the rate of inflation slowing down I don't know I mean what do you what do you take away from them no I think crediting too much into these monthly figures I think the trend is still down Energy prices are going down probably rents are peaking probably even wage inflation I speak there already it's a very volatile series and the trend is down and I don't think that the market will read too much into this to be honest as you look into next year what's the biggest risk for markets in your view I suspect they were going to talk more about growth and less about inflation next year I think the potential for a recession I think is um is probably bigger than the market expects so I think the major discussion or debate for next year I think is going to be growth and I think inflation is going to uh the inflation risk probably are going to fade a little bit and then obviously the big story for me is China the reopening of China we have seen a big rally in Chinese Equity prices so that's that's the two I think the two kind of the potential the positive side and the negative side in terms of risks so given that how much dispersion of outcomes is there for next year I mean I think most the folks we've talked to most of Wall Street thinks there is going to be a decline in stocks and U.S stocks at least next year but how big of a decline I guess is is up for some debate how are you well first of all I'm surprised by the consensus that seems to expect a decline in equity price which is very unusual and this makes me think that it is actually upside uh from that we also believe that um stocks in general will be under pressure mainly because we haven't seen the full decline in earnings that we expect so nominal growth will be much weaker margin will be under pressure so there would be potentially an improvement evaluation in PE ratios but probably not enough not big enough to create the environment for a strong red inequities but we expect some positive returns but still still a week here for for equities going forward how do you imagine stocks will come out of the gate next year because it has been of course a week year this year and theoretically you should see some buying in January no yes but I think the market has been a little bit in the last few months actually been very kind of um there was a pretty big ready coming from what from very low expectations so now inflation is down I think also the economic data has been slightly better than expected my feeling that there has been already this kind of rebounding sentiment and with disappointment in the first part of next year that's why we expect Equity prices to be under pressure does that go for Europe as well it seems as though thus far some of the I mean it's early in the winter but some of the worst case scenarios for the energy crisis in Europe have not yet been realized there's still time I know but how are you thinking about that region well I'm based in Europe and we are all kind of surprised by the fact that the European economy is pretty resilient you've seen also kind of a pickup in in some kind of consumer confidence indicators inflation has been is still high but there is feeling that is probably falling I think is a number of factors I think the fact that a natural gas price has been fully significantly is has played a big role as we all know the gas Storage level is very high so I think this winter will be probably fine but I think that's also by the way in the U.S the economy has shown probably more resilience than we expected and we still don't know if the bad news will come later on or there is a genuine underlying Trend in especially in the private sector so that's something that obviously we'll find out sooner rather than later you mentioned you mentioned China reopening of course that's a key thing to all investors need to watch next year but wouldn't that be a massive inflationary event and potentially bad for markets no I don't think so I think obviously the Chinese economy is is more than 20 percent of the global economy but we're not talking about Chinese growth booming and we we expect China growth to accelerate to five percent not 10. so I think at the margin there will be a negative impact on inflation but I think it's probably fully offset by weakness elsewhere so I don't see that opening China as a major inflationary Force for next year we will indeed be watching at Luca Chief strategist Peak day Asset Management thanks so much have a great holiday season [Music] in China what's happening in the end you're slowing down from economic perspective as the world economy faces one of its Worst Years in three decades our next guest is we're on the cusp of a loose recession that's where again Stanley Chief Economist Seth Carpenter and he is with us right now Seth it's great to see you obviously there is a lot of glum talk that is out there first of all what is a loose recession mean uh what that means is when we look around the world and we think about the global growth rate there are lots of countries especially em countries that just are growing more rapidly on average because they're starting from a lower base and so to use negative growth to define a recession globally sort of overdoes it a little bit uh on at the end of the day though it ends up being semantic it's something a recession if we're growing at positive a half a percent if we're growing a negative a half a percent that matters a bit but it's it we're in a situation where things are slowing down so much the distinction between recess or not is going to be a little murky Seth you're not looking for much growth in the U.S next year walk us through what that growth looks like what does growth look like in the first half of next year for example absolutely so slowing down in the United States is as it turns out the objective of the Federal Reserve right now they are raising interest rates and we'll have another meeting coming up next week they're raising interest rates precisely to slow the pace of spending and to get the economy to slow down we think they're going to be successful right we see a housing turned over we're seeing some hints that durable good spending is starting to come down that's what they're looking for so we think we get a Slowdown if you take jobs for example the last print was still pretty solid at 200 mid 200 000. we think that continues to come down and eventually starts to get below a hundred thousand per month we think it stays positive on average so again skirting a recession but it's got to come down from where it is now the FED is going to be successful in bringing inflation back down so real quick is GDP negative in the first quarter in the second quarter of next year we don't think so we think it's going to be positive we think it's going to be you know about a half a percent something like that so skirting a recession just barely avoiding a recession we're still cautiously in the soft-ish landing camp so the FED can say one thing and and Powell can put out one message through a speech through testimony whatever that may be but the markets can read something totally different and decide what they want to think about what Fed chair Powell and some of the other committee members are saying does the FED have a communication issue at this point or is it how the markets are actually digesting what the FED is signaling uh option D all of the above we are in an extraordinarily difficult time to predict what's going on to understand where the cross currents are the news coming out of China that we just discussed that that's a rapidly developing story that has lots of implications uh for markets and I I think there really is inherently a lot of uh difficulty in understanding what's going on uh when folks from the FED talk to me about exactly this question and they say you know what should we be thinking about for communication I say and at first they think I'm being flippant but I say you should be as clear as you can be but don't be any more clear than that and there's just so much uncertainty right now I think they need to be cautious in what they commit to yeah there's almost a danger of over speaking and I guess Jay Powell took that lesson to Heart at Jackson Hole this year you know but people because people are going to react how they're going to react I do want to broaden out the conversation a little bit and talk about China talk a little bit about the Eurozone where we just got better than estimated Revision in GDP this morning sort of how lumpy is this going to look around the globe are there areas that are really going to hold up better uh there are almost really going to be areas that will hold up better um but it will be messy it will be lumpy and there will be a whole set of confusing news flow so for China the news that we were just discussing is about what's going on with reopening and I think one of the questions you asked is what does it really mean if the restrictions lifted in some areas but not others will people know what to do I think on a global economic scale there's also the question is when the the economy opens up what does the demand look like there and we know that households have been sort of locked in for a long time the pent-up demand is probably more skewed towards domestic spending than it is historically more skewed than typical towards services and as a result there's probably going to be less pull in terms of imports into China from the rest of the world so I think the the normal spillovers we get from a China acceleration are probably a little bit smaller this time than they have been historically well and the other question I would ask is as we see sort of that last big economy reopen have we learned the lessons from here in other words here we had all these pull through effects and all of these strange effects that are now recorrecting and renormalizing and we sort of knew it was coming but we also sort of were surprised by it as it came right that we have seen these strange dislocations is that have we learned the lessons can we expect that in China as well uh I definitely think they're going to be lots of frictions as things open up again uh inflation has been actually quite low in China in contrast to a lot of the world where where there's been opening up and so I think there can be some frictions as people go back to spending and as they try to sort of increase the amount of services production that goes on there um so so whether or not we've learned the lesson is in some sense uh off to the side the the fact remains it's just really hard to open up an economy after a pandemic Seth let's go back to the U.S is U.S consumer spending just headed into a dark place are you talking about a job market slow down a potential uh recession inflation is still high and that is just a couple things on a long list of I would say even a low savings rate facing many households so there are lots of different cross currents I would say one thing when it comes to inflation what we already see in the data is that consumer goods inflation is coming down we've seen several categories of consumer goods where the month-to-month change has actually been negative automobile prices used auto prices actually have come down for the past two months in a row and so we are starting to see disinflationary effects there when it comes to consumer goods housing is clearly important when it comes to rents that's uh rents or owner's equivalent rent forty percent of core CPI what we know in terms of the new contracts new leases is that the right rate increases for for rents that's that's actually stopped and it's starting to level off so in that sense I think we are starting to see the beginnings of this disinflationary trend that we expect to happen over the course of of next year all right we're going to do a little Deep dive on the commercial real estate market now and breaking it down in three distinct categories multi-family industrial and Office three markets in one region really stand apart from the rest Nashville Tennessee Raleigh and Charlotte North Carolina you have this entire massive country and yet these are the three in one particular very isolated region all three cities are considered Cadre MVPs or the Triple Crown of real estate if you will why well let's talk about that with Ryan Williams he's the Cadre co-founder and CEO who joins us now in studio that was very interesting information to see why this small region we have this whole country most of which saw enormous growth in 20 and 21 what stands out about those three markets and that region sure and thank you for having and they're really two key drivers one is demand seconds affordability demand job growth number of people making trips Leisure and affordability you know the cost to live the cost to visit the cost to reside in those two markets and so those are the two variables that made those three cities are triple crown and how do you quantify that sure we quantify a lot of it using third-party data so since this data a lot of demographics data how many Millennials moved in moved out we also have some proprietary transaction data we underwrite real estate around the country and we get an insight into which properties are performing which ones are not so we know what pricing is in around certain markets as well and then we look at like Mobility data geospace data and aggregate everything and we say which of these markets around the country on a relative in an absolute basis do we feel are growing the most and are most affordable that's the the magic intersection okay so let's take that that the region out and those three cities out and just talk about the three sectors of commercial real estate which we had up to begin which has the best Outlook in the economy that we're headed into yeah we we um uh are investors across an array of sectors but we we do believe in Focus especially at this point in time when affordability um is uh more challenging than it's ever been more people are being priced out of buying homes given where rates are and so out of the multi-family industrial and office sectors we like multi-family the most it's one of the most resilient sectors because people always need somewhere to live and in a time like this people are renting more and so what we're seeing is renewals at all-time highs around the country and more and more people saying you know what I'm going to Kick the Can on buying a home and what we're doing is we're buying more apartment buildings multi-family building letting people buy fractional Stakes versus putting up money for a mortgage when you know mortgage rates have gone the roof now I talked about those three cities in that region that stood out what other what else stood down about the lists as there was no New York there was no Los Angeles no San Francisco no Chicago the biggest cities in the United States and the biggest metropolitan areas why so why are they absent from those lifts affordability that's that's the name of the game I mean in New York City for instance where I've rented for a while um you know rents have been at an all-time high despite the lack of demand and so many employers moving outside of the city um La Chicago same Dynamics and so because these places are still relatively less affordable than some of the other markets and geographies they're they're lower on our lists and we think they have much more bearish prospects going forward an interesting piece in the Wall Street Journal today described commercial real estate market on the on the precipice really it described investors yanking money from several enormous funds are you bullish in spite of that about the commercial sector we are multi-family Industrial in particular but not necessarily office not necessarily certain types of office we actually think their Suburban office assets and buildings that are interesting Life Sciences is a niche that we've liked historically and we think there's opportunities to convert some Office Buildings into residential but big city office we still think many landlords haven't adapted to the realities of this new um I want to say Post cover but almost post-covered world yeah how does remote work factor in and change the outlook for office well really what it does is it changes how people think about space you know it used to be how much density how many people can you fit into a given space now it's how few people can you fit to give people that that uh that space that they need to feel safe and feel comfortable and and the like and so we're now focused on Office Buildings selectively where there are large floor plates there's open space there's good amenities but for the most part multi-family is what we focus on and you brought up the redemptions point from you know those two big funds we've always been focused on giving liquidity to investors that was why I started the company and so I think you're now seeing in times like this when individuals need flexibility platforms that can offer that such as ours are the ones that will ultimately be able to serve the needs of individuals Yeah you mentioned amenities never before have they been more important in terms of the things you have to provide to get people to office I want to close because you study such a broad spectrum the residential sector what is the impact you're seeing from increased fed rates increased mortgage rates basically I'm going to do this some people think it's going to crash a 20 percent drop others think we're just going to level out we're still up 10 percent year over year in terms of median home prices what do you see around that yeah look I don't think this is an 0809 I don't think Leverage is as out of control as it was at that time and you'll see a huge crater I do think there will be a correction we've seen residential assets correct 10 15 20 percent down from where they were just months ago and I think you'll continue to see a minimal decrease in the single family space over the next three to six months and then I think you'll see you're talking about low single digits over the single digits over the next three to six months um because I actually believe that Banks were a lot more responsible this go around and a lot of banks are pulling back and so you're not seeing the same subprime issues you saw and there still will be micro opportunities that's the beauty of real estate that's what we tell our clients all the time is even amidst these challenging macro times there's always micro opportunities and this is where a lot of wealth can be created if you pick the right sectors got to be very very selective is Ryan Williams the co-founder and CEO of Cadre good to see you man thank you thanks for coming in studio appreciate that Tuesday felt a bit like Doomsday when it comes to the economy why well the big Bank CEOs were out enforced across different conferences and one common thread emerged pessimism J.P Morgan Chase CEO Jamon Diamond did not forecast a hurricane but he does see quote inflation eroding everything and says consumers have a half trillion dollars in savings that will run out sometime mid next year adding that it may very well derail the economy it cause a mild or Howard recession that people worry about Diamond says customers are spending 10 percent more than in 2021. Goldman Sachs CEO David Solomon quote you have to assume the bumpy times are ahead suggesting you have to be a little more cautious with your financial resources with your sizing and footprint of the organization it also suggested some layoffs could be ahead Bank of America's CEO Brian Moynihan says research suggests three quarters of negative growth next year and sees consumers spending more now than a year ago but that rate of growth is slowing and China it's just one of those days where you feel like you ought to start stuffing your lunch money down your pocket and saving for some rough times that had no one is speaking optimistically about what's ahead in 23. none of them yeah no there certainly is a lot of caution we heard it from a lot of the larger Bank of CEOs earlier today Brian morning and I want to take a look at Bank of America's that stock Dave having its worst day since March and putting this in perspective with what we heard from Brian Moynihan earlier today there's also some comments that he made about future hiring or really lack thereof saying that the company could potentially slow or will be slowing its hiring as fewer employees leave there is also the CNBC report earlier this afternoon saying that the bank is cutting two percent of its Global Workforce course Investment Banking fees like you were saying has taken a significant hit at Bank of America they expect those Investment Banking fees to be down 50 to 60 percent in the current quarter there was a little bit of optimism oh please in his voice if we do want to end on this upbeat note Investment Banking pipeline he's saying should open so it should open Investment Bank the investment banking division clearly taking a massive hit in 2022 saying that it should open we don't exactly know when I was searching for anything I know you lost all that positive news well I was happy to hear Ray Wong tell us yesterday that he thinks the IPO Market will bounce back strong next year we have seen no real glimpse of that but he's confident in his talks with Chief digital officers at least across big technology but why do we care so much that it is obvious but to remind you because people like diamond gets such an accurate Glimpse not just at the macro not just at companies but a look at the consumer how much they're saving how much their credit it balances are rising how much their their spending is going up or down and and it's hard to ignore all five big Bank CEOs predicting some form of recession in 23. it certainly is and it's also I want to bring up some of the comments that we heard about crypto because that has been such a huge story in recent weeks now Jamie Diamond also giving his take on where we stand he called crypto tokens quote pet rocks and drilling down a little bit more he said why do we allow this stuff to take place he but this was all in an interview with CNBC earlier this morning and back in September he told lawmakers cryptocurrencies are decentralized Ponzi schemes on the screen right now is actually an excerpt from what we heard from David Solomon he's the CEO of Goldman Sachs in a Wall Street Journal op-ed earlier this afternoon he wrote that the excitement of the past weeks shouldn't distract us from the opportunity at hand this is a bit of a different take it is though very important to point out David Solomon was talking about blockchain whereas Jamie Diamond comments were specifically referencing cryptocurrencies but Solomon went on to say that under the guidance of a regulated financial institution like ours blockchain Innovations can flourish so still some value in blockchains at least what David Solomon has been saying Jamon Diamond it's important to point out he has said that he does see value in blockchain in the past a lot of that skepticism though specifically comes with the cryptocurrencies just about any of those big Bank CEOs tell you that same thing that they see intrinsic long-term value in the blockchain but almost none of them at least at this point in time will speak bullishly about crypto and that that analogy of pet rocks really stuck because it's just who determines the value of it it's built on no fundamentals it's rising and falling on no real news and it it I don't think we've truly seen the contagion the true Fallout of FTX but each day we're learning a little bit more as companies feel a little bit more unstable and now addictions that Bitcoin could crash and lose some 20 or 30 percent over the next year no bullish Miss bullishness rather in that crypto space anywhere in sight pet rocks for tokens yeah not good if you're a crypto investor certainly it's been a very volatile several months but going back to some of those calls out there Standard Charter saying that Bitcoin can fall to five thousand so if they in fact are correct we have a lot of downsides to go until we see potentially see things turning around it's election day in Georgia as voters head to the polls to cast their ballot in the state's Senate runoff election between incumbent Democrat Rafael Warnock and his Republican Challenger Herschel Walker now while Democrats have already secured enough seats to maintain their razor thin majority there is a lot at stake for both parties our next guest says that the outcome from the 2022 midterm election is a gridlocked congress for the next two years and a divided government usually reduces any prospects for major changes in economic policies well with us now is Beth Anne bovino s p Global chief U.S Economist welcome back to the show so I first want to get your take because a lot of people wondering what was going to happen with the midterms what this gridlock will actually mean when you have this High inflation background and a lot of economic policies that Biden still wants to push through well we we see it as a gridlock Congress uh usually means uh less red tape businesses often like that meaning that there won't be some major uh major uh policy that could uh disturb What markets are looking for however at times like this when we have unprecedented Uncharted Territory uh us and our at s p Global uh ratings expectations is that we're going into a recession you'd like to have some uh some policy compromise we see a gridlock Congress as something that means that not much will get done uh many uh very few of the uh proposals will likely get through we think probably the inflation reduction act will probably be the the last for the next two years there is one key issue a lot of people have been looking at and that is this fight over the debt ceiling I mean how significant a market risk do you see that as we look ahead to a potential fight between both sides well we think um for them we also believe that you need to have uh let's say you've got the debt ceiling and you also have the you also have the uh the the government shutdown um the U.S government has been there before they know that they know how uh markets have responded to this as well as uh the population at best uh you know as well and there is a sense that um you know the uh the frustration with uh with the constituents on uh this uh this back and forth among policy makers may have already sunk in uh of course the threat is there we can't ignore it uh but let's hope that a government comes to its senses and backs away and obviously we're still watching to see what the FED does that they're not pivoting anytime soon but when you have inflation this High you also have a lot of stickiness still in the labor market how much does that complicate the picture for next year well that's uh one of the reasons why we see a recession in our forecast although it's a shallow recession um it's largely a story of a classic overheating of the US economy you have inflation coming down slightly but it's still near that 40-year high and and about two and a half times uh where the FED would like it to be and when we look at core inflation that's one thing the FED has been incredibly aggressive they say they're slowing down I don't know if they're going to be able to I think the worry is is if they slow down too soon or too fast uh they're gonna just have to speed things up going forward um I uh the the concern that I have overall and one of the reasons why we see uh inflation as being a challenge and as you mentioned sticky we saw that in the we saw that in the jobs report we saw wage gains up uh 5.1 percent on a year-over-year basis something that the FED does not want to say see but the worry of course is even with those big fat paychecks in terms of when you adjust for inflation it's in negative territory now for 20 straight months so ultimately nobody's out happy and if that needs to needs to contain these these pressures and bethan really quickly I mean that jobs number that we got last week certainly is is kind of revived questions around you know how significant that labor market or declines in the labor market need to be in order for inflation to cool down you talk about the wage pressures there but when we're talking about Job losses you know we've got more reports today of other companies cutting I mean house how much more of that are we likely to see in order to bring down the overall inflation well there's there's one there's two things that suggest in our mind that if the U.S does go into recession as we expect it'll likely be a shallow one first uh households and businesses are are still holding on to you know pretty relatively healthy savings now this is an aggregate number so it really depends where you are on the income Spectrum but that is a One support on to your point about what businesses will do keep in mind the job openings are uh they've come down but they're still incredibly robust so we would expect that businesses would first get rid of the basically the jobs they may have available that are they're trying to fill uh put a freeze on those and so that means uh that means they'll still be able to hold on to some of to their workers we do think that there is a challenge there and we do think in our in our in RX in our forecast we do see the unemployment rate climbing higher we see it getting to around five and a half or a little a little over five and a half percent so that does you know squeeze for some workers uh but overall we see that um some of the cushion in the economy so far suggests that we won't see uh certainly those ugly numbers of information inflation rate at 14 or even 15 we're looking at five and a half best s p Global chief U.S Economist Beth Ann bavino good to have you on the show today appreciate your time thank you stock selling off today I'm fear that the FED is going to stay aggressive and keep raising rates until the economy falls into a recession here to discuss where things stand from his point of view we want to bring in Mark Zandy he's Moody's Analytics Chief Economist Mark it's great to have you back here on Yahoo finance let's talk about some of the recent data points that we got we got the jobs report last Friday the ism Services number out this morning Wall Street Journal now reporting that 50 basis points could be on the table at the fed's next two meetings what's your big takeaway well I think the economy is uh resilient uh but its growth rate is moderating slowly but steadily uh and I think it uh will continue to moderate under the weight of the higher interest rates I think that you know the FED will continue to raise rates uh you know the terminal rate get at least to five percent but given the broader resilience in the economy consumers businesses hiring I think we can navigate through we got a Fighting Chance of navigating through the next 12 18 months without actually going into recession it'll be tricky and you know under any scenario it's going to be a bit uncomfortable but I think uh recession is not inevitable primary concern to that latest jobs number being wage growth How concerned were you uh yeah I mean if I were gonna write it on a piece of paper and say hey what would I like to see it wouldn't have been five percent ish that's kind of the underlying rate of wage growth as measured by average hourly earnings in the report we need something closer to three and a half percent but I think all the trend lines suggests we're headed in that in that direction I mean job growth is slowing quite significantly underlying job growth is 250k per month we were 600k per month at the start of the year uh other indicators suggest that we're going to see further slowing and job growth hours work decline the number of people working in the temp help industry weekend that's a leading indicator of future job creation the other survey of employment uh the household survey I mean all these numbers the 250ks survey businesses but you look at the household the household survey another window on what's going on the job market that's been meaningfully weaker and that may be a also a league indicator so job growth is steadily slowing and the other thing I point out is labor force grows labor Supply is okay it's not too bad unemployment stopped declining the employment to population ratio stopped Rising so all the trend lines kind of suggest that we're going to get to a place where things cool off and wage growth begins to moderate not not not next month not next quarter but by this time next year Margaret I know you're also keeping a close eye on gas prices how that's factoring into inflation another important thing to keep an eye on when we're talking about wage growth and it's effect on inflation I guess software is just about how important of a factor that is and especially to how consumers are currently feeling about inflation yeah that's a great Point Sean so I I do think that one of the key reasons why wages took off here uh this time beginning of the summer last year was the jump in oil prices gasoline prices related to the Russian invasion of Ukraine and gasoline prices oil prices they play a central role in people's thinking about inflation that means the price that they observe every day that they go to work uh they pay that the pump once a week so they they see it they feel that it it really is is what's key to driving inflation expectation so when oil gasoline prices surge to record highs I mean back in June of this year we were paying five dollars for a gallon of regular unleaded a record high I think that's when workers said hey you know Mr employer you need to pay me more to compensate the uh and uh that's why we've seen this this uh inflation metastasize but now with oil prices and gasoline prices coming down we're we're at three dollars and fifty cents per gallon of regular unleaded headed lower if nothing disturbs that obviously a lot of risk around that but if nothing does then I think wage demands will moderate as people's consumers inflation expectations moderate along with the lower oil prices gasoline prices of course you have been watching the housing market the first indicator of fed success or or lack thereof um you see prices leveling out are we talking about a major 20 type of Corrections some are still predicting yeah somewhere in between David so not zero not 20. he's uh you know if you told me down 10 Peak patroloff that sounds about right to me in the context of mortgage rates that are sitting you know fixed mortgage rates are six and a half percent ish if we hang there and that feels like we will that you know that's hammered affordability uh and uh Crush demand home sales are way off so I do expect prices uh to weaken here I don't expect them to go down 20 or collapse because in part I don't think we're going into recession in part because you know uh the borrower the quality of the borrower since the financial crisis is is actually quite good credit scores have been very high and they're getting you know plain vanilla 30-year 15-year rate mortgages nothing weird or exotic like what we saw before the financial crisis two years subprime arms neg ambulance that kind of thing so I think we're in a spot where we are going to see a correction in price just because we have to the housing market has to restore affordability the Market's just not affordable at this this point for most potential buyers but I don't think we save a crash which would be you know kind of a 20 decline Mark another important indicator that many on the street closely follow the CEO optimism survey from The Business Roundtable that was out this morning showing that optimism is declining there certainly is a bit more pessimism when you're taking a look at what CEO Outlook is into next year but it's not falling off a cliff I guess your broad Takeaway on that just in terms of what that signals to you yeah it's bizarre isn't it I mean I've seen many business Cycles many recessions I've never seen kind of this broad-based pessimism particularly among CEOs of companies they're generally you know glass half full kind of people though you know looking on the upside so it is uh you know surprising you know one possible takeaway from that though is you actually need a business people to be cautious for the economy to slow sufficiently to quell the inflationary pressures so if businesses run by CEOs that are very nervous about the economic Outlook begin to pull back on investment and hiring and that that's kind of sort of what we need so that may help uh you know for stall recession the other thing I'd say is the key to recession though and by the at the end of the day a recession is a loss of Faith you know it's business people losing faith that they can sell whatever they produce and they start cutting jobs there's a loss of faith of consumers that that they'll hold on to their job and they stop spending so uh it's really the change in sentiment that really matters and people can feel blue and not great and ugly but you know if that doesn't collapse and I think we can avoid an economic downturn but if sentiment really starts falling very rapidly that means people are losing faith business people consumers are losing faith in that would be a tell that we we in fact are going into recession as for that consumer Mark it's been another confusing Dynamic where savings continue to plummet and credit balances continue to Skyrocket increasing more than they have in some 20 years how long can this Dynamic hold up a while uh you know that say that decline in Saving rate represents all that extra savings that people did during the pandemic I mean they're drawing that down now because of the high inflation but they have significant amounts of cash you know sitting in the bank account that they save during the tease of the pandemic and they're now using it so the saving rate the measure saving rate is is low but they're able to supplement uh their income with the their purchasing power with that excess savings so that's a good thing of course low-income households that's not the case they have they have drawn down their excess saving and then some and now they are turning to credit cards and unsecured personal loans to help supplement their income and that that can't continue for very long at some point they're going to be tapped out with that but at the end of the day you know the folks in the top uh third of the distribution of income account for over two-thirds of the consumers of consumer spending so it you know it's not great the economy is not going to thrive again it's not going to be you know it's going to be a struggle over the next 12 18 months but the economy can continue to move forward as long as that top third of the distribution keeps spending right now they got a ton of cash because it's a glimmer a vote there mark Zandy Moody's Analytics Chief Economist always great to have you thanks so much for joining us this afternoon [Music] yeah yeah [Music] and that wraps up what was a very down day on Wall Street I guess a glimmer of hope they're closing off the lows of the day just slightly down off 483 points s p off nearly two percent the NASDAQ the worst performer of the three major averages off just about two percent in terms of the sector action all 11 of the s p sectors trading to the downside consumer discretionary energy both of those sectors off just over three percent today let's bring in Jeff klingelhoffer he's co-ed of Investments at Thornburg Investment Management we also have David Scranton sound income strategies founder and CEO Dave let me start with you just in terms of the selling pressure that we saw this week the losses being led by Earth today excuse me the losses being led by energy and consumer discretionary just your takeaway from some of the concern that's clearly on the street right now well I think we just you know interest rates came down a lot based upon some words from Jerome Powell just recently and maybe they came down too far maybe it was a little too much short-term optimism uh at the end of the day fed president Jerome Powell said he wanted to raise rates another one and a quarter percent and if he changes if he increases by 50 bips versus 75 on December 14th it's really not that big of a difference and when you look at that we've had a flip now where the 10-year yield is actually below the federal funds rate you know that's a concern about recession that's why you see consumer discretionary getting hurt so there there's again we're to be in this market where it's volatile it's going to continue to be volatile for a while we had a little overreaction to the upside and of course now we're getting a pullback and Jeff your reaction to today's moves and in particular that move down in oil despite all the news overseas the Russian price cap Etc the EU sanctions as well yeah you know it's a market that we're watching closely because it's incredibly important because it's direct correlation with inflation which of course is what Federal Reserve in the United States and other central banks globally are watching right it's the first order effect but what we see is this teeter-totter between we have to see growth slow in order to get inflation down and we're seeing that reflected in the price of oil we are seeing growth slowing but we can't have it slow so much that we actually get an outright recession and so similar to the other guests we we look forward into 2023 we expect significantly heightened volatility and really a teeter-totter between growth and inflation so Jeff given that significant height and volatility volatility this teeter-totter that you are expecting to see what should investors be doing right now is it the smartest then just to stay on the sidelines no I don't think staying on the sidelines is the right move today that the the beauty of where we find ourselves today is we finally Unwound much of the challenge that investors face throughout the previous decade of exceptionally low and accommodative monetary policy so today what we're looking at although we think the 10-year treasury should be slightly higher than where it is today fixed income serves as ballasts to equity which is actually perfect for investors right thus far 2022 has been marked by extreme standout in terms of the difficulty from asset allocation but for investors today we think having some Equity allocation and relatively unexpected inexpensive sectors particularly some of the income producing sectors within the International Space as well as ballast within fixed income really like the front end U.S consumer focused within the securitized market in particular and actually we like tips here as well David what are your thoughts on that I agree with Jeff as far as fixed income is concerned of course it depends upon where you are in your life cycle and how much risk you can afford to take time Horizon and so on but this is the first time we've seen fixed income yields this high and certainly over a decade and a half there was a long period of time where even if you mention the words fixed income people would look at you like you were crazy right but not anymore if you have a longer time Horizon you're going to be on the equity side this is truly a stock Pickers market and it's kind of hard to determine sectors per se but again it's more of a fundamental Bottoms Up approach it's the days of indexing and mutual funds really are over for the most part at least for the next few months until we bottom out and we declare a recession and then we start to get into the recovery phase for now a stock Pickers market and I like higher dividend Value Place David I'm curious there just in terms of whether we bottom out when exactly that would be in terms of what you're watching to indicate that we have seen a bottom what are some of those factors I think we have to get to a point where we actually determine that there is a recession I personally believe that we've gone far enough now we will see a recession because it takes time for these the effects of these interest rate hikes to work through the system so even if they were to give us a 25 basis point jump in December and then one on the next fomc meeting I think the recession is still inevitable but once that gets announced and the FED starts the reverse course then we can look forward into the recovery and then it's a whole different ball game Jeff do you see a recession as inevitable we do see a recession as inevitable at this point the question is really the depth of the recession and what we're looking for in order to really get the magnitude of that is very close eye on the consumer in particular where we look at credit card remits on a monthly basis and the consumer remains incredibly strong what we've seen is the savings rate dipped to one of the lowest in the entirety of the time series right where the consumers still willing to dip into savings spend covet stimulus to support consumption we need to see that begin to bottom we need to see the savings rate begin to come back up and ultimately we need to see the bottoming of of unemployment and which we haven't even begun to see and really is what chairman Powell has told us time and time again they need to see a further weekend in the labor market which we haven't even begun to see today David what about outside the U.S in terms of any opportunity overseas Morgan Stanley out saying that they're taking another look at some Chinese related stocks are you seeing any reason to buy some of those beaten down names uh I personally am not ready to go to China yet per se however uh with the dollar being as strong as it is today one could certainly make the argument for making some International purchases now you know the the counter argument is oh gosh we're going to have a recession it's going to cover most the globe and of course the flight to Quality usually is the U.S Bond and therefore pushing the dollar up even further but you know I don't I don't see that the dollar has that much more upside potential so yes looking at International if you know what you're doing uh it could be the right time all right we'll leave it there David Scranton Jeff klingelhoffer appreciate you both being here thanks so much Brian says he had a chance to speak with the president of the New York Stock Exchange Lynn Martin she weighed in on the IPO landscape for the year and Beyond upcoming Tech initiatives for the stock exchange as well it's been a really volatile year as you point out for investors but you know one of the things I'm most proud of is how our systems have performed uh you know we're seeing record response times we're processing half a trillion messages a day and coming to the New York Stock Exchange we're seeing average response times of 30 microseconds so couldn't be prouder of our team we have done what our job is to do in times like this operate the most transparent markets in the world in the most efficient manner possible you have a really extensive Tech background how have you invested in Technologies this year to make things just work so seamlessly in a year where we have seen massive volatility spikes yeah I mean something that I monitor quite closely along with my team you know how are we doing in terms of message rates do we need to add more capacity I'm really proud of the fact that we were able to complete the migration for one of our options platforms to our state-of-the-art pillar system so given the increase in messaging we've seen couldn't be happier with the way the year's gone lots more talk about of course markets deals you name it but as you look towards next year where are you focused in terms of tech what's your one or two biggest initiatives I continue to be focused on making sure that the NYSE operates the most efficient markets possible uh I'm really you know continuing to talk to those companies who are looking to go public once the volatility calms down in the market the pipeline continues to be incredibly strong so we're really excited about the fact that when the market calms down a bit when there's a bit more certainty as to where the fed's going and other macro factors are headed I think we'll have a successful spot of IPOs in terms of IPOs what what does that pipeline look like big companies smaller companies take us through it it's pretty much runs the gamut you've got tech companies you've got consumer companies you've got Healthcare companies all looking to go public all looking to tap the public markets this year has been a muted year in terms of IPOs IPS are down about 85 percent versus last year I like to refer to it as the other tale you said that number I wasn't going to say it but it's been tough year it's been it's been a tough year in terms of companies coming to Market but the pipeline is tremendous the value of the U.S Public Market currency has never been stronger it's just a question of when what are companies waiting for is it a Fed pivot is it stock market just not having these volatile spikes is there one thing you hear when you talk to folks volatility volatility to come down here The Benchmark that I always look at the vix the vix is above 20. it's a really volatile period of time you really want the vix to ultimately be below 20 this year it's been kind of around 30. so that's really what is worrying private company CEOs when do you see the deal uh that backlog loosening up is it more of a second half event or we might start to see things pick up in the middle next year it's hard to say you know it also depends on the profile at the largest IPO of the Year core Bridge which went which went live in the public market September 15th of this year raised 1.7 billion dollars in capital um priced in its range and has still continued to trade around its IPO price so it's been a really successful IPO uh it just depends on the type of company I can't really answer the question there's a there's a whole generation investors that have not grown up with a Fed hiking cycle this has been a a strange 2022 and it might be a strange 2023 in that regard as the FED continues to do what it does how do you think the mic markets might respond I think the markets will continue to try to find their footing the one thing markets don't like is to be surprised I think we've all seen that whether it's the FED not doing what it's going to say the FED putting out the additional increases increasing the target rate whatever the case may be markets don't like when they're surprised so that's what's really been causing the volatility uh you've also been uh you've been talking recently about the ESG and disclosures where are you with that in terms of companies looking to come public yeah it's agree topics that I that I talk to both our existing public companies and private company CEOs our position is that we provide tools we provide ESG tools that allow customers to meet whatever ESG mandates they're looking to achieve for example A diversity diversity is an area that we feel very strongly about we have the board advisory Council more than 400 diverse candidates that are board ready so that's the area we've had tremendous amount of success both with public and private companies are some of these ESG requirements or potential requirements are they too stringent should somebody not be investing in a company because they make oil I think it is down to whatever your investment strategy is um and it's in my mind comes down to disclosures I don't I in terms of the individual sectors the oil industry is one that's you know near and dear to my heart coming from the ice side of the business the oil industry has done a tremendous amount of trying to move from brown to Green in a responsible fashion and what I mean by that is they're trying to do it without deeply affecting the consumer's pocketbook so I have a tremendous amount of respect for that sector in particular you're I think coming up on the one year mark since you were announced as the president of New York Stock Exchange what is that first year been like for you it's been an interesting year a year full filled with surprises I didn't know there was going to be a war between Ukraine and Russia didn't know there was going to be record inflation and record volatility throughout the year but it's been a tremendous year you know we have the greatest community of CEOs I really enjoy getting to know the CEOs of our of our NYSE community and figuring out how to better serve them how have you navigated this environment as a leader how are you different today compared to 12 months ago I actually come back to one of my core principals and one of my core beliefs they use is never over commune can you taken a very deliberate Step at NYSE to be very public to be out there to be on as many events as possible to really give the market some calmness to get to tell the market what we're seeing since we're seeing all different sides of the equation on a variety of different issues walking around the New York Stock Exchange four there's so much history in here but it feels a little different there's New Media booths in here there's just something else in here talk to us about Reinventing the floor what's the state of the the New York Stock Exchange trading floor well the floor especially in the volatile conditions the traditional role of the floor has never been more irrelevant and that's something that resonates with people we're talking to that are private companies looking to come public the role of the dmms here is to really mitigate the volatility in the market and we've proven through data that our Market model has caused NYSE listed stocks to trade with less volatility the open and the close as well as throughout the course of the day that's money in the hands of our company's CEOs when they think about share BuyBacks and those types of issues that was New York Stock Exchange president Lynn Martin with our own Ryan sazi

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Length: 238min 23sec (14303 seconds)

Published: Mon Jan 02 2023