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Sami Sriram
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Bloomberg Audio Studios Podcasts Radio News this is Bloomberg businessweek Daily reporting from the magazine that helps global leaders stay ahead with insights, insight on the people, companies and trends shaping today's complex economy, plus global business, finance and tech news as it happens. The Bloomberg businessweek Daily podcast with Carol Massar and Tim Stanweck on Bloomberg Radio.
- [01:46]
I do want to bring in Michael McKee, Bloomberg TV and Radio International economics and policy correspondent. He joins us also here in the Bloomberg businessweek studio. As we've been talking about, Mike, markets lower on fears of an escalating trade war. You're a macro guy. Your international economics and policy correspondent. Is this a rethink of US Foreign, of US Policy, US Trade policy? It's just a social media post.
- [02:10]
Michael McKee
Yeah, I think. Well, there's a couple of things going on and I think Eric's right that the markets are using this as an excuse to sell off because we don't know exactly what's going to happen. Chinese have said that they're going to put new restrictions on rare earths and super magnets and things like that that have been under discussion and she and Trump are supposed to meet at APEC later this month and talk about this and there was thought that they might reach some kind of deal. Some analysts think that this is basically the Chinese trying to get some negotiating leverage and Trump doesn't want to be back into a corner. So he's negotiating back in the kind of language that he tends to use. The Chinese, the, the main body of the Chinese new restrictions wouldn't hit till November or December. So it's not something that's imminent. And it, it could be that this is just all posturing and that one has to hope that at this point. But that may be why we've got a 2% fall or roughly 2% fall and nothing worse. I think if the president had really come out and said, I'm going to jack up these tariffs to 50, 60, 70%, then you would see a much bigger reaction.
- [03:32]
Podcast Co-Host
These comments, of course, are coming before he's set to meet with Chinese President Xi Jinping a little bit later this month. Have we heard any details about whether that meeting is still going to be taking place in the wake of the social media posts?
- [03:46]
Michael McKee
Well, we haven't heard that it's off. The Chinese did not mention it's off. And the president said, I don't see any reason to meet right now. But he didn't say, I'm not going to. So at this point, I think we just have to wait and see how this plays out over the next couple of days. Maybe he gets it off. Maybe he's mad because of the Nobel Prize and instead of going after Norway, which we all thought he'd do this morning, he's just taking it out on China for the time being.
- [04:11]
Podcast Host
But he was thanked by the winner of the Nobel Peace Prize.
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Sami Sriram
Well, yeah.
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Podcast Host
And then he reposted this.
- [04:17]
Michael McKee
Yes. Basically, she said, we're counting on President Trump and our friends in democracies around the world to continue the struggle for Venezuela. She didn't say, thank you, President Trump. Exactly.
- [04:28]
Podcast Host
Well, let's shift gears a little bit, Mike, and talk about reductions in force, the idea of layoffs, permanent layoffs. Russ vote earlier today, White House budget director saying the reductions in workforces, the reductions in workforce have begun. He, he's referring to the federal government's term for layoffs here. Do we know how many? Do we know who? Do we know where?
- [04:50]
Michael McKee
What we know is that they're the White House. Senior White House officials told Bloomberg News that it would be thousands. Representative of the American Federation of State, Local and Government Employees said that they heard 1300, but there's no exact number at this point. It does seem to be affecting many agencies. I've heard as many as. And this is obviously going to provoke lawsuits from the federal unions. The administration and vote say this is necessary because of the government shutdown. But it's not. They've never done this before. Yeah, the workers aren't being paid right now. So it doesn't. It's just. It's also theater now, does the administration. They could be setting this up as a bargaining chip. You know, Democrats come to the table and they concede something, and the President says, all right, we won't fire these people, because remember how this went with the Doge thing? People were on the payroll, off the payroll, on the payroll again. So this could also be a big smokescreen.
- [05:59]
Podcast Co-Host
I'm wondering how you think that kind of impacts the. What could be an already weak labor market that we're seeing. We had Governor Christopher Waller from the Fed saying job growth has been negative for the last few months. The labor market is his biggest concern. Of course, that's what we've also heard from Jerome Powell. These firings, wouldn't that make the labor market even weaker, or is it not quite related?
- [06:22]
Michael McKee
There's not enough people getting fired. I mean, is it terrible for them individually? But at this point, if you said thousands, I mean, there are something like 2 million federal employees, so it wouldn't mean that many people are going to affect the economy. But it does contribute to the overall sense that the country is not doing well, that the economy is not doing well. And that may hit consumer confidence. And the more layoffs you have in your neighborhood, the more you start to worry about yourself, and then you cut back on spending. And that's how recessions begin, basically, is a confidence matter. So it's not good news in that sense, but it's not something that we will really see in the economy. What ends up happening with government shutdowns is spending is delayed, but it's not completely gone. People will get their back pay. In theory, the administration's threatened that, too. But the law says they get paid and then they'll go make the important payments that they have to make. And I'm sure they'll use their charge cards for groceries and things like that in the meantime.
- [07:26]
Podcast Host
Well, speaking of getting paid, Argentina is about to get paid to the tune of $20 billion. Is it fair to call this a bailout?
- [07:33]
Michael McKee
It's fair to call it a bailout, but they're not really going to get $20 billion from the U.S. essentially, what they're calling it a swap line, which it isn't exactly either. The swap line is agreement between two central banks. One that needs dollars, sends money to the Fed, and the Fed sends the equivalent amount in dollars to them. So their companies in that country can pay their dollar denominated bills and then they send it back when the crisis is over and the Fed sends them back their money. This is more like a rescue package along the lines of what happened with Mexico in 1994, where the US used the exchange Stabilization fund and agreed to guarantee Mexican bonds that couldn't be sold because there was a concern about whether or not they would default. And so the US Guaranteed those. The US bought some of the assets. They didn't give Mexico cash directly. And I think we're giving Argentina cash directly. But it'll be a system set up like that.
- [08:41]
Podcast Host
Is it a little different than Mexico back then though, because we share a border with Mexico? The stability of Mexico is in our best interest because it's such a large trading partner. At least right now. I mean, Argentina is a little bit of a different story. It seems more political.
- [08:58]
Michael McKee
Well, there's definitely a political angle to it, and it just kind of depends on what your cynicism meter goes up to. Argentina is obviously a, a poster child for bad financial management. They owe the IMF billions and billions of dollars. They've defaulted something like 23 times. And you could argue that it could be a sort of economic domino in the way we saw things happen in the, in the Asian financial crisis. But there's also the idea that a lot of the hedge funds, that hedge fund leaders who worked with Scott Besant over the years have loaded up on Argentine debt, distressed debt, because they can buy it at a discount. And if the Argentine peso keeps falling, as it has and is predicted to do, if they lose the congressional elections coming up, then these people lose a lot of money. And if the US can prop up the peso, then it helps Beths and friends. Now, I don't have any evidence one way or another, but the New York Times is reporting this. Paul Krugman did a column on it today. So that is something for. I don't think you have to go as far as a tinfoil hat. Maybe, maybe Saran Wrap hat or something like that to, you know. But yeah, that could be.
- [10:19]
Podcast Host
Maybe it's in the same drawer where you would find the tinfoil.
- [10:21]
Michael McKee
Well, and you get, you get in these situations, you get people who are nervous about the impact on American investors and funds. We saw the same thing happen with Greece and Greece was definitely going to default, but it was handled very gingerly so that it didn't cause systemic problems.
- [10:42]
Podcast Host
Well, this coming from the Treasury Department, but certainly the next Fed chair might be thinking about the implications of this and that's kind of where we want to end with you, Mike. We learned earlier today some other names that could be in the running or are in the running for Fed chair finalists. Rick Reeder, Michele Bowman, Chris Waller, Kevin Warsh, Kevin Hassett. What's the timeline here?
- [11:08]
Michael McKee
Is there anyone else CNBC report that they are the final five.
- [11:11]
Podcast Host
Okay.
- [11:12]
Michael McKee
And that they would do another round of interviews and then sometime maybe in December, the president would nominate someone to the Stephen Myron seat. That where the term expires at the end of January. And that person would be essentially the de facto Fed chair in waiting. And then if Jay Powell resigns, they could put Steve Myron back in that seat or somebody else. We don't have any other outside confirmation of that, but it certainly tracks with what the president has been saying. He's called the Kevins and Chris Waller the finalists for some time. Michelle Bowman might be a little bit of a DEI here because we know they like her in the, in the regulatory role that that she's in. And Rick Reeder obviously has a good reputation in the markets. It depends on what the president ultimately ends up wanting in a Fed chair. How much of a splash does he want to make in a sense of a rock falling in the pond and sending out Ripple? How much does he want to upset the apple and how much can he do without upsetting the markets? So this is going to be something to watch over the next couple of weeks because once we get to an announcement, there's going to be a lot of reaction to that as well.
- [12:30]
Podcast Host
Well, we'll certainly be talking to you many times between now and then. Michael McKee, Bloomberg News International economics and policy correspondent, joining us here in the Bloomberg businessweek studio. Stay with us. More from Bloomberg businessweek Daily coming up after this.
- [12:47]
Podcast Co-Host
What's the secret to navigating uncharted waters in business? Meet Sami Sriram from clearbot, a startup reshaping autonomous shipping.
- [12:55]
Podcast Host
Hear her take on the real key to success.
- [12:58]
Sami Sriram
Frictionless user experiences that move your business forward. When you go into a new region, you need to make sure that the experience of using something new is good because if not, then you make the bad first impression. They never try it again. We are just trying to find the right partner, somebody who knows the right people to speak to, somebody that is as invested as we are.
- [13:18]
Podcast Co-Host
For more on what it takes to unlock global growth, search for turning point.
- [13:22]
Sami Sriram
That intention really matters. We want to build something that becomes the norm.
- [13:26]
Podcast Co-Host
Brought to you by Bloomberg Media Studios and hsbc. Wherever your business takes you, HSBC can help.
- [13:35]
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- [14:36]
Launch is coming fast. Don't let billing slow you down. Legacy systems systems can't handle usage based billing. That means your team is stuck gluing code together, piecing through spreadsheets and running ad hoc queries just to figure out what to bill. With Metronome, you can roll out new pricing in minutes instead of months, whether it's usage based, seat based or a hybrid model. Visit metronome.com to see how companies like OpenAI and Anthropic launch billing as fast as they launch products.
- [15:03]
Podcast Host
That's metronome.com you're listening to the Bloomberg Businessweek Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [15:21]
We are all over markets today. Dollar sliding as President Trump threatens a quote, massive increase in tariffs on Chinese goods while the greenback is still trading on the cusp of its best week of the year. The President's latest tariff salvo threatening a once promising $ra. We've got with us Jati Bhardwaj, Director of Strategy at TD Securities. She joins us here in the Bloomberg businessweek studio. Jt we wanted to talk effects. We knew you were the right person to talk to. We've seen the dollar recover a bit this month. Yeah, until today. Is this a temporary setback or is it something bigger?
- [15:57]
Jati Bhardwaj
Thank you so much for having me again. Always a pleasure to come talk to you guys. I would say that interestingly, what's been happening in the last Few sessions at least is that we were living in sort of like a US nirvana where we don't know where we're flying or flying blind, we don't know what the US data is indicating anymore. And the hyper focus that markets had on path of Fed cuts, how much is the Fed going to cut? How much are they going to ease next year? We took a break from that thanks to getting no US data and immediately market focus shifted to everything that's happening elsewhere in the world, which is where you had elections in Japan did not turn out the way markets were expecting. You had French election uncertainty drag on. All of this sort of allowed the dollar to behave like a safe haven again, something you saw up only up until last year. So that sort of gave dollar the kind of strength it has been used for the last five years and gave dollar that nice rally. I think you bring a very good question is that, is that, does that change the picture meaningfully or is it just a bounce? That's a question that clients have been asking us as well. But I think big picture, it's unlikely that Euro is going to collapse to the level where we're at, where we were at the start of the year. The US administration policy uncertainty is still going to live, is still going to be there for the majority of the next few years and if anything, today is the perfect example of that. Where you had headlines come out with China, the relationship there deteriorating and that's clearly taking a hit on the dollar.
- [17:21]
Podcast Co-Host
Again, I want to just talk about what you mentioned as the dollar being seen as a safe haven asset because we're also seeing Treasuries really rallying today, people piling in there. How do you kind of compare which one I guess signals a weakening outlook for the macro picture? If traders are piling into Treasuries versus the dollar, are there any signals we can glean from those moves?
- [17:46]
Jati Bhardwaj
I think that's also like a good debate that people have had. Like surely the dollar has had a very bad year. But you cannot say the same about Treasuries because you've not seen active signs of anyone dumping US Treasuries. In fact the major holders are there, Japan emission central banks. While obviously they have been clearly buying gold and amping those reserves up. It's not as if they have deserted Treasuries, but the dollar's relationship with Treasuries is broken because while everyone still wants to hold U.S. assets, they don't want to hold U.S. assets unhedged. So they are clearly diversifying away from the dollar, not from US Assets per se, but clearly there's a shift away from the dollar which has made that relationship weaker.
- [18:26]
Podcast Co-Host
We have to talk about the debasement trade then, because you had mentioned gold when you came in before the show started. It's at a record high. Bitcoin has been rallying.
- [18:36]
Podcast Host
You went there, you went to Bitcoin.
- [18:38]
Podcast Co-Host
I mean, all of these other assets. Is this a result of people moving away from the dollar, the dollar losing its appeal?
- [18:47]
Jati Bhardwaj
I think definitely, yes. So people have always talked about dollar as a share of reserves collapsing, but that's been true for the last decade. But I think as we entered this year, the marginal collapse in people holding the dollar has amplified because of all of the uncertainty we're dealing with now. Now, for the last five years, most of the uncertainty around the world was housed in the Middle East. You know, it was housed in Covid, which was a supply chain shock, which was also outside the US I think this is the first time in many, many years where US has become the source and the emanating source of global uncertainty around the world, which is why everyone is now even shyer of holding dollar in their portfolios, which is why a lot of the investors and clients we speak to are now thinking of diversifying away from US Assets. Not marginally, much less so, because I'm sure there's still not a very strong alternative to US equities as we can all debate for months on end. But clearly there's alternatives to the US Dollar now where people have shown a greater preference for the euro. And in fact, at times, Euro has been behaving like a safe haven and the dollar much less.
- [19:53]
Podcast Host
So if we're talking gold, we got to talk about what we heard from Ken Griffin earlier this week. Was that this week or last week? I don't even know what day it is.
- [20:02]
Podcast Co-Host
That was this.
- [20:03]
Podcast Host
Okay. That was this week. Okay, thank you.
- [20:05]
Podcast Co-Host
And Ray Dalio as well.
- [20:06]
Podcast Host
Yeah, Ray Dalio as well. You were. Were you at that event too?
- [20:10]
Michael McKee
Exactly.
- [20:10]
Podcast Co-Host
Greenwich Economic Forum.
- [20:11]
Podcast Host
Okay, so Ray Dalio said that gold is certainly more of a safe haven then you had also Ken Griffin essentially say, if he asked if he was agreed with the view of Ken Griffin that gold's rise reflected anxiety about the US Currency. How is gold diversifier now versus where it was maybe just a few years ago? Should people be thinking about the position in its portfolio, in our portfolios, differently now?
- [20:38]
Jati Bhardwaj
I think gold has clearly been a very topical point of lead, and that definitely plays into both the fact that central banks around the world have been diversifying and trying to hold gold assets. So central bank's purchases of the yellow metal have surged in the last year. In fact, that's a trend which has going which has been ongoing for the last five years. But it has taken a big amplification up this year. So that is what led to that massive rally in gold. And then a lot of the other investors like who've mostly been on the sidelines with gold, who have not traditionally seen gold as a safe asset. Now with uncertainty around the world, with people now pitching stablecoins, now people talking about holding their debt in Bitcoin as well, with all of that and with greater uncertainty in the US and greater reliance on the US dollar acting as the global reserve currency of the world, there's definitely a bigger shift of investor preference into holding gold both as an investment asset but also as a safety asset. Because whatever happens at the end of the day, it's a physical metal which you hold in your reserves, which is is not linked to any particular government and their policy, whereas the dollar clearly is linked to the US Administration and its policies.
- [21:48]
Podcast Co-Host
I want to end on, you know, just the headlines that we're seeing today. This idea that perhaps trade tensions are escalating even further now between the US And China. How does that specifically impact your views on G10 affects just within the next few weeks here.
- [22:07]
Jati Bhardwaj
I would say that depending upon what kind of a picture this evolves into, if the outcomes from here get worse, let's say if Trump comes out and again announces a tariff increase on China close to 150% or even above that, which is what we saw at the start of the year, that's again going to bring back a lot of macro volatility into markets. In fact, volatility has been heading lower. I think a lot of traders were frustrated with the move we saw in Q3, I think that's going to change. You will bring back a lot more volatility into the markets. I think there will be concerns on both sides. Both countries linked to China and Chinese exports. So Euro can take a hit. Chile, the Chilean peso, which is usually linked to the outlook of copper prices and the and China will also take a hit. The US Dollar will also take a hit at the end of the day. So it will definitely be a lot more volatility and will hurt currencies in that way.
- [22:58]
Podcast Host
J.T. bhardwaj, director of FX strategy at TD securities, here in the studio.
- [23:04]
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- [23:12]
Podcast Host
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- [23:14]
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- [23:23]
Podcast Host
We're kind of going all over the place geographically right now because investors have a lot to think about, observers have a lot to think about, including the durability of lasting peace in the Middle East. Israel began the process of withdrawing troops from Gaza. While the US started the clock on a 72 hour window for Hamas to release all remaining hostages. The complex process of ending the two year war got underway. Dana Stroll is Senior fellow and Director of Research at the Washington Institute for Near East Policy. She joins us now from Washington, D.C. dana, good to have you on the program today. Is this the beginning of lasting peace in the region?
- [24:01]
Sami Sriram
Doubtful. But it could bring relief for Israelis and Palestinians. So what we're going to see over the next 72 hours is just the initial phase of this pretty extensive, very broad 20 point plan. So we'll see Israeli hostages hopefully released within the next 72 hours. We'll see Palestinian prisoners released from Israeli jails. We'll see the IDF withdraw out of to part of Gaza, but they're still going to be present in more than 50% of Gaza. And we'll see a lot of humanitarian aid flow in. But that doesn't address Hamas's weapons. It doesn't address what the constitution of an international stabilization force on the ground in Gaza will be. It doesn't address what the future governance structure will be. It doesn't address necessarily put us on a path to Palestinian statehood. And of course it doesn't address everything else that's keeping us from having peace in the Middle east, like Iran's nuclear weapons program and other terrorists who still have ballistic missiles and they're firing them.
- [25:02]
Podcast Co-Host
Right. So a lot of outstanding questions, but talk about the current deal so far. What makes this cease fire and this hostage deal different from just previous efforts for peace that we've seen between Israel and Hamas?
- [25:17]
Sami Sriram
What's really unique about this time is the convergence of stakeholders who all decided to pressure all sides. So for the past several ceasefire negotiations with respect to Hamas and Israel, the United States was working with Qatar and with Egypt who were then mediating with Hamas. And the United States was working with Israel. But this time President Trump started at the UN bringing Arab and Muslim leaders together, all to back his plan plan. And then we saw in these high stakes negotiations in Egypt, Turkey joined hands with Qatar and Egypt, all putting tremendous pressure on Hamas. And finally we have the personal Investment and commitment of President Trump, who backed Israel, but then at the final hour told Hamas, I will guarantee that Israel will not restart this war if you uphold your commitments.
- [26:12]
Podcast Co-Host
Now that that 72 hour window has begun, what is the US's role in enforcing the ceasefire?
- [26:21]
Sami Sriram
Well, first of all, it's whether or not President Trump is going to stay personally invested and that level of presidential interest and commitment. And secondly is the US military role. So centcom, the head of US military operations in the Middle east, has announced that they'll contribute to this joint task force to support hostage recovery. And the US military will probably have a significant leadership role in standing up this post war stabilization mission in Gaza and bringing others in.
- [26:54]
Podcast Host
I'm wondering about the significance of certain people involved here, especially on the American side. Steve Witkoff, for example, Jared Kushner, for example, who doesn't have the same role that he had in the White House during the the President's first administration.
- [27:08]
Sami Sriram
Well, Jared Kushner has not had an official role in the second Trump administration, but I think it's fair to say he's been in the background the whole time. And you can really see his fingerprints on this 20 point plan. Kushner has always been a real advocate of economics, trade as part of a path to peace. There's a lot of economic angles to the 20 point plan and he clearly was sitting alongside Steve Wyckoff in Egypt and now in Israel to see the details of this followed through.
- [27:40]
Podcast Host
What's the right way to think about what happens in Gaza if there is lasting peace? That the power vacuum, who actually comes to power there and what their views will be.
- [27:53]
Sami Sriram
That'S really tbd. But here's, here's the risk. We get through this initial phase of this ceasefire and there's a security vacuum and there's nobody there on the ground other than Hamas who still has their weapons or Israel who's still present in 50% of the Strip. What President Trump would like to see happen is this international multilateral force with a lot of Arab and Muslim countries contributing. Really hard to see them going in if Hamas doesn't agree to give up their weapons. And I think the leaders of Hamas understand that if all 20 points of this plan are implemented, that means surrender for Hamas. They have to commit to peaceful coexistence with Israel. Hard to see a terrorist organization doing that. And if they leave, then they're surrendering everything that they've worked all these decades to build up. So the likelihood is actually more instability and more violence in the short term. The hope is that if this peace plan is implemented, we actually have a chance at Palestinian self determination in Gaza and also in the West Bank.
- [29:00]
Podcast Co-Host
You, you noted that Hamas accepted this deal under military and international pressure. I'm wondering what kind of lessons we learn from that. Does this mean that more pressure needs to be applied in order to to reach the next stage of a deal that could lead to lasting peace?
- [29:22]
Sami Sriram
Well, the Israeli operations in Gaza have received so much international and regional condemnation and criticism. But I think we have to be honest here that we wouldn't be where we are today without some of the Israeli actions in Gaza which took out all of Hamas's top leadership, have dismantled a lot of those tunnels and we're continuing to slow despite all of this international criticism. But it's clear that it's not only military pressure alone, it's this political pressure from the longtime backers of Hamas. So nearly two well exactly two years after October 7th. What's clear is that Egypt didn't want a flood of Palestinians from Gaza coming into the Sinai. Qatar wanted it to be over, especially after that Israeli strike in Doha that targeted Hamas leadership sitting in a fancy building. And Turkey, who has a longtime connection to Hamas, President Erdogan's top national security aide was on the ground in Egypt negotiating this. So the the backers of Hamas really pressured it to agree to give up these hostages.
- [30:29]
Podcast Host
Dana, always appreciate you taking the time and joining us, especially on such a busy Friday. Dana Stroll, Senior fellow and Director of Research at the Washington Institute for Near East Policy, joining us from Washington, D.C. stay with us. More from Bloomberg Businessweek Daily coming up after this.
- [30:49]
Commercial Announcer
You're thoughtful about where your money goes. You've got your core holdings, some recurring crypto buys, maybe even a few strategic options plays on the side. The point is you're engaged with your investments and Public gets that. That's why they built an investing platform for those who take it seriously. On public you can put together a multi asset portfolio for the long haul. Stocks, bonds, options, crypto. It's all there plus an industry leading 3.8% APY high yield cash account. Switch to the platform built for those who take investing seriously. Go to public.com and earn an uncapped 1% bonus when you transfer your portfolio. That's public.com paid for by Public Investing. All investing involves the risk of loss including loss of principal. Brokerage services for U.S. listed registered securities options and and bonds in a self directed account are offered by Public Investing Inc. Member FINRA and SIPC. Crypto trading provided by Bakkt Crypto Solutions LLC. Complete disclosures available@public.com disclosure your next product.
- [31:50]
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- [32:20]
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- [33:21]
Podcast Host
@Canva.Com you're listening to the Bloomberg Business Week daily podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [33:37]
I want to bring in Gillian Wolff, global equity strategist for Bloomberg Intelligence. She joins us here in the Bloomberg Interactive Brokers studio. The S&P 500 today its worst day going back to April 21st. You know that was kind of the midst of so called Liberation Day. What was that after he re the president like went back on the tariffs. I'm just like thinking in real time.
- [34:00]
Gillian Wolff
Right on on April.
- [34:01]
Podcast Host
So the April 2nd was so called Liberation Day.
- [34:04]
Gillian Wolff
That was so called Liberation Day. And then we saw that big steady drop into around the first or second week of April, dropping nearly 20%. He was clearly a little bit Scared of official bear market territory there before he finally put the pause on. We fell just below 5,000. 5,000 on the S&P 500 before the pause was put on.
- [34:22]
Podcast Host
Yeah. And look at that. You can see The S&P 500 surging just almost 20%.
- [34:27]
Gillian Wolff
Yeah.
- [34:28]
Podcast Host
Back to those just before those April lows.
- [34:30]
Gillian Wolff
I mean, this is, if anything, we've had this broader bull run, but we've definitely seen, and we're likely going to see increased volatility from this market because of sensitivity around tariffs. And the 3Q earnings season is going to tell us a little bit more about what's happening. But I mentioned this actually the last time we spoke that I think a bit of a dangerous precedent had been set maybe in the first and second quarter on earnings calls, that tariffs weren't really a big deal yet. We actually, we run an NLP model. It's natural language processing. We determine how positive or negative management is on any given topic on earnings calls. And we found that they're actually getting broadly more positive when they discuss tariffs. I think right now the message to investors is the worst case scenario didn't happen. Everything didn't fall apart overnight. But there is definitely going to be some fragility and skepticism in a market that's trading at all time highs at a very high valuation for any scent of what might be going wrong with tariffs, especially during the 3Q earnings season and going forward. And really what most of the sell off is about today is Trump threatening those higher tariffs. I don't think the market knows exactly what to think about this right now because we had such a strong one Q and two Q and we're maybe waiting for the shoe to drop or to see if companies can actually navigate this.
- [35:42]
Podcast Co-Host
How much more vulnerable is the equity market for that shoe to drop when you start to factor in concerns around AI spending? I was just at a conference last week with David Einhorn.
- [35:55]
Podcast Host
Wait, that's a different conference than the.
- [35:57]
Podcast Co-Host
One I went to this week. But he started talking about how he thinks there's going to be potentially the risk of a lot of just overspending on AI, that even though he's bullish on AI more broadly, some of these companies look like they're just spending too much. They're not going to see the return that maybe they expect expected on that.
- [36:13]
Gillian Wolff
I think we're moving into that phase of the trade of, you know, there have been a lot of promises. We actually want to see companies getting more efficient. I think one of the problems at least that we're seeing right now in the market is that a lot of the gains so far for the second half are coming from AI. It actually is looking similar to what the market looked like at least the S&P 500 in the first half of 2024, right before we got a bit of that bout of volatility in the summer, we're seeing a similar amount of concentration start to emerge somewhat maybe more problematically as we're seeing that concentration emerge across the globe now a lot of the emerging market trade is also riding on this AI thesis. And I think in terms of the amount of AI spending, one thing that may be getting under underplayed right now is it's not just about the AI names that might that could be at risk if the AI thesis doesn't work out as investors think. It's also the companies that are investing in it. So things like financials, things like even consumer discretionary firms, even though they are not AI firms, people think oh well, AI only. There's only really a risk for the Nvidia's of the world, the tech space. Now the risk is spreading to companies that are investing in it and it's risk with potential reward. This could have a huge upside for productivity. The market just doesn't know yet. So it's going to be a little bit shaky anytime there's good news spiking up, anytime there's bad news spiking down because they haven't really sussed it out.
- [37:33]
Podcast Host
Gillian Wolfe. She is going to be even busier than she usually is next week when bank earnings kick off. She's global equity strategist for Bloomberg Intelligence. We are going to be speaking to her a lot in the coming weeks. Check out her research and more on the Bloomberg terminal and you can also find the latest when it comes to all of that research@bloomberg.com as well.
- [37:52]
This is the Bloomberg Businessweek Daily podcast, available on Apple, Spotify and anywhere else you get. Your podcasts listen live weekday afternoons from 2 to 5pm Eastern on bloomberg.com, the iHeartRadio app tune in and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.
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