Sustaining S&P Rally amid Market Pressures

Summary

Bloomberg Surveillance: "Sustaining S&P Rally amid Market Pressures"

Episode Date: August 10, 2026
Hosts: Tom Keene, Paul Sweeney, plus regular Bloomberg Surveillance team
Notable Guests: Jim Carney (Morgan Stanley CIO); Market Analyst from Seaport Research Partners; Heather Rice (KPMG, US Products Line Business Leader); Stephen Odlin (CEO, The Conference Board)

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Episode Overview

This episode delves into the sustainability of the S&P 500 rally amid persistent macroeconomic pressures: sticky inflation, higher-for-longer interest rates, AI-driven productivity shifts, and evolving CEO confidence. Drawing on interviews with top analysts and executives, the hosts explore what’s beneath the market’s gains, the interplay between earnings and valuations, the real implications of AI in business and the labor market, as well as what’s shaping US corporate sentiment for 2027 and beyond.

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Key Discussion Points & Insights

1. Nominal GDP, Inflation, & Market Outlook

Guest: Jim Carney, CIO Cross Asset Solutions, Morgan Stanley
Segment [01:49–08:54]

• Robust Nominal Growth:
  • Q1 2026 nominal GDP running at 6% (vs. 4% historical average); Q2 closer to 7.9% (GDP deflator) or 6.5% (PCE measure).

    “If you’re in a higher nominal GDP world, you tend to get higher earnings. No surprise there.”
    — Jim Carney [02:14]

• Fed’s Stance and Inflation:
  • Inflation expected to run “somewhere around two and a half, 3%” for the time being, with the Fed likely to tolerate modestly above-target inflation as long as expectations don’t become entrenched.

    “I think it’s sustainable…as long as they believe that inflation and inflation expectations are not becoming ingrained.”
    — Jim Carney [03:28]

• Higher-for-Longer Rates:
  • “The ability for rates to move down sharply right now…is somewhat limited…Nominal growth is going to be higher, which…alleviates the risk of yields moving down sharply.”
    — Jim Carney [04:36]
• Fiscal Deficit Context:
  • Deficit “around 6% of GDP,” but higher nominal GDP helps pay down the deficit, referencing the post-WWII approach of yield curve control and nominal GDP-driven debt reduction.
• Asset Allocation in a High Nominal World:
  • More favorable toward equities:

    “The 40% in fixed income becomes somewhat challenged right now…The equity markets tend to have higher valuations when you have inflation somewhere around two and a half to three and a half percent.”
    — Jim Carney [06:48]

  • Equities seen as offering “real returns”; fixed income still important but less appealing compared to equities under current conditions.

Notable Quote

“Equities are a nominal asset with real returns, because with equities you get the return after all the expenses, inflation being one of those expenses.”
— Jim Carney [07:58]

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2. Earnings, Valuations, & Rotation in the S&P 500

Guest: Market Analyst, Seaport Research Partners
Segment [10:48–17:14]

• Core Observation:
  • Earnings up significantly more than stock prices; S&P valuation multiples actually lower than at the start of the year (“two and a half multiple points cheaper” or technologically “12% cheaper than it was the beginning”) despite double-digit index gains.

    “The narrative…is that this market is expensive because it’s up so much. And in reality, it’s all earnings, and the valuation is…cheaper.”
    — Seaport Analyst [11:11]

• Earnings Power:
  • “Earnings are growing 50% this quarter compared to a year ago.…Even if you take out one-time items, you’re at 30%—that’s still an insane number.”
    — Seaport Analyst [11:59]
• Sector Observations:
  • Tech remains strong, aside from hyperscalers with cash flow issues; banks delivered higher-than-expected earnings due to surging data center and related activity (bank earnings expectations: 7.5%—actuals over 25%).
  • The “AI and tech theme” extends across over half the S&P 500, with global implications (EM: “Taiwan and Korea are plays”; Europe “getting left behind”).
• Rotation:
  • Substantial sector churn under the surface, with value outpacing growth during brief tech sell-offs; index funds don’t rotate, but market leadership does:

    “As interest rates have been rising on the long end of the curve, they are punishing tech more...”
    — Seaport Analyst [15:43]

• Mag 7 Nuance:
  • Hyperscalers (notably Microsoft) still outperforming on earnings and capex discipline, while software/hardware/semis “off the charts.”

Notable Moment

“Ackman and Gollop say shut up and buy Microsoft. It’s up 43% from that June low. … It’s popping because the earnings are there.”
— Tom Keene and Analyst [16:40]

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3. Operational Impacts and AI: Cost Structures, Jobs, and Data

Guest: Heather Rice, KPMG US Products Line Business Leader
Segment [17:52–24:23]

• Storytelling Over PowerPoint:
  • Modern business is about conveying stories and insights, not just detailed slide decks.
• AI’s Real Impact:
  • AI driving operational efficiency, especially for consumer goods companies facing tariffs and logistical pressures (e.g., war in Iran, oil prices).
  • Job losses due to AI are overstated:

    “I wouldn’t frame it like that. ... Companies are using AI to move faster in business…We have massive amounts of data, but what do we do with that? I kind of call it the paralysis of data.”
    — Heather Rice [19:18]

  • Employees now spend more time on analysis and value-added tasks.
• AI Implementation:
  • Still early days—most companies are figuring out how to leverage AI ethically and effectively; data quality is increasingly critical (“has to be good data”).
• Advice for New Entrants:
  • Embrace AI:

    “Be a curious learner, use it to give yourself more time to really understand business.”
    — Heather Rice [21:38]

• CEO View on AI:
  • Seen more as an enabling tool for efficiency, not just cost-cutting; focus on employee training and adaptation.
• Consumer Brands Facing Cost Pressures:
  • Companies are cautious about passing on higher prices to consumers, especially for staples, as store brands/private labels have intensified competition since COVID.

Notable Quote

“If you increase your price just a little bit and you cause a consumer to look down, grab the private label,…maybe losing a customer forever.”
— Heather Rice [24:17]

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4. CEO Confidence, Labor Outlook, and Macro Trends

Guest: Stephen Odlin, CEO, The Conference Board
Segment [25:00–30:52]

• CEO Confidence Index:
  • Sits at 52 (on a scale from 0–100)—modest optimism. Improved since Q2’s geopolitical jitters; tracks inflation and geopolitics.
  • Employment outlook: stable (“low hire, low fire”), with CEOs retaining staff in the face of uncertainty.
• Tech Boom Geographies:
  • Not all regions benefit equally from AI/tech investments, but overall, mass investment continues.
• AI and Jobs:
  • AI is creating more jobs than it eliminates, shifting work from “grunt work” to higher-value tasks:

    “AI is actually creating jobs, net jobs. It’s changing the way workflows...The quality of work will improve. ... It’s an exciting frontier that I don’t think should be feared.”
    — Stephen Odlin [28:01]

• Wage Projections & Risk Shifts:
  • 3–4% wage increases projected for 2027, in-line with inflation; top CEO concerns have shifted from geopolitics to cybersecurity and AI risk management.
• Higher Rate Regime:
  • New regime is “not as different as people think”—previous ultra-low rates were abnormal.
• On the 'Evil CEO' Myth:
  • Public perception is negative, but CEOs are “good, decent people…true patriots who should be honored.”
    — Stephen Odlin [30:20]

Notable Quote

“These are true patriots and we should honor them.”
— Stephen Odlin [30:20]

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Timestamps by Segment

• [01:49–08:54] Jim Carney on nominal GDP, Fed, asset allocation
• [10:48–17:14] Seaport Analyst on earnings, S&P valuations, sector themes
• [17:52–24:23] Heather Rice on AI’s business impact, labor, and branding
• [25:00–30:52] Stephen Odlin on CEO sentiment, labor, AI, and macro trends

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Memorable Moments & Quotes

• Jim Carney:

  “Equities are a nominal asset with real returns…” [07:58]

• Seaport Analyst:

  “Earnings are growing 50% this quarter…that just doesn’t happen.” [11:59]

• Heather Rice:

  “Be a curious learner, use it to give yourself more time to really understand business.” [21:38]

• Stephen Odlin:

  “AI is actually creating jobs, net jobs…The quality of work will improve…” [28:01]
  “These are true patriots and we should honor them.” [30:20]

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Takeaways for Listeners

• The S&P rally is underpinned by unusually strong earnings and sustained nominal growth, not by inflated valuations.
• Higher-for-longer rates and persistent inflation cement the case for equities over fixed income.
• AI and tech investments are driving productivity and changing job roles, but not causing widespread job loss.
• CEOs are cautiously optimistic but closely watching inflation, AI risk, and the macro environment.
• Consumer businesses are focused on efficiency and are wary of passing on cost increases given heightened competition from store brands.
• The tech and AI boom’s benefits are uneven geographically, but its waves will be felt broadly in both markets and labor.

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For a deep dive into equity strategy, AI’s real-world impact, and how top decision-makers are planning amid relentless change, this episode delivers timely, nuanced perspectives straight from the leaders shaping markets and companies.

Transcript

[Narrator/Announcer]

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[Market Analyst/Financial Commentator]

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[Interviewer/Tom Keene]

Our interview of the day and Fixed Income James Karen, Jim Carrey and joins us with Morgan Stanley CIO Cross Asset Solutions. Jim, you know I love your note where you review nominal gdp. When you talk to your accountants, your economists. Excuse me, when you talk to your economists, do you see a sustained nominal GDP or can it come down from the 5% level?

[Jim Carney (Morgan Stanley CIO)]

Good morning Tom and Paul. Listen, you know nominal GDP is, is really. If I'm talking to my accountant, he sees only nominal dollars, right? We all get paid in nominal dollars, right? So what we observe in the world is a nominal world. We don't observe like we don't get paid in real dollars. So you know the fact that nomin first quarter of this year was running at 6%, which is significantly above the average over the last many years, which was closer to 4. And in the second quarter, nominal GDP, if you look at the GDP deflator, nominal GDP was running closer to 7.9%. If you use PCE as your inflation measure, it's closer to six and a half percent. But the point here, Tom, is that if you're in a higher nominal GDP world, you tend to get higher earnings. No surprise there. We can Take a look and see what's going on with second quarter earnings and even with first quarter earnings. And that's the kind of connection that we should draw. So when I talk about higher nominal gdp, think about that as higher equity earnings and earnings per growth and earnings per share growth.

[Narrator/Announcer]

So Jim, how does our Federal Reserve adapt to this type of economic environment and growth environment?

[Jim Carney (Morgan Stanley CIO)]

Well, I mean, you know, part of this is, is, is the inflation element to it, right? You know, so nominal GDP is real growth plus the inflation. So you know what's driving the higher nominal GDP is that we are living in a higher inflation world somewhere around two and a half, 3%, let's say. Well, I guess we'll find out more on Wednesday. So you know, the question is, is, is inflation accelerating higher? Can we sustain a 2 and a half percent inflation to 3% for the time being until it settles back down? Yes, I don't think that that is going to be what overly corrosive for the Fed as long as they believe that inflation and inflation expectations are not becoming ingrained where it becomes something that becomes more destructive going forward. But so at this point right now I think it's sustainable. But I guess we'll find out more on Wednesday. With cpi, how do you expect here,

[Narrator/Announcer]

just kind of interest rates in general? It just feels like we're higher for longer here, Jim. Is that the world you think we're in or are we going to see some moderation?

[Jim Carney (Morgan Stanley CIO)]

Yeah, I do think that we're in a higher for longer environment. So one of the correlations that you can draw and you can go back over a long period of time is nominal GDP versus the 10 year yield. Those two usually sit pretty close to each other. And I'm not calling for 10 year yields to go up significantly. I think that we're primarily in a range and we're going to go pretty much sideways into the end of the year. But the ability for rates to move down sharply right now, particularly at the back end, outside of having a recession or some really sharp slowdown in the economy, I think is somewhat limited because, you know, in the environment that we're in, you know, at the current moment, it just seems that nominal growth is going to be higher, which means that it just, it just alleviates the risk of, of yields moving down sharply.

[Interviewer/Tom Keene]

So the Jim the Gloom crew is going to step in and say, okay, there's all this fancy Jim Carrey talk, but the question is the fiscal state we're in, how do you pull in our debt, in our deficit, into that ancient worry, oops, price down yields up bigly.

[Jim Carney (Morgan Stanley CIO)]

So, so this is a great question, Tom. So let's connect the dots on this. So the idea is that if you have higher nominal growth, which we do, that's what pays down your deficit, right? That is the number one thing that pays down your deficit. So you're absolutely right. The deficit is too high. It's around 6% of GDP. It's been coming down. By some measures it's slightly under. I'm sorry, that's the fiscal deficit, not debt to gdp. Debt to GDP is, you know, is still a little bit high, depending on what metric you're using, around 120%. Now that's likely to come down as long as you have higher nominal growth. That's what brings that down the fastest. That's what we did after World War II, right. We had yield curve control. We capped, you know, 10 year yields at 2.5%. We allowed nominal GDP to get above 6, and that's what paid down the deficit after World War II. So in some ways we're doing something similar to that right now with higher nominal growth.

[Narrator/Announcer]

Jim, how is this kind of world of higher economic growth, does that change your asset allocation at all?

[Jim Carney (Morgan Stanley CIO)]

Yeah, absolutely. So basically, if you're at a higher nominal world, you're likely going to favor more equities over fixed income. So when you think of 60, 40, I would say, you know, 60% equity, 40% fixed income is a traditional balanced portfolio. I would say that the 40% in fixed income becomes somewhat challenged right now just because you don't have the ability to generate high levels of return without rates moving down very sharply. So the equity markets tend to have higher valuations when you have inflation somewhere around two and a half to three and a half percent, which is where it is today, valuations tend to be higher and sustainably higher. Companies have margins, they have pricing power, they generate higher earnings. So equities tend to be the asset class that is in favor in a higher nominal growth world. So it tilts me more towards the equity spectrum and a little bit away from fixed income.

[Interviewer/Tom Keene]

So do you look in terms of use of cash, is dividend growth and share buyback to be a constructive yield equivalent forward three or five years?

[Jim Carney (Morgan Stanley CIO)]

Yeah, yes, you know, absolutely. Because, you know, dividend yields are real yields, right? You know, that's the yield you get after all the expenses and inflation is a cost, right? That's what you get back from the, you know, the, you know, the stock that you bought. So what you want to have are higher real returning assets, real yields. And as I always like to say that, you know, equities are a nominal asset with real returns, because with equities you get the return after all the expenses, inflation being one of those expenses. So whether it's dividends or if it's buybacks or whatever the case may be, that's where you're likely to see the appreciation. Appreciation, the most appreciation in your investment is likely to come from the equity side of the ledger as opposed to the fixed income side. That doesn't mean fixed income is not important. You still need that as a hedge and it's a good source of income in your portfolios, but you have to balance it properly.

[Interviewer/Tom Keene]

Jim Carrey thank you. Terrific Monday morning brief with Morgan Stanley. Jim Carrey Stay with us. More from Bloomberg Surveillance coming up after this.

[Narrator/Announcer]

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[Market Analyst/Financial Commentator]

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[Narrator/Announcer]

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[Podcast Host/Producer]

You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from 7 to 10am Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

[Interviewer/Tom Keene]

Joining us on John Gallup, what's a wonderful earnings update all through the quarter as well with Seaport Research Partners. You are in the Surveillance timeout chair. A 66 page PowerPoint is an October event. Now you have an August 66 page PowerPoint. What are you, Mary Meeker which is the most important SL slide in your

[Market Analyst/Financial Commentator]

66 page PowerPoint there is one slide right at the beginning which highlights that the market is up, whatever it is, you know, between 10 to 15% this year. But the earnings are way above that number and the stock multiple is down. And the narrative that's out in the market is that this market is expensive because it's up so much. And in reality it's all earnings and the valuation is two and a half multiple points cheaper. That's about 12% cheaper than it was the beginning.

[Interviewer/Tom Keene]

So how do you, how do you treat major firms tweaking their target out 12 months up 100s and P points? Let's go to 7,800. Let's go to 8,000. This creeping extrapolation, how do you synthesize that?

[Market Analyst/Financial Commentator]

Well the, I mean if there's a theme, the analysts are underestimating the power of these earnings. Earnings are growing 50% this quarter compared to a year ago. That just doesn't happen. The only time it does happen is when you're leaving a recession and you're comparing a broken quarter a year ago to a really good quarter now. And that's not what's happening. You don't have mid cycle earnings seasons with 50% growth. And even if you take out one time Items, you're at 30%. That's still an insane number.

[Narrator/Announcer]

So what screens well for you here? Are we chasing this earnings growth? What are you guys looking at these days?

[Market Analyst/Financial Commentator]

So there's, there's actually a number of, of stories. So across the tech landscape things look really great. Except the hyperscalers, if you look at it on a cash flow basis are a real problem. But otherwise even their earnings growth is strong. The financials, all of this activity that we're seeing on data centers and all this stuff needs to be financed. The banks we went into, earnings season expectations were for 7 and a half percent growth. It looks like the number is going to come in over 25% growth. So we just a massive underestimation of the role that banks play in this.

[Narrator/Announcer]

So what is the theme for you these days? I mean it used to be just by the chips and I guess that's still a good way to do it. But people are looking for derivative plays and derivative off of those derivatives. How do you guys think about it?

[Market Analyst/Financial Commentator]

Well, first of all, you know, if we step back, what percentage of the S and P is ultimately part of this? If you look at the entire tech related basket, because you know, Google's considered a communications company and Amazon's considered a consumer company. If you take that basket it's over 45% of the S and P. But then you have to add the power generation companies and the companies that make refrigeration and, and all of the things that go into that process. You're talking about well over 50% of the market is part of this theme. And if you go abroad, interestingly, emerging markets, markets and you're talking about Taiwan and Korea are plays on this theme. The only thing it's not, you know, you're talking about Europe before. Europe's not a play on this, on this theme. And they're kind of getting left behind in terms of earnings growth.

[Narrator/Announcer]

So it's pretty much everywhere. You're looking out there into the market.

[Market Analyst/Financial Commentator]

It's, it's 65% of the, of, of the public equity market.

[Narrator/Announcer]

So we're going to have a Fed. Doesn't appear that's going to be helping this market. But I guess with the, if the Fed's not going to be lowering rates, we, you really have to rely upon earnings and that's good news because the earnings are coming through, I guess.

[Market Analyst/Financial Commentator]

Well, if you look at the valuation on stocks, first of all the credit spread, you know, the ability for a company to make that debt payment is way more important than the, than, than the general interest rate and that's a tad this year but it's not a huge. But the fact is, forget about the Fed. The 10 year bond yield is up 70 basis points or so this year and you know, if your discount rate is up, your multiple goes down and that's one of the big reasons why you have earnings up more than the stock prices.

[Interviewer/Tom Keene]

Rotation it seems, it seems almost antiquated. Like you know, everybody in the room is so young that nobody knows rotation. But are we doing traditional rotation or is it like all new now?

[Market Analyst/Financial Commentator]

Well if you take a look at first of all there's a huge amount of movement with, under, under the hood. So in the month of July you basically had a flat market but you had a, you know, in between June and July a really large tech and growth sell off and then value went into favor. So there's a lot of movement.

[Interviewer/Tom Keene]

I don't buy it. Belcher's in later. Index funds don't rotate, do they?

[Market Analyst/Financial Commentator]

The market, what the market favors rotates. So the index fund may not be moving in or out. But whether it's give you an example Tom, for as interest rates have been rising on the long end of the curve, they are punishing tech more so on days or months and weeks when interest rates go up they don't treat everything equally.

[Interviewer/Tom Keene]

Okay, are you, what do you do marginally with Mag7? Do you sell it? If you own it, do you buy it at the margin?

[Market Analyst/Financial Commentator]

Right now, first of all, I'm not sure that that definition is the most important definition. Okay, but let's, but let's. If we break it down, there's two tech stories. There's the hyperscalers that are spending money like Craz that have a cash flow problem. And then you have the rest of tech and even software where people are concerned about what is AI going to do in terms of disrupting it over the long run.

[Interviewer/Tom Keene]

Right.

[Market Analyst/Financial Commentator]

Their earnings are fantastic. And then hardware and semis are off the charts.

[Interviewer/Tom Keene]

Total gloom. Third week of June, Red Sox are in last place. Ackman and Gallup, it's a wonderful firm. Ackman and Gollop say shut up and buy Microsoft. It's up 43% from that June low. I mean some of this big seven

[Market Analyst/Financial Commentator]

stuff is popping and it's popping because, because the earnings are there and Microsoft is kind of interesting because they're part of this hyperscalers business. Their cash flows are fantastic. So not all of them are the same, but the amount of spend in capex that they are part of is enormous.

[Interviewer/Tom Keene]

John Gotliffe, thank you so much. Seaport Advisors can't say enough about his research note again, we protect the copyright of all of our guests. Look to Seaport Advisors for Golub's brilliance. Stay with us. More from Bloomberg Surveillance coming up after this.

[Podcast Host/Producer]

You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from from 7 to 10am Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg business app or watch us live on YouTube.

[Interviewer/Tom Keene]

One of the good things with Heather Rice in KPMG is she doesn't toss a 66 page PowerPoint on her lap at KPMG here in August as well. Joining us Heather, US products line, a business leader at KPMG PowerPoint. So you'd like to your eyes glaze over after the 20th page?

[Heather Rice (KPMG US Products Line Business Leader)]

Yeah, I think PowerPoints are dead.

[Interviewer/Tom Keene]

What's AI done to PowerPoints? Like can you clawed a PowerPoint?

[Heather Rice (KPMG US Products Line Business Leader)]

Yeah, I think you can. But trying to convey information that way I think is just difficult. I think more and more people are, you know, are looking for storytelling.

[Interviewer/Tom Keene]

Okay, tell us about storytelling right now in August of 2026.

[Heather Rice (KPMG US Products Line Business Leader)]

Well, I think the main story we can, you know, continue to hear is the, you know I is is being used for operational efficiency. Right. As consumer and goods companies are faced with tariffs they have been for a year. You know, you thinking about the war in Iran and the oil prices and what it's doing to logistics. So I think the bigger, the bigger story is how do you look at your operational structure in terms of cost and understanding what, like what companies are doing?

[Interviewer/Tom Keene]

You know what I mean? Paul's getting us this question. I'm taking it away from him right now. What are they doing? Are we losing jobs due to AI? Did I do okay there, Paul? Sure, that was a good. Okay. Are we losing jobs because of AI?

[Heather Rice (KPMG US Products Line Business Leader)]

Yeah, I wouldn't, I wouldn't frame it like that. How I would say companies are using AI to move faster in business and we have massive amounts of data, but what do we do with that? I kind of call it the paralysis of data.

[Interviewer/Tom Keene]

I like that.

[Heather Rice (KPMG US Products Line Business Leader)]

And so I think you have employees that are now being able to be more valuable and spending more time analyzing the data to make business decisions quicker.

[Narrator/Announcer]

So I mean, the companies, your clients, are they looking, how are they looking to implement AI? And because there is a cost component to it that I think companies are becoming more and more sensitive to. So what are the conversations that you're having with your clients?

[Heather Rice (KPMG US Products Line Business Leader)]

Yeah, I mean, and I kind of view us as kind of client zero and how we've kind of, we've shaped that narrative. But, but what I would say is thinking about the operational structure of a business and I think everybody's trying to think about how do you take out back end costs. Right. Because that is a non value add to the price of the product that we're selling. So thinking about how we can create some of the, or take out some of the non value pieces of our business to streamline it and free up people to do more value add tasks

[Narrator/Announcer]

is that actually we're probably not even in the bottom of the first inning here. I mean, it feels like a lot of companies, like a lot of individuals are just trying to figure out what is AI, how do I use it, how do I use it ethically? Where are the, I mean, do you feel like your clients are on the forefront here or they're trying to catch up? What are, what are you seeing out there?

[Heather Rice (KPMG US Products Line Business Leader)]

I would say I don't think anybody's trying to catch up. I think everyone is still trying to figure out how we're going to use it and what it looks like within your business. And I think that there's a, I think there's a lot of steps you have to do. I don't think it is a quick plug and play Solution.

[Interviewer/Tom Keene]

Right.

[Heather Rice (KPMG US Products Line Business Leader)]

If anything, I think it's exposed that your data has to be good data.

[Interviewer/Tom Keene]

And well, Heather, you're in an esteemed room here. I mean, Paul Sweeney valet cars at the Jefferson Hotel in Richmond, Virginia. Just a few years ago. You are in Richmond, which to me is a perfect melting pot of the stress parents and their kids are having about AI. What do you say to Robin School people at Richmond coming out and they're like, okay, I got to get a job, but everybody tells me I'm not going to get a job because of AI. How do you respond to that at kpmg?

[Heather Rice (KPMG US Products Line Business Leader)]

Yeah, I would say lean into it. I actually think it makes you smarter. I think you're able to analyze data quicker, look at the trends, connect the dots in a way that we haven't been able to do before. And so, so I think be a curious learner, use it to give yourself more time to really understand business.

[Podcast Host/Producer]

Right.

[Heather Rice (KPMG US Products Line Business Leader)]

And so I think like, you know, for Richmond, I would say they're encouraging it.

[Interviewer/Tom Keene]

I agree with everything you just said. But do CEOs agree with what you just said or are they just looking at it as one big cost cut?

[Heather Rice (KPMG US Products Line Business Leader)]

No, I think that they are. I think CEOs are trying to evaluate how we're going to use it in our business. I mean, certainly it's business. It's not going to, you know, robots aren't going to be, you know, running, running a business, you know, anytime soon. But they are looking to understand how do we continue to train our employees, how do we move faster in this day and age? You have to go quick or you're going to get left behind.

[Narrator/Announcer]

How do you consumer products, companies that you cover. We were just talking about this earlier. Inflation, higher costs. There just doesn't seem like they're going away. And I'm like, how do your companies do? They just assume they can continue raising prices to maintain margin?

[Heather Rice (KPMG US Products Line Business Leader)]

Yeah, I would say the exact opposite. And I certainly think it depends on if you're looking at consumer staples or if you're looking at luxury goods. But I would say I don't, I don't think we're seeing companies pass the price on to consumers, especially in the staple market. I mean, if you think about it, these very large brands, right, they've dominated the physical shelf for years. You walk down the aisle right in the middle with anything as E commerce has come on. Right. Especially during COVID and after Covid, they have to be really careful because they, they do not want to get lost in what I kind of call Call the search bar. The digital. The search bar. So if you raise prices, you potentially could lose out on consumers and become invisible in the digital age.

[Narrator/Announcer]

Well, I think the issues, I think since COVID and just inflation in general, the store brands are just, I can't believe how big they're. Maybe I just wasn't seeing it before, but now I go to walk down aisle and they're everywhere.

[Heather Rice (KPMG US Products Line Business Leader)]

Yeah. I mean there's certainly more private, private labels. And I think, and I think that's where the brands are really at risk if they do pass on those prices to consumers, even by 5%. Right. There's a, there's a set amount of wallet that consumers have. And if, if you increase your price just a little bit and you cause a consumer to look down, grab the private label.

[Narrator/Announcer]

Yep.

[Heather Rice (KPMG US Products Line Business Leader)]

You're at risk of maybe losing a customer forever if the customer doesn't find value in what you're paying. The upcharge.

[Interviewer/Tom Keene]

Don't be a stranger. Heather Rice with us from Richmond. US Products line business leader at kpmg, decades of kpmg. Really, really interesting tone there on AI and what it means for all of us. Stay with us. More from Bloomberg Surveillance coming up after this.

[Podcast Host/Producer]

You're listening to the Bloomberg Surveillance podcast. Catch us live weekday afternoons from 7 to 10am Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.

[Interviewer/Tom Keene]

This is a joy and is an earned position. He's at the Conference Board, which is legendary. We talked to their economists. They are a wonderful group. But he comes as a CEO of the Conference board after a wonderful heritage of running companies across America. Stephen Adelin I first knew, I think at Office Depot years ago and just wonderful to speak to him today on a broader, bigger view of America than actually running a company. Stephen, what is the confidence right now of our CEOs? They've got a boom economy. They got boom nominal GDP, earnings like we've never seen. But when they look into 2027 or plan for 2028, what's the level of confidence?

[Stephen Odlin (Conference Board CEO)]

Well, good morning, Tom. Yeah, the, the conference board's CEO confidence index just came out and this is a quarterly index that goes between 0 and 100, 100 being max and 0 being the least. We came in at 52. So right about the middle, which is up a little bit from the second quarter when things were just starting to rage in Iran and oil prices were taking off. So it's come up a little bit, but we're seeing CEO confidence float with the level of inflation and with what's going on in geopolitics now, the good news is that they're telling us that we're in a low hire, low fire situation. We're at, you know, relatively full employment and, and they're not letting go of jobs even though they're, you know, they're a little pessimistic on, on where we stand with inflation. So that's at least good news, Tom, because they right now they can hold on to their employment.

[Interviewer/Tom Keene]

Is the confidence of CEOs shaded by the technology boom is everywhere but four zip codes on the East coast in seven zip codes in Los Ang. And that we don't see that Dallas Austin as an example is booming.

[Stephen Odlin (Conference Board CEO)]

Well, you know, this whole thing is, is scary because it's yet another transition and for a while people were saying it's going to kill jobs. If you remember, this is the same thing that's happened over the past 50 years at every evolution of technology. Right. So the digital technology continues. That hasn't happened. We haven't seen a wholesale loss of jobs. Right now what you're seeing is massive investment and the hope from, you know, and that's helping the AI industry, the firms that are doing it, but everybody else is investing like crazy. And the hope is that they can drive some productivity, not eliminate jobs, but drive productivity. And remember, Tom, this is what we saw in the 90s through the last digital evolution. We saw about 100 basis points a year on the GDP.

[Interviewer/Tom Keene]

Okay, but the urchins coming out of Notre Dame or at a Kellogg school in Northwestern where you darken the door years ago, can you tell them they're going to get a job with AI or that I can improve their prospects?

[Stephen Odlin (Conference Board CEO)]

Yeah, I can. And the reason is because we've seen it, you've seen it and you know, we've been tracking it for a very long time. It's a scary thing that comes in, but AI is actually creating jobs, net jobs. And it's changing the way workflows and so the quality of their work work will improve. They're not going to be doing as much grunt work. They're going to be doing higher order work as AI does the grunt work. And there's more automation. So, you know, it's an exciting frontier that I don't think should be feared.

[Interviewer/Tom Keene]

What's the other key insight you see within your new study?

[Stephen Odlin (Conference Board CEO)]

Yeah, so I mentioned the, the low hire, low fire. We're seeing projections of wage increases next year in the 3 to 4% range. That's where people are gearing which is right where inflation is. Right. So you know, they're hanging in there in their projections with that. They also tell us that there are the top risks have changed. So, you know, a quarter ago it was all Iran, Iran, Iran. Now we're seeing it's back to cyber and, and of course AI and the risks of managing around that.

[Interviewer/Tom Keene]

So I see Office Depot and you know, I look at the other companies run AutoZone and such. If we have a new higher rate regime, how does it change? I mean if we stay here, it's some kind of higher rate regime that's way different than where we were six, seven years ago, isn't is.

[Stephen Odlin (Conference Board CEO)]

But it's still, you know, about where it was before that. So, you know, what we were in is a temporary situation, you know, with two and a half percent mortgages because of 00 discount rate. Okay. That's just not reality. That's not where it needs to be. I think Kevin Washes is a brilliant guy. He is very close to the business community. He calls CEOs personally to try to keep his finger on the pulse of Main street and what's going on in the economy. The conference board is projecting no increase or decrease, no rate change for the balance of the year. And interestingly, we'll see a couple of rate changes in 27.

[Interviewer/Tom Keene]

What's. I love, love asking this because you're such an operational guy across your heritage, across your resume, what's the biggest myth about CEOs that Hollywood holds and that the public holds?

[Stephen Odlin (Conference Board CEO)]

It is interesting. You know, you watch these movies and these CEOs are always the evil people. You know, they're ordering, you know, crimes to be done and everything. You know, look, I know hundreds and hundreds of CEOs. These are good, decent people who get up every morning worried about their consumers, their investors, their employees trying to take care of their business and trying to make sure that they create jobs, protect jobs, you know, grow the economy, do the right thing for the country. These are true patriots and we should honor them.

[Interviewer/Tom Keene]

I can see Steve Odlin central casting, the bad guy CEO. He is the bad guy at the conference board. Stephen Odlin.

[Podcast Host/Producer]

This is the Bloomberg Surveillance Podcast available on Apple, Spotify and anywhere else you get. Your podcasts listen live each weekday 7 to 10am Eastern on Bloomberg.com, the iHeartRadio app, TuneIn and the Bloomberg Business app. You can also watch us live Every weekday on YouTube and always on the Bloomberg. Terminal.

[Heather Rice (KPMG US Products Line Business Leader)]

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