Tariffs and Geopolitics and the Market Intersection

Summary

Bloomberg Surveillance Podcast: Tariffs, Geopolitics, and the Market Intersection

Episode Date: July 27, 2026
Hosts: Tom Keene, Damien Sass, with guest interviews
Main Guests: Joe Lavornia (Chief Economist, S&P C Nico Securities), Emily Rolland (Co-Chief Investment Strategist, Manulife/John Hancock), Kara Murphy (Chief Investment Officer, Kestrel Investment Management), Monica Greer (Executive Director, Morgan Stanley Wealth Management)

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Overview

In this episode, Bloomberg Surveillance brings together leading economists and strategists to dissect the tangled intersections of tariffs, geopolitics, monetary policy, and market outcomes. The dynamic discussion explores persistent inflation, the role of tariffs and industrial policy, exceptional market resilience, the AI-driven economic boom, funding shifts in major tech players, and political risks heading into the US midterms and beyond. The tone is incisive and energetic, reflecting the show's trademark mix of expertise and frankness.

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Key Discussion Points & Insights

1. Inflation, Fed Policy, and "Magical Thinking"

[03:06 - 04:27]

• Inflation Reality Check:
  • Tom Keene challenges the notion that inflation will quickly revert to 2%.
  • Joe Lavornia: “The idea we're coming back to 2% inflation, it's just not going to happen... The magical thinking part comes. You could say as much as you want, it's gonna go back to two but the words alone aren't going to do it.” ([03:06])
• Fed’s Dilemma:
  • Lavornia points out that monetary policy is targeting only about 3% of the economy—primarily housing—while other segments remain robust, spurred by incentives for factory investment.
• Policy Implications:
  • He emphasizes that inflation above 2% doesn't resolve without meaningful Fed action, namely interest rate hikes.

2. Tariffs, Industrial Policy, and Economic Strategy

[04:42 - 05:36]

• Tariff Politics:
  • Lavornia describes tariffs as a now bipartisan reality:
    “I don't have a problem with tariffs... Regardless of what happens in the future, if the Democrats come in, I doubt they'll remove many of those tariffs. We need the money, Tom.” ([04:53])
  • Notes the policy’s intent to encourage foreign capital and industrial growth, referencing political shifts making industrial policy mainstream.
  • On Tariff Burden:
    • Ambiguity remains about who actually pays tariffs: "Sometimes yes, sometimes no... We don't know yet.” ([08:22])

3. Bond Yields, Global Markets, and the K-Shaped Economy

[05:36 - 07:30]

• Rising Yields:
  • Lavornia frames the current uplift in nominal and real yields as a natural normalization after a decade of "zero rates" and negative yields.
  • The AI buildout and healthy US economy drive higher equilibrium rates: “Rates are supposed to be higher. The equilibrium real rate is higher.” ([06:52])
• K-Shaped Debate:
  • Keene steers discussion to income inequality; Lavornia notes policy is meant to lift lower quintiles, but acknowledges fluidity and open debate on real benefits as data is murky.

4. Market Structure, Bullishness, and Technology’s Role

[11:47 - 14:48]

• Earnings & Resilience:
  • Emily Rolland: “It’s a massive bull market that is fueled by some of the most extraordinary earnings that we've seen in modern history... This quarter, reported earnings growth for the S&P 500 is coming in at 70%.” ([12:30])
• Tech & Fiscal Winds:
  • She highlights a “fiscal sugar rush” from recent policy (CapEx incentives, tariffs) and notes the manufacturing “renaissance” from onshoring and AI data center expansion.
• Future Risks:
  • Warns of a potential “hangover” if fiscal stimulus fades, which could catch the Fed wrong-footed.

5. Equity Strategy: Utilities, Mid-Caps, and Defensive Sectors

[14:16 - 17:43]

• Utilities as Hedge:
  • Utilities remain attractive as inflation hedges and for their defensive qualities, despite strong performance YTD:
    “We are facing this remarkable environment... this huge AI boom, this massive need for companies to raise liquidity is coming at the exact same time where central banks are staring hiking down... So that could be a challenge which makes more defensive assets really in our view pretty attractive. Utilities… we’re still overweight.” ([14:48])
• Mid-Cap & Industrials’ Resilience:
  • Rolland champions mid-caps, especially those with industrial exposure, for their ability to thrive in moderate inflation environments.

6. Geography, Real Estate, and Regional Booms

[18:20 - 19:18]

• Sunbelt Cities vs. Financial Hubs:
  • Kara Murphy discusses the competitive advantages and challenges of growth cities (Austin, Nashville), noting that high temperatures and resource constraints are drawbacks, but they are attractive cultural alternatives to New York.
• Real Estate:
  • Despite some price softening in Boston, inventory issues persist due to geographic constraints.

7. AI Transformation: Universal Impact and Market Concentration

[19:18 - 22:44]

• AI’s Ubiquity:
  • Murphy points out that as AI adoption spreads, benefits will diffuse beyond superstar tech stocks:
    “Ultimately, if AI is great... everyone will benefit, everyone will be using it, everyone will become more productive.” ([19:34])
• Market Diversification:
  • Suggests investors shouldn't ignore sectors left behind in the tech rally: value names, small and mid-caps, non-US developed equities.
• Capex Surge & Funding:
  • Massive debt financing by hyperscalers (e.g., $225B raised in 2026 for data centers) is changing balance sheets, sometimes making tech companies resemble utilities in debt profiles.

8. Political & Geopolitical Uncertainty: Oil, Stimulus, and the 2027 Outlook

[29:24 - 34:36]

• Oil & CPI:
  • Monica Greer sees oil prices as the biggest immediate pressure on headline inflation.
• Iran Conflict & US Politics:
  • Discussion of US negotiations with Iran and the complexity of identifying real negotiating partners.
• Midterm Risks & Affordability:
  • Greer: “Historically the sitting president's party loses about 30 seats... add in the potential for an oil shock... you're looking at average seat losses of 32 versus 6 in a normal year.” ([31:11])
  • Affordability crises—energy and housing—could dominate voter concerns.
• Stimulus “Addiction”:
  • Despite fatigue, Congress remains willing to spend, especially on defense. Greer considers military spending as a form of economic stimulus due to its multiplier effect.
• Defensive Market Positioning:
  • Utilities again cited as a relative safe haven amidst sector-wide pressures.

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Notable Quotes & Memorable Moments

• “You are brutal. The idea we're coming back to 2% inflation, it's just not going to happen.”
  • Tom Keene to Joe Lavornia ([03:06])
• “The magical thinking part comes. You could say as much as you want, it's gonna go back to two but the words alone aren't going to do it.”
  • Joe Lavornia ([03:57])
• “We need the money, Tom. We need the money.”
  • Joe Lavornia on bipartisan embrace of tariffs ([04:53])
• “This has been a dip buyer's dream market.”
  • Emily Rolland ([12:30])
• “The S&P is not full of electric companies. It's full of companies that use electricity.”
  • Tom Keene referencing Kara Murphy ([19:18])
• “Some of these [tech] names actually look more like utilities than they do tech companies in terms of the amount of debt...”
  • Kara Murphy ([24:01])
• “Affordability is huge here... you've got an uphill climate.”
  • Monica Greer on the 2027 political outlook ([31:11])
• “From a political perspective, you cannot underestimate Congress's ability to spend.”
  • Monica Greer ([32:00])

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Important Segment Timestamps

• Inflation & Fed Policy:
  • [03:06 - 04:27] Tom Keene & Joe Lavornia on persistent inflation
• Tariffs & Industrial Policy:
  • [04:42 - 05:36] Joe Lavornia on tariffs, US policy shifts
• Global Yield & Politics:
  • [06:34 - 07:30] G3 bond yields and economic implications
• Bull Market & Tech:
  • [12:30 - 14:16] Emily Rolland on earnings and technology’s economic impact
• Equity Sector Strategy:
  • [14:16 - 15:46] Utilities, defensiveness, and inflation hedges
• Mid-Caps/Industrials:
  • [16:18 - 17:43] Mid-cap resilience vs. recent sell-off
• AI, Funding, & Market Structure:
  • [19:18 - 24:40] Kara Murphy on AI’s market impact and tech sector funding shifts
• US Political Risks:
  • [29:24 - 34:36] Monica Greer on geopolitics, oil, midterm elections, and stimulus

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Conclusion

This episode of Bloomberg Surveillance offered a sweeping analysis of the interconnected issues facing the global economy and markets—from sticky inflation and the politics of tariffs to sector strategy and the pervasive impact of AI. The episode stands out for its clarity, candor, and ability to balance macroeconomic risk with actionable investment insights, all interwoven with sharp quotes and memorable exchanges.

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For more details and timely insights, listen on-demand across platforms or watch Bloomberg Surveillance TV/Radio live.

Transcript

[Tom Keene]

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[Joe Lavornia]

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[Tom Keene]

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[Tom Keene]

It's always good to see Joseph Lavornia Chief chief economist s&PC Nico securities but even better with the incredibly smart note you have magical thinking. You are brutal. The idea we're coming back to 2% inflation, it's just not going to happen. You go out to 2028 and say Fed central tendencies are still elevated. Are we running a Fed policy now for elevated inflation?

[Joe Lavornia]

Running fed policy on 3% of the economy, which is housing. So area that's really weak, Tom. Everything else is very strong. If you look at the consumer, you're going to get huge building and structures, commercial structures because of the one big beautiful bill which has temporary expensing for factories. You could expense a factory the year you break ground. That's going to expire at the end of 2018.

[Tom Keene]

It's like Lyndon Bain Johnson from EMC

[Joe Lavornia]

to some extent and of course you've got massive capex. So what's weak? And the note and the history show if you're above Trev, you're above 2% on inflation. Show me when it falls. Give me an example. When it falls. It's not gonna fall unless something happens. And in the past it's always been the Fed needs to increase interest rates and raise the price of credit and money. So the magical thinking part comes. You could say as much as you want, it's gonna go back to two but the words alone aren't going to do it.

[Tom Keene]

I'm gonna say this with great respect. Joe Lavorne is the only one I've seen that's worked within the that basically speaks English. Convey the President's economic theme in Lavonia clarity right now.

[Joe Lavornia]

Well, the economic theme is to have business friendly taxes, low regulation and put up a tariff barrier so as to encourage foreign capital.

[Tom Keene]

Are tariffs too high?

[Joe Lavornia]

It's not clear. We're going to get back to 13%. No. Now if tariffs been implemented the way maybe they should have been, we could debate that. I don't have a problem with tariffs. The tariffs argue are a bipartisan issue. And in fact regardless of what happens in the future, if the Democrats come in, I doubt they'll remove many of those tariffs. We need the money, Tom. We need the money. And look, Bill Clinton in the early 90s ran on the possibility of essentially an industrial policy and those were bad words 30 odd years ago. But the pendulum politically has switched and China now is a peer competitor and a strategic adversary.

[Tom Keene]

Lavornian 1890 working for William McCabe. I can see it. Damien says our with Joe Lavornia.

[Damien Sass]

Joe, in your last no magical thinking, you know, you mentioned that the longer the Fed waits, the higher the probability rates will have to rise further in the future. Right. And I said that earlier on this show earlier today, and I agree with you. But then I've got Ryan from Atlanta calling on me saying how does the Fed raising rates, you know, you know, affect a supply shock and how does that matter? And you know, how would you respond to that?

[Joe Lavornia]

First of all, if you go back to last year, the Fed was cutting rates 75 basis points in the fourth quarter because it was almost September, October, December. They were worried about downside risk to the labor market. And the inflation outlook was still relatively benign. You could tell the story. It was going down. Fast forward seven months later. We don't need those three emergency cuts. The last cut by Jay Powell. There were three dissents against those cuts. So if you're setting monetary policy purely to the demand side and then you have a supply issue which could only further ingrain some of those concerns about inflation, you're supposed to at minimum take back those cuts.

[Damien Sass]

I don't disagree with you. And now you look at the bond market, maybe waking up to the reality of that. I mean, not just the U.S. treasuries market, but Buns, JGBs. I mean, what are your thoughts on the rise in nominal yields we're seeing across the whole of G3, if not the world? And what's driving that? Is it fiscal? Is it something else?

[Joe Lavornia]

It's partly the fact that for 10 years we had zero rates. Forward guidance that said rates were at zero and a large swaths of the world, negative interest rates. So we're moving away from that. In the US the rise in real yields reflects a tremendous demand for capital as it relates to the AI build out and the fact that the US economy relatively is performing well. Rates are supposed to be higher. The equilibrium real rate is higher. So high rates by themselves aren't bad. That's where we are.

[Tom Keene]

Explain the politics of the K shaped economy. People listening this will say Joe Lavorne is talking about the haves who are prospering. So many are not.

[Joe Lavornia]

Discuss that conundrum when you talk about the Trump policy. It is supposed to work so that the bottom quintiles are the ones that thrive and do better in relative terms. And that's what we saw in the first term. The situation that's in the Middle East, Tom, I think has really kind of upended the apple. Oh, there's no question about and therefore I was not I'm not a K shape to come person in a sense because I do think that the situation's fluid. There's income mobility and the regulatory and tax policy of the administration is generally pro growth to these type of people. It's very hard to get good data on those lower income levels. But right now it's open debate. So the K shaped is just people struggling because their real incomes are Martha

[Tom Keene]

Gimbel, the budget lab at Yale who pays tariffs? The fact is Americans pay a 9 or 12 or 13% tariff, right?

[Joe Lavornia]

It depends. Sometimes yes, sometimes no. It depends on the tariffs. The idea though is to encourage capital to come in to create high paying jobs in that not yet. We don't know yet. The answer is we don't know.

[Tom Keene]

Fair.

[Joe Lavornia]

We don't know. I mean what about share Tom, Secretary Bess made a good point. Like the tariffs are supposed to work like a melting ice cube. Like you get the capital come in, you build the tax base, you create these better jobs and then over time you'll lose the revenue from the tariffs. The tariffs won't be the driver. It's the growth in the domestic economy that drives it.

[Tom Keene]

We got to go. Joe Lavernia, thank you so much for coming in. I love when somebody comes in and says I don't know.

[Damien Sass]

I love when Joe does my

[Tom Keene]

Everybody gets certitude. You know, we know, we believe it's like Eiff and David's the same way. I don't know. Joe Lavornia, thank you so BC really appreciate it. Stay with us. More from Bloomberg Surveillance coming up after this.

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[Tom Keene]

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[Bloomberg Host]

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.

[Tom Keene]

Join now. Emily Rolland with us co chief investment Strategist Manulife and all of the John Hancock combine as well. She has been spectacular about saying be in the market. Emily, I just did the fancy math using the Bloomberg Professional service. We we have a drawdown on the aspects we have corrected just under 3%, 2.8% we've pulled back. It's a hellacious pullback. If I'm just able to get back to my long term moving average what I use, I need to go down another 4.2% even with that back to my long term support. It's not a correction. How much of a bull market is this?

[Emily Rolland]

It's a massive bull market that is fueled by some of the most extraordinary earnings that we've seen in modern history. Just looking at this quarter this morning, reported earnings growth for The S&P 500 is coming in at 70%. You don't see that outside of coming out of a recession. It's just been remarkable. And also Tom, this has been a dip buyer's dream market. So what happens anytime you see these little mini corrections is the retail investor comes back in and we continue to see this bullishness. These Technical momentum traders are buying the debt.

[Tom Keene]

So we have a select group of guests. You know, institutionally, you know, she's like an old John Hancock, new John Hancock up in Boston. I can't keep it straight. But Emily, the bottom line is people are framing out a more long term buoyant GDP because of all this technology, right?

[Joe Lavornia]

Yep.

[Emily Rolland]

There's been massive spend on technology. We're also seeing a bit of a fiscal sugar rush hitting the economy right now. You know, outside of the World cup, which certainly helped, we've got tariff refunds. Now we have the one big beautiful bill that's providing tax incentives for companies to invest in CapEx, which is primarily happening on the AI and data center front. You've got the consumer holding in while you've got this onslaught of onshoring activity helping fuel this manufacturing renaissance in the United States. So the economy is holding in much better than was expected. The economic surprise index is elevated. Right now. The biggest challenge is, is there a potential hangover from this fiscal sugar rush as we head into the back half of the year, which would put the Fed potentially offsides as being a bit more hawkish here than expected.

[Damien Sass]

Well, there we go. Emily, back in the beginning of this year, one of the sort of inflation hedges that you were touting was buying utility stocks. Right. And we're in this environment where today all we're talking is rising global bond yields and rising inflation expectations. And then I look at the S and P utilities index. 31 stocks, all but two of them are up on the year and most of them in double digits. So, you know, and it's a sector that's up 8.2% year to date. Talk to us a little bit about do utilities in your mind, after what looks to be some fantastic performance here today, do they still hold some value for you here?

[Emily Rolland]

Yeah, they do. Especially now. You know, they've done well over the course of the year. But we are facing this really remarkable environment where there's these two sort of mega forces that are set to collide in the back half of the year. On one hand you have the bond market pricing in two Fed rate hikes, one in September and one in December. So the idea there is that liquidity is going to get pulled out of the system. And on the other hand, you have these massive liquidity needs from an equity market that is frankly overvalued, has been for a while now. So this huge AI boom, this massive need for companies to raise liquidity is coming at the exact same time where central banks are actually staring hiking down, looking into the rest of the year. So I think that could be a potential challenge which makes more defensive assets really in our view pretty attractive. Utilities are an inflation hedge. They've got income and they're more defensive. So we're still overweight.

[Tom Keene]

Emily Rollin with us with Manulife John Hancock so she could be with us today. We welcome all of you across America the way you choose to listen to us. Good morning 99. 1 FM. Nathan Hager radio in Washington, 90 to 9 FM. The Vista from the new and old John Hancock extraordinary this morning. Red Sox day off yesterday. Damien day off yesterday needed a rest. Staggering loss. We got to begin another 15 game win streak. Damien Sass our with Emily Roland.

[Damien Sass]

Well Emily, I compare the Red Sox to mid caps and in your last note we were talking about the resilience of mid cap stocks in the face of the recent sell off. Talk to our audience a little bit about searching for resilience amid the morass of this week.

[Emily Rolland]

That was a good one. I've been trying to figure out how to fit that 15 game winning streak into the conversation this morning. So I know Tom is a big Red Sox fan so thank you for doing that for me, Damien. So mid cap stocks and industrials, first of all, mid caps do have a large relative overweight to the industrial sector which we've been bullish on again given the one big beautiful bill, given the build out of data centers in the United States, onshoring, etc. And when we look at mid caps in inflationary environments, they actually tend to like it. When you think about that industrial is overweight. These are companies that have fixed operating costs. They have large investments in property, plant and equipment. And when inflation rises they can actually pass those prices on to the end consumer which is why industrials tend to do well in inflation around 2 to 4%. So we think that's a great way to think about inflation. They barely budged yesterday which to us is a key signal.

[Tom Keene]

Emily, 20 seconds. Is real estate up in Boston so stupid priced?

[Emily Rolland]

We are, we're, we're still there but inventory is a problem. We're obviously surrounded by the water so it's more difficult to build out around here. But I would say there is a little bit of a softening there, just not a ton of okay.

[Tom Keene]

Emily Rowland, real estate agent, thank you. So with Manulife and Johnny, she has been great folks. Be in the market is the message from Emily Rowland. Stay with us. More from Bloomberg Surveillance coming up after this.

[Bloomberg Host]

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.

[Tom Keene]

We start strong. We're just talking about Nashville and Vanderbilt with Mr. Sass our care Murphy with us out of Austin. And there's all these cities around the country where technologically people can feel like they're somewhere in the vicinity of 6th Avenue in 54th Street. I mean, Austin's boom and Nashville's booming. I'm going to talk to Stacey Vanek about Boise at 12 noon. Is is, well, what's the negative of being in Austin versus being glued into the hub Finance New York?

[Kara Murphy]

It's 105 degrees right there right now.

[Tom Keene]

So that would be a negative. That's a serious one. I mean, the temperature and all that. But the answer is everybody's moving out to these cities. Nancy Tangler's in Phoenix. I mean, it's booming, right?

[Kara Murphy]

Yeah. And it's a lovely city. I mean, it's amazing. I spent most of my career here in New York, but Austin is really wonderful and it's got such a great culture, wonderful music, a lot of outdoor life.

[Tom Keene]

Okay, that's fine. But to your research note, it continues. And I love this. This is original. The S and P is not full of electric companies. It's full of companies that use electricity. That's brilliant. I mean, that's what we're hitting all this on, right?

[Kara Murphy]

Absolutely. And I think this is such an important lesson when we think about AI. You can believe that AI is in the midst of a massive technological revolution that will change the way that we work, work the way that we communicate. And you can be skeptical about the stocks that are most closely tied to it. Ultimately, if AI is great, as we all think it is, everyone will benefit, everyone will be using it, everyone will become more productive.

[Damien Sass]

Well, is now the time to buy AI? I mean, look, you know, a lot of these stocks have gotten hit and hit pretty bad. I mean, you look at Nvidia, we just had a guest on who was saying, you know, maybe we're at a time here based on earnings, but talk to us about, you know, these valuations. At some point, do you ever get a little bit concerned or are these sort of long term, you know, close your eyes, put it in your portfolio, you got to own it.

[Kara Murphy]

I think I'm not bearish on these names, but I do think investors need to make sure that they have access to other parts of the market. Right. Eventually the benefits of all of these Gains are going to distribute to other companies as well. Now that doesn't mean that the Mag 7 are going to turn down. They just may not always be the darlings and the leaders of the market.

[Tom Keene]

Case this is just Michael Gambali and David baruccia for Bloomberg. BlackRock is kicking off I guess in the next week. I don't know, 12 billion of a data center for Meta Facebook in El Paso, Texas. A single tranche is what gets my attention, Damian. It's like a private deal, I guess and it's just a single tranche out 22 years. I mean that's the new finance.

[Damien Sass]

Well, I mean I said it before and I kind of am serious when I say this because I'm just a voyeur when I look at the valuations and the stock market generally speaking, but the circular nature of the fact that you've got these hyperscalers that are getting into the business, then they can actually buy it. To me it seems that the funding is very circular and so long as the floodgates are open and there's still a lot of dry powder out there. I'm sorry, Bruce is your uncle in the sense that you can basically go out, correct me if I'm wrong, Kara, and buy these equities, close your eyes, park them in your portfolio or can't you? I mean that's the question. If you had to be defensive in this environment, where do you turn?

[Kara Murphy]

The good news is that there are a lot of places to turn because this market has been so incredibly concentrated for three and a half years. There are a lot of areas of the market that have been largely ignored.

[Damien Sass]

Staples, utilities.

[Kara Murphy]

Right. Like all those kind of value ish names, small and mid cap, non US developed. I mean these are all names that investors have kind of left for dead but still have resurging earnings power.

[Damien Sass]

But I mean a lot of those stocks also are trading at near or at all time highs. Right. I mean we've seen that the S and P equal weight has, is up. I think it's up more than the S and P itself. So you know, you're seeing sort of this broadening out, you know, do you see that continuing as we approach the second half of this year?

[Kara Murphy]

I think we do see that continuing. So, so take small and mid caps for instance. What you see are that large cap earnings are expected to be really high but about the same for the second half of the year.

[Damien Sass]

Okay.

[Kara Murphy]

Small and mid cap earnings growth is much lower than large cap but it's accelerating into the second half of the year and valuation rate of change. Right, exactly. So I think as that differential narrows, you have an opportunity.

[Tom Keene]

Are there people in Texas who don't want Texas to boom? I mean, Governor Hochul, Governor Hochul in New York has just said we're not doing data centers or whatever. Is there anybody, Folks in Fort Worth?

[Damien Sass]

What are the folks in Fort Worth?

[Kara Murphy]

Well, it's very interesting and that you're getting a lot of pushback within Texas on data centers for similar reasons. Water is a big issue there. Right. And so a lot of these data centers are expected to soak up water when you have local residents who are, you know, maybe very limited in what they can use.

[Tom Keene]

Kara Murphy with us Chief Investment Officer at Castro with Damien Sasser.

[Damien Sass]

So Carrie, you know, we talk about AI and we talk about the tech boom and all this stuff and we laugh about it, but when we look at the funding markets, just how these hyperscalers have tapped to the market, tap the markets this year alone to the tune of something like 225 billion billion in debt raised via the credit markets here in the US and not only in the us in pounds, in Swissy. And talk to me a little bit about all that money raised and now the fact that these bonds, I just have Rob from Scottsdale emailing me basically saying the bonds are trading at 90, the 100 year Google bonds are trading at 90. Well, isn't that a good thing? Doesn't that mean that Alphabet issued bonds at the right point in time to fund the data center? Talk to me about financing differentials and what that means as these companies grow over the long term.

[Kara Murphy]

So I think this is an underappreciated piece of the whole story and part of the reason is because it's happened so quickly. So these companies have shifted from very high free cash flow levels to needing a lot of cash and it's happened within a couple of years. What that means is that their balance sheets have also changed significantly. Some of these names actually look more like utilities than they do tech companies in terms of the amount of debt that they have on their cash. So to your question, the important, important thing is not necessarily what's happening today, but what happens tomorrow. And if the market starts to presume that these CapEx numbers need to double over the next couple of years and that means that they need to come to market even more to your good

[Tom Keene]

point, Damien, part of the reason it's priced down yield up on hyperscalers is a general higher rate regime we're in right now.

[Damien Sass]

That's right.

[Tom Keene]

Nobody ever mentions that.

[Damien Sass]

Right? No, it's not. It's not the fundamental tenet of why they're investing. You know, it's more. You're absolutely right. It's more the impact from higher U.S. treasury yield. So, you know, I ask you this. You know, maybe it hasn't been so great for investors in Apple bonds, but certainly you would think that it's going to be good for equity owners over the long term if that use of proceeds goes to the right place.

[Kara Murphy]

No, that is the big question. Right. So how many of those dollars actually get put towards productive ends? And given the size of the dollars, I think what you're seeing is the market is pushing back a bit.

[Tom Keene]

Can I ask a question? Castra John Gallup just publishes a brilliant note here. It's seaport on the earnings to come over the next five trading days, 34% of the S&P 500 market cap will report explain the impact on that ancastra investors. I mean that, that. That sentence was foreign to me until like five years ago.

[Kara Murphy]

Yeah. So I mean, our investors have very diversified portfolios, but as we've seen the mega cap names become a larger and larger proportion of the S and P P, it's become a much more important piece of everyone's portfolio.

[Tom Keene]

It's okay though, because they. They're a larger part to an extent because they've appreciated.

[Kara Murphy]

They. They're larger for good reasons.

[Tom Keene]

Thank you.

[Kara Murphy]

Right. It's not because other things have fallen away.

[Tom Keene]

You come back when it's not 105 in Austin.

[Kara Murphy]

I'd love to.

[Tom Keene]

Karen Murphy, Chief Investment Officer, Cold Common Collected in New York, Kestrel Investment Management. Appreciate that. Stay with us. More from Bloomberg Surveillance coming up after this.

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[Bloomberg Host]

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 Bloom Bloomberg Business app or watch us live on YouTube.

[Tom Keene]

Monica Barrera is arguably the most due resume of anyone I know. Morgan Stanley Wealth Management service to the City of New York, all sorts of abilities over the years including at Fitch is. Well, I can't get to Monday. Call it the Monica Guerrero Uncertainty. Now between the markets, the war, our politics as well. Don't tell me about 2027. What do we look like on Monday?

[Monica Greer]

On Monday I think we're going to look much the same, except a little more pressured. Especially in the in the with thinking about oil prices and the potential for a pass through to Headline cpi. That's the biggest thing that I'm focusing on right now.

[Damien Sass]

Little blue button. Sorry about that Monica. When President Trump says that the Iranians want to do a deal, who's he talking about? When he talks about the Iranians, I mean he's certainly not talking about Khomeini or the Secretary of Nuclear Policy Jalili over there. He's probably talking about Parliament. Right? I mean, who is he really talking about?

[Monica Greer]

So when we're thinking about who he's talking about and the known players in the room, our, you know, intel is a little bit hazy.

[Emily Rolland]

Right.

[Monica Greer]

We all wish we had that insight. I think that the administration is trying to nail it down, but the, the players that were part of the original JJPC on the US side are no longer the same players. But you're still looking at, you know, folks like Rubio and others trying to nail down those details, at least from the US Perspective. Now who's in the room? We don't have that information.

[Damien Sass]

So you rightly point out though that 59% of Americans are now opposed to the conflict. And you know, your call, Morgan Stanley's call is for one of a Gridlock Congress in 2027. Talk to us about the midterms. Talk to us about what drives that outlook.

[Monica Greer]

So when we're thinking about midterm outlook, just historically the sitting president's party loses about 30 seats, then you add in the potential for an oil shock which we have been experiencing. So if you have an increase in gas prices from the prior January, so January 2025 to this year through this year, you're looking at average seat losses of 32 versus 6 in a normal year where you don't have that gas price component. So affordability is huge here. Layer in energy, housing, you've got an uphill climate.

[Tom Keene]

I would suggest, Monica, we're addicted to stimulus. We've gone through, I mean some will say three stimuli with COVID including the back end Biden, stimulus is, it's called formally in the literature and then many other new stimuli with, with President Trump as well. Are we stimulused out?

[Monica Greer]

I don't think we're stimulus doubt. From a political perspective, you cannot underestimate Congress's ability to spend they just 1.1 trillion on NDAA and 95 billion additional to the US Iran war. Right. This is a question.

[Tom Keene]

If we do military spending for Iran, do you call that stimulus?

[Monica Greer]

I definitely call it stimulus when you're thinking about who's getting the contracts as a US based contractor. And so while it doesn't have necessarily the largest economic multiplier, there is still a multiplier there that is meaningful for the US Economy.

[Damien Sass]

You know, Monica, you talk about affordability being the key issue into these midterms. You talk about gasoline prices specifically, you know, and Then I think about big oil and they're going to be reporting earnings, Chevron and ExxonMobil on Friday of next week. And I think about, wow, what would happen if they just blow it out like the rest of the market here? I mean, are people going to be focused on that at all?

[Monica Greer]

I think they have to be, right? When, when you're thinking about where the pressures are coming from, let's just, I mean, even if we move away from big oil and we just stay within energy, right? You think about the negatives for the electorate, what's necessarily good for the energy companies isn't great for the voter. And that's a really interesting tension, right, that the GOP is trying to get a handle on.

[Tom Keene]

Martin?

[Damien Sass]

Well, I mean, look, I'm just thinking about affordability issues. The other area is obviously housing, right? You can't afford.

[Tom Keene]

Thank you, thank you, thank you, thank you.

[Damien Sass]

And the real estate sector here, I mean REITs, what have you, I mean look, they're dividend yielding. They continue to perform, I guess. I mean they're not a great performer but certainly compared to fixed income, they haven't been so bad, right. In terms of a risk adjusted return. So Monica, you know, where do you hide out? How do you get defensive when you got two of these key sort of, well, maybe not oil, but defensive sectors kind of flashing red here or amber at least.

[Monica Greer]

I mean for me, when I'm thinking about where to go, you got to look to Utes, because even though there's pressure in energy, you have to remember that. And the unpopularity with data centers, you have to remember that they are a big part of that build out that is going to happen regardless of, of the electorate being, you know, unfavorable right now.

[Tom Keene]

Monica, thank you so much. Monica. Whereas this morning, executive director, head of headaches for all of Morgan Stanley Wealth Management, we have the greatest sympathy for you as you stagger to the first Tuesday of November.

[Monica Greer]

It's going to be fun.

[Tom Keene]

Are you working on your post Labor Day 42 page essay? Right?

[Monica Greer]

I definitely am. We're already in the works.

[Tom Keene]

People, people, people think on the street. You take August off. No, you develop for harmful tunnel to.

[Monica Greer]

I'm, I'm, I'm grateful for August recess, but that's about all I get.

[Tom Keene]

So that's all you got. Monica, thank you so much. Monica Greer with Morgan Stanley.

[Bloomberg Host]

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.

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