Every Recession Begins With a Slowdown

Summary

Podcast Summary: Every Recession Begins With a Slowdown The Compound and Friends
Release Date: May 2, 2025
Hosts: Downtown Josh Brown, Michael Batnick
Guest: Neil Dutta, Partner and Head Economist at Renaissance Macro Research

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1. Introduction and Stock Market Performance

The episode opens with Josh Brown highlighting a noteworthy trend: "Biden's stock market is up eight days in a row" ([00:00]). Michael Batnick humorously responds, praising President Biden's wit, stating, "He's genuinely the funniest president we've ever had" ([00:02]). The hosts and guest, Neil Dutta, engage in a light-hearted discussion about presidential humor before delving into more substantive economic topics.

2. Trade Policies, Tariffs, and Economic Impact

A significant portion of the discussion centers on the administration's trade policies and the imposition of tariffs. Neil Dutta emphasizes the market's reaction to Biden's tariffs, noting, "It's a significant tax shock to the US economy" ([19:10]). The panel debates whether the decline in trade uncertainty is genuinely translating to economic stability or if the ongoing tariffs continue to exert downward pressure on growth. Michael Batnick argues that while uncertainty may be decreasing, the actual implementation of tariffs remains a persistent burden:

"I think it's about what's actually happening. And that is a significant tax shock to the US economy." ([19:10])

3. Disconnect Between Stock Market and Real Economy

The hosts explore the apparent disconnect between the booming stock market—especially large-cap tech stocks—and the struggling real economy, particularly small businesses. Josh Brown points out that while major companies like Microsoft and Google are thriving, "the real economy is slowing down" ([16:07]). Neil Dutta adds that the stock market's resilience is partly due to these tech giants absorbing economic shocks better than smaller firms.

4. Labor Market Trends and Unemployment Claims

The episode delves into labor market dynamics, with Michael Batnick highlighting a slowdown: "The labor markets are all slowing down" ([46:27]). They discuss rising unemployment claims, with Neil Dutta noting, "Continuing claims are rising, which means unemployment's going up" ([46:52]). The conversation underscores the lag between initial job claims and long-term unemployment, suggesting a gradual but inevitable rise in unemployment rates.

5. Consumer Confidence and Spending Behavior

Josh Brown brings attention to plummeting consumer confidence, citing a statistic from Heather Long: "44% of Americans now believe they will be worse off financially in a year, mainly due to tariffs" ([44:57]). This decline in confidence is closely tied to reduced consumer spending, as individuals become more cautious with their finances amidst ongoing economic uncertainties.

6. Impact of AI on Corporate Performance and Stock Market

A pivotal discussion revolves around the role of artificial intelligence (AI) in driving the performance of major tech companies. Josh Brown references boosts in AI-related capital expenditures (CapEx) by giants like Amazon, Microsoft, and Google:

"Azure up 33% year over year. So Amazon is down 4% in the after hours primarily because of their AWS report." ([74:23])

The hosts assert that AI investments are enabling these companies to sustain growth even in a sluggish economy, thereby propelling the stock market independently of broader economic indicators.

7. Future Projections: Rate Cuts and Economic Slowdown

The panel anticipates future Federal Reserve actions, particularly the likelihood of rate cuts. Michael Batnick believes that rate cuts "are probably baked for May" due to weakening economic indicators ([31:34]). They discuss the implications of such cuts, debating whether they would signal deeper economic troubles or serve as a preemptive measure to stabilize markets. Neil Dutta expresses concern that if the Fed resorts to cutting rates, it may indicate that the economy is worse than previously thought.

8. Recession Outlook and Market Sentiment

The hosts converge on the theme that the economy is heading towards a slowdown that could precipitate a recession. Michael Batnick remarks, "All recessions start with a slowdown" ([78:37]), suggesting that the current economic indicators are aligning with the onset of a recessionary period. They debate the potential severity, with Michael leaning towards a mild recession but warning of a slow recovery driven by consumer and business confidence issues.

9. Divergence Between Institutional and Retail Investors

A fascinating divergence is highlighted between Wall Street analysts and retail investors. Neil Dutta points out that while Wall Street strategists are bearish—cutting their S&P 500 targets significantly—retail investors are actively buying stocks, even setting new records for monthly inflows ([60:41]). This clash underscores differing perspectives on market resilience and future economic conditions.

10. Concluding Thoughts and Final Remarks

In wrapping up, the hosts reflect on the complexities of the current economic landscape, acknowledging the interplay between policy decisions, market behaviors, and real economic indicators. Michael Batnick summarizes:

"I think it’s a very imbalanced economy and a very imbalanced stock market." ([78:11])

They conclude with brief personal anecdotes about sports and maintaining a sense of camaraderie amidst the intense economic discussions.

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Notable Quotes:

• Michael Batnick ([19:10]): "It's about what's actually happening. And that is a significant tax shock to the US economy."

• Josh Brown ([16:07]): "The real economy is slowing down."

• Neil Dutta ([44:57]): "44% of Americans now believe they will be worse off financially in a year, mainly due to tariffs."

• Michael Batnick ([31:34]): "I think they'll cut, because I have a more negative view on the labor market."

• Neil Dutta ([60:41]): "Retail stock buying boomed last month even as Wall Street pros worried about recession."

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This episode provides a comprehensive exploration of the current economic challenges, emphasizing the interplay between market performance, policy decisions, and real-world economic indicators. Through insightful dialogue and expert analysis, Josh Brown, Michael Batnick, and Neil Dutta offer listeners a nuanced understanding of why the stock market may be decoupling from the broader economic realities and what this means for the future.

Transcript

[Josh Brown]

Biden's stock market is up eight days in a row.

[Michael Batnick]

Oh, that was so good. I mean, honestly, he's. I don't even think there's a. It's not even debatable. Right? He's genuinely the funniest president we've ever had.

[Josh Brown]

James Polk had, like, a good sense.

[Neil Dutta]

Of humor, but no, George W. Bush was funny.

[Josh Brown]

He was funny. Yeah. No, he's hilarious.

[Michael Batnick]

Did you see him? They had the Cabinet meeting and he goes, you know, they're the chief ripper offer. He's calling China the chief.

[Neil Dutta]

They asked him at the Hundred days event, they asked him what's the biggest mistake he's made so far. He said, you know, that's really the toughest question because I don't think I've made any. It's so part. Yeah, 100%. That's what he said. It's incredible.

[Michael Batnick]

I mean, he's been on. Remember when he rang the bell at the stock exchange and he's interviewing Kramer and Kramer's asking him about. He's like, well, you know, I don't want to. To be in your position, basically. Like, if, you know, people hold it against me if I give them some bad advice. You know all about that, don't you?

[Josh Brown]

No, it's just savage credit to Jared Dillon. He said something like, he's literally ringing a bell at the top. It was pretty good.

[Michael Batnick]

Yeah. I mean, he also called the bottom. When he did this whole Biden stock market thing.

[Neil Dutta]

I basically say that when you, any president, when you get into the, into like Q2 after the inauguration, it's kind of yours. I do agree with. I do agree with Trump. You can't, you can't necessarily hold them responsible for, like, what goes on in February, March. But then if you make this huge tariff announcement, then it's kind of yours. Because that's what the market. Well, because that's what the market's reacting to now. The market's not reacting to GDP from. We don't. Nobody cares about that.

[Michael Batnick]

I mean, I thought the market was, you know, I mean, I didn't think it was a good GDP number.

[Neil Dutta]

The problem is whose stock market was it from November 2nd until now?

[Josh Brown]

Well, he took credit for the gains after the election.

[Neil Dutta]

Right. Nobody and everyone gave him credit, as he should have.

[Michael Batnick]

It was. It was.

[Neil Dutta]

Nobody said in November, this rally is because everyone's so excited about.

[Michael Batnick]

He's the only one that can get away with. It's my stock market when it goes up and it's his when it goes down. I mean, he might be doing that until through the end of the year.

[Josh Brown]

Yeah. No, dude. The last 30 days of Biden's administration were super good for the stock market. Like, he was. Biden was destroying it. Thank you, John.

[Neil Dutta]

I think the stock market was insanely excited that Biden was leaving and that it wasn't Kamala and that it was Trump. So I think he does get that rally, even though it's during Biden's time.

[Michael Batnick]

I mean, people bet on tax cuts, deregulation, and tariffs, but they bet on it in that order.

[Josh Brown]

So you are looking very fly. Where were you before this? Were you on tv?

[Michael Batnick]

Fox Business. Charles Payne.

[Josh Brown]

Okay.

[Neil Dutta]

Is that over at Avenue in the Americas?

[Michael Batnick]

Yes. Just this district?

[Neil Dutta]

Yeah.

[Michael Batnick]

Yeah. Sixth Avenue.

[Neil Dutta]

Callie does that show I was supposed to have. I've only met him once. He seems like a. He seems like a nice guy, Charles Payne.

[Michael Batnick]

Yeah, he's a really nice guy. You know, I like. You know, I don't get on cnbc. That's my.

[Neil Dutta]

What the is that about?

[Michael Batnick]

I have no idea. I mean, Sarah Eisen did. I mean, I knew her from her Bloomberg day, so she finally got me on, like, a week or two ago.

[Josh Brown]

Wait, you don't know why they won't have you on? Because we do. I'm just kidding.

[Neil Dutta]

We don't do economists on halftime, so. But.

[Michael Batnick]

Well, I know I did. I did meet Scott when I was going on with Sarah and Carl that day.

[Neil Dutta]

I'm trying to say, like, it's not like we have five people that are in your lane and not you. We don't. Yeah, we have, like. We're like hardcore stocks.

[Michael Batnick]

Scott's more of a, I think, Jeff DeGraff fanboy.

[Neil Dutta]

You know? You know what else we don't. We don't do. We don't do CEO interviews on halftime. No. Almost never. We used to, but you do that.

[Michael Batnick]

You do that. You do more than just halftime, don't you?

[Neil Dutta]

No.

[Michael Batnick]

Oh, really?

[Neil Dutta]

No, it's just halftime. People think it's more than it is. I do two episodes of Halftime Report a week. That's it.

[Michael Batnick]

Oh, it's you and Stephanie that have, like, the.

[Neil Dutta]

Yeah, well, Stephanie will pop up on Squawk Box a lot. I've never been on Squawk.

[Michael Batnick]

She doesn't like me much these days because I'm more bearish.

[Neil Dutta]

Oh, stop.

[Josh Brown]

Wait. What was your final trick?

[Neil Dutta]

I'll tell you right now about Stephanie. She doesn't listen to anyone. She doesn't give a shit. She works her ass off. She has her. She has her opinions and she's not worried about other people. Yeah, we don't do. We don't do CEO interviews. I think it's not because they're not informative. It's that they basically read from a press release. Most CEOs, they're very careful. They're rarely gonna break news. Like, anything that they say, you kind of already know. And there's a really great perch for that on Squawkbox. That's the show where they do the best.

[Michael Batnick]

Yeah, they do that.

[Neil Dutta]

Yeah, yeah, yeah. Like, during earnings season, they always have, like, the top CEOs, so it's like, why repeat that again at 12 o'clock, right? You know what I mean? So we. We. We stay in our lane. But people. People think that I'm on a lot more than I am. I'm just.

[Michael Batnick]

Did Barry give him that Rolex?

[Neil Dutta]

No, not a Rolex.

[Michael Batnick]

No.

[Josh Brown]

That's not a Breitling.

[Neil Dutta]

This is a Breitling Super Ocean Heritage. Not a Rolex. It's nice, right?

[Michael Batnick]

Yes.

[Neil Dutta]

I've always liked Breitlings because they're big. The Hulk because they're big. And I need, like, a substantial thing.

[Josh Brown]

Neil, I have to say, your Instagram account, very wholesome.

[Neil Dutta]

But it.

[Josh Brown]

I love it. It's you and your family.

[Neil Dutta]

I love it.

[Michael Batnick]

That's it. Yep.

[Josh Brown]

It's the kids. It's videos with the wife. You guys are hilarious.

[Neil Dutta]

There's no macroeconomic commentary.

[Michael Batnick]

No. None at all. No, it's just a repository for the kids and memories, basically.

[Neil Dutta]

How old are you kids?

[Michael Batnick]

My oldest is gonna be nine this month, and I have twins. That'll be seven in October.

[Neil Dutta]

Okay. What sports do they play?

[Michael Batnick]

My oldest plays soccer. My younger boy. So we have boy, girl, twins. He is not involved in any sports right now, but he does taekwondo and he does.

[Neil Dutta]

Oh, wow.

[Michael Batnick]

And he's so in summer camp, we got him in wrestling. I mean, he's a. He's a firecracker.

[Neil Dutta]

He's got some aggression.

[Michael Batnick]

Yeah. And I think it's good for him. And my daughter is a girly girl. I mean, she's ballet and, you know, there was a summer camp class for, like, painting your nails. I mean, she would do that, too.

[Josh Brown]

You'll appreciate that.

[Neil Dutta]

That sounds like my kid.

[Josh Brown]

As parents of young children, I had to reset. I think Kobe got, like a Minecraft something or whatever he wanted. It had to go to his email account. I opened up an email account from when he was born, and I hadn't been in there since I opened it up.

[Michael Batnick]

Okay.

[Josh Brown]

And I saw all of the things that I used to sent him, send him. And for whatever reason, I stopped emailing him in, like, 2019. So I would email him, like, videos like this happen on this day.

[Michael Batnick]

Yes.

[Josh Brown]

And it was like, holy shit, my wife does that. But I haven't done, like, four or five years, so I'm gonna start.

[Neil Dutta]

Wait, what were you. What was he 2 years old in 2019?

[Josh Brown]

Yeah.

[Neil Dutta]

So just what were you emailing him.

[Josh Brown]

So that in 15 years he can.

[Neil Dutta]

Oh, I see.

[Josh Brown]

Yeah.

[Neil Dutta]

Did he ever look back at it?

[Josh Brown]

He's eight.

[Neil Dutta]

Right. But did he ever. Has he opened the email?

[Josh Brown]

Other than he doesn't know what email is?

[Neil Dutta]

Okay.

[Josh Brown]

Yeah, no, he will one day.

[Neil Dutta]

I got it.

[Michael Batnick]

Didn't you go somewhere recently for spring break?

[Josh Brown]

No, we stayed home. I have a puppy. Oh, so we're grounded.

[Michael Batnick]

Yeah. I'm very much anti pet.

[Josh Brown]

It's a lot. I forgot how much work a puppy was. But we love dogs.

[Neil Dutta]

There will never be a pet in my house. No, never.

[Michael Batnick]

I mean, if it's holding you down.

[Neil Dutta]

I mean, you know, it's never gonna happen.

[Michael Batnick]

So you have to find.

[Josh Brown]

Josh's not a dog guy.

[Neil Dutta]

No, I like dogs.

[Josh Brown]

No, you don't like dogs.

[Neil Dutta]

I do. I grew up with a dog.

[Josh Brown]

You don't like dogs.

[Neil Dutta]

Don't put that out there.

[Josh Brown]

I said you're around dogs.

[Neil Dutta]

Don't put that out there.

[Josh Brown]

Sorry.

[Neil Dutta]

I love dogs, but my wife doesn't want another thing to clean up after.

[Josh Brown]

This is Joshua. No, I love dogs. Don't stop.

[Neil Dutta]

I stop. I think I like the idea of dogs.

[Michael Batnick]

Well, I mean, I'm more of a cat person myself.

[Josh Brown]

That explains a lot.

[Michael Batnick]

Yeah. Yeah. My wife and I, years ago, when we were first dating, married, we had a sphynx cat.

[Neil Dutta]

Oh, wow.

[Josh Brown]

Very sophisticated.

[Neil Dutta]

Do those even like you, though?

[Michael Batnick]

They love you.

[Neil Dutta]

They do.

[Michael Batnick]

Yeah.

[Neil Dutta]

Really?

[Michael Batnick]

They're like, very doglike sense, but less maintenance, obviously.

[Neil Dutta]

Gotcha.

[Josh Brown]

All right, let's get this shit started. In the words of the great Roddy Mund, let's go with the headphones.

[Neil Dutta]

All right.

[Michael Batnick]

Three claps.

[Josh Brown]

Component friends episode 190 Whoa, whoa, whoa. Stop the clock. Here's a word from our sponsor. Today's show is brought to you by Xtrackers by dws. Imagine harnessing the power of global transformation, investing in artificial intelligence, critical technologies, semiconductors and green energy. With Xtrackers innovative thematic lineup, you gain access to the ETFs that target these transformative sectors. It's more than investing. It's aligning with the innovations that are shaping tomorrow. Whether You're a seasoned investor or just starting out. Xtrackers makes exploring new opportunities seamless. Find out [e-mail] Together we grow. All investments involve risk, including loss of principal. Information on the fund's investment objectives, risk factors, charges and expenses can be found in the Fund's [e-mail] read it carefully before investing. Distributed by Alps Distributors, Inc.

[Neil Dutta]

Welcome to the compound and friends. All opinions expressed by Josh Brown, Michael Batnik and their castmates are solely their own opinions and do not reflect the opinion of Redholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast. Ladies and gentlemen, welcome to America's favorite investing podcast. My name is Downtown Josh Brown. For first time listeners, this is the show where we talk about what happened this week, what should happen next week. We look at markets, we look at the economy, stocks, bonds, interest rates, the Federal Reserve and all sorts of other stuff. I'm so excited to let you know that Michael Batnik and I are joined by friend of the show. Been on the show a couple times. I think one of the most popular guests, Neil Dutta, is the partner and head economist at Renaissance Macro Research with an emphasis on analyzing the U.S. economy, the federal Reserve, global trends, and cross market investment themes. Prior to Red Mac, Neal spent seven years at bank of America Merrill Lynch. There he was a senior economist covering both the United States and Canada. Neil, daughter, welcome back to the show.

[Michael Batnick]

Thank you guys. Always a pleasure.

[Neil Dutta]

All right, we're so excited to have you back. This is a perfect time. Not that every time isn't a perfect time, but this is truly a perfect time to have you here. I heard you tell Paul Krugman that you are a business economist.

[Michael Batnick]

Yes.

[Neil Dutta]

And it was really important to you. The way I remember it, it was really important to you to make that distinction. I think Paul Krugman would not call himself a business economist. So what do you mean by that?

[Michael Batnick]

Well, I mean, my. I mean, I'm not a formally trained economist. I didn't. I mean, I got a bachelor's degree in economics. I did master's coursework in economics, but I don't consider myself an academic economist. I mean, these guys, that's the distinction.

[Neil Dutta]

Academic versus business.

[Michael Batnick]

Well, yeah. Well, I think that they spend years in school focusing on one area of the subject. Right. I mean, financial economics. In Paul Krugman's case, trade economics. And as A business economist, you very much lean on a lot of the work they've done. But I almost think of it like these guys spend their entire lives, PhDs, PhDs, to basically take the football to the, to like the 10 yard line. And then as a business economist, you sort of take their work, tell that, tell investors why you think it may or may not be relevant for what's going on right now. And then you are the one that gets to run it in for a touchdown. So for me, like that's, that's sort of how I view it. But yeah, I mean I. A business economist in my mind is someone that tries to use the economic data that's released and as everyone knows, there's a bevy of economic information that comes out every day and then try to formulate some kind of economic call that is useful for a market participation.

[Neil Dutta]

Yeah, I took it that way. I think he did too. I thought that was interesting though because it's one thing to publish papers and that's important because you have a theory, you test the theory, why does this do this? Why does this do that? But then you need somebody that comes along and says, okay, given A, B and C, here's what we do with that information. And so I think that's how you see yourself.

[Michael Batnick]

Yeah, I mean, and it's also like a respect. To me, it's like an academic economist. They are probably much better at math than I am. Right. I mean they're probably much better at like matlab and eviews than I am. I mean they're doing very hardcore work and they're spending their entire time doing that. Frankly, like a lot of people on the street, business economists like me, we are doing a lot of other things. And so I think to me it's like a respect level. I mean they're breaking ground and coming up with totally new applications for the science. Right. So I think, to me that's why I try to make the distinction that we say head of Economics at Red Mac, Chief economist. I mean those are titles that people throw around, right? That's really a legacy issue.

[Josh Brown]

A lot of the academic economists don't necessarily care at least day to day about the stock market, how it impacts the economy, the circular reference and nature of, of those two interchanging. So let's talk about the stock market.

[Neil Dutta]

I wanted to ask you, how did it feel being interviewed by a Nobel laureate? That's kind of what I wanted to get from that. That's pretty cool.

[Michael Batnick]

It was very, I mean I was, I was very nervous I mean, but it was. You know, look, I mean, when someone like that even. I mean, he said he read some things I've written. I mean, that is huge for someone like me. Yeah, it's really cool.

[Neil Dutta]

Okay. I also am a Nobel laureate, so.

[Michael Batnick]

In what?

[Neil Dutta]

Not in economics.

[Josh Brown]

I live on the block that Paul Krugman grew up on. Did you know that?

[Neil Dutta]

Yeah. That's actually a true story.

[Josh Brown]

That's a true story.

[Neil Dutta]

I told him that we met Paul at Barry's birthday party and he grew up in our town.

[Michael Batnick]

Oh, wow.

[Neil Dutta]

And the house that we're.

[Michael Batnick]

I mean, he was the nicest guy when I. Super nice guy. It's sort of interesting because his. Like, if you've. I mean, I've read his columns for years when he was at the Times, and it's so cutting, the way he writes. Like, it's visceral.

[Neil Dutta]

He's a firebrand. 100% as a columnist. But not in real life.

[Michael Batnick]

No, he's the nicest guy in real life.

[Neil Dutta]

Sorry I stepped on your side.

[Michael Batnick]

So sorry.

[Neil Dutta]

So sorry.

[Josh Brown]

So it's a bull market. Okay, listen, the stock market is at. I'm not. This is not a forecast. The stock market is behaving like we're in a bull market. We're up for eight consecutive days. Pretty rare. Luke Kawa tweeted yesterday, in the midst of this, on the sixth update in a row, we had the biggest intraday loss that was a race for the s and P500 since the bottom in October 2020.

[Michael Batnick]

Luke, about that, actually.

[Josh Brown]

So the stock market is looking past a lot of negative news that is surely to come. So please, Neil, explain to us what the F is going on in the stock market.

[Michael Batnick]

Well, I don't trust little tidbits from Canadians.

[Neil Dutta]

And so shout out to Luke Kala, we're not gonna bury anybody today. Go on.

[Michael Batnick]

No, no. Yeah, look, I mean, it's, you know, Wiesenthal makes this point about how, well, I guess it was all priced in. Right. And we're basically back to the obliteration day.

[Josh Brown]

We took it all back.

[Michael Batnick]

Equity market. I mean, you know, look, to me, as I said before, I mean, it's about using an economic call and trying to tie that into some kind of a market market call.

[Josh Brown]

So is the economy better today than it was a month ago? Are the prospects for the forward economy better today than they were a month ago?

[Michael Batnick]

No, because, I mean, I don't believe so, because I think fundamentally, this is an economy that's slowing. And remember, the stock market's been doing Great. For a long time that hasn't stopped the economy from still slowing down. And so I think there's a distinction here between financial market conditions and real economy sort of financial conditions. Right. Like, so when you see things like lower tier credits, delinquencies going up, car repossessions going up, things of that nature. And obviously even in the GDP data that was released earlier this week, there was a massive boom in information processing equipment and software. Now that could be AI related, that could be companies pulling forward some activity because of tariffs. But it's undeniable that technology is a huge driver for growth right now and not surprisingly, also a big driver for what's going on in the equity market.

[Neil Dutta]

You floated three possible explanations for the rally in the stock market over the last week. This morning I'll read them to you and then I want to hear which of these you believe in the most. If you had to pick one, perhaps the bond market understands that the real economy is not in the same place as the technology sector. Financial market conditions being loose hasn't helped keep the economy from slowing over the last year to begin with. Two, perhaps the equity market sees President Trump caving on the trade war. This is mine. Or backing off to some degree. But it seems harder for him to capitulate if stocks are up at these levels in the first place. Meaning markets rallying for eight days. They must love my trade policies. Okay, got it. Three credit spreads have not really moved on the run up in stocks over the last week. Finally I feel like the economy is. Oh, this is the fourth. Finally I feel like the economy is innocent until proven guilty. There was a big clearing event earlier this month and bets on recession in years prior have never materialized. Saying it's a little bit of that. Like I'm not gonna get fooled again by the new recession cuz none of the other ones ever happened. But then I also think, and Michael and I argued a little bit about this on Tuesday, stock market thinks the trade war is basically over. That's what I'm getting. What do you think?

[Michael Batnick]

I mean, I think it's some combination.

[Neil Dutta]

Of the first thing that this trade policy uncertainty.

[Josh Brown]

So this is Josh's point and I think there's a lot of truth in that.

[Neil Dutta]

Crashing the trade policy uncertainty.

[Josh Brown]

So the peak uncertainty is obviously behind us. There's obviously still uncertainty, but we're not peak uncertainty.

[Michael Batnick]

Well, I think it's about what he's actually doing. Right? I mean the uncertainty is going down, but the actual what's actually happening is sticking around. Right. I Mean, the effective tariff rate, we have a baseline of 10%. We still have effectively, I mean, what Secretary Bessen talked about as a trade embargo with one of our largest trading partners. I mean, that's still there. And recent news on sanctioning Iranian oil. Right. I mean, that's basically a shot at China. I mean, a lot of this stuff is just beyond my pay grade. Like the geopolitical stuff. I mean, when they just, you know, you saw Besson talking about the Ukraine deal, right? That they just signed.

[Neil Dutta]

Yeah.

[Michael Batnick]

And he's like, no one that funded the Russian war effort is going to be able to take part in this reconstruction money.

[Neil Dutta]

Right.

[Michael Batnick]

That's aimed at China, Iran and North Korea. Right. So, you know, look, I mean, I don't think, I think it's about what's, I don't think it's about the uncertainty. The uncertainty may be peaking, but it's what's actually happening. And that is a significant tax shock to the US economy.

[Josh Brown]

Here's my take on the market. We've got a few things going on. Sentiment is washed out, horrendous. So there is a. We have been climbing the wall of worry going into the end of 2024. It was like, everyone's in. You need a wall of worry to climb. Absent. Then everyone's on the same side of the boat. So we now have that to climb. Joe Weisenthal tweeted, big tech and big banks have totally raised their losses since April 2, where there's basically been no recovery is in stuff like trucking or energy. So it's not just one market. It is an index of all sorts of different companies. And if you look at what is driving the market, at least the cap weighted index technology names, they are on absolute fire. So Microsoft just reported. This is from Alex Morris. Microsoft cloud run rate revenue is up to $170 billion. The trailing five year CAGR is 26% per year. This shit is incredible. And you're seeing this in Meta and Google and these are the names that are most representative of what's going on. When people talk about the stock market.

[Neil Dutta]

They have the right. So in other words, what's happening with them is more important than some of the industrial stuff that these are smaller market cap companies, they don't, they don't have the same push and pull.

[Josh Brown]

So I said if there was an index and actually we say it. John, chart nine, please. If there was an index for like Main street, it would be down 40%. Like for the real economy, if you look at the Performance of large cap versus small cap. This is indicative, I think, of the real economy because Microsoft and Google will be able to absorb whatever comes, whatever uncertainty happens, they're going to be fine. Small cap stocks, obviously smaller businesses are going to be in deep shit.

[Neil Dutta]

The Chamber of Commerce, which represents small businesses all over the country, wrote a letter to the White House today, open letter, so everyone could see it. They're not suing the White House like some of the farmers are and some other groups, but they're basically saying like, okay, so large cap tech has all these loopholes. We're not going to have tariffs on technology products, consumer electronics, iPhones, those are all exempt. Great. Nvidia's chips exempt. So it's like all of the things that matter to the stock market are exempt from the tariffs. The Chamber of Commerce is like, what are you going to say to millions and millions and millions of small businesses? So here's a question. Can you have a recession for small business, but publicly traded large cap stocks just levitate? Like none of that is going on. It seems like such a huge discount.

[Michael Batnick]

I mean it might be possible for some period of time, periodically. Yeah, but I think fundamentally, I mean if you're in a recession, that's going to take the overall market down because people are going to be risk averse and they're going to sell and raise cash. Okay, that's sort of my view.

[Neil Dutta]

But the earnings aren't coming in.

[Josh Brown]

Yeah, the earnings. That's what I was going to say.

[Neil Dutta]

So the problem is you have these incredible earnings. Now granted These are for Q1 before their tariffs, but what if the things that Microsoft and Netflix and Spotify and Apple sell, the services they sell are the last thing people cancel. Cause that's how these stocks are trading.

[Michael Batnick]

Well, I mean I just. So to me, I think about what's the link between the stock market and the real economy? Right. And there's multiple ways you can kind of go with that. Right. Like, so there's the first is the idea that like the stock market's basically an active informant. Again, this is a good conversation because the academic literature is. This is a whole literature about the stock market financial accelerator model of the economy. Basically, when times are uncertain, the stock market might take on more of a macro aggregator role. Companies look at the stock market for are things looking up or down? Kind of. And other times it's like a passive informant. Right. So the idea is that there's nothing about the share price of Apple that's telling Tim Cook something about that firm that he doesn't already know. And so we're kind of going back and forth between the two. But ultimately, I think if stock prices are going down for a lot of these smaller companies, that's raising their equity cost of financing, and it's going to make it more challenging for them to borrow. And ultimately that's going to mean that they're going to be cutting back. And that's.

[Neil Dutta]

I guess this is what I'm asking you.

[Michael Batnick]

And that's going to hurt the economy.

[Neil Dutta]

I think in prior eras and to this day, when there are worries about the real economy, like the Main street, not the stock market, the mainstream economy, people who invest in stocks for a living and have to be fully invested at all times, they buy something, they buy utilities. And the reason why they buy. And phone companies, the reason they do that is because they're defensive companies.

[Michael Batnick]

Yeah.

[Neil Dutta]

And they know as bad as the economy might get. Yeah, as bad as the economy might get, people aren't cutting off their electricity. So that's why. Okay, what if the new utilities are things like cloud computing and things like the services that Apple sells and Netflix. What if those are defensive? The way that consumers look at those services. I'll get rid of everything before I turn off my cell phone.

[Josh Brown]

They're utilities with 60% margins.

[Neil Dutta]

Right. So that. So, right. What I'm saying is what if this is a defensive rally being led by tech? We think tech is growth, but in reality, these are among the most consumer defensive companies and services in the world.

[Josh Brown]

But tech is. You're right. Fair, fair. Fair end. Fair end. Microsoft, which has been in the shitter for the last, I don't know, nine months, has gone sideways to nowhere, is rallying today because it had explosive earnings growth.

[Michael Batnick]

Right.

[Josh Brown]

But to your point, how do we disentangle the stock market from the economy? In many ways, it is the same thing. We're talking. We're talking about the same thing. So, for example, Delta, all the airlines are cut in half, as they should be. Airline travel is slowing down. You see it in the data, you hear it in the earnings calls. Okay? So Delta is not saying we're not going to invest on Google or Meta because our stock price is down 50%. They're saying, wait a minute, our stock price is down 50% because our earnings are going to get hit. And also we're going to pull back on advertising because of this. So it's hard to untangle.

[Neil Dutta]

Except that they don't. In reality, what they do is they cancel all other forms of advertising and they double down on the duopoly of Meta and Google.

[Josh Brown]

So that's probably right. True.

[Neil Dutta]

And here's why. Cuz it's the most reliable. So when things are flush and people are spending more on advertising, they'll spread the budget around. They'll do podcasts, do tv, more money at the ballpark, more money on the PGA events on tv, when things get tougher.

[Michael Batnick]

That's. To your point. That's the last thing to get.

[Josh Brown]

Yeah, he's right.

[Neil Dutta]

The last thing to get cut is the Facebook budget. You can't afford to if you're, if you have a marketing budget. Even if I tell you as the CFO your marketing budget is down 25%, you're going to say, well, I know for sure that Instagram ads work.

[Michael Batnick]

So I guess on the trajectory that we're on, why doesn't that ultimately get taken out?

[Neil Dutta]

What do you mean get taken out? I don't think anyone thinks we're having a depression.

[Michael Batnick]

So a recession, even a mild recession wouldn't do the job.

[Josh Brown]

Dude, there's multiple tranches here.

[Michael Batnick]

Right.

[Neil Dutta]

You know why even a mild recession wouldn't do the job? Because there's still too much inefficient advertising and marketing money being spent away from the duopoly. There are magazine ads being sold right now. So I still think even in a recession, advertising revenue on those platforms holds up better. Amazon's a really great example. They have the third largest advertising business in the world. Almost nobody thinks of them this way. But it's true. If you're a third party seller and you're worried about a recession, what's the one line item you can't cut? The ads you buy on Amazon to sell your product. That's like literally the most effective advertising you do. What you can cut is the stupid influencer that you have putting makeup on their social media accounts. So I think that defensive quality of the mag 7 is underappreciated reason why those stocks are actually being bought before and after their earnings reports. I think there's just a comfort level that nobody's going to stop spending there.

[Michael Batnick]

I mean you have seen some defensive, you know, movement in the equity market. I mean, right, like consumer staple companies outperforming consumer discretionary. You mentioned like some of these logistic companies getting worse health.

[Neil Dutta]

Health care has been hanging in there. That's defensive.

[Michael Batnick]

Right. So you know, it's.

[Josh Brown]

Listen, I don't think we're saying that a recession is bullish for stocks. I think that what we're trying.

[Neil Dutta]

I'm kind of Saying, I think what.

[Josh Brown]

We'Re, we're just trying to make sense of the rally. Right. Because we know the economy is slowing and it's probably not going to accelerate, and yet the market has rebounded. So I think we're just trying to make sense.

[Michael Batnick]

Yeah, I mean, I think that's also, it's also that, it's also, you know, Treasury Secretary Bessens on the tapes more telling everyone that deals are coming true. And that's, I mean, that's, that goes back to your point about trade uncertainty going down. Right. So if people have more clarity around that, then that's another reason to be, you know, getting back into the game. So I don't think it's all just tech. I mean, that's been a big driver of what's happened more recently, like in the last couple of days.

[Josh Brown]

Couple days, yeah.

[Neil Dutta]

They said there's a trade deal with a huge country, but we have to wait till Tribal Council to find out who it is. They won't, like, literally, that's how they're bringing.

[Michael Batnick]

Well, I mean, there's a, there's a. I mean, I think we have a reasonably can say with a reasonable degree of confidence that it's gonna be like some, it's either India or Japan. That's probably who it'll be.

[Josh Brown]

Okay, let me ask you a question. Fast forward six months. There will be tariffs, right?

[Michael Batnick]

Yes.

[Josh Brown]

Okay.

[Michael Batnick]

So, yeah, I don't think he's backing off. So I guess, I mean, I think that.

[Josh Brown]

So there will. So consumer prices will be higher, right?

[Michael Batnick]

Consumer prices, yes.

[Josh Brown]

So that, that's all else equal, not a positive for the economy. I guess the big question mark is ultimately what happens to the labor market because as long as we have jobs, we will absorb higher prices. We will not stop spending.

[Michael Batnick]

Well, that's. No, I don't necessarily agree with that. I mean, right now people have jobs, but total wages and salaries are slowing quite meaningfully. I mean, if you look at just the data through March, private sector wages and salaries. So that's everything, right? That's jobs, hours and hourly earnings. That's up less than 3% over the last year. Whenever you have a situation where the fed funds rate's running higher than that number, it's usually not good. I mean, good things typically don't happen. It's basically a sign that the household sector is becoming more budget constrained. And the Fed's basically saying, okay, we're not doing anything about that just yet.

[Josh Brown]

Well, you are starting to see that in certain areas. So McDonald's, this morning, for example, they said that their breakfast is softening a lot. And Carl Quintanilla tweeted like, well, that's probably the first thing to go. That's probably the first leading indicator of jobless, of job losses, is ultimately people saying, not people saying people that are not employed are not getting the McDonald's breakfast.

[Michael Batnick]

Right.

[Josh Brown]

So maybe we will start to see that.

[Neil Dutta]

We go to chart four. This is from, this is from your blast today. What are we looking at here?

[Michael Batnick]

So the white line is basically rate cuts being priced for this year and the orange line is just stocks, the equity futures. Yeah.

[Neil Dutta]

So that's a very pronounced divergence like, like that. We're reacting immediately to this idea of rate cuts when you see them zigzag to that extent.

[Michael Batnick]

I mean, if, if stagflation is lower stocks and higher rates and recession is lower stocks and lower rates, the market's basically telling you that we're back to soft landing cuts. Right.

[Neil Dutta]

I mean, that's, that's the implication here.

[Michael Batnick]

Is in my opinion. Yes.

[Neil Dutta]

The implication here is you're gonna get your rate cuts and stocks are front running it by rallying.

[Michael Batnick]

Yeah.

[Neil Dutta]

Okay.

[Josh Brown]

Do you think that they should be cutting in May?

[Michael Batnick]

I do, because I have a more negative view on the labor market. I think the big story that people have missed is that the economy was actually a lot weaker than people thought going into the year.

[Josh Brown]

Say more about that.

[Michael Batnick]

Well, I mean, it's. I think the prevailing sort of narrative was that, you know, Trump is inheriting this awesome economy. It's like gangbusters growth. And we have all. I mean, it was a deeply imbalanced economy. I mean, the housing market was frozen. It still is. Labor markets were sluggish. Right. I mean, quits rates were at lows, hiring rates, recruiting intensity were at lows. Job openings were declining, so the labor markets were frozen. State and local governments were projected, no matter what was gonna happen this year, to spend less money because they basically have exhausted their pandemic relief money. But they behaved as if that pandemic relief money was going to be permanent. So there was gonna be a decline in state and local government spending and investment no matter what was gonna happen this year. So I think it was inevitable the economy was gonna slow down. And I think that's evidenced by the fact that total income growth is slowing through March. So it's really hard to say that that's a function of tariffs and Liberation Day when it's a March data point.

[Neil Dutta]

What do you think the Fed would have been doing absent the trade war cutting already?

[Michael Batnick]

Yeah, they'd be cut. I think May would probably be baked.

[Neil Dutta]

Do you think we would have had a cut already? A March cut?

[Michael Batnick]

I think they probably would have used the March meeting to telegraph now to tf. Yes. Yeah.

[Neil Dutta]

Okay. And now we're not gonna have a May cut.

[Michael Batnick]

No, I mean I think, look, I've been very open about this. I mean I thought it was very unfortunate that in November Powell basically came out and said look, it was like the day after the election. We don't prejudge, we don't pre determine, we don't make any judgments about policy. And then literally in December he's like well actually we do.

[Neil Dutta]

Yeah.

[Michael Batnick]

And they basically took out an insurance policy against.

[Neil Dutta]

By not cutting. They took out an insurance policy.

[Michael Batnick]

Well, I mean it's really about the distribution of the risks that they adopted in December. Like Trump hadn't even come into office and they basically all said that the risk to inflation were skewed to the upside because they were very concerned about all the things that. So they were prejudging what he was going to do.

[Josh Brown]

Nobody thinks they're going to cut in May at least I do. No, no, no. I'm just saying the market probabilities, it's like 95% for no cut.

[Neil Dutta]

If he doesn't cut in May it's going to be an explosive moment in Washington D.C. besant was on TV saying the two year is telling you you need to cut. Like this is not. Bessen is not a Treasury secretary that does not understand markets. Yeah, that ism today there is three straight months of contraction in manufacturing. I think he's gonna cut and I think the reason he's gonna cut is to show that he's not a slave to the bond market and the expectations like it's gonna come off as though he cut cuz Trump made him. But I'm just telling you, I think he knows that he has to cut and he's just gonna do it.

[Michael Batnick]

Well if the next jobs numbers, I mean and this is, we're recording this on a Thursday. So if the tomorrow, if the next jobs number comes out like a dud, then those probabilities may shift. I still don't think it'll be enough to save the May pricing.

[Josh Brown]

But it's 95%.

[Michael Batnick]

Yeah, yeah. Like yeah, to me it's a. I don't think they'll go. I think June is definitely.

[Josh Brown]

June's up to 55% for a cut.

[Neil Dutta]

Here's the thing though.

[Michael Batnick]

But I think the Treasury Secretary's totally spot on. I mean, basically, that's the sign. I mean, that's a sign that policy's too tight.

[Josh Brown]

The two year.

[Neil Dutta]

So do I. And the Fed does follow the two year. And I think there's gonna be a cut and it's gonna surprise people. But then I think people are gonna like two hours later realize the Fed doesn't cause inflation or fix it. So it doesn't matter if the Fed cuts because financial conditions are too tight relative to the economy. People shouldn't interpret that as the Fed's going to make prices higher. The Fed has no power to make prices higher. The tariffs are making prices higher. No one's going to blame the Fed for this inflation. They should.

[Michael Batnick]

Well, that's true. That doesn't mean that.

[Josh Brown]

No one.

[Neil Dutta]

Well, okay, one person will.

[Michael Batnick]

The Fed controls the. I mean, don't go saying that in the Eccles building, Josh. I mean, if you tell someone at the Fed, a monetary policymaker, that you don't control inflation, they might bite your head off.

[Neil Dutta]

They cut it for 10 years. They were trying to stoke inflation and they couldn't. 0% interest rates. They put the foot on the gas and held it down. And then they did quantitative easing, three rounds. They could not stoke inflation. I would say by the same logic, if they cut interest rates by 25 basis points, it doesn't change anything. Inflation will be determined by the tariffs, period, full stop. If the tariffs go away, then prices will ease. And if the tariffs stay on, prices are going higher, the Fed could fiddle.

[Michael Batnick]

Well, the prices for the. I mean, I think it's about the nominal anchor. Right. Like, so if, if you put a tariff on. Right on something, the price for that good will go up. But there's no evidence that the federal government is accommodating that. Right. Like, it's not like government spending is going up. So the nominal anchor isn't really changing. So that means household budgets, if the price for TVs go up, you'll have to spend more on TV. You'll have less leftover to spend elsewhere. And that's going to drive down the.

[Neil Dutta]

Prices, destroys demand, which leads to disinflation. Therefore power should cut.

[Michael Batnick]

Yeah, ultimately, yes, I agree, I agree. But I mean, again, he was very clear about the sequencing here. Powell was right. I mean, he basically said, look, we're coming off a period of very high inflation. I think that means we should worry about inflation expectations. And because tariffs represent a supply shock and we've been going through multiple supply shocks due to Covid, we should be A little bit more cognizant of that. And also the scale of what we're talking about here goes beyond anything Trump did in his first term. So I agree with you that I think ultimately the Fed will cut and I think they are a little bit behind.

[Neil Dutta]

Can we go back to the first term in 2018? We were in a hiking cycle during the trade war, and the idea was we better hike rates to get ahead of these higher prices that the tariffs were gonna cause. What the tariffs ended up doing was causing demand destruction and uncertainty. And when he said in the fall, I'm nowhere near neutral on policy rates.

[Michael Batnick]

That was what killed the market.

[Neil Dutta]

Actually, it's the same thing now, this idea that I'm not going to cut because I don't want to exacerbate higher prices or expectations. I guess in this case, it's the same thing. You ain't going to have to worry about that. These tariffs stay on for six months. The economy is going to have tons of demand destruction because nobody could afford.

[Michael Batnick]

To pay these taxes. I mean, do you think that they actually come off the tariffs? Like, you think he capitulates on the 10% baseline tariff? Yes.

[Neil Dutta]

Without ever saying that he's doing so. It's a. No, no, no. It's Swiss cheese at this point. It's cutouts, carve outs, loopholes, exceptions for almost everyone.

[Michael Batnick]

I mean, we are collecting money on tariffs. I mean, if you look at like the daily data, I mean, tariff, you know, excise taxes, customs duties, those are all going up now.

[Josh Brown]

It would be unusual. And I hear, I don't think he.

[Michael Batnick]

Capitulates because if he does and he actually rolls back the 10%, I mean, that's it. He's a lame duck.

[Neil Dutta]

He rolls back the auto tariffs. Is that, is that not the same as capitulation? Basically. Isn't that what this is all about? Can't sell our cars in Europe, can't sell our cars in Japan.

[Michael Batnick]

I don't know what it's about, honestly. I mean, it's, you know, we're trying to reshore domestic manufacturing and now we're talking about how much rice and soy we're going to sell the Japanese.

[Neil Dutta]

Right. But if you, if you say, all right, if you roll back the oil tariffs, then what is the trade war about? It's just soybeans.

[Michael Batnick]

Well, no, well, the trade war is about something that he fundamentally wants to do, which is tariffs. Like that's like a 10% universe for.

[Neil Dutta]

The sake of tariffs.

[Michael Batnick]

Yes.

[Neil Dutta]

Yeah.

[Michael Batnick]

I mean, the fact, look, everyone's sort of saying, well, there's so much confusion because you're doing this as fentanyl escalate to de. Escalate.

[Neil Dutta]

It's a revenue.

[Michael Batnick]

I mean, and they're trying to say it's, it's both.

[Josh Brown]

It's very simple. He's saying, we buy so much from you, why don't you buy any of our stuff? Isn't it that simple?

[Neil Dutta]

Well, I think in his mind, depending on the market.

[Michael Batnick]

Yeah, I think it goes beyond that. I also think that this is fundamentally like what he believes. And so he's basically saying if you want entry into our market, you have to pay 10%.

[Neil Dutta]

I bet you if he just said that, he could say I won the trade war. But that's not where we are. We're at 150% tariffs.

[Michael Batnick]

Yeah, but I think that ultimately, I guess my view on it is you have a 10% baseline and these negotiations are basically going to be used as like a pretense to just continue to delay the reciprocal tariffs that he announced on April 2nd. So I think we're still stuck with 10%.

[Josh Brown]

Well, let me ask you this. Has there ever been a time in history where inflation expectations were going vertical and the Fed was cutting? It would be very unusual. Now this is a very unusual period of time.

[Michael Batnick]

I mean you had a period in 2008 where global demand was still very strong. The US economy was getting worse at the time. The dollar was cratering, oil was rallying, oil was surging because of global demand, I guess, and inflation expectations were rising. And I mean there was a period there that summer where the Fed was like, I don't know if we should be cutting, but that was, I think Europe.

[Neil Dutta]

They were hiking.

[Michael Batnick]

Yeah. In hindsight that was a mistake.

[Josh Brown]

If Josh is right and they do a surprise cut in May, what happens to the market? What do you guys think?

[Neil Dutta]

I think the market is the, I think the market is probably. If it doesn't rally, then what we're going to say is the market anticipated the rate cut.

[Josh Brown]

Yeah, yeah.

[Michael Batnick]

I mean I would assume that, I would assume that if the, if the Fed does a surprise rate cut in May, then the likelihood is that all those companies that you're saying are still underperforming, like the non tech company catch up.

[Neil Dutta]

So we're gonna get April non farm payrolls by the time people are listening to this.

[Josh Brown]

Don't worry. I heard it's good.

[Neil Dutta]

If that's an incredibly strong report, then forget everything I just said.

[Michael Batnick]

Yeah.

[Neil Dutta]

Because I don't think.

[Michael Batnick]

Well, you may find out sooner. I mean, it's like Maybe at like 7:45am like, we get a true social post. Looking forward to the jobs number.

[Neil Dutta]

I wouldn't be surprised. I wouldn't be surprised. Did you wanna do the sentiment chart or we.

[Josh Brown]

No, we did that already.

[Neil Dutta]

We did that already. All right, what do you wanna go?

[Josh Brown]

Let's talk about the economy. So we got GDP reading yesterday. Not great.

[Neil Dutta]

There's a weird asterisk in that, though. The GDP reading. Right.

[Josh Brown]

What's that?

[Neil Dutta]

It was like something with an import calculation.

[Josh Brown]

So Liz Ann Saunders tweeted, net Exports subtracted nearly 5 percentage points from the first quarter in GDP, most in history. John, chart 12, please. Neil, explain this to us. What are we looking at here? And if this is not meaningful, we could blow past it.

[Michael Batnick]

I mean, there was a threat of tariffs that pushed up imports, which cut gdp. So, you know, I mean, that's all that is.

[Neil Dutta]

All right, so exports, net of imports is why you would get.

[Michael Batnick]

You had a front running of the tariff. So imports surged. Now, ultimately, imports have to go somewhere. So they went into investment, they went into inventories. So, okay, that's basically what was your.

[Josh Brown]

Read of the quarter?

[Michael Batnick]

My read of the quarter was that consumer spending is growing below the rate of. Is basically slowing down. That, to me, is the most important thing. Income growth and consumption growth is moderating. And the big story, in my opinion, is that over the last year, consumption has been growing almost twice the pace of disposable income. Right. You have about 3% consumer spending growth and. And like 1 1/2% consumption. So everything that's going on right now, in my view, would augur for a higher saving rate. Or at best, maybe the savings rate's stable. But people see, you know, home prices are slowing, the stock market is volatile. Like, these are reasons for people to be a little bit more cautious or they have a little bit higher precautionary savings rate.

[Neil Dutta]

There's an explosion in unsold home inventory in Florida now.

[Michael Batnick]

Yes, exactly.

[Neil Dutta]

Which is probably a leading indicator for something. You have people that basically have been running a race to spend as much as they can, go on as many vacations as they can. And to your point, they're still sort of on the stimulus high, but they don't have the money, but they're still spending at the same price, and you can't keep doing it unless the economy all of a sudden speeds up and people start making enough.

[Michael Batnick]

Yeah, so exactly. That's exactly right. And so if the savings rate is stable, then at best, you're going to be looking at like 1 1/2% consumption. So if you assume everything else is more or less zero, maybe you get a little bit from AI like CapEx, but you're basically talking about like, like one to one and a half percent growth at best. And if that's the case, that's not a situation that's below potential. So that's going to be an situation where the unemployment rate tends to go up. I think it'll end up being weaker than that for what it's worth. But it just tells you that the best case scenario is still pretty soft.

[Josh Brown]

So let's talk about this. We have the Confidence board of Consumer confidence and every metric of consumer confidence is rolling over. John Chart 14 just not great. Heather Long tweeted this is stunning. 44% of Americans now believe they will be worse off financially in a year, mainly due to tariffs. We've never seen anything like this before, not even during the Great Recession or the stagflation era. It's hard to imagine that this doesn't impact how people spend. Maybe we shouldn't buy the tv, maybe we shouldn't take the fourth vacation, maybe we shouldn't do whatever. How does that ultimately not happen?

[Michael Batnick]

How does it not happen?

[Neil Dutta]

How do you get out of it once it rolls to this degree? Put that last chart back up prior to this one.

[Josh Brown]

Is it possible that we look back on this?

[Neil Dutta]

How do you noise, how, how do you escape this? It's crazy. That's crazy.

[Michael Batnick]

I mean, I think it's going to be some combination of capitulation on the trade war and rate cuts that would ultimately get you out of that. But even then, I mean once the confidence genie is out of the bottle, it's really hard to put it back in. It takes time and probably re acceleration in the job market. That could be something.

[Neil Dutta]

Well, that's going in the wrong direction now. So we got Challenger Gray, we got, we got continuing claims are at a multi year high.

[Michael Batnick]

Yes.

[Neil Dutta]

What was your read on today's precursor to tomorrow's jobs report?

[Michael Batnick]

The labor markets are all slowing down. I mean everything we see suggests that.

[Neil Dutta]

The labor market's all pointing in the same direction.

[Michael Batnick]

Yeah, I mean you mentioned the Challenger data. It's not a data point I normally pay much attention to, but what's interesting about that is why there are job cuts. It's, you know, the firm saying that it's because of economic conditions. I mean a month ago is it because of doge and now it's because of economic conditions. Corporate Restructuring. I mean, if everyone's restructuring at the same time, that becomes a macro issue. Continuing claims. I mean, continuing claims are rising.

[Neil Dutta]

It's 2 million people.

[Michael Batnick]

Correct.

[Neil Dutta]

Which means that's a high number.

[Michael Batnick]

Well, it means that unemployment's going up.

[Neil Dutta]

Yeah. Continuing claims. Continuing claims is initial claims. How many weeks elapsed before somebody that is an initial claim becomes a continuing claim?

[Michael Batnick]

Well, if you're. If you're filing and for. Like, you have your. I mean, basically you have six months on continuing before those are exhausted. I mean, it depends on the scale.

[Neil Dutta]

No, but how soon after you go from an initial claim to a continuing claim?

[Michael Batnick]

Oh, it's immediate. I mean, it's a week later.

[Neil Dutta]

So you file for your initial unemployment claim and you're counted in the data of continuing claims immediately.

[Michael Batnick]

Yeah, basically. A week later. Yeah.

[Neil Dutta]

Okay. Is one more important to you than the other for your process to understand.

[Michael Batnick]

What'S going on, or you think continuing claims are. I think, continuing? Well, I mean, if you're waiting for initial claims to go up, then you're waiting too long, because that's like. Basically, I agree with you. It's like a credit spread. I mean, it's episodic when it goes up. So that's like in a measure of layoffs. And if layoffs are rising in a material way, that means the Fed's waited too long and you have basically nonlinear risk.

[Neil Dutta]

But continuing claims is people sitting on unemployment insurance for months and not getting rehired.

[Michael Batnick]

Continuing claims tell you about how difficult it is for someone to find a job. So one of the. And this is something I talked about with Paul Krugman is it's the bathtub model of unemployment. Right. So you can kind of forecast what the level of water will be in a bathtub based on how much water's going in and how much water is being drained out. And what we can say about unemployment is that the good news is that layoffs aren't going up. So that means that the water's not flowing into the tub any more quickly. But what we do know for sure is that it's taking a lot longer to drain that water out. So it's taking a lot longer for unemployed people to find work. And over time, that ultimately means what the level of water, or in this case, the level of unemployment will go up over time. And that's kind of where we are right now.

[Neil Dutta]

It's a sequence of things. Like picture a corporation. So they were hoarding labor for a while. Like, we're not gonna let anyone go because we don't know if we could hire them back. Nobody's worried about that anymore. And then all of a sudden, it's like, no more lunches, no more coffee, no more trips. Cut the travel. They don't lay people off until they absolutely have decided we're in layoff mode. Okay, so that part takes a really long time to your point. But, like, I think we're at the point now where not just Fortune 500, but every business in America has enough uncertainty where maybe they're not firing all their staff, but they're not hiring. And that's why it's harder to get hired right now than it's been in years.

[Michael Batnick]

Yeah. And the margins. I mean, tariffs represent a margin squeeze. Ultimately, tariffs increase costs. Who ends up. You know, I mean, it's an open question about how much they raise consumer prices, but they increase cost. And I think, frankly, one reason why consumers are still holding up. Right. I mean, you see, like, these, you know, Visa saying, consumption's fine. Like, everyone's saying consumption's fine.

[Neil Dutta]

It's still working.

[Michael Batnick]

Not only that, but they haven't actually felt the effects of tariffs because a lot of these companies think that the president's gonna back off. And so they think that it's temporary in nature. So they're willing. With margins being very elevated, they're willing to eat the cost. I have my skeptics. As I said, I think that some of the tariffs are gonna stick. So ultimately, this is a margin squeeze that they're going to have to deal with. And ultimately, I think that's gonna mean weaker investment, hiring, and some finances.

[Josh Brown]

What's.

[Neil Dutta]

So, like, does that show up in a month or in three? Like, if you had to guess, like, when does that become obvious to everyone that it's here?

[Michael Batnick]

I think it could be as soon as May.

[Neil Dutta]

Yeah.

[Josh Brown]

Where would we see that?

[Michael Batnick]

I mean, I would look at manufacturing, employment, construction. I mean, things that are very affected by the tariffs.

[Josh Brown]

This idea that if we do go into a recession, whether like a technical one or not, the economy slows down. People say, well, the consumer has never had a better balance sheet. Corporations have never had a better balance sheet. Therefore, the recession should be moderate. We can weather through. Recessions suck. What's your take on that?

[Neil Dutta]

Like, we're going into a recession in really good shape.

[Michael Batnick]

Yeah. I mean, I think it'll be a. I think that's a reason for it to be, like, mild. I mean, we don't have, like, deep imbalances in our economy. Right. I mean, it's not like you had a massive capex boom like you did in the late 90s. I mean that might just be getting started, quite frankly. Housing is not stretched. I mean if you look at residential investment relative to gdp, it doesn't appear to be out of whack. So I think all of these are good reasons to expect the recession to be relatively mild. But I also think that the recovery will probably be quite slow because to me it's a confidence issue. Right. I mean I think in some respects, like what are we talking about here? A lot of these deals that we're talking about, are they really deals or are they IOUs? I mean are they just deals? To just have extended negotiations and doing trade deals is not easy. It's like a win if you can get one of those over the finish line. And what's interesting to me is the administration talks about the phase one China deal and how Biden didn't enforce it. Well, you're about to go embark on hundreds of phase one deals. So if you're a company like why do you think any of that stuff sticks? Yeah, and so I just think. So there's this confidence shock that's happened which is completely, I mean one of the things I said early on with the President is that he didn't have a lot of levers to pull. Because the truth in my opinion is that Biden went to the fiscal well one too many times and is like very much limiting their ability to do things.

[Neil Dutta]

So really, Inflation Reduction Act, Chips act, what else?

[Michael Batnick]

Infrastructure. Infrastructure, yeah. So that basically meant like the one thing that he could do is just sort of tax the world. No, like just keep the animal spirits going. Right? Like just make people think like look, we're gonna get this tax reform done, we're gonna get, we're gonna do deregulation. These things are all coming down the pike. And that's where the optimism initially came. But what did he start with? He started with the most growth unfriendly part of his agenda first. And I think that he's in it for the long haul. Like I think fundamentally this is what he believes. And that's why I don't really think that we should expect some kind of capitulation. And remember, this isn't the end. I mean section 232 tariffs are coming. That just requires a period of like studying it. But you're gonna get section 232 on pharma semiconductors.

[Josh Brown]

What does that mean?

[Michael Batnick]

These are national security tariffs.

[Neil Dutta]

So. Cuz they really wanna make sure that we're manufacturing this stuff here.

[Michael Batnick]

Yeah, I agree.

[Neil Dutta]

That's the part that's not gonna change.

[Michael Batnick]

And you can debate the merits of that. But look, I mean, this is what he got elected to do and so he's doing it. So I just. And I think it's a period of transition for corporate America and that uncertainty is going to be problematic to navigate. And it's. I kind of liken it a little bit to like the 01 to 03 period, right? Like that was a mild recession, but back then, man, it was just like confidence shock after shock, right? It was 9, 11. It was corporate scandals. We had like accounting reform, right? And then we had like the run up to the Iraq war. And it took like so much to get things going, right. You needed gobs of tax cuts and like a 1% fed funds rate. And unfortunately right now we don't have the fiscal space really to deliver that.

[Neil Dutta]

One thing about the tariffs is that the money being collected is supposed to offset this extension of the Tax Cuts and Jobs act, which they're gonna try to get done before the end of this year. Have to get done before the end of this year. So if you get rid of the tariffs. Well, that was one of the sources that was gonna pay to keep the tax cut. So I don't even know that you wanna see the end of all the tariffs, even if it ends up being a higher cost and you're a corporation.

[Michael Batnick]

Yeah, I mean, also. But I just, I mean, I would just say that the way they're going about this like carve outs and you know, specific items are tariffed at different rates and so forth, that makes enforcement very challenging. Right? So it's a fairly inefficient way of raising money. Which is why, I mean to me it's. Look, if you believing in tariffs is sort of like the price of entry to ride down the escalator with djt, right? And so I mean, I always said like, look, if you're going to do this, the best thing to do is just start at a baseline of 10% and then go on a bilateral basis against specific countries. I mean, I saw like a senator from Nebraska talking about like, oh, he's totally right to do this. This is after like the Liberation Day announcement. He's totally right to do this. Like the Brazilians are killing us on ethanol. It's like, okay, so why don't you do it like price is right, right? Like Brazil, you're up next and let's talk about ethanol. And then just go, I mean, you could have done this in a way that probably wouldn't have created so much market anxiety.

[Josh Brown]

I meant to ask you speak about the market. What's Jeff's take on the stock market these days?

[Michael Batnick]

So he said that it's. I mean he's been saying bear market rally.

[Josh Brown]

So have I. Oh, interesting.

[Michael Batnick]

He's been saying bear market rally. So it's actually I think very good for our client base because you know, we don't have like a mandate at renmac to like everyone has to have this.

[Josh Brown]

Yeah, you could disagree.

[Michael Batnick]

Yeah, yeah. But I think it's helpful really for our salesforce when you know, I'm basically saying look like I think things are slowing, like I wouldn't really be chasing this rally. And he seems to be saying similar.

[Neil Dutta]

What's this trends in consumption chart is.

[Josh Brown]

That we could skip it. I wanted to talk about this. I really like this chart from Torsten slok which shows US corporate revenue exposure versus US exports to China. So okay, we only export $144 billion to China. Not a lot. Obviously a huge imbalance there. However, look at the S&P 500 revenue from China. It's $1.1 billion trillion dollars.

[Michael Batnick]

It goes against what you just said though earlier, right?

[Neil Dutta]

Which part?

[Michael Batnick]

Well, I mean because you know, it's. In this case, the stock market should actually be performing worse because of the tariffs. But that's not what's happening. The stock market's generally been going up.

[Josh Brown]

I guess my point or Torsten's point, I think in this chart that is so stark. It's like yes, if you are just looking at the difference between what we buy from China, what they buy from us directly, sure, there's an imbalance, but oh my God, look at our companies and how much revenue they're doing in China. Starbucks, Apple, all of these companies that have huge amounts of revenue.

[Neil Dutta]

Disney. This is right. This is the thing that the anti tariff people have been saying from day one. It's like, yeah, of course we buy a lot of plastic shit from China and sell it in Walmart and it's junk and we don't want to make that here.

[Josh Brown]

To say nothing of the dollars and the bonds.

[Neil Dutta]

But we sell financial services all over the world. We sell software, we sell intellectual property, we sell things that have 50% profit margins all over the world. That's what's what's at risk. The stock market doesn't believe it. Like, like the participants in the stock market don't believe that that's really at risk. I guess would be the only guess that I could make at why we're. They don't think it's at risk.

[Michael Batnick]

That's goes back to the thing we talked about earlier. But why is there the disconnect between the stock market and the fixed income market? Is that basically you're saying that they'll pull back on the trade war if.

[Josh Brown]

We roll and make new lows later in the year, this will have appeared to be the dumbest rally we maybe have ever seen.

[Neil Dutta]

What, the last eight days?

[Josh Brown]

Yes.

[Neil Dutta]

Yeah.

[Michael Batnick]

Well, I think one risk, frankly, I mean, if it's, you know, we're talking about the tech sector, I mean, as I've said, like, I think if I'm thinking about it in a macro kind of, I think it's basically the, you know, investors betting on deals. Right. Like whenever, whenever Scott's out there talking about deals like things are coming, we're going to rack up these. I mean, the market goes up and that's part of what it is. I wonder whether when we get that first deal announced as a framework, does the market sell off on that news?

[Josh Brown]

Well, given that we've rallied so hard, probably. But I am of the posture generally. I don't think the market's dumb. So if I disagree with the market, I generally defer to the market.

[Michael Batnick]

Right.

[Neil Dutta]

Isn't there, isn't there room to say the market's not dumb? And every time we've been in this cataclysmic situation where the S and p is down 15, 20%, which is where we just were in early April, it's been a head fake. And so the market is smart and they bought that. They bought that dip aggressively. But there will be one time where they buy that dip aggressively and it's the wrong move.

[Josh Brown]

I think, given where we came from, you're right. Given that the S and P was up 20% in 23, up 20% in 24, and that the S&P is down 4% this year, doesn't make sense.

[Neil Dutta]

There's another dynamic I want to talk about. Wall street strategists have completely thrown in the towel on this year. The retail is going the opposite direction. So let me read this to you. Deutsche bank coming into this year had the second highest S&P target for 2025. This is, I think, Monday. Deutsche Bank's Binky Chadha, one of Wall Street's biggest bulls entering 2025, is going back on his optimistic views on U.S. equities. The bank's chief U.S. equity and global strategist cut his year end S&P 500 target to 6,150 from 7,000. That's a pretty big cut, guys. The new forecast signals in advance of just 4.6% from where the benchmark began the year the old target was for 19% upside. Again, hang on, had.

[Josh Brown]

Dude, the S&P is at 5600. That is not. I mean, yeah, 7000 is ludicrous at this point. You better be cutting.

[Neil Dutta]

Okay, but I'm just making the point. Chada had the second highest target followed following only Oppenheimer's John Stoltzfuss, who also cut his UN target to 5950 from 7100. So the two guys above 7000 are now in the with a 5 handle on their target. And these are really big cuts. I'm not saying they shouldn't have. Here's the chart. So this shows you where they started the year and this shows you where they are now. This is Goldman, bank of America, Evercore, ISI, RBC, JP Morgan, Yardeni, Oppenheimer, Barclays, BE, BMO Deutsch. Now they're all in the fives and low six.

[Josh Brown]

All right, so we're at 5,600. To me, this is not bearish enough.

[Neil Dutta]

But let me, let me, let me make the counterpoint to that. So while Wall Street's throwing in the towel on this year, here's what retail investors are doing. Emma Wu, a global quantitative and derivative strategist at JP Morgan said in a note to clients late Wednesday. Retail stock buying boomed last month even as Wall street pros worried about recession. Retail traders, this is, I mean, this is a crazy divergence. Retail Traders net bought $40 billion in April, surpassing March and setting a new record for the largest monthly inflow. Historically, retail investors bought aggressively daily imbalances exceeding 4 billion on both April 3rd as the day after Liberation Day when the market experienced its first 5% drawdown since 2020, and April 9, which saw the largest one day gain since 2008. They bought down, they bought up, they bought every day a record setting amount of stocks. So I don't know that we could say the market's smart or stupid because the market participants are going in opposite directions. One will be right. Retail will be vindicated or the strategists will be vindicated. But it's very clear they disagree.

[Josh Brown]

Your thoughts or we just sort of chop around and go nowhere?

[Neil Dutta]

No, but one's gonna be up fine in that scenario then nobody looks like they, they were quote unquote right.

[Michael Batnick]

We're gonna have another movie about it like dumb money. Yeah, who's right, who's right, who's wrong? I mean, I think, you know, look.

[Neil Dutta]

Robinhood, 77% jump in year over year transaction based revenue they just reported this week.

[Michael Batnick]

But there's, I mean, people are conditioned over the last number of years to buy the dip.

[Neil Dutta]

Yes.

[Michael Batnick]

Oh, really?

[Neil Dutta]

Wall Street's nervous. Here's another 50 grand.

[Michael Batnick]

I mean, it reminds me a lot of the 2016 when the Fed started hiking. It's like a big thing was like, well, no one's actually lived through a hiking cycle.

[Josh Brown]

Oh, my God. They wouldn't stop. The media would not stop.

[Michael Batnick]

And it's sort of similar in this sense is that a lot of equity investors haven't really seen a meaningful drawdown.

[Neil Dutta]

In the market or actual stagflation. Yeah, they haven't seen it. They're not afraid.

[Michael Batnick]

That goes back to the. I mean, like, that's why I say, like, none of these are, like, none of these answers are in my mind, like, good. I mean, it's like, is it because it's like innocent until proven guilty? Like the economy's innocent until proven guilty. Like, maybe that's the case for these retail investors. It's like, yeah, you guys have been telling me, like, things are gonna be falling apart for years. You said it in 2022 and 2023.

[Neil Dutta]

Right. So that, So I agree with that. So that's why the market is quote, unquote smart. Because they're saying this is the 10th recession in the last 10 years. None of the other nine have happened.

[Michael Batnick]

Right.

[Neil Dutta]

I'm buying. So that makes them smart, but one of these times it'll be the wrong time.

[Michael Batnick]

Exactly.

[Neil Dutta]

What's a more entertaining outcome for you? Three months from now, the strategists are chasing the stock market again and they all have to raise their targets after they cut them 19% in the hole or the market's down three months from now and the retail capitulation starts. What's a more interesting outcome of this? I'm not saying which will happen. What do you think would be more interesting? Not that you root for anybody to lose money or be wrong.

[Michael Batnick]

Yeah, I mean, I think it's the potential for things to get worse that to me is sort of more interesting because we haven't really seen that.

[Josh Brown]

I don't think retail capitulates.

[Neil Dutta]

Wall street will look really smart if there's another. If there's, if there's another drop of the magnitude of April later this year. All these guys who cut their targets, they won't look smart, but they'll look better than they would look.

[Michael Batnick]

I mean right now, I mean, I think I agree with Michael. Like most of these estimates are just marking to market your forecast. They're not actually like bullish or bearish. There's just like one of these things where like price, you don't have a choice but to like you can't.

[Neil Dutta]

The market falls 20%. You can't leave a target at 7,000.

[Michael Batnick]

It's like at that point your compliance department's calling you up. Can you please.

[Josh Brown]

You know, but I think this idea that investors will stop maybe the dip, buying slows down. In fact, yes, if we roll over to new Lowe's they will be certainly less excited about buying, about putting new money to work. But they're not going to puke their Google or Amazon or whatever they just bought a month ago. They're going to hold on, they're going to say it'll come back.

[Neil Dutta]

So I think what it would take for retail investors to capitulate is not the depth of a sell off. I think it's the length of a bear market. Everyone has their limit. I think it's.

[Michael Batnick]

Was there any selling in equities when we had in 2022? Right.

[Josh Brown]

Very little. No NASDAQ stocks, ETFs took in money because they always do.

[Neil Dutta]

Structurally they always do because of retirement investing. It's almost automated. I asked you for this chart earlier today. We looked at this period after the dot com boom turned into a bust that you referenced that period into 2003. There were 10 distinct 5% rallies while the S&P fell 52% from peak to trough. The trough was like at the end of 02.

[Michael Batnick]

Brutal.

[Neil Dutta]

Isn't that a great chart?

[Josh Brown]

Brutal. That will wear you out.

[Neil Dutta]

You see the light blue highlight portions? Those are 5% or more rallies and each one of them failed and led to lower levels. I'm not saying that the rally we've just experienced is that. I'm saying it very well could be. And people are not even thinking that that's possible. They can't imagine it.

[Josh Brown]

But so that stops the buying. It won't make people puke. I think we'll see. And listen obviously individual, certain people will. But I'm saying like in aggregate if you're looking for the retail Vanta tract has a lot of great services on this. Like they track retail buying and selling. I think you will see buying dry up if we continue to roll. But I don't think they're going to start to hemorrhage their stocks.

[Michael Batnick]

Yeah, I Mean, I. Yeah, I think to me it's like you always want to be invested. It's really about whether you want to put new money into the market or not.

[Neil Dutta]

I agree with that.

[Michael Batnick]

And I think, I think, you know, I mean, my view is that you'd be less likely to put new money into the market.

[Josh Brown]

Well, guess what? I bought the panic. I bought the panic three weeks ago. I will be less enthusiastic about putting more money into the next one. So will everybody else.

[Michael Batnick]

Right.

[Neil Dutta]

The first panic is the easiest one to buy.

[Josh Brown]

Yeah. Of course.

[Neil Dutta]

The fourth panic, it's like, I'm not doing that.

[Josh Brown]

That's not fun anymore.

[Neil Dutta]

What is the question that you're getting most from institutions or hedge funds right now about the situation?

[Michael Batnick]

I mean, I'm getting a lot of questions on policy. Not really the economic data. I feel like.

[Neil Dutta]

On Fed policy.

[Michael Batnick]

Yeah. I mean, and also fiscal, frankly. Like, you know, what do you think about what the administration's doing? I had this thing about, about how whenever Scott Besant talks, it's good. And whenever Howard Lutnick can go, yeah.

[Neil Dutta]

That was a great chart. We showed that last week.

[Michael Batnick]

And so I've been getting questions on that. I mean, I feel like on the economic outlook, I was cautious going into the year and I feel like the consensus is starting to. Has more or less caught up with that. And I think right now it's kind of this again. People are asking, what's the data point that's going to make it give you that aha moment?

[Neil Dutta]

Well, you're not a data point guy.

[Michael Batnick]

Yeah. I mean, I think it's really tough because it's not like things are collapsing so the market collapsed. I guess you could say you had a very big. And people are expecting sort of instant gratification in the.

[Neil Dutta]

Yeah. Now that the stock market crashed, show me the bad economic data that's not there.

[Michael Batnick]

I don't think it works that way. I think this is. It could have happened. I mean, but I think to the extent that they've sort of moderated their tone on the trade issue, to some extent, that's sort of reduced the risk of a nonlinear type of event in the economy. So I think it's kind of. I mean, tariffs don't really mean sudden stop. It's not like Covid. It's not like a credit event. It's not sudden stop. It's painful. And it could be a process more so than anything else.

[Neil Dutta]

Do you have a viewpoint on like, what final GDP for this year is like sub 2% growth?

[Michael Batnick]

Oh, I think that's big. I mean, I think it'll be close to zero.

[Neil Dutta]

You think it'll be close to zero? Is that kind of what everyone thinks now?

[Michael Batnick]

I mean, I think people still think that there'll be positive growth. I mean, I don't think people think the labor markets are going to fall out of bed.

[Neil Dutta]

Wall street still thinks like 9 to 12% growth for earnings.

[Michael Batnick]

Yeah. I mean, so to me, that's going to be very challenging in a nominal growth environment. That's if you have tariffs, whatever goes into P is going to be coming out of Q. Right. Price times quantity and nominal growth is very sluggish. So how are you going to get 10% earnings with nominal growth running 3%?

[Neil Dutta]

Yeah. When the next Fed meeting happens, what do you think the stock market would prefer? Would they prefer no cut? Because things aren't really getting that bad, but a dovish tone from the Fed kind of telegraphing like, all right, but we're definitely doing cuts this year or do you think they just want the cut? Like, what would be better for like the mentality of the stock market? Because there is a school of thought and there is some data when the cuts start. It's actually not great for stocks. It's the anticipation of the cut is better than the cut itself because the cut might mean something's not going well.

[Michael Batnick]

Well, I think if the Fed is cutting in May, that probably means that things are going to get worse between now and then, which is why I don't think that they'll cut in May. I do think so. I mean, I think the downside risk for the market is if you have some kind of like hawkish hold where he basically says, like, look, we're not doing anything right now and we're thinking inflation is surging and that's why we can't do anything. I think what the markets would prefer is that, you know, something like we're monitoring the economy closely.

[Neil Dutta]

Okay. So this jobs number is a big deal. I know we joke around about every jobs number is the most important ever. This one's kind of important.

[Michael Batnick]

Yeah, I mean, we're right, because we've seen a fairly significant. Like one of the ways you catch a recession in real time is you have to look for what Greenspan called like data discontinuities. Right. Like if you have like a bunch of 200,000 on NFP non farm payrolls and then all of a sudden you get like a 25.

[Neil Dutta]

Yeah.

[Michael Batnick]

Like that to me is like, oh, that's interesting, maybe that means something bad's happening.

[Neil Dutta]

You know what? Didn't work very well. Speaking of discontinuities, the SAHM rule was triggered. I don't know what they were on on SOM rule watch, but that was something with like the shorter term versus the longer term unemployment rate.

[Michael Batnick]

Yeah. I mean that could have also been like a function of like labor force dynamics and so forth. I mean, but as I say, I mean you have data discontinuities already in all of the survey data. Right. Like consumer confidence wasn't great, but it wasn't like awful either. I mean it was kind of bobbing around and then it just fell off a cliff. And then you look at capital spending intentions across the regional manufacturing surveys, sort of same thing. Right. It just collapsed. Yeah. So you have discontinuities already in some of the data. Obviously the NFP number is the one of the highest quality. So that's the sort of thing that.

[Neil Dutta]

We all last thing. How's this for a scenario? The real economy falls apart like the physical economy, but so long as three companies reaffirm their AI spending capex for this year, the stock market's just whatever, it's fine. Like that sort of seems like what's going on right now. They're hanging on to every word from Microsoft, Amazon, Meta, will you keep spending on AI? They're like, yes, but I guess rallies, 400 points.

[Michael Batnick]

I mean we know how, we know how tech booms go, right? I mean there's, there's an adoption period and you are seeing that in the data. Right? Like more companies are adopting AI and that's going up. But ultimately you hit a saturation point which then undercuts the rationale to continue investing and we're not there yet, that overhang could be very painful. So this again goes back to the idea that if the economy is only firing on one cylinder right now and then there's an overhang later, it just creates a very soggy recovery on the back end of this, even after the Fed's cut.

[Josh Brown]

So speaking of AI, Capex Meta, to Josh's point, like they upped it their guidance as you guys were talking Amazon reported. So I'm on the quarter app and I just, it gave me a suggestion to ask the chatbot and the suggestion was how does growth compare to peers? Because that is a huge driver of Amazon stock price. And in three seconds, not three seconds, let's call it 30 seconds, I got Amazon up 17% AWS up 17% year over year.

[Neil Dutta]

That was the number.

[Josh Brown]

Azure up 33% year over year. Google Cloud up 28% year over year. So Amazon is down 4% in the after hours primarily because of their AWS report. And this is sort of a tangent side point, but, like, the AI stuff is just wild. I don't know about you, but in like, for me personally, I have been using it way more even in like the last three weeks.

[Michael Batnick]

What do you use it for?

[Josh Brown]

Stuff like this.

[Michael Batnick]

Okay, okay, okay.

[Neil Dutta]

I think we're all using it and.

[Michael Batnick]

I use it for cartoons.

[Neil Dutta]

Say more. You create cartoons?

[Michael Batnick]

Yeah, like, I mean, that's what we use AI for.

[Neil Dutta]

So I think people are using it and don't even realize they're using it at this point. That's where we are. It's so built into so many of the products at, at Microsoft and, and Alphabet. It's just, it's a huge part of our lives already and we don't even know it. The deliberate use of AI, probably not as prevalent as I thought it would have been.

[Josh Brown]

People going to chat.

[Neil Dutta]

My biggest fear is I think that's off the charts. But like Apple's, Apple's AI rollout at this point, I think it's safe to say was just an absolute debacle. Like they don't have it in China. The app here, they launched in two phases. So when you got the new iPhone 16, like, the AI was indistinguishable from regular Siri. So like, Apple didn't really get going on AI to the extent that I thought they would have. And as a result, like, we're using AI when we search for something and Google gives us a result up top before the blue links, it's an AI result. Nobody's like blown away by it. It's just like, oh, that's how Google search looks now. So I don't know Facebook.

[Josh Brown]

So Zuckerberg yesterday on the call was saying that the AI agents are getting so good that advertising will be a bigger percentage of GDP going forward. And if he's right, and there is reason to suspect that he might be right, it makes sense why these stocks are behaving the way that they are. They can continue to take share, expand their earnings in a shitty economy.

[Michael Batnick]

So just, I mean, to me, the interesting thing about this is that this just shows, like, kind of like the evolution of how an economy goes. Right? Like the bigger. Right. Like you start off on the farm, then you go into the. And now we're kind of going to the upper heights of like the knowledge economy and like just, you know, putting everything on a computer.

[Neil Dutta]

Everything is computer.

[Josh Brown]

I mean, Microsoft's cloud doing 26% compounded for the last five years. At these numbers, there's no comp.

[Michael Batnick]

But it just shows you that like we're at this knowledge based economy and yet like the political economy, we're trying to get back into the factory.

[Neil Dutta]

Yeah, well, right. They want to reverse it.

[Michael Batnick]

It's very difficult to like. Right. Like these are like big sweeping secular changes that are really hard to shift with policy.

[Neil Dutta]

I just want to point out though, we're whistling past the graveyard with like big Mrs. McDonald's, UPS.

[Michael Batnick]

No, I agree.

[Neil Dutta]

I mean, 10 years ago we would not have ignored the commentary from these CEOs and had a plus 2% day in the S and P. It would never have happened. And that's how big these AI issues are. They're so much bigger and more important to the stock market than the companies that we used to think of as bellwethers. I don't even remember Caterpillar. Yeah, they would seize on a report from Alcoa because it was the first earnings report. Caterpillar, UPS, FedEx. What those companies said was the tone for the stock market for a week.

[Josh Brown]

By the way, this is Alcoa. And if you look at a chart of any materials, they look like ass materials are breaking down.

[Michael Batnick]

To me it's actually quite. It makes me a little nervous because it just. It's a. I mean it's a very imbalanced economy and it's a very, I mean, seems like a very imbalanced stock market.

[Neil Dutta]

So I was joking around. Like as long as those three companies affirm their AI CapEx, none of this other shit matters. It's like half joking cause it's half real. That's what's going on right now. Yeah, we're not gonna solve this today. Do you have fun on the show?

[Michael Batnick]

I always have fun with you guys. Absolutely.

[Neil Dutta]

So I think the best way I could kind of encapsulate your thinking right now is we're gonna have a slowdown. The question is for how long in the severity.

[Michael Batnick]

Well, I would just say that all slowdowns, not all slowdowns end in recession. All recessions start with a slowdown. And I tend to think that the markets might be underapprec the risk of recession at the moment.

[Neil Dutta]

I think that's fair to say. Michael and I both agree with that. All right. We always end the show asking people what they're most looking forward to. Neil, you have Knicks stuff in here. Did you know Michael's a Knicks fan?

[Michael Batnick]

I couldn't tell you Know what?

[Josh Brown]

I am looking forward to this series being over. This is. I'm not having fun. And it's not just because we're not performing well.

[Michael Batnick]

I mean, even if we win, we're going to lose in five.

[Josh Brown]

In five games.

[Michael Batnick]

Yeah.

[Josh Brown]

It could be debacle. So I'm thinking about going to Boston either on Monday or Wednesday just because I want to be in the building. But I kind of don't want to.

[Neil Dutta]

Be humiliated and they kind of might not be there.

[Josh Brown]

We're going to lose. Well, that. There's that. But we're going to lose by 29 points. Like, do I really want to go to Boston for that? I don't know.

[Neil Dutta]

No, you do not. Can I. Can I help you? Wait for the MSG game. They'll probably lose that one too. Do not go to Boston. Yeah, do not go to Boston.

[Michael Batnick]

What do you think the odds if.

[Neil Dutta]

They blow the Celtics off the court? You could be mad at me.

[Josh Brown]

That's not going to happen.

[Michael Batnick]

Thibodeau.

[Josh Brown]

I.

[Neil Dutta]

This is it for now.

[Josh Brown]

I want him gone. I'm not mad at him. I love him. I thank him for his service. He has taken this team as far as he possibly could. Thank you so much. We need a new coach.

[Neil Dutta]

We need one of these sexy new coaches. Like a J.J. redick. We need like somebody in their 30s, like a poster.

[Josh Brown]

Yeah, we need somebody that. We need an offensive minded coach. We need Ty Lue. I know he's not available, but like we need somebody that can run this offense because we are not maximizing our capability at all. Last year the sum was greater than the parts and this year it's the opposite. We have too much talent to be playing this way. It's really exciting.

[Neil Dutta]

One of the problems with only playing seven guys the entire season and putting 35 minutes on all of them. When you get into the playoffs and you don't have a bench that can score well, what do you want from these guys? They barely had to play other than injuries. So you basically you need Brunson and Cat to combine for 70 points to win these games. It's really, really hard for that to happen. And you have no plan B. I went to the game on Sunday in Detroit, shout to my friend Jason Rasnik.

[Josh Brown]

That's talking a lot of shit to me in the DMs.

[Neil Dutta]

Yeah, I bet. So I want to say one thing about Detroit. They love basketball like that. Arena goes to 12 and we happen to have pulled out the victory by like 1.

[Michael Batnick]

1 point.

[Neil Dutta]

1 point. There might have been a Foul. They didn't call the foul. We won the game. We squeaked by, but that place was just lit the entire game. They really love their team in a way that I don't. I don't think. Like, I've been to a bunch of NBA arenas, not necessarily in the playoffs, but, like, I just feel like Detroit's a special basketball.

[Michael Batnick]

Was it Malice in the Palace? Did you.

[Neil Dutta]

Yeah. Well, that was a different place. That was Auburn.

[Michael Batnick]

Right.

[Neil Dutta]

This was Little Caesars. The coolest thing about Detroit, all three teams play next door to each other. So Ford Field for the Lions is next door to Comerica, and across the street is Little Caesars for the Red Wings and the Pistons.

[Josh Brown]

That is awesome.

[Neil Dutta]

And then they have, like, a million sports bars and they had, like, outdoor parties going. Like, it's a amazing sports town. And apparently there were a lot of people who would go to a Tigers game and a Pistons game in the same day.

[Josh Brown]

It's amazing.

[Michael Batnick]

Jeff is a big. No, he's from Michigan.

[Neil Dutta]

He's a Red Wings guy, right?

[Michael Batnick]

Well, yeah, he's a. And also a big Lions fan, too.

[Neil Dutta]

Lions fan. Okay. Anyway, shout to Detroit. Thanks. Jason met Jared Goff. He was front row at the game.

[Michael Batnick]

Okay.

[Neil Dutta]

Sitting next to Jason. Who else was there? Chris Weber was there.

[Josh Brown]

Ben Wallace and Jalen Rose.

[Neil Dutta]

Yeah, it was.

[Josh Brown]

They don't talk to each other, but.

[Neil Dutta]

Like, all the Detroit celebrities were out. I found that kind of cool. It was a very cool scene. What are you. What are you looking. What. What are you looking forward to?

[Josh Brown]

I told you, this is.

[Neil Dutta]

What are you looking for?

[Michael Batnick]

Well, I mean, I'm hoping. I'm looking forward to them closing out the series tonight.

[Josh Brown]

I think we're going to win tonight. Well, Jude, relax, all right?

[Neil Dutta]

You think in Detroit.

[Josh Brown]

I do, but I'm not, like, super confident.

[Neil Dutta]

They barely escaped alive on Sunday.

[Josh Brown]

I think we're going to win, but I'm not betting on it.

[Neil Dutta]

All right. I'm looking forward to dinner. We're going to a corner store tonight. You ready for this?

[Michael Batnick]

I love it. All right.

[Josh Brown]

Whose joint is this?

[Neil Dutta]

This is Mark Bernbaum, who is the owner of Catch and Catch la. Oh, we've been here. I took you to Catch la.

[Josh Brown]

That was hilarious.

[Neil Dutta]

This place is the shit. They have the French dip. Like the roast beef.

[Michael Batnick]

Yes, I've had it. It's good. The steak is good also.

[Neil Dutta]

Steak is great.

[Michael Batnick]

They have this, you know, Girl Scout cookies. They have, like, a Samoa sundae, which is fantastic.

[Neil Dutta]

It's gonna be great. I'm looking forward. I'm looking forward to dinner. All right, that's it from us. Great job. Thank you so much to the team. John and Duncan in the room right now. You guys crushed it this week. We did a lot of great stuff. Neil, where can people follow you? Where do they get your stuff? They go to renmac.com you can go.

[Michael Batnick]

To renmac access.com sign up for a trial of our work. You can always find me on LinkedIn.

[Josh Brown]

Who are your customers? Is it mostly institutions or individuals as well?

[Michael Batnick]

Well, we're trying to do both but you know we have a multitude of institutional type accounts, long short equity pension funds, multi asset strategists, strategy, sorry and you know Rias as well.

[Neil Dutta]

So you guys go to renmac access.com if you want to learn more from Neil and the entire team at redmac whom we are huge fans of. We love all your stuff. Neil, thank you so much for doing the show today. Thank you and all right guys, that's it from us. We'll talk to you next week.

[Michael Batnick]

There.