Episode summary
Equities, Bonds, and Geopolitics | Bloomberg Surveillance
Bloomberg Surveillance
· · Hosts: Tom Keene, Paul Sweeney, Lisa Mateo, Michael Barr · Guests: Sebastien Page, Ian Lyngen, Bob Hormats, Henrietta Treyz
Summary
Sebastian Page of T. Rowe Price argued that investors should stay invested, stay diversified, and hedge inflation risk rather than chase the narrow rally led by a few stocks. He said the firm is trimming some risk, moving money back toward the U.S. from international markets, and keeping a neutral stance between stocks and bonds. He pointed to projected 28% earnings growth over the next 12 months for U.S. large-cap growth stocks and said valuations are below their five-year average, even as AI capex is expected to reach $3 trillion by 2028.
Ian Lyngen of BMO Capital Markets said the recent rise in yields reflects Middle East conflict, energy prices, sticky inflation, and some fiscal concern. He said the 5% level on the 30-year bond matters for equities, the 2-year yield above 4% implies the market is contemplating hikes that should not be on the table, and the 10-year yield has a trip point around 4.75%. He was constructive on duration into the second half of May, but said the bond market has entered a clear bear phase in the 30-year sector.
Robert Hormats discussed the promise and peril of U.S.-China engagement, saying the Shanghai Communiqué created a framework built on trust, confidence, and precise planning. He said Xi Jinping sees China as a peer competitor to the U.S. and wants to avoid dependence and vulnerability. Henrietta Treyz said midterm politics are being shaped by gerrymandering, energy prices, tariffs, and war risk, and she estimated Democrats remain likely to take the House, though by a smaller margin than before.
Key takeaways
- Sebastian Page said investors should hedge inflation with cash, short-duration Treasuries, tips, hedged equities, and real asset exposure rather than rely only on bonds.
- Page said U.S. large-cap growth earnings growth is projected at 28% over the next 12 months, and he said the valuation is below its five-year average.
- Ian Lyngen said the 5% area on the 30-year Treasury is a key pressure point for equities and called the recent move a bear market in the long bond.
- Lyngen said the 10-year yield around 4.75% is near his stock-market trip point, while the 2-year above 4% suggests the market is pricing too much tightening.
- Robert Hormats said the U.S.-China relationship remains centered on Taiwan and on China’s effort to avoid foreign leverage through diversification and trade.
- Henrietta Treyz said Democrats are still favored to win the House, but gerrymandering could reduce the margin to roughly 8 to 15 seats.
Notable quotes
“stay invested, stay diversified, hedge inflation risk. I think it's important for investors to diversify their hedges”
“The earnings growth projected for the next 12 months for US large cap growth stocks are at 28%”
“I think we're still trading the conflict in the Middle East. We're still worried about the energy complex”
“The long bond is more of an inflation story, and as we see five handle on the 30-year is troubling for a lot of different asset classes”
“My odds are still very high that Democrats take the House. I'm uh you know at 90% or so”
How the episode opens
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Right now, Secretary Paige joins us. Sebastian at page has had a global multi-asset uh definitive on diversification here at T row price. Sebastian after this this non breath rally this lack of dispersion I think it's three stocks is the reason we're going up how do you rediversify how do you rebalance or do you just stay with it?
You know, Tom, when you're at a cocktail party and someone finds out you're in the investment business, they always want advice, right? And I always feel like you don't have enough time to do this. So, I always say stay invested, stay diversified.
Right now, I would say stay invested, stay diversified, hedge inflation risk. I think it's important for investors to diversify their hedges. not just treasuries but hold some cash, some hedged equities, some tips, some real asset equities.
You know, I look Sebastian at the cardinal rule here. The technology doesn't play like an industrial. If yields go up, what does the technology sector typically do?
You know, I think the typical is hard to describe because its duration, its sensitivity to interest rate moves has been highly unstable historically. You know what matters right now, Tom, is the earnings. The earnings growth projected for the next 12 months for US large cap growth stocks are at 28%.
That's the highest it's been in my 25 year chart. Now, you could say that's a high bar, but those are companies that tend to meet that high bar. So, Tom, we're still along the broadening trade, but we've taken about half the profits, and we've been moving money from international back to the US.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- asset allocation
- rising yields
- duration outlook
- us-china summit
- congressional priorities
Companies and tickers mentioned
- TROW
- BMO
- T. Rowe Price
- BMO Capital Markets
- Kissinger Associates
- Veda Partners
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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