Episode summary
Sustaining S&P Rally amid Market Pressures | Bloomberg Surveillance
Bloomberg Surveillance
· · 29 min · Hosts: Tom Keene, Paul Sweeney, Lisa Mateo, Michael Barr · Guests: Jim Caron, Jonathan Golub, Heather Rice, Steve Odland
Summary
The guests argued that the market is being supported by a higher nominal-growth backdrop rather than by easier policy. The first analyst said nominal GDP is running well above the long-run average, which should translate into stronger earnings, keep the Fed from being too restrictive as long as inflation stays contained, and leave the 10-year yield mostly range-bound unless growth rolls over sharply.
The second guest said the S&P 500 rally is still fundamentally an earnings story. He argued that analysts have underestimated profit growth, that valuations are cheaper even after the index’s advance, and that higher rates are pressuring multiples even while earnings keep rising. He also said the AI theme now reaches far beyond semiconductors into power, refrigeration, finance, and several international markets.
The KPMG guest said companies are using AI to improve operational efficiency, not simply to cut headcount, while pricing power is limited in consumer staples because private labels and digital shopping make price increases risky. The Conference Board chief said CEO confidence has improved but remains only middling, with leaders more focused on inflation, geopolitics, cyber risk, and productivity than on aggressive hiring or rate cuts.
Key takeaways
- The Morgan Stanley guest expects higher nominal GDP to support earnings and keep the 10-year yield near current levels unless the economy slows sharply.
- The Seaport Advisors guest says the S&P rally is being driven by earnings growth, with valuation actually cheaper than at the start of the year.
- The Seaport Advisors guest says AI-related spending now touches more than half of the market when you include chips, power, infrastructure, and related industries.
- The KPMG guest says consumer brands have limited ability to pass through higher costs because private label competition makes price hikes risky.
- The Conference Board chief says CEO confidence is only slightly above neutral at 52, with inflation and geopolitics still weighing on sentiment.
Notable quotes
“if you're in a higher nominal GDP world, you tend to get higher earnings. No surprise there”
“I do think that we're in a higher for longer uh in in environment”
“the analysts are underestimating the power of these earnings. Earnings are growing 50% this quarter compared to a year ago”
“we have massive amounts of data, but what do we do with that? I kind of call it the paralysis of data”
How the episode opens
Bloomberg Audio Studios podcasts, radio, news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m.
Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. Our interview of the day on fixed income, James Karen.
Jim Karen joins us uh with Morgan Stanley, CIO Cross Asset Solutions. Jim, you know, I love your note where you review nominal GDP. When you talk to your accountants, your economists, excuse me, when you talk to your economists, do you see a sustained nominal GDP or can it come down from the 5% level?
Well, good morning, uh Tom and Paul. Um listen uh you know nominal GDP is is really if I'm talking to my accountant he sees only nominal dollars right we all get paid in nominal dollars right so what we observe in the world is a nominal world we don't observe like we don't get paid in real dollars so you know the fact that nominal GDP first quarter of this year was running at 6% which is significantly above the average over the last you know many years which was closer to four and in the second quarter uh nominal GDP, if you look at the GDP deflator, nominal GDP was running closer to 7.9%. If you use PCE as your inflation measure, it's closer to 6 1/2%.
But the point here, Tom, is that if you're in a higher nominal GDP world, you tend to get higher earnings. No surprise there. We can take a look and see what's going on with second quarter earnings and even with first quarter earnings.
And that's the kind of connection that we should draw. So when I talk about higher nominal GDP, think about that as higher equity earnings and earnings per growth and and and earnings per share growth.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- sp 500 rally
- higher nominal growth
- equity strategy
- energy and tariff pricing
- conference board initiatives
Companies and tickers mentioned
- MS
- Morgan Stanley Investment Management
- Seaport Advisors
- KPMG
- The Conference Board
Watch the episode
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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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