00:08We have strong corporate and household balance sheets that's supporting that.
00:11We've got a pickup in CapEx around the world.
00:14You know, these are all good things for thinking about leaning in towards risk assets over the next year or so.
00:19I mean, we are mindful of valuations going up and credit spreads getting tighter across the bond complex.
00:25So I think a near-term period of consolidation wouldn't be unwarranted.
00:29Right now, it's just figuring out what would actually trigger that.
00:32Is it going to be some sort of macro growth shock, a repricing of the outlook for Fed policy rates and move higher in bond yields?
00:38It's kind of figuring out what would cause the market to sell off right now when there is so much positive momentum out there.
00:43Is there anything visible to you as far as potential risks or catalysts to what might be for consolidation?
00:49I think when it comes to that growth shock is the one we'd be most focused on right now.
00:51Obviously, there's always policy when we think about the narrative we hear out of Washington.
00:55But I think if we look at, say, the non-farm payrolls numbers, any further signs of excessive weakness in the economy,
01:01that fading of that recessionary fare has been a big driver of markets.
01:04If that started to creep back, we'd start to think more around the outlook for earnings, which has been underpinning the market rally.
01:09Or if we did see a big repricing in terms of we've got a lot of better growth coming out of the U.S.,
01:14if inflation gets up a bit, we don't see that fall in the jobs market,
01:17maybe the market starts to price out some of those rate cuts that have really been, again, fueling the rally.
01:22And that would be another reason to say maybe those valuations become a little bit harder to justify.
01:27I mean, if we get those data points and the job support, right, a U.S. shutdown could sideline some of those data releases.
01:35Do I need to worry about this government shutdown in the U.S.?
01:37How far up or down the list of worries should that be?
01:42It's further down.
01:43I mean, how many times have we been through this in terms of the U.S. government?
01:46Fourteen.
01:47Yeah.
01:47It's 1981.
01:48It's been a few now.
01:48The market does become less sensitive to these things, and it's always about the duration.
01:52So this could last a couple of days.
01:54It could last a month.
01:55It's when it starts to last longer.
01:57That's when you start to worry about it.
01:58And in the past, the precedent has been that any weakness we see in the economy tends to get unwound when workers start to get paid again.
02:05I mean, there could be some concerns around job layoffs coming into that from the government department,
02:09if that's actually what we start to see through.
02:11But I think for the near term, it's the fact that maybe you don't get the non-farm payrolls, maybe you don't get that CPA print, CPI print.
02:17It becomes a little bit harder for the market to then think about what does the Fed, what does the market start to digest around that data.
02:23Is there still, in the end, are you still hearing from clients that there is an interest to diversify away from the U.S.?
02:28Or how is that debate evolving now?
02:31Yeah.
02:31I mean, that fading of the U.S. exceptionalism theme, that was a big one that came through.
02:36It's come back a little bit.
02:36I think that's been driven by the fact we've seen still strong performance out of the Magnus 7, the mega cap names out of the U.S.
02:42That's kind of refueled that to a certain extent.
02:44They have been driving the bulk of the earnings coming out of the U.S.
02:47So there's been a little bit more towards maybe there's still more to go in that U.S. story.
02:52Absolutely, you're seeing increased global diversification towards Europe and Japan and increasingly towards emerging markets.
02:57You've seen the weakness in the dollar and those rate cuts come through.
02:59So, again, that valuation relative trade between the U.S. and the rest of the world is still very compelling to think about other equity markets around the world.
03:07And building in that diversification is some of the hedge against that risk that you do get a bigger policy shock from the U.S.
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