00:00How strong is the link between the consumer and the S&P as retail investors play a much bigger role in investing?
00:06And, you know, I think that's what we're seeing in Bitcoin.
00:07I think you sort of hit the nail on the head, Matt.
00:10Like, you know, we talk about the K-shaped economy, weakness at the lower-end income consumer,
00:14and that not, you know, sort of filtering into GDP as much.
00:16But I think the sentiment link has probably grown.
00:19And one of the things we've pointed out, you know, a number of times in recent years is that if you look at the year-over-year price in the S&P 500,
00:25or, frankly, even the Russell 2000 and the University of Michigan Consumer Sentiment Survey,
00:30there has been a very strong link between those two things post-COVID.
00:33And I think that's just an expression of how, you know, maybe retail investors are having a bigger influence,
00:38or, frankly, even how institutional investors are acting a bit more on sentiment.
00:43So I think that's very important.
00:44One of the things we said in our weekly this morning about that University of Michigan Consumer Sentiment data is it's really bad.
00:50But from a strategist's perspective, it's so bad you do have to be on guard for reversions.
00:55And I know those are always sort of tough, you know, to think about, you know, when you're looking at this data point, right,
01:00that's kind of hit this new low and gone below, you know, sort of important lows that it's made in the past.
01:04But you have to keep a clear head when these things, you know, are pretty lousy, frankly.
01:08I do wonder, though, if the increased participation of retail goes back to a point that you were making before the break,
01:14that the AAII survey, you've seen a lot of those individual investors be outright bearish,
01:20that maybe institutions are more sort of on the bearish side.
01:22Howard Marks gave an interview to the FT this morning that basically said the buyers of this market have been traders and not investors.
01:30Do you think that a lot of the melt-up that we've seen so far this year has been that it means that there is more fragility in this market?
01:37So, you know, if I go back to the summer when I feel like the institutional community was pretty bullish,
01:42you know, I was hearing a lot of excitement over the tax bill and CapEx is coming.
01:46I was hearing a lot about rate cuts are coming.
01:48You know, I was hearing a lot of just sort of general excitement about the economy.
01:52And as we look here, right, and we're in sort of this data, I don't exactly want to call it a data blackout, right,
01:57because we're starting to get the information in.
01:59And we actually have had a lot of good alternative data.
02:01But I think, you know, there are some questions of, okay, maybe, you know, I'm not really hearing the R word being used,
02:07but maybe things are a bit more wobbly than we thought on labor in particular.
02:11Neil Dutta was using the recession word earlier just a couple hours ago saying that if we don't get rate cuts,
02:16there will be a recession, that he thinks things are that fragile.
02:21Would you agree with that?
02:22You know, it's not what I've been hearing from institutional investors.
02:25We may be talking to different people, to be honest.
02:27But I would say, you know, it's certainly not on our economists' radar.
02:31I mean, they're looking for, I think, 1.6 percent real GDP growth next year.
02:35So they do think that sort of the impact of a lot of policy things we've gone through this year
02:39are maybe having a bit more of an impact on growth than, you know, some in the consensus, frankly.
02:44Well, but maybe because we are going to get rate cuts, right?
02:48I mean, President Trump is not going to put somebody in charge of the Fed who isn't going to deliver rate cuts.
02:55And he gets to replace a few different people on the FOMC.
02:59So he's going to get his wish, right?
03:01Well, if you look back over the history of rate cuts over time, at least since they've been announced,
03:06it is really hard to fight the Fed.
03:08The only time we really tend to see stocks go down on a 12-month forward basis after you get some kind of cut
03:13is if those cuts are associated with a recession, either a pre-recession cut or a during a recession cut.
03:19If you're not associated with a recession or it's coming after a recession,
03:22you tend to have, you know, pretty powerful returns, to be honest.
03:24But don't fight the Fed.
03:26Like, who are we fighting at this point?
03:28Because at the moment, sure, even if Trump puts in a pick who wants cuts,
03:31you've already heard from five members on the FOMC who have said that they don't want a cut in December.
03:36Who are you fighting?
03:37Who do you listen to when you don't have consensus building on the Fed anymore?
03:40Well, I think this goes back to, you know, valuations are sitting where they are, right?
03:43And so if you go back to the summer and people were pretty certain that these cuts were coming,
03:47and now you've got some doubts, well, maybe it's not going to be quite as many as we thought.
03:51I had one investor tell me, frankly, you know, who had been pretty bullish on rate cuts over the summer,
03:55or tell me, you know, not too long ago, well, this is all kind of baked into the market,
03:58and we've pulled all this good news forward.
04:00So I think there's that dynamic as well.
04:02And I think the reality is if you weren't sitting at these valuations that were bumping up against ceilings,
04:07you know, this kind of debate wouldn't necessarily take as much of a toll on the market.
04:11By the way, you know, there is a theory that the president could arrange a dismissal of all the 12 regional Fed presidents
04:19and put his own people in place there as well.
04:21I only know this because I spend two hours a day listening to Balance of Power, like every single day.
04:25I'm listening to our politics coverage, which is fantastic, by the way, and I recommend that you do as well.
04:29But how much do politics matter to this market?
04:32I mean, how important are, you mentioned one big, beautiful bill, right?
04:35We have the midterm elections not too far away.
04:38How key is it to pay close attention?
04:40So what we've said on the CapEx issue is that this is a show-me story, right?
04:43There's some good stuff in the bill from a CapEx perspective.
04:45We haven't heard companies saying a ton about CapEx plans outside of sort of the tech space.
04:51But, you know, we are getting a little bit more than we were.
04:53So it feels like it's headed in the right direction.
04:56It's free money, right?
04:57It's free money.
04:58You know, and look, there was one bank early on in this past reporting season that said they were seeing some customers who had been renting.
05:04I think they were talking about equipment.
05:05I'm not totally sure.
05:06But they were saying kind of moving from a rent to an own mentality.
05:08So that's a good step in the right direction, right?
05:10We heard another bank that said they were seeing an interest in CapEx, but a lot of that was tech-focused, right, as opposed to, like, building factories.
05:18So there are a lot of nuances to this.
05:19I tell people, you know, just watch ISM New Orders.
05:22It tends to lead actual CapEx spend by about a year, and that's been sort of meandering along at very weak levels.
05:28You know, I do think just more broadly midterm election years do tend to be sort of a weak spot for the equity market.
05:35I think that's a risk factor you consider for next year.
05:38And, you know, it's funny, we haven't gotten a whole lot of questions about midterm elections recently.
05:43It's all been about AI, a little bit about Bitcoin earnings.
05:47But I've been sort of curious as to when those election questions are going to start popping up.
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