00:00Are we finally starting to see the impact of inflation more broadly?
00:03I think on growth, we've got to be way more nuanced.
00:06I think it depends whether you are an open, a smaller economy.
00:10If you look at the likes of ASEAN, if you look at those smaller, open Asian economies,
00:15I think they're really struggling.
00:16And we've seen that early on, that they've implemented those policies,
00:20fuel controls and so on.
00:22I think in Europe, we are starting to see it, definitely.
00:25We are starting to see some of the business surveys down,
00:29right, business commentary also being a lot more, you know, a lot more concerned.
00:33I think consumer confidence, which is more correlated in Europe compared to actual spending,
00:38there we are seeing some influence already, right?
00:41And we are seeing that reflected also in consensus estimates for growth, right,
00:45for top-down growth, absolutely.
00:47I think in the U.S., it's much, much less the case because, let's remember,
00:51what we're facing in the U.S. is both for corporates and for consumers
00:54is an incredibly K-shaped economy that, at the end of the day,
00:59for the numbers that we care about, I care about my Bloomberg termo,
01:02give me that one retail sales number, give me that one PCE number, quarterly PCE number.
01:07What's that driven by?
01:08That's driven by the upper 10, 20%.
01:10It's not driven by the lower 20, 30% in terms of incomes.
01:14And they're doing absolutely fine because they're not really that exposed to what is happening with wages,
01:20what is happening with energy prices.
01:22They're exposed to the wealth effect.
01:23Equity is up now.
01:25That's helped, right?
01:26And look at the tax refunds.
01:28Tax refunds are running, you guys know that,
01:29they're running almost 20% ahead of last year.
01:32Most of that money goes to the upper 50%.
01:34So, actually, in the U.S., we have a lot of tailwinds for that one,
01:38what's really driving that one aggregate consumption number.
01:41And the other thing that I would add is, let's remember that when you look at things like weekly retail
01:46sales,
01:47like the Chicago Fed one or the like-for-like retail sales,
01:49we look at year over year.
01:50This time last year, we had a sugar rush of activity because of front-loaded activity because of tariffs.
01:56Remember that, right?
01:57Last year, we had, oh, God, everyone's trying to get ahead of tariffs.
02:00June and July, we had surprise indices coming off.
02:02We had a bit of a lull, right, because this front-loaded activity was coming off a bit.
02:08But I think there is a risk for the U.S., given those lower comps in the next two, three
02:12months,
02:13that actually growth will be looking even better because you've got good activity,
02:17but lower base effects in the next two, three months.
02:19Max, what about, so I'm looking at the S&P and the top companies by weighting.
02:24Obviously, NVIDIA doesn't, those sales are going to be great,
02:28no matter what oil or jet fuel shortages there are in Asia and Europe.
02:32But Apple, Microsoft, Amazon, Google, I mean, these companies get revenue from overseas, right?
02:42It's even worse if you look at the Dow Jones Industrial Average.
02:45You've got Caterpillar there.
02:47You've got McDonald's.
02:48You've got Visa, American Express.
02:50These are companies that get revenue from overseas.
02:52So if Asia and Europe have a problem, does it eventually come back to U.S. indexes?
02:56I think to a certain degree, maybe, yeah, right?
02:59Like for those, particularly for Europe, I think if there is some issues,
03:03particularly on the chip supply chain with Asia, right, coming and particularly for something like Samsung with the strikes,
03:10yeah, that is, I think, a bit of an issue.
03:12Is that enough to make you bearish?
03:15I'd be doubting that, to be honest, because at the end of the day, like when you look at the
03:19S&P,
03:20I think there is going to be quite a few names that are struggling.
03:23But let's remember, if you look, for example, at the bottom half of the S&P, the last 250 names,
03:28that is 8% of market cap, right?
03:31So you've got 50% of the names accounting for less than a tenth of the market cap.
03:36So, yeah, those companies, they're probably going to tell us, yeah, we're a bit struggling.
03:40But does it matter?
03:41Does that drive the indices?
03:43That's the K-shape, right?
03:44It's not only consumption that is K-shaped.
03:46It's also corporates that are K-shaped.
03:47And some of that stuff, right, I would say the more interesting and the more pressing issue probably is
03:54when people say, oh, there's no differentiation price.
03:56There is.
03:57You are seeing those guys, right?
03:59You are seeing those tech companies that are doing the CapEx.
04:02They are underperforming compared to your chips, your memory names.
04:05So it's not like, oh, yeah, everything that's tech and everything that's Max 7 just goes up every day 3
04:10% and be happy.
04:11No, like we are seeing those names that are doing the CapEx, that are spending the money,
04:15they are underperforming quite dramatically compared to the ones that are receiving the money.
04:20Does that mean you should also, considering it's just, it's this pillar really that's supporting the market,
04:25that you should either just not be buying, not touching, or even outright shorting consumer things,
04:29considering, I don't know, there's stories of, Romaine, the earnings Romaine was just talking about,
04:35issues with the labor market maybe into it.
04:37Reuters reporting this morning that they're cutting 17% of their jobs as streamlined ops.
04:41It feels like something has turned in this labor market.
04:43There was a story that for some jobs at Deloitte and Zoom,
04:46they're cutting maternity and paternity benefits, which feels really crazy.
04:50Only for the poorest workers, though, right?
04:52Only for the workers who need it most.
04:54Yeah, correct.
04:54I mean, only a minute here, Max, but it feels like something is turning,
04:58and maybe that's a reason to be bearish consumer-related names.
05:01I mean, at the moment, because we do have that geopolitical uncertainty,
05:05yeah, maybe you want to stay out of those names,
05:07but also let's remember that the earnings season,
05:09we've got an almost 85% beat rate,
05:12but this earnings season now, we've inflicted higher, right?
05:15We have an inflection higher from a high base.
05:18This is the sort of earnings season that you normally see in 2009 or in 2020 or 2021
05:23after a recession from a low base.
05:25We've had an inflection higher from a high base.
05:28The one thing that's been lagging is price action.
05:30So I would say, actually, the next step is lean into a broad-based recovery,
05:34lean into those cyclical names.
05:36Look at transport, look at home builders, look at XRT at retail.
05:39All of that stuff has been actually lagging so far.
05:42I think that's the next trade.
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