00:00Joining us now, Joe Quinlan, he's head of market strategy at Merrill and Bank of America Private
00:04Bank. All right, Joe, I don't really know where to start. I guess I'm going to ask you,
00:09what is your take? What does it say that the Fed decided to make this decision unanimously?
00:15Well, it shows you there's a united Fed in the sense that they're looking at inflation. They
00:20agree it's above target, obviously, and they got to do more about it. So I like that in that sense.
00:24There wasn't much dissent at all. And it kind of sets itself for further rate hikes coming down
00:30the pipe. So that's what I think was a good tone, good backdrop. Shows that the Fed's on the job.
00:36We had worries earlier about this new chairman, but I think those worries are behind us.
00:40Joe, as the press conference unfolded, I was looking at the movement in bonds. I think that's
00:44kind of our inclination to do so, most of us. And yet we saw stocks. I'm always looking at the
00:48bonds. I don't know about you. We did see stocks sink during the course of his commentary. And I'm
00:53curious what this increase does mean for the stock market going forward, particularly if it's not
00:57one and done, if there are more hikes to come. Well, I think, well, the market's ready for more
01:03rate hikes, whether it's, you know, two more, three in the 2027, we'll see. So they're parsing
01:09that data. But they're also, the market's also looking at, you know, the pressure that's coming
01:12from higher energy costs, what that can mean for profits. But the good news is you've got an
01:17economy right now, nominal terms expanding around 8 percent, real terms closer to 4 percent. So
01:23the market's equities in general are feeling OK about this cycle being higher rates because it's
01:29going into a very robust economy. Could that weaken six months from now? We'll see. But we're starting
01:34off on strong footing. And that's keeping the market where it is or near all time highs.
01:39I do want to ask selfishly, we saw the 30 year mortgage rate is nearing 7 percent. It had the
01:45biggest weekly gain in a year. Do you think that will finally start to come down at some point?
01:51Am I ever going to be able to buy a house or am I just going to rent while David
01:54Gurra sits here?
01:55She's asking this of everybody, Joe. It's not just you. David's got a 3 percent probably.
01:59Probably. Probably. All right. What does this mean for me ever being able to afford a house or
02:04an apartment or something? It's going to be tough for the housing market, no doubt about it. But,
02:09you know, 7 percent seems high historically. That's kind of the average close to, you know,
02:14but we were spoiled early on, particularly during the pandemic, as David knows. So, yes. But here's
02:20the key. The housing market's around 16, 17 percent of GDP. That is definitely slowing or going to go
02:26backwards. But we got other parts of the economy, very robust energy, technology, financial services,
02:32transportation. So there's worries about a recession or continuing drag from housing,
02:36but it's not going to really, I think, damage the overarching growth of the U.S. economy.
02:42Joe, let me turn back to what we saw in technology stocks. And so the week kicked off with a
02:47lot of
02:47fear and anxiety surrounding AI. I think there was an expectation going into Monday that might
02:51manifest itself some in those stocks, the hyper scalers and other big tech stocks. Then we saw
02:56this reversal over the course of the week. What do you attribute that to? When you look, for instance,
03:00at software stocks, for example, they ended the week much higher than I think a lot of folks expected
03:04after a lot of anxiety about sort of the death of software. What accounts for that? How do you think
03:10that tech stocks are processing this kind of roiling conversation about, well, really our very
03:14existence that seems to have been happening here over the last couple of days?
03:16Nice existential crisis on top of everything else.
03:18Yeah. I mean, if we're not going to be here in 2030, you know, I guess go all in right
03:22now,
03:23so to speak. You know, listen, our clients at the Merrill platform, when they see a pullback in tech in
03:30particular, they want to buy it, right? Some of these companies are still attract. They're
03:34attractively valued here. There's good long-term prospects for productivity. Everyone's using technology.
03:40I think we're still early innings on the adoption, the productivity that comes with it. So we've noticed
03:44very clearly that when there's a tech pullback, whether it's software, some of the semiconductors,
03:49that's where people are leaning into and buying the dips. And I think that continues. And I think
03:54overall, there's still a good earnings backdrop in the 27 and 28. So this, you know, it hangs in
04:01there. And I don't think it's going to go away anytime soon in terms of the upward momentum.
04:04Do you think you're going to see a pivot? You know, you're having this group pause kind of,
04:09a group timeout with all the big AI giants, kind of reevaluating how they put guardrails on these
04:15things, whether or not they need oversight. But there's also a financial element to this too.
04:19And that's the, you know, the self-thinking models are not as profitable as the task-based AI. Do you
04:25think that's part of it here? And do you think you'll see a shift more to the tokenization form of
04:29this
04:29technology so that they can profitize and make back some of these huge CapEx expenditures they've
04:34been putting out? Yeah, that's a great question. And that's kind of front and center in terms of
04:39our conversations. Like, what does it look like in 2030? What's the earnings? But we could see
04:44something interesting evolve this week between President Trump and the Chinese leader Xi,
04:49because, you know, the competition is really coming from China in terms of large language models.
04:54Can the United States and China kind of map out some regulatory backdrop that sets the global
04:59standards? That would be very interesting. That would have ramifications for the group.
05:03But there's a still, there's a lot of known unknowns in this space about profitability,
05:08usage, adoption. And I would say the Chinese competition, because the large language models
05:13of China, they're being more embraced and used here in the United States, creating that competitive
05:18pressures. So a lot to talk through. Joe, I think Wall Street widely paying a lot more attention
05:23to energy than maybe folks would have in the past, kind of a niche thing. Commodity specialists
05:28and traders would have been into it, not the rest of the crew. But here we see oil prices playing
05:32such
05:32a huge role in the markets more broadly. And then when it comes to refined products,
05:36I want to get your sense of sort of what this uptick, this spike in diesel prices is going to
05:41mean for various sectors, certain companies in particular. How worried about, are you about that
05:46coming from a broader market perspective? I'm very concerned, David, in the sense that I just spent a
05:51lot of time in the Midwest talking to our, a lot of the bank clients, aviation truckers,
05:56manufacturers, and that is their number one concern. It used to be immigration, the lack of
06:01workers, where's all the workers? Now it's the diesel cost. I mean, you'll get Russia, China,
06:05the U.S. The capacity isn't there. It's been taking offline. Or China now is going to pull back,
06:12restrict their refined exports. So that's a real pain point, the diesel prices. And this is what
06:17Kevin Walsh and the Fed has to look at in terms of like, okay, how do we get inflation to
06:22roll over?
06:22And it's been hard to bring inflation down when diesel prices are so elevated.
06:27But those prices, I mean, this is not getting resolved anytime soon, unless these leaders come
06:31here in New York, have some sort of great dinner, and I'll decide to fix this. It seems very unlikely.
06:36You've, you just mentioned, and you've written, you know, U.S. exceptionalism, that the U.S.
06:41economy has this ability to absorb shocks. But at some point, if you're looking at the drivers that
06:46are growing the economy, AI, energy dependent, you know, so many other sectors require energy.
06:51Where is the pressure point? Where does the rubber hits the road? And you're going to start
06:54to see that weighing on the economy more. I think that will keep, to your point, that keeps the
07:00markets in check here, at least near term, right, from going, you know, busting higher, because that
07:05is a pain point. But there's a lot of activity beneath the surface. You know, France, the EU,
07:11Canada, the United States, Japan, we're trying to work out some critical stockpiling needs. So
07:15we're heading into the winter months, we've got the capacity taken offline, everyone's stretched,
07:20reserves are low. So I do think that keeps the market on edge. And you're right, until we get
07:25the all clear or more supply coming in down the road, then we can move higher. But this is a
07:30real
07:30pain point. And as we started out, it keeps the Fed in play, right? Our team is looking for a
07:36rate hike
07:37in October, December, that's in line with the street where we're going. So not until we get over this
07:42diesel pain point, can the Fed say, okay, we've got it, we can start to pause or think about cutting.
07:47That's a story for later in 2027.
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