♪ >> welcome to bloomberg markets. investors begin the week cautiously with pce due friday, which may give further clues about the federal reserve policy path and as such, let's get a quick check of these markets and like i mentioned, it's pretty quiet. we are starting on the back with this trading week, s&p 500 currently off about 2/10 of 1%, slightly worse if you take a look at the nasdaq 100, currently off about 3/10 of 1% or so, and then you take a look at the philadelphia semiconductor index. of course, china considering how it is handling u.s.-made agro processes, but still, fighting back to pretty much unchanged

territory and bitcoin just for fun. we are below 70,000, but just slightly, bitcoin coming back on the day up about 5%. but let's switch for bitcoin to the bond market because that is a neat transition. of course you take a look over here at we are looking at and actually, we are taking a look at some big tech because we do have some mid-day movers on the screen behind me. if we take a look here, here is the two year yield, currently down about four basis points, of four basis points. the 10 year yield up about five basis points. the dollar currently lower by two tens of 1%. and of course, you do have crude currently higher by about 2% or so. but let's go back to those midday movers. apple, google, facing the risk of potentially hefty fines at the european union opened a full-blown investigation into the firm's compliance with strict new laws.

new subscription fees for instagramming facebook platforms will also be under scrutiny. meanwhile you did have intel and amd shares as i mentioned, they fell on a report that china has adopted to limit the use of less-made ships in government computers. beijing has been pushing to use local tech in its government systems for years at the u.s. makes similar curbs to chinese-produced semiconductors. you can see interesting movement in the shares right now. intel still under pressure but amd fighting back to positive territory. but let's assume out here and talk about the broader market moves with ryan. es chief market strategist over at the carson group. ryan, it feels like we are in a little bit of a holding pattern. we had a heavy event risk week last week and when it comes to this week, the big news of the week is on friday when u.s. markets are closed, what do you think at the next catalyst for this market?

>> that afternoon. two ryans in a row on this show, i don't think that is good or bad, but i'm the second one. let's put some context on this. last 21 weeks, s&p is up 17 of them. of 27% during that timeframe. that has never happened in history were that many weeks are higher. last week with the best week of the year. so you come into now, yes, we are potentially going to take a break. listen, april is usually strong. but after the run we've had, maybe it is just time for a well-deserved break. we could maybe consolidate. that's not a bad thing. of course we are all worried about earnings and the fed, but i think the market has proven this is probably going to be a bullish year. maybe just a little pause or consolidation is perfectly normal after the run we've had the last 21 weeks. >> i agree. if we could all just agree to be chill for just a week or so, i would absolutely welcome that but it feels like that never quite happens, so let's talk

about some of the risks out here. of course, the known-unknown, if you will. what do you think is the risk at this point? is it a macro landscape that the fed is going to do, or should we be worried about fundamentals when it comes to corporate earnings? >> i'm on spring break next week, it never fails. the underlying fundamentals to us still looked pretty darn strong. we would say it is the fed. we all know what the fed said last week, we saw the reaction in stocks that potentially could be get one more hot we should data? we don't think that is the case, but could the fed pushback to become a little more hawkish? that could be the one thing to upset the apple cart. it is what it is. we've got europe hitting practically all-time highs, and a lot of emerging markets and 52-week highs. there's still a lot of momentum here but we think it comes down to the fed ended they should is a little stickier.

>> something to watch out for, something to get worried about. talk about small caps because they are more interesting to me than what is going on in those mega cap stocks. actually, eric in etf iq just a couple minutes ago was saying stop trying to make small caps happen, they are not going to happen. you see that in the flows in the performance in some of these etf's. how are you thinking about the smaller companies right now, those mid-caps, small caps that just can't seem to catch up? >> mid-caps, not that far off of large caps, obviously. but we are overweight small and mid-caps. and let's not forget what the russell 2000 did the last two months last year, gained like 24%. magic out this sideways consolidation, we think it is really just catch its breath. when all is said and done, more of a dovish fed coming in here, economy that is going to surprise to the upside, we think that is a nice backdrop. small and mid-cap's probably out

and mid-caps probably out for the s&p, so still more room to go. maybe the flows aren't there yet but from a contrarian point of view, there is still optimism when flows could come into the small caps and mid-caps. and last point on that, valuations are historically cheap. small is as cheap as 1999. go back to 1999, we saw outperformance for 12 or 13 years. i just know smalls are really cheap here and there is reason to think they could do pretty well second half of this year. >> you made a big call that smart caps outperform the s&p 500. sort of the justification i keep hearing from what is happening with large cap tech stocks is they are expensive for a reason. then i taught to people about small caps and i hear the opposite of that, which is that they are inexpensive for a reason. if we are heading into a year where the fed might cut rates less than was previously expected, what is the catalyst for that outperformance when it comes to the smaller companies? >> absolutely. one of the catalyst is clearly

the fed cutting. maybe not cutting as much of the market thought, but the economy strengthening. we are looking earnings growth of about 10%, 11%. this going to be actually more growth coming from the small and mid, and then just look at what is leading. small-cap industrials, the cyclicals are still doing really well. have biggest ever weight is mid-caps. mid-caps hitting all-time highs. nobody is talking about it. everybody's arguing over small and large. i like the fact they are hitting all-time highs and nobody is talking about it. we are overweight small and mid, but made is the largest fat-free pretty good outperformance second half of this year. >> one of my pet theories why no one talks about mid-caps is because no one knows how to describe them. large companies, ok. tech companies, maybe you have some value sectors in there. what is the average profile of your typical mid-cap company? >> that is a great point, you

probably talk to 10 people and get 10 different answers. but i think the key concept here is earnings. you are probably making some money now. the russell 2000, a lot of those stocks are not making any money. but once you get to mid-cap level, you will get out of the minor leaks, you start hitting the ball better, but you also start making more profits and that is when you start weeding out some of those weak hands. >> that is the story for mid-caps but this is a small caps story. another thing i hear about why people aren't feeling super positive is you think about this higher for longer environment, the fed is going to cut less and these are companies that are necessarily making money on the whole if you take a look at the russell 2000. there's a certain percentage of that which isn't making money and then you have refinancing risk that tend to have shorter maturity debt and they are going to have to face those higher maturity rates.

i wonder if you factor in those dynamics evaluating the space? >> we probably are still going to have three to four cuts this year. i know we saw five or 62 months ago. the economy is probably going to be in the stronger for that reason. all in all, you've talk different reasons, longer-term the next one to three years, they really are cheap. i've been in this for two decades. sometimes it is cheap for a reason. there is just kind of a light, we see a lot of productivity. we think the stage is set for rate cuts and we have stronger productivity. you don't have a spike in inflation, you have higher wage growth. all those things to us for made tailwinds for this bull market in general but for small and mid

just to play catch-up the second half of this year. >> have to leave it there, unfortunately. that is ryan dietrich. coming up, boeing shares rebounding on news that it's ceo will step down at the end of 2024 amid a safety crisis. it is our stock of the hour up next. this is bloomberg.

♪ >> this is bloomberg. >> this is bloomberg markets. it's time now for our stock of the hour and our stock of the hour is going. it announced this morning that it's ceo, head of commercial airplane then chairman are all stepping down at the company grapples with a crisis centered on its most important product,

the 737 max jetliner, so let's get right to george ferguson. george, what is interesting to me here is that dave calhoun, boeing ceo, he is going to stay on through the end of 2024 and you will have a say in who his successor is. what do you make of that? to me that seems a little unusual. >> it seems a bit long to us too. what i make from it is that the board is kind of flat-footed on the search for a ceo. i don't think they were thinking along those lines. my guess is they met with airline ceos in the last week without the ceo there, without dave calhoun there, and i think the airline ceos may have impressed upon the board that really to restore confidence fully and boeing, they need to think about a change of the very top and a change of commercial airplanes. i think the timing of bringing a new ceo on really snacks of them

not having even started that process yet. >> we heard from ryanair ceo earlier saying that he welcomes a much-needed boeing management change, so to your point of course, the airlines coming out here. but talk to us about who it could be. of course that is the natural next question here about who is going to be the next ceo because they are facing a very big job. >> the next ceo and the next head of commercial airplanes probably needs to be someone that has a really strong resume in manufacturing. a company with a good engineering culture. that is what i think makes things especially difficult. when i think about some of the folks like larry called out of ge, aco them fully love the manufacturing process, likes to

improve the quality, improve the process, someone like him. there was ray, who used to be the president of owing commercial airlines. he loved the business, he has experience as a mechanic. i think you need someone with those kinds of strength. ray connor is a bit old. shanahan is another ceo. sorry, another boeing alum. he is a potential because he has a lot of history and building airplanes. i think the challenges boeing has got to find the next set of leaders steeped in an engineering culture. somebody in their 50's is probably better but there is not a lot out there. >> in your view, should this be internal or external candidate that they should be pursuing? >> i think this becomes an

external candidate. there has been too much trouble with boeing, it is really hard to find someone internally so i think it is external. >> great to get some time with you. that is towards ferguson. also happening in the airspace, the faa and other regulators considering drastic measures to curb growth at united airlines including preventing the carrier from adding new groups following a series of safety incidents. talk to us about those safety incidents. we've all been focused on boeing, but what has been happening with united? >> united has had a series of safety incidents over the past three or four weeks. if you remember, the 777 that took off and the tire came off. they had one where the engine caught fire. another with a panel on the other the aircraft fell off during light and they had a run off the runway at houston.

>> so clearly a string of unfortunate events. interesting to see the reaction today, currently off about 4% or so. put this into context. if this goes through, these efforts to curb united's growth, how bad could it be? >> it's not clear yet mainly because it's not clear if they will impose these sanctions or restrictions and secondly, is not clear how one day and put them into effect. the is considering these activities which means they are thinking about not letting them make any revenue flights on a new aircraft and if you add a new route, you can't sell tickets on anything. the faa has also already taken steps to limit the work that goes into promoting pilots and

certifying pilots to switch aircrafts, so all of those things added together could be fairly substantial depending on how long they put them in lace. >> talk to us about what this could mean for united competitors. are these issues idiosyncratic to united, or could we see potentially similar actions considered for some of the other airlines? >> their ceo last week came out and told customer that united is a safe airline, that these things happen in the industry when you consider how many thousand and house and the flights there are every day, that these things happen. united had just had a series of mishaps in a row. they do happen on other airlines and a lot of times they don't get any attention because the planes land safely, nobody is injured. and nobody was injured in any of these. the interclick culture now that

is expanding so quickly. >> is a great piece of reporting, united shares currently down about percent on the heels of that scoop. coming up, you're going to take a look at the warning signals the junk market flashing to the market. that is next. this is bloomberg.

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♪ >> it's time now for wall street beat and today we're looking at the warning being sent by the junk market as the fed eyes higher rate for longer joining us now is olivia ray monday. what does this need in terms of potential default? >> essentially what is happening

based on what you just said is that cfos are having less money to service their debt. when that situation happens you are in a situation where you might have downgraded and more people. >> is this more of a problem than the high-yield market? >> it is really a low market problem. the loan market is really the harder part of the junk space. the u.s. high-yield thank market is actually a little bit better than loans, so it is really the loan market because they have all that floating-rate debt. a lot of high-yield issuers have been waiting to refinance until they absolutely have to. >> this story really caught my eye because it is nice to see junk and warning. i've been watching spreads from one now writing tighter and tighter, particularly in the

high-yield market. why are we just seeing that calm when it comes to that measure of the market? >> there's really this bifurcation happening in the market right now, in the u.s. high-yield bond market. some of the higher quality triple bs they kind of look investment grade. that is giving those companies a lot more access to the market. not every junk loan is the same, some are doing better than others, so what is really happening as we are seeing this really hot credit market where the borrowers are a little bit healthier and are coming in and taking advantage of tight spreads and high loan prices, but it is the weakest borrowers who are at most risk for downgraded default that are still having trouble accessing the market. >> that's what i've been wondering about. we are talking about how this is more of an issue in the loan market, but the loan market has

been super lately. how is that filtering through? >> it has been superhot because the company stabbing the market are the ones that have these higher interest coverage ratios, the ones you're able to service their debt better. when investors look and they see really low coverage ratio like below two times, for example, there's going to be earning signs about is the price that i'm getting on this bond really worth what the default risk is? >> it's a great piece of reporting their about the junk market and the warnings that is flashing. our thanks to olivia. and there is one more story before we go, and that is about easter chocolate. they might be a little more expensive than usual this year because future contracts the cocoa plant surpassed $9,000 a ton for the first time ever. that makes it more expensive than copper, actually. they are up about 50% this month already, after doubling this year due to poor harvest, bad weather and crop disease in west

africa where most of the world's cocoa is grown. coco's advance will be higher chocolate cost throughout the year, so sorry for that piece of bad news, but let's check in on the broader markets because there is, happening there not quite as volatile as what we are seeing in the cocoa market. also back to tense of 1%, not huge moves but as ryan was telling us, maybe it is ok that we take a little bit of a breather here. taking a breather when it comes to big tech stocks as well with the nasdaq 100 currently off about 2/10 of 1%. feels like we're in a little bit of a holding pattern after all of the central bank decisions we got last week not too much in the way of earnings right now. let's quickly look at the bond market as well because that two year yield was up about four basis points or so, so not too much action. but if you are looking for action, coin up about 6%. that does it for bloomberg markets. this is bloomberg. ♪

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