from bloomberg world headquarters in new york, good afternoon, i'm betty liu. u.s. stocks are stopping their three-day slide, surging to their highest level in three weeks. slipping back into positive territory for the year as commodities trim their losses. while the stock market overall is flat for the year, home prices are zooming ahead, adding another 5.5% to the latest case schiller surveyed. will you return to the days of the pre-crash housing bubble, is anybody talking about a bubble in housing? absent from the record-breaking year in m&a, tech giants. will company start making large acquisitions in the new year? close inre about to less than one hour.

as i mentioned, we are hitting some fresh highs. let's get to the markets desk where julie hyman has the latest. risk on back in the markets as we head toward the end of the year. all three major averages at the highs of the session now as it seems like risk appetite is creeping back into the market. not a particular catalyst today, not unusual on a day that we see volume about half of what it usually is. if you take a look at my bloomberg terminal, you can see where most of the buying is happening. doinglogy has been consistently well, health care, consumer discretionary, financials, all of by at least 1%. everything is in the green as the buying is broad-based. we talked about risk on. oil prices also rising today. people are buying oil, both the

beauty i and brent. you can see the gap between the two have closed to an extent. there was a diverted between them. both rebounding in today's session. here in the u.s., we get stockpile data tomorrow. analysts estimate that we will see the second straight weekly decline in those numbers. natural gas has also been rallying, now positive on the month after a 6% gain. finally it is getting cold, and that is good for natural gas. betty: we heard marc faber yesterday talking about how treasuries are attractive but not so attractive today. apparently not, he is talking about the prospect of recession, something he has frequently said over the years. today we are seeing the selling of treasuries, the 10-year going to 2.3%. i also wanted to check on the five-year because there was an auction today that drew the

lowest demand since 2009. not only are you seeing the selling happening today, low demand in that auction, which is notable. betty: thank you, julie hyman. now let's check in on the first word news with ramy inocencio. new developments for bashar al-assad. russia is the getting closer to letting him compete in presidential elections in 2017. western and russian officials admit u.s. opposition is weakening. the election would follow a transition period starting this january. russia has also agreed that millions of syria to have flee the country could also take part in the vote. it is still rough going for thousands of people trying to return home after the christmas severe wintere weather is causing delays and cancellations in chicago and new york. carriers haveays

scrubbed more than 1000 flights today. o'hare international was again hit hard with 228 cancellations. in baltimore, the trial of the second of six police officers charged in the death of freddie gray has been postponed. it will start january 11. caesar goodson was driving the van in which gray suffered the injuries that ultimately killed him. the first trial ended with a hung jury. republican front runner donald trump may be going on a spending spree. he suggested in a tweet today that he is ready to use some of his own personal fortune to pay for campaign ads in the early voting states. he tweeted, my campaign for president is $35,000 under budget. i has spent a little and am in first place. i will spend big in iowa, new hampshire, and south carolina. dayal news 24 hours a powered by our journalists in

more than 150 news journals around -- bureaus around the world. betty: the latest s&p case schiller index climbing at a faster pace in the year that ended in october. home values are getting a boost from a limited supply of property and improving demand. joining us now is our chief u.s. economist carl riccadonna. from seattle, svenja gudell. i know you have taken a look at the data, made some predictions at housing going into next year. what is the biggest takeaway from the research you found? take away is that affordability will still remain an issue you we are seeing wages relatively flat, especially at the bottom end of the income institution. home values are rising. widenings the gap is and affordability will therefore be a big issue in 2016. betty: and that will push people

out of the cities into the suburbs? >> it will touch more people in the city, especially first-time home buyers, who will then consider buying in the suburbs, especially considering inventory is really low in urban areas. more condo purchases, but at some point, people will start moving out to the suburbs where you have more inventory. way, the fact that affordability is an issue -- i don't want to say it is a good problem, but it shows there is a brisk housing market. >> absolutely. she made a good point about the lack of inventory. we are so used to looking at the frontosure signs of the pages of the newspaper, a sense that there is this huge inventory, but that is no longer the case. builders shut down during the housing bust. homebuyers had to move into the resale market, where they also

liquidated inventory. if you are looking to buy a house right now, good luck finding one. inventory levels arlene. the economy continues to improve, incomes are rising at a stubbornly slow pace, but they are moving in the right direction. interest rates are still low, so there is demand for housing. buyers are having trouble finding that available inventory, so it basically means we are in a national bidding war. this is why we see home price appreciation rising, and we have evidence of that in the case schiller. early on in the economic cycle, it was easy to have big home price gains because we were moving of depressed levels, but now we are at happier levels. we are seeing summary acceleration in that price trend. i think we will see at least mid-single-digit price appreciation next year given this backdrop. the one game changer potentially is that we finally start to see

more weight growth next year, and that could offset modest higher mortgage rates and continuing crisis -- price appreciation. betty: what is your bet on that, svenja, what is in your calculus in terms of home price rises next year, will we see more demand and bigger wage increases? i think wages will continue to rise very slowly, but they are moving in the right direction. be continued will demand for housing in the future. keep in mind, rent is also really high right now. they are expected to keep growing. they will be higher next year. that really means financially it make sense to buy a house versus renting. that is one of the things. however, first time home buyers in general are facing the same hurdles next year as this year. they have to be able to save for a down payment, which is hard given down payment, -- high

rent. rates continue to rise. then they have to be able to find a house. that is the number one concern. ran a surveyly asking people, are you concerned about rising mortgage rates? are concerned, it's on our list, but the number one thing they are worried about is finding a house that is affordable to buy. the inventory issue is the gleaning problem right now. housing, carl, is doing well, and we have mid-single digit growth next year, why isn't that helping the economy more? why are people calling for recession? don't thinkall, i recession is likely next year. of course, anything is possible if we had a financial or energy shock. betty: i know there are a select few calling for it now. an economy growing at a

slower pace is more vulnerable to getting knocked off its mark. if we are only at 2% or slightly below, certainly at more risk. that adds some validity to the recession claims, but nonetheless we are moving in the right direction. a lot of the risks we saw in 2015 have now abated. the economy is on pretty firm footing this year. the game changer this year is crossing through full employment. economist candidate on and whether or not full employment 4.75, 5.25, but we are poised to get through those levels. this helps people at the high butof the spectrum especially people at the lower end. employment,e full you can release some of that pressure. equation,side of the think of it from the bank's perspective. they see more and more

homeowners that are no longer underwater on their mortgages. that makes them more likely to extend credit. venja, are there any market that will be in bubble territory next year? >> i don't think any markets are in bubbles right now. certainly, a handful of markets that we are watching closely. the list,sco is among denver, miami, portland, seattle , are looking a bit more frothy, for lack of a better word, because home values are increasing and sometimes double digits. there is tight demand, which makes them hot markets at the moment. betty: thank you. much more ahead on bloomberg markets. isguard founder jack bogle giving me his productions in 2016. find out how he thinks the u.s. economy will fare and why index investing is still in style. ♪

betty: welcome back to bloomberg markets, i'm betty liu. it is time to look at some of the biggest stories in the news right now. sidecar is about to take its final ride. the company is shutting down on new year's eve, however, the company's cofounder says the move will lay the groundwork for its next adventure in 2016.

job cuts are on the way at dupont. the company will eliminate 1700 jobs in delaware. earlier this month, they agreed to merge with dow chemical. the combined company will eventually broken up into three companies. pep boys is rising today after carl icahn raised his bid for the chain to more than a billion dollars. that escalates a bidding war with bridgestone. bridgestone says it will decide by the end of the week whether to increase its offer. goodell will spend another two and a half months behind bars. the former goldman sachs director has lost his bid to get out of risen as a federal appeals court has rejected the claim against him that it failed on procedural grounds. gupta was convicted in 2012 of insider trading. break, let'sto quickly take a look at the markets. it has been an incredible rally , started perhaps by the

rise in oil prices. the dow is now making him even more of the losses that we saw yesterday, up 215 points. up next, famed investor jack bogle talking about the three factors he uses to predict returns. ♪

betty: welcome back to bloomberg markets, i'm betty liu. stock markets are taking off today, hitting their highs of the day. how about next year? ofpoke to jack bogle vanguard group. he spoke about his predictions for 2016 and his three factors for predicting those returns. knows the future.

i am guessing the economy will slow a little bit. it's been doing reasonably well. in, not see large changes say, the growth of our gross domestic product, probably a 3% rate next year. i don't think a recession is very likely. but investors have to understand that anything can happen in the economy, and anything can happen in the markets in the course of the year, so it's better to bet on the long term. betty: i know you're all about the long-term, but on that note, if you look at where treasuries are trading right now, and you look at the returned you have gotten, even if you were an index investor this year, you would've only got a 2% return. that seems to signal that something is wrong here. >> i don't think it is a signal that something is wrong. it is just a time where the general level of interest rates, nominal interest rates, is very low. the general level of real interest rates after an

adjustment of inflation, is not that much below historical norms. of investing, as i mentioned, you are a long-term index investor. reportently wrote in a the three factors that help you predict returns. you talk about looking at starting yield, earnings growth, and speculative returns. how did you come to this formula, why do you say that is a good predictor of returns on an asset? >> you want to look at the .ource of the returns on stocks the source of the return, i call it investment return, which is today's dividend yield, and add to that future earnings growth for the next 10 years. this is not a short-term thing. of 2%, earnings growth at 5%, 6% over the next 10 years, we could have a return of 6% to 7%. then we have speculative return.

they talked about this a good bit. investors can change their on stocks be right now, stocks are selling at 22 times earnings. if they were to drop to 17, 18 times earnings, you take that 7% return down to as little as 4% or less. we don't know what will happen there. there is a tendency for all of these things to revert to the main. /e's are above average, they will have to revert to the average after some time. after modest returns in the next 10 years compared to what we have been accustomed to. betty: that was vanguard founder jack bogle. stocks are rallying today, hitting a three-week high. julie hyman has the options insight. me today is kevin kelly, chief investment officer at recon capital.

we are seeing this rally today but i know you have noticed some underlying activity in the options market that is not so bullish necessarily. >> today is a great day to put on hedges if you wanted to do that. you are seeing two times the amounts of what's being traded than calls. if you take a step back and do a year of you on the mix, you can see it is trading 18% higher this year alone. if we look at the first quarter of the year, we saw the vix averaged 17.5. now at 16, it is good to put on hedges, especially going into first quarter earnings in january. it first quarter this year is at 17.5, what quarter be? julie: when you see a movement like that, broad and anticipation, doesn't mean that it gets pricey to put on those hedges? >> the closer the strikes are, the pricier they are. volatility is higher right now at 16, they are seeing it priced

out into january. so it is more expensive, but that's the price you pay for insurance. talk about your trade today, you are looking at one of the best performers of the year, google. it is a bullish trade you are putting on. what is the reason behind this? >> it is bullish to 2018 because we could see alphabet become larger than apple. look at the three hottest sectors they are in, mobile -- they are doing exceptionally well there. they are in streaming. there was a big article about how youtube could be worth twice as much as netflix. then you also have the cloud that they are diversifying into and gaining traction in. three key themes. they have really insulated their business outside of the desk top search. so the trade is you go out and buy the january 2018 800 call, it cost you $120.

then you sell the $1180 call in,nst it, lower your all costing you about $100. you have a couple of years for this to play out and you make 2.8 times the amount that you lay out. not -- whyhis case, not buy google stock outright? in this case, is it because it is a lower cost when you are using options to put on the long-term debt? theou want to set out amount that you want to outlay. this will cost you $100, no matter what. we know google will be reporting in the first quarter. we don't know how that will play out with a stronger dollar. it was a volatile fourth quarter and they are still going through the transition from google to alphabet, where they are separating their finances. julie: what do you stand to lose, that $100? >> exactly. if they go down $150, you are

worse off, but this could go up to two point eight times. and they are trading at 28 times earnings. julie: up 50% already this year. we have to leave it there, kevin kelly. more bloomberg markets, next. ♪

bloomberg world headquarters in midtown manhattan, you are watching bloomberg markets. now let's check in on the first word news with ramy inocencio. go over to iraq and a u.s. official in the country says coalition airstrikes killed 10 islamic state leaders over the last month, including several link to the paris terror attacks or other plots against the west. colonel steve worn it says they were mainly killed by drone strikes in iraq and syria. he said at least two were killed in the attacks that relate to the pairs attacks. >> we were striking at the head

of the snake. we have not severed the head of the snake just yet, and it still has fangs. we have to be clear about that. there is much more fighting to do. ramy: he said most of those killed of those killed appeared to be mid middle -- mid-level leaders. in brussels, two people arrested as suspected terrorists. police say they seized military training gear and islamic state propaganda. the white house plans to hold a state dinner for justin trudeau in march. he took office in november days before president obama killed the keystone pipeline. the visit is intended to build ties between the two countries and is one of the final state dinners of the obama presidency. injournalists were killed the line of duty this year, 28 by islamic militant groups. that is according to the committee to protect analysts. among those who died were alison parker and video journalist adam ward from virginia tv station

wdbj. there were killed during a live broadcast by a former coworker. that he, back to you. betty: betty: at nasdaq where applico -- a check on your spiri where abigail has a check on your movers. >> at this point apple is the single biggest influence on the index. during an ongoing flood of negative commentary on apple. analysts are cutting iphone demand during 2016. ors are seeing this as a bit overdone. turning to a top percentage performer, qualcomm shares are signed athe company

patent agreement with two different chinese companies today. this comes after signing a patent agreement with a chinese smartphone maker yesterday. we have a lot of positive news and upward flow. last week merrill lynch did highlight qualcomm as a top pick for 2016. betty: thank you. movers the tech highlighted for us. still to come, trend movers to watch for. will the unicorn go bust? will the old movers make those game changing deals? our preview is next. ♪

betty: welcome back to bloomberg markets. it is time for the bloomberg business flash. a look at the business stories in the news right now. money to clients after almost 20 years in the business. the capital will be returned by today. the ceo says he is not able to make the commitment and sacrifices required to run the capital. appealing the nasdaq's decision to delist its shares. was the ceo until he was fired for security fraud. a hearing is scheduled for february. consumer confidence rebounded this month. the confidence board index up in

december 2 96.5, well above the median forecast of economists surveyed by bloomberg rate a strong job market and cheap gas have boosted highside finances -- household finances. that put americans in the move to shop during the holiday season. that is your bloomberg business flash. 2015 is ending up as a year of deals, especially in tech. that may be the headline, but it is not the whole story. apple,gest companies, google, amazon, microsoft, did not make a single acquisition over $1 billion this year. why is that? what is missing? for that we go to our columnist from our fast commentary section on bloomberg terminal. good to see you this afternoon. big questions about attacks that are hanging over the industry in 2016. why do the giants not participate in m&a? >> these big companies tend to

be unpredictable with their dealmaking. likehese rogue deals facebook buying whatsapp. and then they went quiet for a long time, and nurses feeling of the industry that there is some pent-up demand for companies, particularly the slower growing comedies like ibm, cisco, oracle, that need to grow, there is a feeling like they need to buy their way into growth, and year for that. 2015 was the year for consolidation in the semiconductor business. like this iseling not quite done yet. we should expect more consolidation in that industry. consolidationbout and 2016 fall on those old guard tech companies. hp, oracle.

there is a feeling that there is still too many of those companies that are overlapping in information technology. legacyhey are all businesses, and they are declining. >> they are declining. maybe there is one or more of those other kinds of old i.t. card consolidation deals left to be done. betty: the favorite subject in tech is the unicorns. the committees that are about $1 billion in valuation. taken to the glue factory? >> a painful metaphor in this debate. they are not going public. they are raising an unprecedented amount of money as private company. ies.

they are feeling stuck. they do not feel they can go public at the same valuation they have in the private market. orre is a feeling that one more of them is going to have to start acknowledging reality and to sell themselves to rich public tech companies, presumably at lower valuations. it is a day of reckoning for investors in those companies. on a final note, yahoo!, the big question is what happens to yahoo!? it is a question that people have been asking for 10 years. the issue is they are not trying to be this complicated -- and do where theycated deal will spin off the operating parts into a new company. there are a lot of people who think they will not take it that far. it will take them a year to do that spin off, and maybe the next best thing for the company is to sell the company in the meantime. say, wes you rightly

have been asking that question for your sprint but it seems like they try to take action every year and then the same question arises. r satisfactory. atit is never satisfactory, complicated company, one whose values continue to go down over time. betty: thank you very much. fast commentary, going to your bloomberg terminal. what industry that technology has had a huge impact on is the shipping business. companies like amazon has dramatically boosted business for ups this year. deliver 98% ofto their packages this year on time. while fedex has some problems. we talked to the ceo. >> we bring me tremendous value. we have invested billions of dollars in the network and in

technology. will have a long relationship with amazon, but it obviously can migrate in different directions as it has over the years that we have done business with them. he says he sees a mixed picture for the u.s. economy with exports not picking up as much as he had hoped or expected. much more ahead on bloomberg markets. we are keeping our eye on the stocks rally. we are sharply higher, lifting the s&p back into positive territory for the year. is 20 minutesrade away. we will see if we will close at the highs of the session. ♪

betty: welcome back to bloomberg markets. the 10 year treasury yield rose 6%, but it is much lower than forecasters predicted. if the fed to blame for this? joining me now is joe weisenthal, the cohost of what'd you miss?. joe: the bigger story is that for decades strategists have been thinking that interest rates would go up. thingsne of the biggest that stock strategists are being to fullest, bond strategists are being too bearish.

years, it probably will happen and we will have a big rise that look at everyone by surprise. been forrend has ongoing lower rates. they make oft do the yield fairly budging in the wake of this rate hike? joe: that is one of the remarkable facts about this year. think about all the stuff that we have been through this year. there was the rate hike, what the talk about the rate hike, all of the stuff that went on globally. and then you look at u.s. market, equities and so forth, and this is looking like the end of a very quiet year if you ignore everything that happened in the middle. betty: is anyone calling for the end of the bond cycle? joe: if you look at strategists going into next year, consensus is 2.8%. people do think that rates are

going to rise next year. them,ery single one of some see the tenure going to 1.5 percent as the world slows and everyone piles into treasury once again. going into next year, people think rates will rise. betty: yesterday we had mark farber on, who thinks the complete opposite. joe: everyone knows that he is gloomy, that is his thing. a year ago, when we talked to the doomsayers, they all said the same thing. out,hat that did not pan they are bullish on treasuries. is that they growth will slow and they will not be able to do a real hiking cycle. betty: did you bring up gold? joe: he did not bring up gold, but he likes world real rural real estate

and the country of portugal. betty: i do not know how liquid that can be. [laughter] thank you for joining us. fed rate forecaster will be joining us in a few minutes. the markets are closing in less than 15 minutes. let's go to julie hyman who has the latest. i am still laughing at al real estate in portugal. we will have to do a trip to do some research. [laughter] all your averages are trading higher. we are higher on the year after today's rally. a little fun fact, there have thatnow 27 times this year the s&p has flipped over from positive to negative or negative to positive.

in other words, it has been flirting with change quite frequently this year. record.parently at a take a look at the imap for the groups that were on the move today. tech, health care, consumer discretionary financials have led the gains throughout the session. g them, just aon risk on day. biogen, mylan, all of them gaining. biotech index is up about 12% this year. ispite what the phenomenon that joe pointed out, it ends up having a winning year. and energy, which has been rocky

, up last week, declining this week, bounced back today. there were some lacking energy movers. one of them in particular was interesting to me. southwestern energy company that is the third worst performer in the s&p this year. not turning around, still seeing those declines. well.l, energy doing we get the inventories report tomorrow. we will see what analysts are saying about a possible second straight draw down on a weekly basis. that, someif we see of the predictors of a bottom out and oil could be true. next: there is always week's data. betty: how many data points make a trend, right? we are here just at the beginning. a quick check of the markets, we

are coming off of the high of the session. we had thet that economic numbers that came out this morning. consumer confidence better than expected, helping the rally along. let's go to bloomberg radio. kathleen hays is standing by. >> let's continue now our look at the stock market. i want to welcome our bloomberg television viewers as we continue taking stock on bloomberg radio. scott joins us now, he is the senior global equity strategist. he's of the federal reserve will move slowly and carefully next your, that is one of the reasons he is bullish on stocks. watching janet yellen very closely, it she remains a dove. why? now,think the fed, right they are overestimating how much we will see inflation move up. they are overestimating what

growth we are going to see in the economy. the fed isn diverging from basically every other central bank on the planet, who i think is the ecb, bank of japan, they are all going to be increasing stimulus in 2016. we will be going the other way. twoink that the fed will do increases in the second half of next year. they will be going very slow, they don't want to make any mistakes. i think that the fundamental data is going to support them -- is not going to support them going any faster than that in 26. >> janet yellen does say that they are data dependent, but the forecast is that we may have four rick heitzmann's year. you say that the data will not that rate so how does this fundamental data look? official number is 2.6% gdp for next year. that is modest and certainly

below the trend. i think you're going to continue to see slow improvement in the labor market. i have argued for a long time the 5%e labor market, unemployment rate we are seeing right now, you have to take that with a big grain of salt. the labor market is not nearly as time as a rate would imply. i think janet yellen thinks it is not as tight as that labor number would imply. you would be seeing better wage gains, which you will see in 2016, but not anything like the fed would like to see. i think fundamentally we have modest growth, we have modest inflation, we have been living with it for five years, and we will live with it in 2016 as well. >> what is the need for stocks -- does it mean for stocks? if they are expecting four rate hikes, and they only get two? stockst of all, the

market, the bond market, the currency market, is not in any shape or form pricing in four rate hikes for next year. i think the federal reserve, as we have seen have been over the movedew years, they have toward what the market expects. the market is somewhere in that hikes.e -- two to three i do not think the market is priced for that. i expect them to move toward is seeing over the course of time as that is updated by the fed next year. biggest surprises for 2015 was that the energy selloff continued and was so deep and so long. have we hit bottom with oil, and if we have is that another reason for the stock market next year? thinks we are

within two or three months of a bottom in oil. will it rocket hire, probably not. higher, probably not. we will spend some time in the 30's in 26 team. the stock market right now is tuned into the price of oil. we have been trading with the price of oil and that is related to the credit market. the high-yield market, there is some fierce there. so much of that is exposure to commodities. course, credit market fears spillover into the stock market. that is what people are a little bit worried about right now. what you are going to see is earnings growth six percent or 7% next year. china's growth is not going to fall out of bed. we are going to see more stability there. i think you're going to see better confidence, better consumer spending, better business capital spending.

that is going to help push things ahead. valuations in stocks are not stretched. i think you're going to see the midpoint of our target range for 2016 is 22.80 in the s&p 500. about a 10% gain, plus a couple of percent for dividends. that is a very realistic number. that is not a pie-in-the-sky valuations are leaping from where they are now. >> the s&p 500 heading for a close of 20.78 today. so what do i buy? you say you like consumer discretionary, but we have seen signs that amazon is doing great, but mortar not as much. out at it, it is more of those internet retail.

it is not apparel. we will have a lot of calls from clients and from our financial consumertalking about discretionary. what we are trying to do is look ahead and remember that consumer discretionary has been a great 2009 --r here march since the march 2009 lows. focused on to be those sectors that are prone to benefit from spending. that is probably a combination of brick-and-mortar and online. brick-and-mortar still does the bulk of consumer discretionary sales. inarel, that is a weak area our view. but there are many other second the many other butors of discretionary -- there are many other sectors of discretionary, in our opinion.

companies big and small, they have held up on technology. they are upgrading their software, salvia conductor -- semiconductor equipment. companies have held off for years on upgrading their technology. they are starting to spend money on technology and they will continue to do that. >> wife you like industrials? >> if you will get into industrials, you'll have to believe that china is stable and growth. you have to count on those things coming together to buy industrials. >> thank you for joining us. have a happy and prosperous 2016. >> same to you. >> thank you. senior global equity strategist at wells fargo institute. he thinks that the fed will move slowly, and that china's slowdown is overrated. we are closer to a bottom in oil. we will continue to look at the

stock market here and on bloomberg tv. we have a couple of days before the end of the year. this you for joining us on tuesday, december 29. ♪ [inaudible]

scarlet: we are moments closing bell.opening

. the s&p 500 advancing to a three-week high. joe: the question is, what'd you miss? emily: we have to charge you can't miss. joe: we dig into the long-term outlook for the yield. what is the consensus for 2016? clo's are a cause for concern with securities. why companies are looking like 2007. we begin with the markets. it looks like stocks recovering today pushing the s&p 500 into the green for 2015. nice edgell on a nic