inglobal stocks believe defense out -- bleed in defenses performed. how do you like them apples? minutes for apple shares a nosedive that apple has other sources of revenue and smart phone makers, not so much. arabia.rsus saudi president trump pushing back against opec cuts, iea and opec disagree on demand. we started retail earnings, exciting. home depot out. alix: they were good. david: across the board, looking forward to the rest of the year. if you have a housing market is slowing, you think you are going to remodel your house, there's been so much rebuild

with hurricanes as well as going for the wildfires in california as well, you can see that potentially in outlook scenario. david: what does this tell us about the rest of the retail earnings coming out this week? alix: is not just about beating amazon, you have to deliver growth. in the markets it was a brutal day yesterday, you could not find a bottom, it was like catching a falling knife. you have the dow up and 600 points of the nasdaq getting of lula white. and now little bit stabilization and s&p futures up by .6%, that's not a surprise , and we don't know what kind of followthrough we will see. $1.12,o dollars to let of how shallow the dollar pullback be? $3.17, nothing to write home about and crude, another 2% lower and opec literally cannot agree on demand. even iea warning about supply gaps and opec saying we don't

have enough demand for oil next year. david: and president trump has something to say about it. alix: there is some tweeting happening. bloomberg first take, joined by gina martin adams, bloomberg intelligence chief equity strategist and michael mckee, list of those numbers from yesterday. youas pretty ugly, and gina are the equity person. started writing back in september that tech leadership was lost and continue to be a problem for the market i think that a lot of this. we are starting now capitulate on the tech trade. we are capitulating on this leadership, these of the highest i think that's key to this earnings season, if your expectations embedded in valuations were extreme, you are experiencing about of weakness and you will continue to experience that is a reset earnings expectations and reset the outlook for growth into 2019

amid a much tighter fed and the equity market is voting with their feet and saying to percent on a two-year is neutral. at this point, we are experiencing tightening policy. the reality of that as we are more sensitive to earnings and earnings expectations are extremely high for some of these world stocks. we have to reset those expectations before we can move on. alix: it's like how much. michael: you couldn't bought p&g -- you could have bought p&g. me, as the nonexpert i'm glad you blame gina because i know nothing about this stuff, is seems to me that the overriding theme is of the markets are very fragile these days and they are buffeted by news and away we didn't see the last couple of years, you got oil, trade, italy, the fed, exit, the dollar from every day there is something of people to start confident enough to buy right now. that people are not confident

enough to buy right now. alix: sellers keep on selling what they want to dump. let's go to the cause behind it. this was three minutes of hell for the tech committee. like eitherels inventory the channel or overproduction in the early timeframe of the product cycle or slightly softer than expected on market demand. talking about less revenue, lowering their forecast at all points to apple. it's hard for me to articulate because it was so unreal the got dragged down so much and hit other tech as well when the supplier issue, they don't have plan b. as a holding was services. gina: they goes back to what we were talking about a little bit ago, which is expectations. when apple announced their fourth-quarter holiday season was are likely to be as expected, that created a ripple effect through check that we are still feeling today. yesterday was more dramatic the tech sector than we have seen a

long time because it was about the suppliers to apple, but in my mind this has been going on for several months, just another day that is confirmation that our expectations for tech were too high and we have got see capitulation occur to watch out any of those excessive expectations. we knew that apple have this plan b and they've been doing that for years. michael: why didn't the people who bioluminescent know already their own have smaller sales? b was weird's plan to sell less units and charge more money, so what is the big surprise? alix: you wonder what was the momentum of the selling. 45% of their revenue comes from apple and apple is flat premarket.

it's capitulation sentiment versus the actual reality. we always think we are smarter than we are in the equity market and we never read anything only until we finally experience that capitulation. we knew that earnings were likely to be weaker than expected but we obviously did not price that in the suppliers. that is what yesterday was about, we suddenly got actual acknowledgment from the suppliers of things are going to be weaker than we expected and we were forced to price that in. we were forced to capitulate. it a lot of hope in tech, valuations for growth in general reached an all-time high relative value a few months ago and that means expectations are extraordinary and we have got to see capitulation when he to see that expectation watch out and that means greater weakness that anybody expects and greater evaluation pressure and a lot of sentiment headwind. talk about oil capitulation, it continues to grind a lower with a record run

of losses for oil. it's tricky for me to understand why, it feels like the market is shifting from a supply narrative to demands narrative and they do not like what they see. it seems to be two narratives, everyone thought would be with the administration for exemptions on iran that supplies will fall within the gave waivers to a lot of countries and supplies aren't going to fall out of the same time that u.s. shale producers have been ramping up production, so there's a lot more supply out there. and then you get these reports that we have had peaked demand, the demand is going down and we are going into other energy sources and that you don't match up and so prices can't be supported. resist the geopolitical question of what does opec do? what does russia do? david: how do they know what to do? what triggered this is iran sanctions and then the president came out and said we will read a lot of waivers and i sort of feel sorry for the oil producers because they are saying without

one thing was going to happen and now presented from his mind. -- president trump changed his mind. there was clear demand destruction of the month of october is general theme and we started reset expectations. question mark and no one really has a sense of where things are headed. energy stocks, relative to the s&p 500, the did not even price in oil prices when they rose to their just completely on their own universe with respect to where they are headed relative to oil prices and equity investors are not at all it just and in the sector and have not been for years, haven't been touching it, aren't interested, don't believe they can forecast the price of oil and think it's going to be lower than general consensus believes. can't catch a bid when oil talk is around $100 flatterugh the curve is

and the back end hasn't moved substantially, how are you going to do it after a bear market? david: the market doesn't believe the price of oil will stay there. flatter and the back end hasn't moved they don't want to buy -- alix: they don't want to buy the equity stocks. gina martin adams a michael mckee, thank you. you can go to gtd go on your on thel -- g tv terminal. tech takes a beating and more the correction of started last month during apple taking it on the chin today. this is bloomberg. ♪

this is a much all right your bloomberg business flash. home depot raised its annual forecast and its quarterly earnings and revenue beat estimates. straight quarter that home depot's profit has been better than expected. amazon reportedly mannose today that it shows in new york in northern virginia for a second and third headquarters, according to the wall street journal, other cities make it major sites for the company to. the decision would and amazon's year-long search for supplementary headquarters to its existing base in seattle. its first expedition of performance after monsanto. one analyst says the company could do something big by merging the pharma unit with a rival or launch a major cost-cutting program.

technology shares love the downne in the nasdaq 100 3% in the third straight negative day and joining us on the phone is david sowerby, he knows tech names including apple. the session make all the drama from apple, do you ?uy this didn't the valuation, you just talked about home depot hundred and quarter after the stock i like, but apple on our rice earnings basis on a free cash flow valuation basis come on a dividend growth basis, all has as good or superior metrics to a name like home depot and out of the fang, that's trading 14 times as much as earnings

the free cash flow yield, which is a great valuation metric of 6.5% to 7% come i think apple is a name that can still own. alix: do you want to own it here or wait? mr. sowerby: i want to own it here. i'm an believer the low turnover in stocks with high free cash flow and attractive valuations like apple case of about 15%, at the stock i believe i can over the longer term versus trying to make a trading stock trade. david: two questions, what are the projections for earnings and also what is the price-earnings ratio? there has been a record high ratio of the nasdaq 100 to the s&p 500 in terms of the forward price-earnings ratio but is now coming down in the market seems to not believe -- not believing in that premium. is the market right? mr. sowerby: never violate or

think you are smarter than the the averagery technology stock at the close last night's trading about 20% below the 52 week high and some of the conductors which you can still own in small amounts are are seeing roughly since august that these price for perfection, price for sainthood tech stocks valuations , that's where the pain is taking place in names like the somesco, even degree, broadcom. i think those are names that based on their dividend growth in their free cash flow, you can still own them in a market that has been painful for other parts of tech. we saw volatility of across the board but in particular when it comes in as a volatility, and a chart that shows that as well.

are you trying to play or trade the pick up in vol? or hold off until buying? mr. sowerby: pay a lot of attention to volatility but i am never use volatility is a fundamental indicator for trying to take stocks. i do believe that we are in ebb and flow, but a period where the rotation is beginning to take place where markets are starting d to dividendee growers, free cash flow hours and valuations you can versus those priced for perfection stocks. i don't know volatility is going to get me there, but free cash flow will get me there. alix: that feels a value call. where would you be in the rotation from growth in the value? mr. sowerby: value investors ,ave too many times this year

in late 2017, made the perennial call it the rotation the value taking place and yet again growth stocks will do quite well. i do believe that after roughly seven years of this rotation of value absence and civil calendar year returns to just 116 that at least the probabilities for value to outperform growth over the next two or three years, but don't be surprised that growth once again will have its run hard against value. if you look at three years today , there's value outperforming tech starting from today to three years forward, i'm met that answer is yes. david: is apple at this point a value stock or a growth stock? for free cash flow, they are in great shape. is it trading is a value stock or growth stock? mr. sowerby: it trades let's call it 60% to 65 present value of the rest is growth.

the benchmarks, to use the russell benchmark is the name percent rate in the growth index, zero the value index that when you look at the metrics of the free cash flow makes it look more like a value-oriented stock that tech stocks. two thirds value, one third growth. david: as david sowerby of ankara advisors. coming up, more than market selloff and where we might find some stability. chiefgreene, manulife asset management joins us next. this is bloomberg. ♪

david: tax may have led the stock market down yesterday, but it wasn't the only sector showing weakness. retailas got hit, it was and finance other sectors rate we welcome now megan greene, manulife asset management chief economist. what happened yesterday?

>> they thought they would have to order fewer iphones a refill also got hit, that could be questioning how much the tax bill is really supporting retail sales and how much consumers are buoyed by this late in the game, most of the tax bill probably benefit of the consumer in the first three quarters of the year and for going to peter out from here. david: there was no particular macro event but is there macro background noise and does it have to do with withdrawal quantitative easing? that can be greene: part of it. imbalancesng all the in our economy and others and between our economy and others as well, it's a bit like the tide going out and seeing who is swimming naked.

i don't think anybody is trading off the back of that and i would suggest that trade is a constant drum for everyone, i'm not sure anyone is trading on that and i've been really surprised by how little the markets have been moved by things like trade and part of that could be on an average day, 90% of equity trades are done by passive funds, so that could be partially why. for the fed come of the jews will thought, what is you have higher yield rates and the markets: terminal rate of 2% and they freak out and the jpmorgan and you want to buy u.s. equities because the curve and's consistent with the rally in the next 12 months have a real rates aren't that high, which is the right narrative? ms. greene: i think this recovery will last a lot longer than my be underappreciated by the markets because there's a consensus view the a recession is coming in 2020. when economist has an essential that's a consensus view, it almost certainly won't be hit them. even with a split house and senate, i think they could agree on some credit for structure

spending bill, it was the start coming they're working towards that, i think the markets might reprice a recession to be pushed out a little bit, just because of the sugar hit, not because of anything funnily different and the markets can have some room to run. david: the markets seem to come back others the steve mnuchin was going to me with china. at the same time reports are democrats will hold up ratification of the usmca, nafta two. ms. greene: i think with usmca, chances are lower than the market appreciates that will get through and that being said i think they try to push it through by the lame-duck government and so i think we will get that ratified. in terms of trade with china, think of 20 get worse before it gets worse. i've always thought the tariffs were bit of a sideshow in the whole question was who is going to be a world leader in machine learning artificial intelligence

and quantum computing and some ip concerns and i don't know why either the u.s. or china would be incentivized to step back on that. david: there was a report of the bloomberg of the u.s. now is talking about export controls heavy to do with intellectual property which was your point, that's not a terror issue, they are taking much more direct action to cut down the flow of intellectual property with china. ms. greene: that's of the heart of the matter and i expect desolation of tariffs and china will retaliate with exports equity -- subsidies. will let itpboc depreciate and that has real of locations for us in the u.s. because the dollar will just be driven higher and for the fed, there are some questions about what they should do because then it would be importing this inflationary pressures from abroad they could keep up or pressure off of inflation if you strip housing out of inflation anyhow, we hardly have any. i think the fed probably will have to back off its current rate path and will get to rate

hikes next year. when you think that's going to turn? the whole macro backdrop that starts changing the fed's mind. when we expect that? ms. greene: into the crystals holiday season, retail sales should be strong a going to next regular probably get weaker. alix: is a part of the story when it comes to trade is that you have at some level on dollar u.n., doesn't mean anything. the other one is that that's really bad and you could have a current account deficit or moving towards a current account deficit, which is the better scenario to focus on? ms. greene: it's a psychologically important level but that's about it. i think the pboc will go straight through the seven level and we get even weaker. i don't think that specifically matters, that's not a magic number really. i think we should start thinking about how we are going to react when it does go straight through it. mentioned retail

sales, numbers are out this week and they have been disappointing. do you expect that to turn around? ms. greene: i think it will continue to be disappointing inause of structural factors the economy. stimulus is waning, and will continue to come we have great wage growth last month, that was off the back of which contractions a year earlier, i think they are reduced by statistical factors analyst a really strong wage growth coming through which would help if you want to see stronger retail sales. managementife asset will be sticking with us and oil extending the record losing streak, opec flashing its global demand forecast. this is bloomberg. ♪

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european stocks a little more buoyant up by five point percent -- up by .5%. one of the out performers of the market. things are looking positive potentially. sterling is on the rise. it is an italy story, the euro-dollar up .3%. how shallow well the dollar pullback -- how shallow will the dollar pullback? will it really cave to budget demands? include off by 2%. a terrible slide. we will break that down in a bit. missed a bit on revenue. their fourth-quarter adjusted eps was $1.35. but the revenue came in at $10

$2.28n even as opposed to billion. it looks like for the full year earnings per share, on a high-end, looking at $6.10. tyson really not moving yet in pre-market. where aref trade, they selling if it is not to china? david: also input costs with freight and wages. they are changing their product mix to increase probability. alix: that call will be really interesting. david: time to find out what is going on outside the business world with emma chandra. >> good morning. the wildfire in northern california is not the deadliest in the state. search crews found 30 more bodies, raising the death toll to 42. the fire has destroyed more than 7000 homes and other structures.

in southern california, firefighters are getting ground against the blaze blamed for two deaths in the destruction of hundreds of homes. an upset victory, for democrats in arizona. beis the first democrat to elected from the state of three decades. republican will be the openly bisexual senator. ? the florida race is going to a recount and there will be a runoff in mississippi. in italy, the prime minister's populist government is not backing down from the budget deficit. planll resubmit it budget -- its budget plan to the e.u. it will have the smaller economic impact than initially forecast. in a move, the european union rejected the italian budget last month because of the impact on the deficit. global news 24 hours a day

powered by more than 2700 journalists in more than 120 countries. i'm emma chandra. david: we will talk more about italy's budget with the deadline coming today. let's bring back megan greene. megan, i loved your piece where you said it is a game of battalion hold, -- it is a game talian hold. there are number of different players and the italian government redrew their hands. now the question is over the budget. the most important player is the italian government and the markets. the markets are putting pressure on italy to be sure.

it is really market pressure. david: one of the points you made is that if there was a downgrade in the dead, he would make it difficult for the ecb the buy the debt. affect theirld eligibility for the reinvestment program, which will continue for years to come probably. banks get into trouble, they may need emergency liquidity assistance. italy sold 5.5 euros. it said the pressure is coming from the market. what does that look like? megan: a wider spike in costs. alix: what was the base case? megan: you have to go about 400. we are above the highs of 2011, 2012.

we don't really know. the government could be the greek government back in 2015, and just cave,, but maybe not. omt, theoretically could get a bailout. there might be conditions imposed. this government would have a very difficult time accepting. megan: that is a given pretty much. they will say, don't worry about it, we bump -- we will give them an omp program. offered that program -- italy was offered that program in 2012. alix: they are on the turn. [laughter] greene, great to see

you. turning to oil, the market extending its record losing streak, yet opec out with their latest mother report saying they don't see eye to eye, selling a warning about u.s. shale making up the bulk of production growth. years from now, we see serious challenges coming in terms of the oil markets. the demand, global oil demand will grow's significantly -- will gross significantly. you cannot expect u.s. shale to fill the gap for the demand and meet commercial projects. we cannot expect everything from the shale. alix: opec is singing a different tune as rivals like u.s. shale are third. joining us from london is a

chief oil analyst. what was your big takeaway from opec report today? >> i think you are looking at different time frames. i don't think you can compare what you are talking about. they are talking about the structural issues that we have been saying for years as well that we have not invested enough. we are just launching our long-term service, and we will see a big supply deficit. even with a lot of shale, that cannot be bridged. what opec is talking about is the oversupply. the u.s. haven't talked about no waivers whatsoever for iran, but potentially giving waivers. this has tilted the market into oversupply, especially as u.s. production continues to grow very strongly. talking about the short-term investments over medium-term

investments. alix: let's talk about that when it comes to the curve. the curve for brent and what you have in the blue is where we were a month ago and here is where we are in the orange. the back end of the curve has not moved at all. priceds that need to be to catch up to that supply gap? amrita: well, again, in some ways, you are seeing that that is the market is reflecting. the market understand you need some kind of an anchor price to incentivize investment. whether the price is enough is a different question. they're different considerations these days, like electric cars. keeping that aside, clearly the curve is telling you there is a prompt oversupply and that is why curves has moved into a mild tangle, and i -- and opec needs

to overcorrected and preempt some of the oil out of the market. this is why you should not be preempting such events because you don't know the uncertainty you are dealing with. david: amrita, how important are the iran sanctions and the waivers? it used to be that the u.s. had reserves. has president trump consciously developed another way were he can really effect the price of oil by what he does with those waivers? amrita: completely. if you think about what everybody in the market was expecting, including ourselves, we were very clear that this would result in a bit of an oil price spike. we did not expect actual iranian exports to go down to zero. there would always be some waivers, but we did not accept 1.3 million barrels a day. the u.s. has not disclosed the

exact amount of waivers and we have had to combine those together. that is at least half a million barrels than what we were expecting. clearly, when oil prices when above $85, the u.s. panicked and started giving out waivers, but the choice was between iran and prices and they chose prices. alix: what was the short-term downside? what is the floor? how long does the downside persist for? amrita: this is like catching a falling -- out testing $60 refer the opec meeting? no, i can't. the market is really testing opec here and they want to enter opec actually takes off those barrels they put in to preempt the iran sanctions. i think there is still some downside in this market ahead of the -- alix: what role does president

trump play in that? yesterday, he wanted lower and want -- and went on twitter and basically said it. amrita: this is the million-dollar question, and this is why trading oil has been very difficult over the last few must because it has not been just about fundamentals. it is about figuring out all of these political moves and political preferences. ultimately though, for opec, what will matter is the oversupply in they need to have a market that is balanced. they need to ensure investment continues. if you have a lot of volatility and a lot of downward pressure on prices now, you will not get that investment. and in a few years's time, there will be a huge spike in oil prices and opec want to avoid that. -- amrita sen,n great to catch up with you. david: the new ceo fails to -- shareholders. we will it increase -- we will

look at that next on bloomberg. ♪ on bloomberg. ♪

♪ >> this is "bloomberg daybreak. i'm emma chandra. coming up in the next hour, the former -- ceo at mastercard advisor. this is bloomberg. ♪ the white house is speculating the congress department report imposing tariffs of car imports to protect national security. bloomberg has learned president trump will meet with senior members of his trade team today to discuss how to proceed on the tariffs. the parent of google says it can

do better when it comes to sexual harassment in the workplace. steps thefo outline company is taking to rectify a number of issues. google employees around the on a reportound up that the company gave millions of dollars in exit packages of employees accused of sexual harassment. berkshire hathaway has added a second franchisee in europe. the company hopes -- before the end of the year. that is your bloomberg business flash. alix: return to cover 3 -- we cover three things. it is a healthy market correction. mark gilbert says the recent market corrections is healthy for fund manager's portfolios. uncertainty sparked a selloff. banks suffering -- suffering the biggest loss in years, and ge investors pull the

plug. ceo's recent interview added more fuel to the fire. david: i thought it was a good story. [indiscernible] david: joining us is peggy collins. let's start with martin gilbert and this is what he had to say this morning to bloomberg. >> the evaluations are reasonably high, so i would like to see them come back a bit. that has helped a lot of the active fund managers, especially the value fund managers, who -- theen caught by not overweight emerging markets. it is a healthy correction for a lot of fund managers. david: he things the market downturn is a good thing and that it will give him some bargains. [laughter] many: i am not sure investors are loving the volatility on the downside, but active managers have been

waiting in mutual fund land for this opportunity. they have wanted to pick up some of these stocks in the are getting a chance to do it now. on the hedge fund side, some people are not liking the volatility as much as they thought they would earlier this year because some people have not been able to jump on those trades in the way we thought they would. sachs falling the most in two years. bi put actual numbers to this. it could put more than $1 billion it was for the company. peggy: that was an eye-popping figure. david, you said it was the uncertainty people are talking about in the reputational risks. warren buffett has said that once. risk is reputational goldman under? the compliance around the uncertainty is a question mark. we have seen the banks be fined

over and over again and not materially effect their bottom line. david: the key is, can they limit it to this particular transaction? weaknessa fundamental that leads to other problems. peggy: that is the uncertainty that people are really focusing on. employees, orgue something related to the compliance oversight of the bank? david: peggy collins, thank you for joining us today. we will turn to general election. we welcome -- we will turn to general electric. we welcome scott davis. thank you for being here. you think the new ceo should be changing the narrative? did you do that yesterday? scott: no, he did not. he really needs to put some meat on the bone. investors monday tell and it is not good enough -- investors want detail in it is not good enough to show up and say

"fine." i think he needs to show up and start talking about what the tangible plan is to turn this thing around. david: so scott, why did he do that yesterday? i am going to quote him. everything with a sense of urgency." would he go to the media and not havingthout concrete things to announce? scott: he has a disasters public relations group around him that are completely tone deaf to what investors want, and i don't understand it at all. to go on tv and not have something to say about how you are actually going to fix about its sheet -- axa going to fix the balance -- how your actually going to fix the balance sheet. alix: why do you have a -- on the stock? scott: it is clearly a mistake

on my part. i own it personally. look, let's back up a little bit and take the emotion out of it. it is a $20 billion revenue company that should be generating $10 billion of cash a year, and right now, it is not generating much cash. that is problematic. and the stock is down below eight dollars a share, really implying than investors are making a bet that this could potentially go under. i think the odds of that are low. alix: fair point. what was interesting yesterday is how ge traded. there were lots of large trades of general electric out of the s&p. you seem to have some big buyers accumulate positions in the nine dollar region. what is your take on how many institutions need to sell this for the end of the year, versus an active investor, a large buyer who wants to be there for the longer-term?

scott: a couple of the top folders that have been selling stock told me they were forced to sell stock for risk-control purposes. they just lost too much money coming savvy, that is the world we live in rather than to be able to buy more. no one wants to explain to their bosses why they own this thing. and just getting it off their books is just easier. i have had folks tell me that of larry is able to turn it around, they would be willing to buy the stock back at $13 a share with more visibility around the balance sheet. david: there has been so much bad news about this country. if you broke up the analysis and sold it for parts, what this that tell you? what theth more than market is evaluating right now are less? scott: it is worth a lot more. that is the interesting part about this. if you broke it up and clearly

you have to be able to identify what your losses are, but if you broke it up, it is worth as much as $20 a share. you know? mean you are trading at a big discount, but look, we saw this in early 2009. ge's stock sold down to two dollars a share, and this is a fixed the balance sheet, the stock went from six dollars to $30. you can get there. you just have to plug some holes. to comend the ceo needs up with a plan. thank you, scott, for being with us. coming up, president trump is looking on how to proceed with tariffs on auto imports. more on what i am watching next. this is bloomberg. ♪ this is bloomberg. ♪

♪ david: don't be surprised, i am

watching cars as usual, but this is a report that came a yesterday where a congressman has given the president at left report to impose tariffs on auto imports with respect to europe. it is a pretty big deal. we do not know what it said. they circulated it around for comment, but it is widely thought that it will conclude it is ok. these of the karthik it imported. rs thate are the card get imported. really hit auto manufacturers substantially and auto companies have not been doing very well. alix: part of that is slowing auto sales and you end up having rising rates as well. i wonder what the real impact will be for the market? 2.5% fromshows 2% to auto sales are from imports, but

your point is right. it is a multiplier effect. there is some softness and overall demand. alix: when i heard the headline, i said, what is new about this? is this a real step or negotiating tactic? the market always precedes -- perceives these things wrong. david: to your point, i don't know if it is negotiated are not, but the president has not been -- guest will get his take on the selloff. this is bloomberg. ♪ his is bloomberg. ♪

♪ alix: markets meltdown, the third selloff in six weeks.

this time it is apple. potential stabilization as a u.s. -- of italian deadline. the deputy prime minister said respecting e.u. deadline limits is suicide as the clock ticks for the latest online. and trump versus saudi arabia. who calls the bottom? president trump pushes back against opec. david: welcome to "bloomberg daybreak." i'm david westin with alix steel. we earnings out this morning. tyson disappointed earnings per share. bethe other hand, home depot across the board. housing sales, they had to have their reconstruction from natural disasters, and wages going up, so it was a my sweet spot for home depot. -- it was a nice sweet spot for home depot.

david: that is a good point. alix: a brutal day for the markets yesterday. what will the followthrough be with s&p futures up. euro-dollar is firmer. what will the u.s. selloff the? in the bond market, you are seeing selling in europe. down another 1.6%. tweets he does not want high oil prices. the market really casinos opec assumptions now. u.s. markets that hit yesterday with the tech stocks leading the decline. to me, it was less talk about the technicals. after this, i like to get a technical perspective. give us the set up. let's look at the monthly s&p 500. it is a momentum indicator.

this is your chart. what does this tell you? katie: in october, we saw major momentum along the major indices. it makes it very important we do see additional upside with a relief rally that started earlier this month in order to negate the signal. we always wait for the signals to be confirmed for another week, month, depending on the time frame, so it is an unconfirmed signal at this time. the last time that happened was andeptember-october, 2011, it wasn't putting us into a very challenging environment, per se, but it would be helped by a nice relief rally. alix: text obviously in the spotlight -- tech obviously in the spotlight. it was apple that took the lead lower yesterday. what is the bottom in tech? how much re-pricing do we have

to do? katie: it looks ok to me. not the start of a bearish reversal. apple was down 5%. i would note that apple is approaching its 200 day moving average. i do not think all bets are off for tech here. in over reversal we do have the intermediate-term basis is the first we have seen in months, and in years in some cases. yesterday's decline was another relief rally and there were not a lot of breakdowns with that decline. and seeing relief this morning is a positive. alix: let's end up with oil. wti down 23% from its peak. how much more selling is left until we see true capitulation? we have seen the

-- since 2017. i think that should have is paying attention and looking for a loss of downside momentum. we do have some short-term countertrend signals based with the market indicators. crudeere is support for oil based on wti around $50 per barrel. i do think taking those things together, we will see a loss and downside momentum, so i am looking for stabilization and return entries. alix: katie stockton, thank you so much. david: for more on the markets, we will bring in an investor now who oversees $156 billion in assets. good to have you here. i want to start here with a comparison of procter & gamble with the nasdaq -- with nasdaq.

how the market is by doing their earnings, looking at forward priced earnings ratio? procter & gamble has been valued, their alley -- the earnings have been valued lower, but it has turned around now. we have had several years of growth outperforming. environment,wth investors wanted to see growth in the companies, and they were willing to pay for it. now, all of a sudden, it has grossed better, but risk is higher, so now value and dividends are starting to be where investors want to rotate into. david: as a chief investment officer, what does that tell you with changes that you need to make in your -- what does that tell you it changes you need to make with your strategy? backing offe been growth. when you see this outperformance going on, you see that leveling off the neck and signal a trend

we have been emphasizing dividends, emphasizing value, and the emphasizing that hypergrowth. the other thing that is important, when you look at the growth stocks, especially the tech marquee names, they have had a disproportionate effect on the industry, so what we are seeing with the industries -- indices is extreme volatility. david: we have a tendency to focus on tech, but yesterday, it wasn't tech -- it wasn't just tech that had issues. retail and financials also got hit hard. but other sector should we look at as investors? is theertainly, tech headline one, but financials have been pricing in growth and pricing in an expanding yield curve. we are not seeing that to a great extent. we have not seen the response we would, so financials are also getting hit on the basis, not only of earnings, but also the

interest rate spread. the other thing that is important for financials is a regulatory constraint. it was a since with the republican administration de-regulation would be good for business across the board. and certainly, financials are a big beneficiary. with the democratic congress, you will not see that. any regulated industry will respond to that. alix: brad, how much risk do you want to be cutting? thinkat this point, i there is some upside going into the end of the year. i think we have a santa claus rally as a real prospect. to be frank, this is all normal volatility so far. we are not used to it. it is scary, but we are down 6.5% from the peak. we are not even really in correction territory, so to the extent, do you want to overreact? i don't think so. this is a great chance to evaluate on how you feel about

this in your portfolio, especially if you are an individual investor. if you are not comfortable with this, that means you're taking too much risk. think about where you are comfortable. david: even as we have is increased volatility in the stock market and a bit of a downturn, you also have interest rates going up. does that make cash more attractive to you? you changing your portfolio to have more cash? brad: at this point, it makes sense. the language that was used, there is alternative to stocks when cash was pain essentially zero. all of a sudden, there is a real alternative. there is a real alternative. when you are getting paid for the 2-year note, it can make sense to sit back and just collect that 2%, that 3% while things settle outcome especially for an older investor, one that doesn't want exposure to the downside, catches more attractive. alix: your killing me, brad. let's take a look forward and

look at the 2019 earnings estimates. we're seeing revisions coming down with particular staples, utilities, and communications. the only one holding up is energy. what is your outlook for 2019? how much re-rating can we look for to? brad: we will see a real slowdown in growth. we saw a 4% plus this quarter. i think we are going back down to 2%. you will see corporate earnings growth dropping on that basis. got the roll on effects from the tax cuts that will expire, so we're probably looking at high double-digit for earnings growth, but the problem is, we cannot project that because valuations are also influx. my best guess at this point, we will see low single digits on the equity market, simply because we will have valuations pulling back a bit, even while we get reasonable earnings growth. alix: good point.

brett mcmillan will be sticking with us. streak.nding it losing we will break it down next. this is bloomberg. ♪

♪ emma: this is "bloomberg daybreak." johnson control is selling the power solutions business and a cash deal. -- buyer home depot is about to slow down in the home improvement market. they raised their annual forecast quarterly earnings estimates. profits have been

better than expected. abu dhabi is sending oil and gas around the world. they are bucking a trend of tight spending caps to put billions of dollars in development. >> we are progressing extremely well. announced towe invest alongside our partners. [indiscernible] we will soon be making big announcements. emma: that is your bloomberg business flash. alix: staying with oil, you can see prices having the longest losing streak in records. it is opec's turn. they are wanting of a medium-term supply gap. >> you look at a few years ahead from now, we see serious challenges coming in terms of oil markets. the demand, the global oil

demand will gross significantly, but the supply is a key question. -- to fill --pect you cannot expect the u.s. to fill the gap. we cannot expect everything from shale. demandpec had its oil for a fourth straight month. joining us is javier blas. from theyour take away agency reports of the last few hours? how the year: -- the oil traders are worried what is the output today, next week, and the next few months? when you look at the opec numbers, and looks like we have a lot of oil, much more oil that we need. year,s saying that next

they could produce 31.3 million barrels a day to keep the market from oversupply, the problem is they are producing more than that. the challenge of opec's terminal 1.4 million barrels of the market in the next few months. and that is a very big task. let me put it in u.s. numbers. that is equal to shut down all of the oil wells in north dakota and also a few of the oil wells in oklahoma. it is a pretty serious challenge for opec. alix: you can imagine the producers would not be so happy about that comparison, but saudi arabia seemed said on that over the weekend. president trump though did not like it. his tweet said yesterday, he wants lower oil prices and don't cut production. how does this play out within opec? javier: saudi arabia was betting that during the midterm elections, they could send prices higher, but if that was

the case, they miscalculated. oil investment really stopped asking for low prices because the election was around the corner, but he really wants the prices, and are convinced that prices can be lower than $60. with the khashoggi case in saudi arabia, the saudis need all the help they can get from the white house. that is why we have seen this big selloff. alix: good stuff. javier blas, thank you very much. still with us is brad mcmillan. brad, do you like energy stocks? brad: i think energy stocks are getting close to a point where you want to take a close look. there has simply been so much bad news. saudi arabia, the khashoggi case, prices have dropped, and we have had supply concerns. what else can go wrong? [laughter] david: i think it is called the price of oil. you don't invest in energy

stocks unless you have some confidence of where the price of oil is going? do you have any confidence of where the price of oil is going in the longer term? brad: i think you can. price is a question of -- is a case of supply and demand. we have u.s. production. the u.s. is the new saudi arabia of oil. we need to work on that metaphor. he production just keeps going up and we are getting less and less exposed to global production. when you look at it, oil prices have been fairly stable over recent years, simply because of that because the u.s. is largely a price-center, not a price -- price-setter, not a price-taker. prices will not go up too much because that will bring up production, so there is a level of certainty that i do not think is fully appreciated, and we will continue to see swings. but we also got, go ahead. alix: sorry to interrupt. i just one appointed this chart

that showed that had just want to point to this chart -- i just want to point to this chart. energy equities did not buy it. if you cannot rely on a higher oil price to support oil equities, how do you buy them? brad: well, i think it is a question of demand and supply. and i think it is a question of valuation and attitude, you know? there was an expectation that, yes, when oil prices went up, we were going to see energy stocks respond, and they did not. but, then we see the companies respond. about newntor talked capital discipline, which over time, is going to lead to less investment. in other words, we are seeing an industry in us secular change -- we're seeing the industry in a circular change right now and companies are responding.

it says to me something else is going on. what is says to me is that companies are actually changing their response. buy pointre for a right now? probably not heard peoplecoming up, what are spending on the properties. home depot raises its forecast. more on today's bottom line. live from new york, this is bloomberg. ♪ bloomberg. ♪

♪ david: time now for the bottom line where we look at three companies worth watching. most of them -- all three are touched by one-way or another by those california lot buyers. the interesting story i saw yesterday was they have their own firefighting crews they are sending out to spray retardant on homes, and to advise homeowners. they are working with firefighters and specialists and they are deploying them out to

help fight those fires. alix: that is really fascinating. david: there is real concern that they will not be able to get fire insurance going forward at a good price. it is a real problem, and they say they are not sure this is a fire season anymore, it seems to be year-round. alix: another part of the utilities. edison is getting hammered. we are looking at complete structural change on how the utilities have to operate due to climate change because you have a drought and a more consistent -- have a drought with more consistent fires. the question is how much will they be on the hook for these buyers? they had a bond last year that would help them pay them off, but not this year. there also lawsuits being drummed up. how will they stay in business and how does california give their power? david: and who bears the cost of climate change because it plays a role.

do we expect private companies to fund climate change? home depot is effected when people need to be billed their houses -- need to re-billed their houses. he is a long term holder of home depot. you must be pleased given the numbers of home depot for the last quarter. >> it is always good to see them doing well in the short run, and there is so much doubting of the economy, so much doubting of the strength of the home repair and homebuilding market, that people are just looking to steady the ship here today. david: bill, when we see home depot doing well, is that an indication of a strong economy or indicates that there could be fractures in the economy that people need to repair their houses as opposed to buy new ones? depotthe beauty of home and the next 10 years will be the greatest era the company has ever had, and the reason is some of the homes in the united

states, the standalone homes, have grown dramatically older and the last 20 years. so, the average existing homes is about 38 years old. that arew from homes only 15 or 20 years old, you have a lot of things that need repair, so imagine at 38, how much repair there is? secondly, the baby boomers will be the first generation of people who stay in the homes all the way into their 80's. their health is better than prior generations, so they will stay in those homes. simultaneous to that, the millennial group is new to homeownership, and just rising 45we speak, and the 30 to age range of homeowners, rather than 23 to 35 who entered homeownership, they are more affluent, and we have to build an awful lot of homes the

satisfy that demand because her parents are staying in the home a lot longer. so, it is going to be a great 10 years, and the market we think is making a big mistake to spend a lot of time dwelling, is there a little bit of softness right now because the condos went down in new york city? alix: there is -- is or something to be said that if you're looking at a shorter term environment of rising home is bad for other sectors another equities? bill: well, the connection to the equities market we think is even more profound than that. and that is, in the last eight or nine years of relatively anemic economic recovery, right, prior to a year and a half ago, people are really excited about companies that could grow in an anemic environment. secondly, the fed was amazingly generous for an extended period of time, and common stocks and bonds soak up liquidity when

there is nothing on main street to deal with it. but over the next 10 years, there is going to be lots of things to do on main street coming capital will be demanded, so we think we are seeing the beginning of the shift from revenue growth stories mostly associated with technology to mainstream stories, and of course, home depot has done pretty well in the old story, and they probably should do well in the new story. alix: though, thank you very much. -- bill, thank you very much. it is a showdown. italy must revise its budget to the commission in several hours. we will discuss that market impact. this is bloomberg. ♪ this is bloomberg. ♪

alix: in this is "bloomberg daybreak." recover after the selloff yesterday. nasdaq futures trying to stabilize. disappointing earnings.

react.idn't good news for stabilize asian stabilization. europe is rocking it. lookingnet is saying .or being close for brexit euro-dollar up by .4%. italy yields up three basis points. they sold 5.5 billion euros in a .ut spread -- in a bond spread a little buying on the back and appeared yields down by two basis points in the u.s. recruited royal. crude rolls over. loans the lowest this year. i wonder how that is for collating in the commodity

market. david: that is fascinating. they were deleveraging. alix: there wasn't the velocity. time for an update on what is making headlines outside of the business world and we turn to emma chandra. wildfire in california is the deadliest in history of the state. the death toll is 42. the fire has destroyed more than .000 homes and structures in southern california, firefighters appear to be gaining ground. a week after election day and an upset victory for democrats in arizona. kyrsten sinema is the first democrat to be elected for the state in three decades and she beat out a fellow member of the house and she will be the first openly bisexual senator. the republicans have a 51-47 lead in the senate.

the florida race has gone into the recount and there will be a runoff in mississippi. a populist government not backing down from the budget deficit. it may offer a minor concession when it releases the budget plan to the eu. it could admit it budget could .ave a smaller economic impact in an unprecedented move, the european union rejected the italian budget last month because of the deficit in the budget. global news 24 hours a day, online and at tictoc on twitter, powered by more than 2700 journalists and analysts in over 120 countries. i'm emma chandra. this is bloomberg. david: let's stay on the subject of the italian budget. today is the budget for italy to submit a revised budget. a substantial gap remains between rome and belgium on how the new italian government should be spending. we welcome from rome rosamaria bitetti

. it is good to have you back. i will put up a chart that illustrates what the point is and shows the level of deficit spending been projected for 2018. it has 2.4% of gdp deficit. it is being proposed to the european commission. as i understand come you don't believe the 2.4 position. tell us what the issue is for italy. there are two issues with the italian budget. one is whether the numbers currently provided our reliable. they are based on optimistic hypotheses on growth. going to 1.5%, while after they latest stagnation, they are proposing to propose it now to 1.5. main policies will be

implemented. both one of reduction of and progrowth. gdpust increase to a higher . brussels in the form of the european commission saying we don't like the budget. we have the markets and we are not sure we like italian bonds right now. which is the more important force on the italian government, brussels or the marketplace? forces arethese two very much interrelated. the markets are waiting for what the eu is going to say and worry about the reaction of the market.

there is a political process and it may end up after the european election. there is uncertainty what the markets will do about that. why the italian government is harsh --ut ofy are using the impact expensive proposals by delaying implantation from the budget. for this reason, the markets are stable right now. worry.e not david: in your judgment, does the italian government have the political maneuver room to give brussels what it needs? could it give the accommodations that brussels is asking for and remain in power even what it has promised the people of italy? rosamaria: it is quite

complicated. they have a very strong electorate. the political cycles are very fast especially in italy. the public's gets in love with the new politician but also week to get dispassionate from them if they don't believe in the results. we will see how the government will be able to deal with the electorate. david: that was very helpful. thank you. we spoke earlier about investing in europe and including which banks. >> it will be credit in italy because of italian risk. it will be a wealth management play.

threembination of the gives exposure between the emerging markets, domestic, and growing businesses. alix: with us is brad mcmillan. do you agree? brad: i do agree. there are opportunities there. when you look at italy, you can think of italy as greece. it is the same kind of situation and risk exposure. there is no way europe is going to put themselves in that situation again. the comparison with markets since 2011 -- is 2011. you are right, it is not greece but much bigger. can the european union afford to make italy back down? brad: they can. the italian government knows that and the europeanas well. what we have is essentially a

negotiating process. we have the italian government hanging tough rhetorically, but watering down proposals. the eu is drawn a line in the sand and edging forward and rubbing it out. you are seeing the eu try and put poland on notice and put hungry on notice. nothing actually follows. us is more theater. -- this is more theater. alix: if you look at investing, thesis was you had to buy europe and the outperformance of equities won't continue. what is the thesis now? disparityvaluation has gotten smaller. u.s. markets have pulled back and are a bit cheaper. italy -- excuse me europe is cheap, i personally think the growth value trade-off is less favorable than it was.

and the commonwealth, we are not as strongly pro-international. alix: from the central bank perspective come here in the u.s. we will have tightening wo or four hikes. some say we will keep easing in the boj even if ecb hikes. will that change how you wind up valuing these equities? all, the rate parks are important. we are pulling $600 billion a year out of the fed's excess reserves and balance sheet. that is on top of the rate hikes. we are already seeing hiking. as far as europe goes, they are in a tough spot. they are running out of assets to buy and run up exposure significantly. they will have to back off and hope they can handoff to growth. you will still have less of a tailwind and that will be

tougher for europe going forward. japan has opportunities and growth going on. i think japan is a good place to be. the u.s. will be relatively favorable. europe more headwinds than tailwinds. you are notnizing as international as you were, if you had to pick one place that might generate real growth over the next two to four years, what would it be? .rad: i think it would be japan you have a central bank continuing to stimulate. you are seeing profits recover. i think japan is the best growth opportunity in the next couple of years. david: great to have you with us today. healthup, we look at the of the consumer going into the holiday season with stephen sadove , former saks ceo. this is bloomberg. ♪

emma: this is emma chandra in the hewlett-packard enterprise green room. --ef equity and derivative this is bloomberg. ♪ emma: the white house is circulating a report on whether to impose tariffs on car imports to protect national security. bloomberg has learned that president trump will meet with senior members of the trade team today to discuss how to proceed on the tariffs. the parent of google says it can do better when it comes to sexual harassment in the workplace. they outline steps the company is taking to rectify in number of issues. google employees around the world gave reports that they

gave millions of dollars of exit packages to those accused. berkshire hathaway home services second --ing a that is your "bloomberg business flash.". david: home depot announces third-quarter earnings, leading across the board. maces is out tomorrow followed by walmart, jcpenney, and nordstrom's. welcome to stephen sadove . what do you expect could home depot got off to a strong start. stephen: strong numbers for home depot and you will expects

several -- more out of several others. i would expect it is a healthy consumer environment. the third quarter was a strong consumer driven quarter. if you look at mastercard spending numbers, looking at a 5% 6% overall consumer growth which is reflected in each sector. .ome depot hardware was up 7% that is indicative of what kind of numbers home depot was seeing. david: will get retail sales numbers out and will there be a rebound in retail sales numbers because they have been disappointing? stephen: i expect you will see pretty good retail -- overall retail sales numbers. numbers in the spending and earnings and traffic numbers when you look at e-commerce sales. i expect all companies -- obviously they are -- there are winners and losers. david: i wanted to ask about winners and losers. differentiate about the

different parts of retail. what will do better and will do worse? stephen: what is surprising is if i look at groups of retailers, off-price and hardware retailers are doing well. department stores and aggregate have not done as well and have been losing shares for years. kohl's and macy's have done that. every sector has held up well in that environment. that is unusual for what we have seen over the last several years. -- atif you look sales sales at the has and have-nots, it is not good enough to be amazon or work on e-commerce, you have to grow. who can peel back the winners? stephen: the omni the channel which we talked about by online and pick up is table stakes

today. everybody is doing it and some better than others. the ones that aren't doing that are losing. the next wave will be about analytics and how do you understand your customer better and be able to target what they want and predict what they want? that will require another set of investments we have not seen in the past. i have seen companies hiring several hundred data analysts. that is not what you would expect out of a retailer. david: but not out of and amazon. amazon has that data crunching -- an amazon. amazon has that data crunching ability. if walmart was into online, is that an advantage because they had data analytics in place? stephen: i think amazon and walmart are both winners. there will be others that fall by the wayside. brick and well. they are learning how to do some

of the analytics that amazon does but amazon is trying to learn what walmart is doing. they are both going to do well but both having to make investments. david: you are now with mastercard as a senior advisor. mastercard has a projection of the retail shopping environment for the holidays. overall, what you are projecting , which is fairly encouraging, in the 5% range with electronics being above that. stephen: this is an extremely strong environment an projection shows it. two years ago we were at 3%. now we are growing at 5%. this is about as good a consumer environ you have seen in years. david: five sounds great. take a look at what e-commerce is. stephen: e-commerce at 20% on top of 20% here we are talking about the very strong, healthy consumer.

the consumer wants the product anywhere anytime they want to get it. it is not so much about e-commerce or suspected mortar but together what is going on. it is not that brick and mortar is dying, but it is driving the sales. mobile is critical. you have 80% of sales affected .y mobile in one way or another the consumer buying in the store is buying more online and vice versa. if you are a company that is an internet only company and you open a store, where you open the store you tend to have 3% as much sales on internet business. the two are going hand in hand. it is no longer that amazon is just internet and walmart is just brick and mortar. that is why you have convergence going on in white investments of -- capexand analytics

and analytics. relating to mastercard, it is no longer about black friday and the weekend. it is about the entire season and spread out. the deals has started. the sunday before christmas will be as big as black friday. you have a situation where it is get them early and get them late and get them when they are coming and going. you have to have a mindset that black friday is more than a day emma but a kickoff and mindset to an entire season. day, but a kickoff and mindset to an entire season. wildfires raging in california. how can it change the landscape? more on what i am watching,. this is bloomberg. ♪ -- next. this is bloomberg. ♪

alix: utilities feeling the burn as pg&e and edison are possible

sources of the wildfires raging and ravaging california. here is a look at the one your performance. pg&e getting killed, down over 42%. joining us is ethan zindler , who does analysis on energy and technology. what are the fundamental business model utilities in the next five years? all along it was to sell power to consumers and carefully monitor and manage. there will be questions about what happens in utilities in the wake of the fires and it will be expensive to deal with going forward. alix: i will let you ask the question. al.lways feel like i ste david: the question to me is climate change. who needs to pay for?

the way it is going the public will have to pay for it either through taxpayers or rates. ethan: i will dodge on commenting on pg&e. your point is well taken, which is what is going to happen next? to rebuildg to try the essentially burned to the ground communities? who pays for that and how does it happen? does it make sense to run additional power lines into remote areas that could catch on fire again? these are real questions asked. alix: what are the alternatives? if you're not going to run a power line? ethan: running a mini grid to established localized grids for diesel generator and remote wind turbine and batteries. you have a localized source of

power. what is intriguing about it is country'se developing , you have a billion and a half people with no access to power. if you could do it in developing countries. there are places like hospitals and others that need to stay on the grid regardless of what may happen. david: what is the attitude of utilities question mark that is a foreign competition. -- utilities? that is a foreign competition. ethan: there is little experience with the wealthiest economies, but in developing economies it is. the state grid will impose a mini grid or want to regulate it because it is revenue they want be able to generate. these are questions to be asked. they are not revenues that will be enjoyed by pge or other utilities. about where the power

comes from? if pg&e asked rebuild business and they do more solar or wind, what are they thinking? ethan: they are over heavy mandates to add wind and solar resources. that is on the books. the more fundamental challenging question is the infrastructure required to deliver the power to people, and do you want to continue to build that and what does it look like? you can put lines underground, but that is expensive. alix: so nice to have you. coming up, the chief equity and derivative strategist. this is bloomberg. ♪

jonathan: from new york city, for our viewers worldwide, i'm jonathan ferro. 30 minutes until the start of trading. this is the countdown to "the open."

♪ booming of equities stabilizing talks resuming. -- coming up come equities stabilizing, talks resuming. italy's budget standoff, whether to offer concessions. the white house cuts crude and spending a record losing streak. 30 minutes away from the opening bell. dollar strength yesterday, weakness today. cash treasury market reopens for veterans day yields coming by two basis points. the overwhelming big story in the last 24 hours, trade issue. pessimism to optimism. going to have further escalation or de-escalation on the u.s.-china front? >>