>> we see a very high number of people quitting their jobs. we only see that when people feel confident about the market. >> i think consumers have money in their pockets and we will have a super holiday season. >> i think we are far enough along a lot of that scarring should begin to dissipate. >> clearly we are heading to an environment where they have to [indiscernible] >> i would argue every data point now is going to be a market event. we have put the market on notice. >> this is "bloomberg surveillance," tom keene, jonathan ferro, and lisa abramowicz. tom: good morning, everyone.

jobs day in america, and we are focused on 30 minutes from now, an update on the american labor economy. you have to fold it into all of this boom american economy. jonathan: and a boom equity market too. all-time highs, up another .1%. on the market, that is what gets my attention, yields lower, curve letter over the next couple weeks. 1.44 into the next tom: tom: jobs report. we will go right now into -- the next jobs report. tom: we go right into why we see flattening. why do we see flattening in the yield curve? jonathan: i will give you a range of options, there are two. either this market is well in line with the federal reserve and believes inflation is transitory, or the market and some participants think the fed will choke off growth and inflation early. priya misra from td texas to the

latter and not the former. tom: it is also a fact of a bill in 2006, price up and yelled in. lisa: you see that, but there are two different stories here. tom: you really think so? lisa: i do think so. to some degree there is a separation between credit, full facing credit, backing their debts in the united states. the idea of the good economy is better for companies more leveraged. on the flipside, government debt, you don't want to own if you expect inflation. i'm looking at people acknowledging nothing structurally has changed over the pandemic to lead to a higher inflationary rate. i think that is one message loud and clear. i'm wondering about real yields. when are people going to worry about supply and demand? tom: i'm so glad you bring that up. -0.91, a lower statistic on the real yield. we have that on the real yield in the afternoon.

all sorts of people are watching today. we thank some government officials for watching. we will get to that in a moment. academics as well. i think we need to get to the data check to get to the conversation into this jobs report. green on the screen and the vix, 15.14, near a 14 handle. jonathan: 43 16 on the s&p -- 4316 on the s&p. we advanced by 0.13%. we talked about the bond market through the morning. 1.44 is your yield on a 10 year. crude got to attention yesterday. it does not this morning. down by .6% there. you mentioned in the couple hours ago, dollar stronger, euro weaker, that is -.25%. tom: 117 prince would confirm japanese weakness that we see as well. -- print we would see would confirm japanese weakness that we will see as well. cary hall with bank of america

looking at the equity market, a senior u.s. equity strategist. what did you tweak a midyear waiting for this jobs report to adjust to the earnings season that comes? >> i think one of the important numbers of the jobs report will be the wage data. we have questioned how transitory the inflation backdrop will be. we have seen companies this past earnings season have their margins hold up well. i think that will be one of the key factors to watch for in the cummings -- in the coming earnings season. given the stronger data we have seen, lower industrials from an overweight due to a market way to view is the second-most labor-intensive sector after consumer discretionary, which we also recently downgraded to any underway to you. these sectors have a higher ratio of employees relative to sales, so there's more margin risk if we see inflation rise.

jonathan: i know you are bullish on the cyclical parts of the market outside of industrials. i want to talk about your indexable price target. you along with others, the most bearish on the street at 3800 year-end. you are 43 now. what you think will take us -- we are at 4300 right now. what do you think will take us down to those levels? jill: we think the market will end the year lower than the levels it's at today. we think one of the reasons is the euphoric equity sentiment we have seen, our measure of wall street equity sentiment, even though it took a bit of a breather this past month is at levels we have not seen in many years. equity allocations, recommended equity allocations have been rising. evaluations are extended. from a sentiment and valuations perspective, we don't see much upside to the market. we really think that the rest of this year will more about

investing in the rotations within the markets, and that is where we continue to see value overgrowth, where given the tilt of the s&p 500 toward a lot of those big growth stocks, that continue rotation to value is something that could cause the market to go down rather than up. lisa: i want to set on what you said, the sell side indicator reaching its strong sell signal since the great financial crisis as you pointed out in your notes. what is the president in previous times in history, maybe the great financial crisis is one, but other times you think are important to look at to reflect in terms of positioning and views for possibly giving guide for how quickly the market could turn? jill: we survey other wall street strategists about what they are recommending that investors put into equities and a balanced fines, and that indicator, well in neutral territory, less than a percentage point away from its sell signal, as you mentioned,

where wall street strategists are super bullish and a negative signal to do the opposite and sell equities. they were lower rum the financial crisis but this indicator is the highest level closest to a sell signal we have seen since 2007. we would be more cautious on the market overall, but we would rotate into some of the styles that are being mentioned. if we see earnings peek out in the fourth quarter of 2021, we see peak stimulus, these are supportive of my quality stocks, which start to outperform low-quality stocks but are trading now. tom: i'm fascinated how you are constructing your earnings guess for next year. do you have a belief in it or do you have to civilly wait until the beginnings of early-season -- earnings season?

jill: this year, we are expecting over 30% earnings growth in 28 --in 2021 and that will flow into 2022. given the superstrong first quarter, there are upsides to this year, but for next year, there is potential downside risk if we were to see tax reform, which could have a mid-single digit impact s&p 500 earnings. obviously depending on where the corporate tax rate goes, but higher taxes could put some of the sectors like tech at risk that could be targeted for some of the tax reform proposals. i think wages will be important to watch for, to look at the margin outlook as we come to the second quarter earnings, then beyond that i think tax reform will be an important thing to watch as well. jonathan: it's payrolls friday and we will get the report in 22 minutes time. you and the team have done nice work on jobs intensity in some

of this market. just how jobs intensive is the equity market and the s&p 500? how has that shaped up over the last several decades? jill: even though as i mentioned we are watching the reflation data closely, the labor intensity of the s&p 500, the good news there is the index is a lot less labor-intensive than multiple decades ago. when you look at the ratio of employees relative to sales produced by companies within the index, it is about 70% lower than we were tracking 30 years ago. more labor like and certainly bigger areas like tech within the index, but the areas we would watch that are the more labor-intensive areas are parts of the industrial sector and discretionary sector, areas like hotels and restaurants, traditional retailers that hire a lot of people, can see jonathan: time -- to see.

jonathan: always appreciate your time. the labor intensity of this market is something we are increasingly focused on looking toward payrolls. lisa: i keep thinking about the participation rate as part of that. if people are funneling -- funneling more capital to companies that don't need as many people as other companies, what does that say in terms of direction of the economy? it goes to this idea of a structural shift we are seeing in employment. jonathan: there's a tiny ratio for this that bank of america has done the work on, the employee to revenue ratio. over the last several decades, it has had south, why? take a look at some of these tech firms. have a look at how many employees they have compared to say the companies at the end of the year. tom: there's no question. the dynamics of change, and stir -- sure there's a boom of employment at amazon, we understand that. tech has changed the labor share so much. it is a joy to have an international audience. you have been a part of building

that out. the prime minister of greece has taken note of our show this morning and is from one of the most esteemed families of greece. his ancestors back in 1910 literally kept greece on the side of the allies in world war i. we are honored the prime minister's office notes that lisa is not going to create -- crete. jonathan: the prime minister reported -- promised us an interview. you remember that? tom: i do. jonathan: i'm still waiting from the follow-up. tom: we were looking for the p.m.. jonathan: maybe we should do that next week. maybe we should do that next week. tom: it says october as well. jonathan: could you imagine if we took a studio and set up on the beach that lisa was on? tom: it's important. it's the simple things are open, right? [laughter] jonathan: i agree. lisa: a simple of something, tom. jonathan: i agree, tk.

let's get it set up. 19 minutes away from the opening bell and jobs report. yields are down a basis point, 1.4 four on tens. your jobs report is 20 minutes away. from new york city, heard on radio and seen on tv, this is bloomberg. ♪ bloomberg. ♪ >> with the first word news, i am leigh-ann gerrans. the opec-plus coalition is trying to find a way out of a block of increase in oil supply. one of the cartels key members, the united arab emirates, is at odds with saudi arabia and russia. if the disputes cannot be resolved, that means global economy won't get the extra oil it was counting on and that could lead to higher prices. london is once again europe's largest share trading center. the city moved to back ahead of amsterdam in june.

it is the first time this year london has been on top. brexit pushed much of the city was of all you to the continent. paris was the third-largest venue. trop -- schwab will take a $200 million charge linked to an sec investigation. the inquiry relates to disclosures around portfolios and products. arrive rule broke rated -- there rival brokerages td ameritrade. that gave america's discount broker more influence over the industry pioneered nearly half a century ago. a group of republican senators one president biden to end the trade were initiated by donald trump. the seven lawmakers wrote to the president, asking him to revoke tariffs and other barriers imposed on china and european allies. they refer to the trade war as " self-inflicted harm."

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tanglewood. in a couple days, on the stage behind me, the spectacular. the six string soldiers of the u.s. army field band, the singing surgeons of our very own united states air force. all under the director of our inductor, keith lockhart, the boston pops fourth of july spectacular. that will be right here sunday, on bloomberg. ♪ >> we have seen large consumer price movements in recent months. we think those fairly high inflation readings will continue for a few months. i want to emphasize, however, the evidence suggests this inflation will be transitory, and it is largely a profit of

relative price movements that are occurring as the economy rebounds. jonathan: that was the imf managing director there on the u.s. economy. bullish the u.s. economy this year and next over the imf. this is bloomberg alongside tom keene and lisa abramowicz, i am jonathan ferro. we are 11 minutes away from the jobs reports. here is action. equity futures are drifting higher up four to five points. we advance .1%. a six-day winning streak into friday. all-time highs, the jobs report is 11 minutes away. 720,000 is the estimate right now. yields are lower into this print. we are down two basis points to 144. tom: a fascinating tape, not a fragile tape, but a tentative taper in 30. that is in 10 minutes. as he does, he always provides perspective but frankly never more so than now. james glassman from j.p. morgan chase commercial banking and has been definitive in this research

on the labor economy for years and many help wanted signs coast-to-coast. jim, i was just away, not as romantic as lisa going to greece, i went up to romaine and had a lobster. i would notice it is a different -- note it is a different character to the help-wanted signs. what is the desperation across america to find the next employee? james: it is interesting, isn't it? they are pretty desperate, and i think the problem for them is if you can't find the people as you have been hearing, they just cannot serve as many people. it is loss opportunity. i think it takes, this is really a massive dislocation caused by the pandemic. this will take, my guess is it takes until the fall you get a lot of this ironed out. if you don't have a job and maybe you are on unemployment, you can't really live in the city that long. they might have scattered home to family and now they are coming back. i think by the early fall we

will not hear about this. tom: importantly here, if wages went up, are their employees to accept the jobs? james: well, -- are there employees to accept the jobs? james: well, i think it is more of the dislocations. for the business, they have to ask themselves, can we absorb this if we have to pay from people -- have to pay for people? if you have to raise the pay significantly, will the customer bear forbearance? a lot of people in a global world competing globally, they have to be careful about this. lisa: tom went up to maine, and he said he just went there, but he did buy a lobster roll for $40, talking about prices going out. jim, there is a question of what data you are looking at that determines the stickiness of those wage increases. what are you looking for?

james: i think the wage information is not going to be that helpful, frankly. a lot of the folks out of work are say earning below the average, so as they come back in, you will have pay trends slowing down. the employment cost index is usually the best indicator for this kind of thing, because when you have lots of changes in the economy, they do a better job of fixating on the chains of composition of the economy. i don't worry. to me, this is not an inflation story. if we have to pay more for workers, this is not going to, this is not some thing that creates inflation. this is something we used to think, this is the old days. this has not been happening. we have noticed over the last several decades that pay trends have been doing better than they used to. they are keeping up with productivity in real terms, which is a good thing, but what we have learned over the last two decades is inflation does not come from paying workers, it comes from how good are your

markets, how much competition do you have, what is going on with technology? i think this recent round of inflation is all connected to the bottlenecks in the supply chain. a lot of these are easing now. if you look at futures prices, you see some of the noises fading back. jonathan: we have to leave it there. good to catch up as always, jim glassman -- james glassman. we talk about this massive print all the way from 720 to 1050 at the upper end of $400,000. tom: the numbers are there. as we go, we will see it. i go to wages and revisions. what are you going to look for? what beneath the headline data is the point? jonathan: the location rates. it is absolutely stalled to the whole of this year. tom: it's nowhere near it was -- near where it was a february 2020. jonathan: how quickly that bounces back to shaping fed policy. tom: we will have to see. lisa what you see -- lisa, what do you see? lisa: what are the factors

keeping people out of the labor market? is it a transitory issue of childcare, virus, and enhanced unappointed benefits, or is there a stickier persistence to this lack of participation? echoes to the point, which areas of the market are adding jobs fastest versus not think -- nothing momentum? tom: the good idea of looking at the participation rate in these different ratios is to look at the ratio of actual employed. i will look in the middle and i'm guessing 25 to 54 years old, that usually employable america, that dynamic as well. jonathan: look at the employment to population ratio. that is another way of telling the same story. a sharp reopening and then flatten again. fed official after fed official, especially the doves, are making

a point they want to see that's get back to art was. lisa: you raise this question, and a really important one, how much the fed affects that. at one point is this structural? joe kerry hall was talking about looking at companies that don't a ploy as many -- looking at companies that do not employ as many people. this seems like a big picture issue, but it was accelerated by what we see during the pandemic -- saw during the pandemic and shift to online everything. jonathan: there is a calendar issue at play here as well. you will see guess after guest on this program and keep talking about the end of summer, september, october, to iron out these issues. can we just solve them with time on the calendar? tom: i'm looking at moving averages. the data has been so lumpy. jonathan: jobs report up next on bloomberg tv and radio. we are foreign half minutes away. your estimate is 700 20,000, the high-end is 1050, the low-end is

400. after a couple downsides, what is in store? the answer to that question comes up next. 4315 on the s&p. yields are lower, equity markets are higher into this one. this is bloomberg. ♪

jonathan: from new york city live on tv and radio worldwide, equities higher, yields lower. the curve is flatter. with jobs report, here is mike mckee. mike: 850,000 jobs restored in the month of june. the two months net payroll revision, 15,000. you come up with 865,000. the change in private payrolls, manufacturing up by 15,000. there was some question yesterday when the ism report showed contraction in hiring. that may be because manufacturers could not find workers. the unemployment rate goes up to

5.9%. i've got to double check. i think that is because we see a rise in the labor force. the number of people in the labor force goes up by 150,000. no change in the participation rate. 61.6%. the employment to population ratio is also unchanged at 58%. it looks like we are attracting more people into the labor force which pushes the other employment rate a little higher. you say it is good news the unemployment rate goes up. average hourly earnings 3.6%. last month, 1.9%. that is the year-over-year number. it looks like a good jobs report. a little better than expected in most categories. the unemployment rate is something you can look past. jonathan: a lift in the equity market.

add a little more weight to the s&p 500. the bond market, the two-year yield higher by a basis point. 10-year yields are in about a basis point. we are down on the 30-year. struggled to read this one for the fed meeting the next few months? tom: dxy went stronger and then ebbed a bit. how does this change fed policy? the answer is we are not seeing much on the screen. michael: it does not change fed policy. you will not see much reaction in the markets. if you get reaction, it will probably be because it is a low-volume day with an early close before a holiday weekend. this just tells you we are headed in the right direction.

i was discussing this last night with somebody. they said, how do you read the number? i said, you put it in the context of what jay powell said. you are looking for substantial further improvement in their goals before they start tapering. this keeps you moving in that direction. beyond that, you cannot say a lot about fed policy. tom: over 10 months, that is 7 million jobs created. is that how you mop up not fully employed america? michael: yes, and you hope you get a faster rate of employment absorption. the feeling is we may get more of that, fall when you have kids go back to school, so childcare responsibilities are not as heavy. and when all states are no longer paying supplemental unemployment benefits. tom: lisa, the dollar turns around and weakens. lisa: how much momentum is there in the broad economy? how much is isolated to

restaurants and bars reopening? do you have a sense of that? michael: i can give you a number. the leisure and hospitality group increased by 343,000. 190 4000, almost half, is in restaurants and bars. that is lower than last month. but we are seeing the states reopen, so people are going back to work. one would imagine there are still shortages of available worker because it did not rise as much as the month before. the other issue is government education. this may be something we have to look in with the seasonal issue. seasonals expect you will see a lot of layoffs in education. but this month, we added 75,000 at the state level, 39,000 at the local level, probably because people were not working because the schools were closed in many cases.

it kind of goes back to the issue where the exact numbers don't give you much to go on other than the general feeling we are going in the right direction. he said this will be more like an obstruct painting then a realistic one. tom: i like that. vix comes in nicely to 14.77. jeffrey rosenberg does not care about the vix. he is a blackrock portfolio manager and has systematically seen curve flattening the last number of days, perhaps with a view to the jobs report. let's start with better american employment to a flattening yield curve. why? >> interesting market reaction. initially, we saw the

flattening. it is continuing here. the report is pretty much on the screws in terms of market expectations. i think mike hit the surprising piece on the head with the unemployment rate higher. good news, a reflection of more people coming back into the labor market. a positive report and the curve flattening reminds me of what we saw after the fomc. good news brings forward the idea of earlier possible increases in interest rates. i think you are seeing a little market reaction on that here. i would not overstate it. these are small moves. if we are looking for messages that continuing reopening is raising expectations that the fed will raise rates perhaps faster than the market had been pricing in, that is getting you to a curve flattening where the bulk of increases in the front end of the curve and longer-term

interest rates which have already priced in a fair amount of relative value potentially signaling that will look through to the slowdown after the surge in economic activity passes from the fiscal stimulus. i think that is the main message from the markets today. jonathan: tough to be in the bond market now. the yield curve peaked. we saw breakevens peak potentially in may. we have had calls of 10's getting back to 2%. how difficult would that be? >> that would be a significant reversal. i think you are highlighting the important point that we peaked in terms of the inflationary narrative. there was a double peak. marks, it kind of flattened out. mid-may, you saw it again. since then, we have been pushing

downward this reflation narrative out of the bond market. it is quite notable. the longer end forwards have been following. -- falling. it is a reflection of buy the rumor, sell the news. the economic data has borne that out without the breakout of inflation outside of the transitory story. they are continuing to show the story of transitory inflation is holding up, so you cannot get further inflation expectations until we see in the survey data

that pass through into a broader array of things. that will still be the future. until then, the curves and market pricing are starting to price out the reflation story. jonathan: we traded some of the flattening in the treasury curve. we have given some of that move up. it is in upside surprise -- it is an upside surprise. wages in line with expectations, a pickup from the previous month. that is what we want to see. the equity market, another 10% higher. the s&p 500, 4320. we will continue this conversation live on tv and radio. the jobs lined is always stellar in the open. tom: there is a lot to talk

about. jeff rosenberg, i've got 3.12 million jobs with revisions. that is a slow-motion path to 12 billion jobs to fully employed america. how does blackrock frame the goal of fully employed america to all of the emotions of fed policy, jackson hole, and what the gilt market does? -- the yield market as? --does? >> they have moved the dual objectives toward more favoring of the employment objective. in past cycles, this kind of full employment might have led to preemptive fed tightening. the movement toward flexible average inflation targeting is a

wholesale change in how the market reacts to the payroll figures with respect to interest rate expectations. that does not mean they will never raise interest rates. what it means is the way we hung on every payroll report is not quite the same as it was when we were growing up. that is because we have missed on inflation for so long. the fed is focused on achieving its inflation target. they will not jump the gun when it comes to full employment. they will let the labor market run hot. today is another piece of evidence that is working, that strategy is working, the labor market is improving. that is what they want to see. what everybody is worried about is what happens if you let the inflation genie out of the bottle. chairman powell and policymakers have been clear they are willing to take the risk.

the last 10 years, they missed on inflation. inflation has been too low. we have tilted the axes. it is an important change when we read the payroll reports. lisa: the fed says they are willing to put past near-term inflation. they want the economy to run hot. they are not that concerned about runaway inflation. is your message from the market that the market does not believe them because they believe there will be a policy air and they will taper and hike rates too soon? is the market misreading what the fed is saying? >> i can understand a little bit how you might interpret the yield curve flattening that way. i think it would overstate how much of a concern there is right now on the policy air of too fast -- error of too fast

tightening. perhaps the market got ahead of itself. you have some technicals and momentum strategies. that is a little bit behind the flattening as well. mostly when you look at longer-term forward prices of inflation expectation, they are right on the screws of the transitory story right above 2%. i think so far, that has been validated by the data. still to be seen long-term whether it will be, but that is where the markets are at. tom: thank you, jeff rosenberg. the markets are moving. mike mckee comes on and gives us a report and digests the pages and pages of data. mike mckee, the market is doing the same thing. futures up 12%. michael: it is the sort of report that tells you things are getting better, but they are not

getting better at a hugely improved pace. one thing the fed has been looking at is minority unemployment. we are looking at employment of black americans at 9.2%. hispanic americans, 7.4%. that is a pickup. they follow the general rate higher. not as much improvement there but more jobs created than expected. that is good because over the longer run we are headed in the right direction. average hours dropped. that is a bit of a problem because it takes earnings out of the economy, the money you would have earned for the extra hours. we have to keep an ion that as well. lisa: i want to go to the point you raised that the unemployment rate kicked higher as more people came back into the labor market. do we have a sense of what the character of those re

entrants was? michael: hiring was in leisure and hospitality and retail. retail and services rising. it does show the lower end is coming back. some jobs are getting filled. a closer look at household data does suggest it was not as good as it seems. the idea that more people came into the labor force because we saw an actual decline in employment in the household survey, so we did not get the best news of all which would be more people coming into the labor force and more people getting jobs. it was kind of a mixed picture. it declined by 18,000. those unemployed rose by 168,000. we will have to figure out what is going on with that. it verges from the establishment survey. that is an interesting backlit

to pull out immediately. lisa: it will be much discussed today, next month, and the next month. you said it was too early to see the ramifications of states ending the enhancements early. is there any sign in the data as to how that affected things? michael: no, there probably would not be because the survey for this report was taken before any states ended the enhanced unemployment benefits. we do have preliminary data from yesterday. the first four states that took away the enhanced benefits split. alaska and iowa saw lower unemployment claims. these are total claims, not initial claims. missouri and mississippi saw significantly higher levels of claims. it does not appear to have any empirical evidence one way or the other yet. tom: michael mckee, thank you.

spx a record high. the dow up 87 points. the vix, a big change coming off the 15 level, we enjoy 14.70% right now. forward, not looking back at the 17 minutes ago jobs report, gina,a what i see with earnings filtering in now, are their earnings to come with j.p. morgan? the difficult sport of assessing actual earnings and the ideas as we look forward, what is the tone you and your colleagues have gleaned? >> i think it is going to continue to be more of a look forward then second quarter because second quarter last year

was a devastation for s&p 500 profitability. we had a scant number of companies on the index recording profit growth year ago. we will have nearly 50% increase in earnings in the second quarter. the readthrough is minimal. investors are looking to establish a baseline for where we are going into 2022 as comps get tougher. where is our steady state of growth? are we looking at faster growth then we had in the last cycle? or are we going to normalize back at the pre-covid level? tom: it comes back to a phrase i avoid but works, there is no

alternative. visit by definition put a pin on the market? gina: as long as the economy is growing, there is no other alternative but to be relatively optimistic on the equity market. for global stocks, i think there is some new wants to discuss. where you are in the equity market is something to discuss in that environment. the reality is as long as the economy is accelerating, stocks tend to do very well. that has been the environment for the last 12 months. i think what is happening in the equity market now is we have some confidence we will continue to see economic growth, but we also need to absorb the idea that momentum is growing. we are probably at peak inflation right now. we are probably at peak growth. we are also probably at peak monetary policy support. we see all of those sectors shift somewhat into the next 2,

3, four quarters while generally conditions will remain supportive for risk, i think the loss of momentum will create a little volatility. lisa: there is a question about goldilocks and the idea we could have low rates, low inflation, but rapid growth. how long can goldilocks last for equities? gina: i think it is a really great question because goldilocks was a huge part of the last cycle where we had maybe slower than average growth but low interest rates which created an incredibly low volatile story which drove the last cycle. going forward, while we are all talking about whether inflation is transitory or not, the signs are pointing to the idea that inflation will settle at a faster pace on a secular basis than in the last cycle. will we see growth and a demand

recovery drive the higher pace of inflation or list obey story of supply constraints? that is a very big question equity investors are asking themselves going into the next cycle. where we will settle is a huge question. it commands a very different longer-term equity investment strategy than in the 2010-20 20 cycle which was characterized by low, slow growth. lisa: we have heard a lot of investors come on the show and say they are looking for companies that can pass along increases in prices to consumers. has that trade already been played out? gina: i think it is just beginning. when we saw inflation peak in may, and again in june we cite expectations for the fed shift, company performance has been closely tied to margin forecasts.

what we are seeing on the s&p 500 now is about 1/3 of companies in the index have recorded a downdraft in market expectations. they are dramatically underperforming the s&p 500 the last two months. companies experiencing and uplift in margin forecasts are outperforming materially. i think this is one of the key characteristics for the stock level, sector level discussion. where our margins headed -- where are my actions -- margins headed? the growth companies are health care and tech companies. that was not the case pre-covid or even during the peak covid crisis of 2020. 2021 has already shown different characteristics. will that carry into 2022 is the question we need to ask ourselves. tom: the citigroup memo to staff

is saying you need a pay raise. you need $25,000 a year more right now. does that permeate across america? are we going to see every industry, every sector say we are going to give you a pay raise right now because we need to keep you? gina: i think it is absolutely a risk. it is the first time we have had this risk in a long time. we have had four straight months of average hourly earnings growth, at least four of the first six months. wages are accelerating. we appear to be at this moment in time where labor is starting to gather some degree of power. that also is a key characteristic change relative to the last cycle. if labor continues to command some degree of power, we start to see wages rise. that is a completely alternative inflationary environment from the one we came from.

we are starting to see this play into performance in the equity markets. historically, segments of the equity market most exposed to rising labor costs are also starting to underperform. i think it is something to watch. we have not seen enough momentum in wage growth and labor power to suggest things have materially changed. but we are potentially on the verge of that shift. we need to watch it carefully because this could be a massive shift in the way we think about margins for the s&p 500. tom: we had a brilliant essay from your " bloomberg intelligence" today with the idea of all that cash out there sprucing up balance sheets. what are they going to do with all that cash? will they spruce up the balance sheets like amazon or is there another trend you foresee for cash? gina: i think buybacks are a big part of the story.

we think about deployment of capital in a number of ways. you can shore up the balance sheet. you can deploy buybacks. you can increase dividends or you can spend it on capital spending and r&d. i think the bulk of the s&p 500 is focused on reestablishing buybacks which were cut significantly in 2020 and showing up the balance sheets. if you are a distressed company, your shoring up the balance sheet. if you are a company with an exorbitant amount of cash, your focus on the balance sheet. the rest of the index is starting to think about where to deploy capital. buybacks are the first foray of capital deployment. next in our opinion is capital spending. i expected to rise 25% over the next 18 months just to catch up with its standard ratio relative to sales. as long as you're going to see double digit growth in sales, you'll probably see capex accelerate which only improves the economic outlook at large. lisa: to recap if you are just

joining us, we did get a better-than-expected nonfarm payrolls report of 850,000 new jobs added. an interesting note from nick bunker of md.com. -- indeed.com. he said employment is still down 13% from pre-covid levels. still a lot of carnage. i'm struck by so many empty storefronts. there are shifts happening throughout the economy that are persistent. i wonder how long it will take for those to be worked out and if we have priced those in the stock market. have we gotten past the pain? tom: it is a reflection of where we are now. gina martin adams, thank you so much. she will be with us.

it is an earnings season like i have truly never seen. lisa, i looked at some of the earnings yesterday. some of the retail companies coming out with later earnings in the cycle. it is typical to see that before any true earnings season. all the forward guidance is it is a boom economy. lisa: the bar is set high. i'm curious about the banks. july 13 is the big day for a number of the banks to kick off. how much of the going to indicate demand picking up for loans? how much are they going to indicate demand picking up for credit cards? there still are more than 7 million americans not in the labor force. tom: i look at the screen before you go away on your trip. it confirms if anything we will

go tighter on yields. is that possible? lisa: it is possible. people are talking about the tightest ever spreads. not only do you have a credit cycle that is not near the end, you also have a fed put. you have the idea the fed could sweep and if there is market disruption. where do you get yields right now? tom: what i do know is when you look, you mentioned the lobsters up in maine, they do not compare with what you will find in greece, it is down near the islands of athens, i think it is more thera, whatever. lisa: i will bring you a souvenir.

tom: bring me an i.g. of the lobster. lisa: a lot of people are going on vacation. that is what you are seeing in the jobs report. tom: we make jokes but the symbolism of people starting to travel again as well. unambiguously, the tape improves off the jobs report. we will continue to consider the nuance of the labor economy. secretary of labor joining jon ferro in a bit. stay with us on radio and television. this is bloomberg. ♪

jonathan: the countdown to the open starts now. announcer: this is "countdown to the open" with jonathan ferro. jonathan: from new york, we begin with the big issue. the u.s. payrolls report. jeff rosenberg weighing in. >> if we are looking for some kind of message, it is that continued progress on the reopening on the strength of the economy is raising expectations that the fed is going to raise rates perhaps faster than the market had been pricing in. jonathan: let's bring back in michael mckee. this more nuanced than at first

blush?