>> this is not a lot of -- this is not a market that has a lot of room to absorb that news as it is. >> the expectation is that the head will signal a more dovish tone. >> this is a fed that is going to measure twice and cut once. >> the gate will likely be announced likely this fall, and by the new year they will likely be pulling the trigger on it. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. tom: good morning. a simulcast, bloomberg radio, bloomberg television. an interesting tuesday, interesting monday, up and away after what we saw last week. futures up 10, dow futures up 66. that oil in your living room, you are killing it. brent crude moments ago, $70 a barrel.

lisa: forget the doctors bills for my kids. the crude i have in my living room is fantastic. there is this push and pull in the resurgence of the economy following the pandemic that seems to be ebbing and flowing. right now it seems like perhaps, especially with the fda full approval of the pfizer vaccine, especially with perhaps china coming in with a little bit more support for its economy, also, we didn't even talk about this, it started accepting -- it is open now again, earlier than people expected. all of these positive developments even wind to what was already baked in. people knew it would come back. it was just a matter of when. tom: this is important. i think jon would say you are expert on this. we have john belsky coming up on this, chris harvey upgrading to a more optimistic wells fargo from where they were, we are all focused on chairman powell. have we pushed chairman powell aside? lisa: there is a lack of

expectation that he will make news, that he will make waves. there's this expectation he's going to give himself maximum flexibility. how often do we hear that? yet, the fact that we are getting more confidence in the economic recovery, at what point does that push the fed to start tapering hundred $20 billion of bonds that the buy every month? how is that supporting the labor economy at this point? tom: kailey leinz, where do you see confidence in the recovery? kailey: i think it is coming from corporate earnings. that is what we saw from chris harvey, upping his target nearly 1000 points above his previous target because earnings growth has been so strong. we are getting more crossing the wire it seems like every minute. best buy just raise its full year comp sales forecast to nearly double what it previously saw. companies are doing quite well. as long as that is going on, it is hard to go against the equity market. tom: it is interesting. best buy says a major reason was television sales.

the may episode -- the minneapolis vikings this year may actually went. dow -- may actually win. dow futures up. the vix at 16 yesterday, 17.15 now. yields doing nothing this morning. a nice stasis there. the real yield, -1.02% against stasis over the last number of days. dollar a churn this morning, with euro-dollar $1.1735. wti $66.87. lisa: what i am watching today, 9:30 a.m., the g7 meeting virtually. it has renewed focus this morning after we learned that a top u.s. official met with taliban officials in the past couple of weeks before executing

some of the evacuation ahead of that august 31 deadline. how much will this push pull come to the fore? how much do you negotiate with the taliban, previously recognized as a terrorist organization? 10:00 a.m., we get economic data. u.s. july new-home sales data expected to be robust following the hotter than expected data we got yesterday. august richmond fed manufacturing data, i am curious to know about inflationary input pressures. how much are we talking about the stock market that is divorced from the economy? are we seeing economic pressure to get early in the lower income tears with the hype -- lower income tiers with the higher pressure? can we get a 10,000 sb projection sometime in the future -- s&p projection sometime in the future? the u.s. is planning to sell $40 billion of 2-year note. august 11, there was a block after 10 year treasury sale.

it turns out a record proportion of that sale was taken up by foreign buyers. this is an interconnected, international bond market. when we talk about why yields are so low, we are talking about inflation picking up to the highest levels since 2008, this is the why. globally, we are a low rate world. how much can one country move alone? tom: it will be interesting to see. maybe i will interrupt my nap to see what the two-year auction is today. this is important. this happens once in a while. this seems to be all the different financial news agencies. there's a correction now on best buy. a little bit of confusion on best buy earnings. we will get that straightened out. this is a joy. it is a research report of great acuity, great charts and great belief in the american economic experiment. brian belsky joins us, from bmo

capital markets. he has been correct. i've got to make some news this morning. can i get a 5000 out of you on spx? [laughter] brian: good morning, tom. we hinted back in may when we upped our number originally, we came out in november of 2020 and said the s&p would hit 4200, and then in may we moved up to 4500. we also hinted that our earnings in 4500 would be too low. stay tuned on that. we don't chase markets. we have a process and discipline. i actually think it is a contrarian indicator when everybody is raising their numbers at once. i'm not calling for a correction , to say the least. but august and september, as you know, are typically and historically very volatile times, and during volatile times, you want to buy quality. it is something i've hearkened

on your show for decades, in terms of being a high-quality fundamental investor. i think now is the time. a year ago at jackson hole, mr. powell change the mandate. i can't believe people are not talking about this. he changed the mandate away from inflation, towards employment. this is been a year in 2021, and if you do a google word search on inflation, it is all over the place. most investors on the institutional side have been very wrong trying to play the inflation trade and instead should have been properly allocated equal weight across the board in terms of size and style. that has been the right call, and i think that is going to continue. i think we are in a bottoms up stockpicking markets, something we have not seen -- lisa: i'm so sorry, tom just sent me a note saying, "he's just crushing me. i just can't get in." he's so upset. he's in trouble leveraged

all-cash, and you are saying he missed it. gina martin adams of bloomberg intelligence came out and said the biggest threat to equities may be the jackson hole confab, more than even the delta fears we have seen. do you with that? brian: i don't think so -- do you agree with that? brian: i don't think so. i think the market is telling you we are closer to disinflation than inflation. number two, the fed is going to do a great job. i don't need to be the smartest person in the room. you know who the smartest person in the room is? jay powell. tom: kailey. [laughter] tom: so let's listen -- brian: so let's listen to them. i think the fed is going to play defense. everybody wants a paper because the majority of institutional investors and tom missed the market, so they want to correction. there's been one official paper in history, and 2014.

when bernanke hinted of it in congress in september of the previous year, the market was down 5.8%, then it rallied 8%. between when they officially announced and when they started to raise interest rates, the stock market was up 10%. so i think that is kind of the perspective people are missing. kailey: the announcement of a taper this time around, given how well telegraphed it has been, actually be a market event? brian: no, i think people come i think it is going to be jacobi nibble, jack be quick -- jack be noble, -- be nimble, jack be quick. that is a little contrarian, i know. but at the end of the day, we want it now all of a sudden we have it, now let's move on with what is going on. tom: i've got 20 seconds. this high-quality win -- does high-quality win in this new upmarket?

does high-quality surprise into q4? brian: high-quality surprises, and it is about earnings consistency. don't want to buy earnings volatility. you want to buy earnings consistency. that is where we would really be focusing. tom: thank you. too short a visit. we await a rejigger of his mathematics on where the s&p 500 is. i've got to go back to oil, down 47 days in a row. we are all going to die. $70 zero nine cents -- 79 barrel since -- $70.09 a barrel. lisa: i go back to alberto gallo saying we saw peak covid fears, peak delta fear emerged last week. now it is sort of i the debt -- sort of i the depth -- sort of by the depth -- buy the dip.

you are still seeing that in the airline travel sector. just throwing that out there. tom: that's our gloom for the day. kailey, the theme i see today is earnings and the multiples. eric friedman with a 24 multiple. others may be was a more cautious multiple. kailey: the index closed yesterday at 4479. we are only talking about 20 basis points of room in the next month and a quarter. something has got to give there. tom: i'm looking for an entry point. kailey: i think you missed it. lisa: by oil in your living room -- buy oil in your living room. tom: stay with us. this is bloomberg come on radio, on television. ♪ ritika: with the first word

news, i'm ritika cooper. the faa director reportedly held a secret meeting with the taliban. there's no comment -- the cia director reportedly held a secret meeting with the taliban. there's no comment from the cia. vice president kamala harris warned that china poses a threat to countries in asia. at the same time, she reassured countries in the region of the u.s. would not force them to choose between the world's two biggest economies. in a speech in singapore, harris spoke about the visit for a region -- division for a region -- the vision for the region. kathy hodel has sworn in just -- kathy hochul has sworn in just over midnight, the first woman in the role of new york governor. she has to overcome the shadow

of scandal while dealing with the coronavirus recovery. southwest airlines names the delta variant for a rash of canceled bookings and a slowdown in demand. chinese allies are offering the fewest seats in six months. europe is the only place where so-called vaccine passports are used. european carriers are now adding more flights. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta. this is bloomberg. ♪

>> the goal is to get as many people out as fast as possible,

and why we are glad to see the numbers we got yesterday, we are not going to rest on a laurels. the focus is to do this as best we can by the end of the month. tom: john kirby with the pentagon, managing the message as well. there's juxtapositions in the messaging from washington and the images we see from washington as well. not that we are taliban or afghanistan worn out, but i thought we would lead with the debate in washington. we do that with annmarie hordern. i look at the calculation of the moderates, and i've made a project of this over the recent weeks to actually look at why they are moderate. let's look at the blue dogs and what they have done from the 1990's, when they became evident. there where the yellow dog scum of the blue dogs, the bull weevils -- the yellow dogs, blue dogs, the bull weevils. i can't keep track of all of them. they have crushed down to a small moderate margin over time.

in the seventh district of virginia, spanberger won by 7000 votes last time around. that is a moderate, isn't it? annmarie: these are people that are under pressure from their congressional district that, instead of going for the republicans, stick with me and i will not go too far to the left and make sure you get what you need. that is really what this is about. we should note, it was nine moderates yesterday coming up against speaker pelosi. they picked up a 10th last night from orlando, representative stephanie murphy. she read a pretty scathing opinion piece for her local paper talking about what is going on in the leadership and how they need to take up bipartisan infrastructure, why that is so important. tom: stephanie murphy is from vietnam, one of the leaders of the blue dogs as well. she's in a really interesting, brutal district in florida that

could go republican. how powerful is she? annmarie: any individual in congress is less powerful than, say, a senator, but this is about numbers. speaker pelosi can only lose three votes. if the moderates keep picking up numbers, there's more potential that it is going to be the speaker that has to come in line with what they're asking for and less so them. right now it is not exactly the same negotiation as it started. by the way, there was no vote. they are reconvening today at noon to discuss all of this. but it does seem of the moderates can potentially giving a little bit of speaker pelosi is able to find a way to make sure that there is an exact date in the future that that chamber will take a boating on bipartisan for structure. lisa: markets are watching this and what it -- bipartisan infrastructure. lisa: markets are watching this and what input-ish and it has on tax hikes. what does this mean for so many

who do not want to have their names on tax hikes for the election? annmarie: once the budget resolution is passed in the house, all of these committees in the house and senate are going to start drafting up plans on how they can actually enact reconciliation. we are weeks, if not months away between what reconciliation will look like and the senate finance committee is going to be putting out a menu of potentially what the tax hikes are. there's going to be some on the progressive left that certainly want higher tax hikes, but they need to make sure they have every senator on board. you are going to have the likes of senator joe manchin of west virginia saying that tax hike is way too high, and even $3.5 trillion is too high. even if the house is able to pass through the budget resolution, it just sets off the time to get the details for reconciliation. they are going to be debating what goes in this bill for weeks. lisa: how much urgency is there behind getting this done now, at a time when afghanistan is

sucking up a lot of oxygen in the room? annmarie: it is a good point. we heard from representative shift yesterday -- representative schiff yesterday, and he said in relation to the timeline that the august 31 guideline a week from today that the u.s. says they will withdraw from afghanistan, he says he doesn't think that timeline is doable, so you do see it, as you say, sucking up a lot of air in the room and really painting a cloud over these negotiations. but i would say speaker pelosi is pretty focused on making sure she's get this through -- i can sure she can get this through. president biden certainly has no focus but to focus on this issue, especially as he is getting on a phone call with other g7 leaders act 9:30 eastern time. cnn is reporting that the military says he needs to decide by today whether or not he is going to extend that august 31 extension so they can plan to make sure they are ready to draw

down the 5800 troops securing the airport right now. that deadline is going to be key today. it is not anymore just u.k. prime minister boris johnson pushing for this. france, germany. the german foreign minister saying they want to continue flights out of kabul even after the u.s. leaves. that is going to be about whether or not they are able to maintain security at the airport. i would also say whether or not the group is going to act in unison, whether or not they will consider the taliban, will they consider it and negotiate with it, as well as sanctions. there's one thing i would say, though. this g7 met in early june in cornwall in the united kingdom, and three sentences on afghanistan was in their communique. today they have a special session devoted to this. kailey: i think it was hard to know even then how the situation was going to unfold, the speed of it taking most everyone by

surprise. coming back to domestic affairs, we had the full approval of the pfizer vaccine yesterday. joe biden calling on companies, saying you need to mandate that your employees get vaccinated area as lisa pointed out earlier, putting the onus on the private sector. are we not going to get anymore mandates from the administration when it comes to the public sector? annmarie: his press secretary jen psaki was asked about this issue, and she said as of now, it is not changing on the federal level, but she does think it is going to be done agency by agency, so certain agencies may start to mandate the vaccine. we have already seen what is going on in the military now that we have full approval. they are going to mandate that you have to take up those vaccines. so it doesn't look like it will be federally done, but it does look like agencies are going to be put under a little but pressure to mandate them, similar to what we are seeing in private companies. tom: annmarie, thank you so much. two major stories we see in washington, and again, follow our coverage in the 9:00 hour on the g7 meeting and onto the

president's comments later today. i need to give you those levels because we have lost track. 4483 on the s&p. dow, 35333. the nasdaq 100 is extraordinary, 15343. to me, that is the biggest blown call of 2021, nasdaq and big tech are dead, aren't they? lisa: they were dead coming into the year, and they smashed for the most part. amazon, not. there is discretion even within big tech. tom: to the two of you, i think with amazon, it is all about mr. bezos steps aside, and on this 10th anniversary of the resignation of steve jobs, it was the same way. steve jobs, apple will fail because steve jobs is gone, right? lisa: you can weigh in on that,

go for it. kailey: no, lisa, be rude. [applause] lisa: i would love to be -- [laughter] lisa: i would love to be rude. what about bezos leaving with amazon? tom: not going to happen. stay with us. we are rude.

tom: "bloomberg surveillance," good morning, everyone. jon ferro out, kailey leinz in. lisa abramowicz and tom keene. moving us through the markets, we will get to romaine bostick any moment on the different nuances of individual securities. futures up nine. the vix, a real improvement from 18, down nicely through 17 to a 16 handle in the enthusiasm yesterday afternoon, 17.18 right now. yields, 1.26%. dollar churning as well. we make note of oil with a little bit of uproar in mexico on an explosion there over the weekend. $70 a barrel on brent crude, up 1.73%.

romaine: a lot of optimism reflected in equities, as well as the commodities space. a lot of that tied into the action you are seeing in china. the hang seng tech index up about 7% on the day on the back of all of those large cap tech companies rallying pretty hard. that is feeding into the adrs here in the united states. alibaba is the biggest mover in the premarket. on the u.s. side, up about 5%. all of them pretty much higher across the board. the biggest mover today is a small biotech company, carra therapeutics, right now up almost 22%. approval of a treatment related to chronic kidney disease getting fda approval. lol to network, a cybersecurity soft -- palo alto network, i a cyber security software

company, the bottom end of the guidance was higher than the top end of what the street was looking for. pretty bullish forecast going forward for the full fiscal 2022 year. we should point out crowd strike , they don't report until next week, but they are in a similar space. there's a big cybersecurity meeting at the white house scheduled for tomorrow. according to bloomberg reporting, the heads of microsoft, apple, amazon, and other companies are going to be there. it big push towards cybersecurity spending both by government and the private side, for palo alto and the rest of its competitors. tom: looking forward to "the close" later on with romaine bostick. if you are at 60,000 feet, you've got to keep your eyes on the ground. alan ruskin has made a career of that. working at deutsche bank, publishes the most interesting and twisted literature. in this time of our paranoia

come our worries, our angst about inflation and such, good to catch up with the chief international strategist of deutsche bank. the team worry about german inflation. the talk about the tail risk. what is your tail risk into q4? alan: i think inflation globally is very much the tail risk. markets have taken a very sanguine view that, particularly in the u.s., the federal reserve is going to be correct that a lot of the inflation forces are transitory. that the possibility that they are wrong and the consequences if they are wrong are enormous, so i would say that in terms of macro risk, this is one of the most elevated risks out there, and it is much more important as a concern then macro risk you have had for quite some time,

certainly since covid has broken. tom: the theme from last week's angst to this week's celebration can be institutions changing. arguably, when he faxed change -- when the facts change, i change. do you assume other institutions will do the same thing under angst? they will to solve the problem for us? -- they will just solve the problem for us? alan: i think they tend to be quite localized and need local solutions. the u.s. economy is just too big to be able to rely on other central banks solving its problems. i think you are right to point out that this is a dichotomy really between risks associated with china and optimism essentially related to the u.s. i think you see this in terms of the schism we have seen in terms of the chinese stock market in the u.s. stock market which is having broad ramifications in

markets that i cover most closely, the currency markets in particular. so i think that is something we've got to watch for. but i think china can make things easier for global markets, absolutely. it has enormous influence. if it is u.s. problems like inflation, the federal reserve is going to have to solve that one. lisa: i am curious going forward about how consistent it is for a high inflationary regime, and to see bears become bulls, bowls become even -- bulls, bulls become even bigger bulls. is there an inconsistency? they had a very hard time since pretty much the end of the first quarter. most of them have capitulated at this point in time. i think there's acceptance that if the 10 year yield is going to crater at something like 1.2 5%, it is going to be very hard to tell a story that is

particularly negative as far as equities are concerned. unlike in the trump area when you were getting hit trade related issues and buy the dip opportunities, you don't have that this time around, see if got to have other features that create clean outs. the inflation story has been part. but even there, the market is taking a very benign look at the fed. you look at what is priced in through the end of 2024, it is less than 100 basis points of tightening. that is nothing in the grand scheme of a fed tightening cycle. so the market has taken a very benign look at things, but obviously the back end of the bond market i think is creating the backdrop for a very solid equity market and very solid u.s. risk. lisa: the s&p is up more than 20% year-to-date. last year, 16%. the year before, 29%. how much longer can we continue with these kind of incredible returns. alan: we would expect the returns to slow down, but i

think what you are saying there as well is that there are a lot of participants who got into this equity market at relatively good levels, and they are not going to get shaken out by something willy-nilly. they will have to have some big macro story out there. the most obvious one is the one we are speaking about which is that inflation is not as benign as the fed would make us believe. the fed has to jump in and generate some more aggressive tightening going forward, particularly into 2022. that would be the kind of story that would upset the apple cart. but right now, if china is going to go through a phase where it is not actually generating huge amounts of international volatility, than the u.s. is not going to be the instigator, not whilst the bond market is well behaved and while expectations on the fed are this benign. kailey: something that could upset the apple cart for more richly valued stocks would be, in theory, higher yields if they ever materialize. do you expect them to

materialize in the near-term? alan: i don't think necessarily in the near term. i think there have been some fortunate features behind this bond market rally. the most obvious one is that the treasury has been issuing far less in the way of paper, primarily because they have run down the cash balances at the fed from approaching $1.6 trillion in february down to close to 300 lien dollars that they have -- close to $300 billion that they have avoided. so that lack of supply in combination with what the fed does in terms of quantitative easing has created a very favorable to some and -- favorable demand and supply dynamic. therefore, i think the pressure will be for higher yields which it is going to be much lower than certainly i was anticipating back in quarter one. kailey: that was the consensus call coming into 2021, yields would be higher. the other consensus call was that the dollar would be weaker,

and yet that has not really materialized. can you make case for dollar this in this moment? alan: i think the right now, you would make a better case for buying the dollar dip. i think the dollar is fortunate in where the dynamic is playing out at the moment. you have on the one hand, if risk looks ok, particularly u.s. risk looks ok, than the tapering story is still in play. that is helper for the dollar against g4 currencies. if on the other hand you have international worries come like we recently had in china, then you see risk off commodity prices coming off, and if the dollar does well against commodity currencies. so on both sides, the dollar does pretty well. i think right now, that smile, those tails unbalance are more helpful for the dollar than hurting the dollar. tom: alan ruskin, thank you so

much. futures up seven, dow futures up 49 as well. a quiet to the market elevates that in. let me look at the economic data. i have been remiss. i haven't looked at where we are heading in one hour. we've got new home sales at 10:00. more housing data. we can't afford it. lisa: this is a pretty quiet week when it comes to economic data. it is august. the whiteness is a risk that some people are pointing to as well because you are seeing a lack of look at it he in the treasury market to some degree. some people thing that sets up for a bit more volatility heading into friday, but i think that is a stretch. people just want to go on vacation. theoretically, some people out there. tom: not that i know who they are, but it would be a good would to go to eye-opening -- go to wyoming. lisa: i think it would be a good time to go to virginia. i hear there is an event taking place. maybe we could crash it. kailey: they can make a movie about you too, only if you ride in on horseback like you said

you were going to jackson hole. lisa: so we can come to your wedding riding on horseback? i do think a lot of people are vacationing. it has been a long year. i think people were very affected by the idea that perhaps the end of it would not be ending as quickly as people thought. now people are getting more optimistic. this fluctuations in the delta variation seem to be kind of dictating tone at the moment. tom: and the change as we approach the end of the school -- as we approach the school season, all of that is a changeable feast. we have seen that with where we are with the delta variant. please stay with us. we've got much more to come, including the housing data here at 10:00. futures up six, dow futures up 48. on radio come on television, this is bloomberg. ♪ ritika: the british admit it is a longshot, but today they and the leaders of other g-7 nations will try to talk president biden

into leaving u.s. troops in afghanistan after august 31 deadline to keep evacuations safe. the u.s. secretary said security risks go up as the deadline grows nearer. house speaker nancy pelosi and a group of moderate democrats resume talks today on how to advance president biden's agenda . hours of negotiations yesterday failed to break a stalemate. policy once to hold off passing a $550 billion infrastructure bill until a much larger package worth as much as 3.5 trillion dollars is ready for consideration. at least 10 democrats say they want a vote on the info structure bill now. especial health committee investigating the capitol riot is seeking phones, texts, and other records, including from some members of congress. republicans have denounced the committee as politically driven. the head of the chinese central

bank says the people bank of china will boost the amount of money supporting smaller businesses in the real economy. new data shows that both credit and iconic growth slowed in july. china ride-hailing giant didi has suspended plans to expand in europe, partially over concerns about how the company handled passenger data. according to the telegraph, the extension will be put on hold for at least a year. global news 24 hours a day, on air and on bloomberg quicktake, powered by more than 2700 journalists and analysts in more than 120 countries. i'm ritika gupta. this is bloomberg. ♪

>> he's done a terrific job. i think he's articulated what

the fed's policy is in a very clear and consistent way. so i don't see any reason why he wouldn't be. tom: unusual. bill dudley really stepping up and supporting chairman powell for reappointment. mr. dudley, of course, senior economic advisor to bloomberg and former president of the new york fed. we have a packed segment here. we are going to get right to it, with futures up seven, and it is real simple. there's a wall of money out there, which means i think still come upon price goes down, you'll goes up. is it something not that, dave wilson? did i do ok there? dave: you did just fine. that relationship is kind of breaking down a bit. it is something stephen panelli over at knowledge leaders capital pointed out the other day. we have seen the s&p 500 setting record after record. it came really close to doing that again yesterday, there kind of tailed off.

we may be looking at another record today. here's the thing, though. you have not seen bonds go along for the ride. prices have fallen, and that means yields have risen. so that is what the chart represents. by inverting the yield, you can soon see that direct relationship in terms of price. you are just not seeing what you saw earlier in the year. tom: in the last 10 years, is this like a once a decade thing? dave: maybe not so unusual, but if you're looking for a reason to be concerned about whether what we are seeing is sustainable, then that is one of the indicators you can .2. and actually, panelli noted a number of others in his note out yesterday, so the stock/bond relationship is the one that caught my attention. you're seeing it not only was high-yield, which tends to track stocks more closely, but also with investment-grade debt.

tom: david wilson, thank you so much, with a chart floating around on the zeitgeist right now. she is on the bloomberg. gina martin adams, bloomberg intelligence chief equity strategist. it is upgrade time. the people cautious are lifting estimates. mostly based off of earnings. what is the earnings integrity right now? gina: it is actually quite excellent. what is happening with earnings is largely driven by what is happening with revenue growth, and revenue growth is running at about a 20% pace you're on your. what we are seining -- what we are seeing in terms of the earnings stream is analysts starting to capitulate to what will be a sustainable recovery and earnings growth. will we see 20% revenue growth into perpetuity? no. but analysts are forecasting that we will roughly average 10% revenue growth over the next few quarters. so certainly a sustainable uptrend in earnings has been

part of the optimism that has emerged in equity prices over the last six to 12 months. lisa: it is a good day to try to worry about something or other, so how much do you worry about the jackson hole meeting on friday? what could potentially be a threat to some of these very bullish forecasts we are seeing come out of wall street? gina: you know that i am a very big proponent of the idea that you follow the fed with the equity market. i think if the fed starts to guide for a balance sheet taper before year end, we are going to be in for volatility. i know that the market relatively easily absorbed the july minutes last week. they absorb that because you get a bunch of fed speeches after the minutes, you get a bunch of chatter about delta variant, and that allows the market to settle into a complacency about the fed remaining incredibly easy for an extremely long time. but the reality of the situation is every time the fed has tapered over the last 10 years, it has created a more volatile short-term equity market.

does it dismantle the long-term trend? not likely, because the earnings growth environment is relatively sustainable. but it does tend to create volatility. it creates disturbance for the equity market. i think that is what you expect if and when the fed finally does start to taper the balance sheet. i think there's a chance certainly a significant chance that even though the conference has gone virtual and we had the don't variant disrupt expectations recently, i think there is a pretty significant chance that chairman powell still talks about balance sheet and where the fed is going to take that balance sheet over the next six months. that is not going to be easy for the market to absorb. kailey: what part of the market can absorb it the least easily? what areas are most vulnerable? gina: the area most vulnerable by far is small caps. we use the federal reserve balance sheet as a key input to that. that is done by our small-cap strategist michael casper.

unlike large caps, which are much more driven by actual rates and spreads. small caps had a historically significant tied to the balance sheet itself. the idea that small caps have been underperforming large over the last several months is certainly one of the potential precursors to the fact that the fed is going to change the balance sheet perspective over the course of the next six months. i do think it is one of the reasons small caps have underperformed. they probably continue to underperform. in the large-cap space, they've got value stocks, which are certainly most vulnerable historically to tightening, and lowball, -- low vol, which should perform best. so the internals of the market are slowly preparing for a balance sheet taper for a fed and chain -- a change in fed policy. we are just not seeing the volatility yet. that is the missing link we are likely to look for, changing over the next several months. lisa: you have a nuanced

approach. this isn't just all of a sudden we will get a draw down like the one jon ferro is meditating on, but rather, we can see specific factors fall out of bed. does that mean the end of reliable double did earnings -- double digit earnings for the s&p after years of blockbuster returns? gina: most likely, what you see is a slowdown in gains. this has been our base case scenario since the praying -- since the spring. that as we migrate to a recovery, we are no longer in this surge out of recession and we moved to a more normal expansion pace. that becomes the case for earnings as well. you will not see 50%, 60% earnings growth over the course of the next. you will see that normalize and slow down to a 10% to 15% pace, and likely settle into about a 10% pace going forward. that will accompany, along with tightening policy from the and changes in interest rates, that should a company a slowdown in price appreciation. the fastest gains always come

right out of a recession, and then the market tends to slow down in accordance with the slower pace of expansionary growth. tom: gina martin adams, thank you so much. this echoes to ben laidler, with an optimistic note this morning, really underscoring high quality. then later -- ben laidler has gotten on board three years consecutive, dental david -- double-digit return. that is a rearview. lisa: at a time -- a rare view. lisa: especially at a time of much lower yields. do wonder if there is this dissonance here. how long can we remain in a goldilocks scenario in the bond market with yields remaining so constant and deporting stock valuations with continued optimism about pricing power and growth? tom: we're going to have to leave it there, but i really want to underscore that the foundation for so many of these upgrades is an earnings and revenue view devoid of jackson hole talk, devoid of what the larger economy is doing.

people are just looking at the brute force of what corporations can put on. futures up six, dow futures up 51. the vix, 17.26. still looking at oil, $69 cents on brent crude. this is bloomberg. ♪

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>> this growth could be extended as we continue to deal with the push-pull of covid. >> this is not a market that has a lot of room to exhort add news when we get. >> i think the market is telling you we are closer to disinflation that inflation. >> the expectation is that the fed will signal a more dovish tone. >> this is a fed that is going to measure twice and cut once. >> this is "bloomberg surveillance" with tom keene, jonathan ferro, and lisa abramowicz. lisa: the race toward optimism. who can be the bi