>> the market is starting to get nervous about the potential of a harder landing. >> they are at the point where the unemployment rate in the u.s. which is very low is trying to pick up. >> it is clear we will cease their growth over 2024. >> only a couple months ago that are nerve was re-acceleration. the data has slowed. >> markets are expecting the slow growth. that does not mean you will have a hard landing.

>> this is "bloomberg surveillance" with jonathan ferro, lisa abramowicz, and annmarie hordern. lisa: it is a new trading week and the start of the first half. good morning and welcome back. jon ferro still off until next week. we are looking at the end of the first half, ending with a bang, a three-part act. the first part is whether you can get a broadening out of the market action which we got a hint of at the end of last week. we get economic data and that it heats up on the political front on both sides of the atlantic. i want to start with markets, we saw the russell 2000 outperforming for the first time in a very long time as big tech lagged. dani: can the catch up trade happen? a lot of folks thought it would happen to start the year. peter tchir lays this out while. you had the slack time that the date it was improving and the market was not catching up. now the data is not improving.

lisa: when you say the data is improving sort of, and raises the question of what will be ok this week? we get core pce, personal spending at a time where there is this odd dance. will people tolerate high prices and is that a good thing or a bad thing? annmarie: this is what will be so important thursday. trump will talk about how the economy, cost of goods more expensive than under his term. paula donovan, i thought of you the second i opened up his note. "politics, sadly, is in focus." he talks about inflation and says it is an emotional issue in on a nonrational issue which is why has been so hard for the biden campaign to explain the rate of inflation is coming down. you run up the first part of this election in france on sunday and the economy is showing that emmanuel mack ron is due for a bruising.

lisa: a lot to unpack there. to annmarie's point, i thought this week is all politics. as much as i do not want that to be the case it is all politics, whether it is the debate. earliest debate in modern history between two presidential candidates. then we get the french election that has caused spreads to gap out between french bond yields and german bond yields. annmarie: i usually would have looked -- dani: i usually would've looked at this week and said the politics do not matter. you look at what is happening around the world, mexico, india, france, it matters for markets and an increasing amount. will the debates matter? will we get anything about the deficit? maybe if we do that will move markets. lisa: this is the reason i care about the bond options. annmarie: front page of the financial times is concerned about the fiscal risk and

looking into 2025. this is going to be a huge debate because whether or not we get trump or biden the deficit will go up. lisa: $69 billion of two-year a uctions tomorrow and $44 billion of 70 or treasuries. -- of seven year treasuries. last year we had an eating out of gains. they were led by the russell 2000. today you can see ongoing flatness, lack of any kind of action. marginally up on the s&p. the nasdaq down a touch. treasury yields lower just a touch as we came out whether or not the economic data can continue to support that. 10 year yields up higher for 26%. in the euro, 1.0 722.

weakening to end friday below 1.07. today we will get fed speak from mary daly. tomorrow more fed speak plus consumer confidence data. wednesday new home sales and earnings from micron. thursday is headlined by the presidential debate. we also get jobless claims and durable goods from nike. friday more fed speak plus personal income and spending and the core pce deflator. that will be key given the fact that people are talking about the potential for things to come online with the fed expectations at 2.6%. dani: the worrying piece is going to be housing? housing a major component in core pce and we saw that housing starts were not there. supplies not coming back online. it is such a big source of personal inflation. if you are in the scenario where the housing component is usually

not coming back online, how can the fed be bullish about cutting this year? lisa: coming up we have lori calvasina, terry haines of pangea policy, and citigroup's robert socking calling for a september rate cut. kicking off the final week of the first half with two stocks coming off two days of losses. lori calvasina writing "the continued outperformance of maker cap growth stocks has been logical but still jarring to us. small caps worked to clear new lows relative to last week and investor sentiment continues to concern us." thank you for being with us. i want to start with this idea we are starting to see a broadening out, we are starting to see the small caps eke out outperformance. could this be the beginning of something bigger? lori: i would love to tell you i hope that is the case.

i think small caps continue to have their days in the sun. we still have these days sucking us in. if you pull up a chart on your bloomberg you look at the russell 2000 relative to the s&p 500, we keep breaking to new lows. even with the improvement we have seen on certain days you've not been able to avoid that trend. what is driving that? sentiment is washed out on the small caps phase. you are back around the lows. if you look at other indicators, you have to attack what will happen with the fed. rbc is calling for a december cut. we see other shops calling for something earlier. i think you need the cut figured out because small caps do not tend to pretrade cuts. any disappointment we get on the cut narrative will push the stocks back down. the other thing you need is an above average economy.

one of the things you are highlighting in the opening is nervousness starting to come back in. squishing us starting to return on the consumer. we are not seeing a big upward revision to gdp forecast the way we were at different times over the past six months. these economic tailwinds that help the rotation get started at certain points, we are just not getting that right now. i am staying more neutral on this space. i like the positioning but i do not like the situation with the fed and i do not like that the economic story seems like it is slowing. lisa: for much of this year people were under waiting small caps and saying keep going into big tech because it is a freight train. has that changed? lori: it is interesting. we have been talking about mega cap growth and i one investor say it feels like these stocks are tired, it feels like they're on their last legs. i was thinking about that last week when we start to see rotation.

the problem you have in this big cap growth part of the market and these stocks, whatever bucket you want to take his these growth rates are slowing from astronomic levels to things that are strong. what i have noticed in the past couple decades i've been doing this job is whenever that happens you do not have as much of a margin for error. people are looking for excuses to take money off the table. i know there were technical things that contributed to the weakness late last week but i feel like that is something that is going on and that adds -- you could technically get rotation where the rest of the market does not do as badly. i think that contributes to my nervousness on the stock market. the sheer weight of these areas and if they are starting to hit air pockets and people are looking for opportunity to take money off the table, that could have ramifications in the broader market. dani: we talked about the note

from bank of america that said there were record inflows into tech. that is kind of being questioned. can you categorize the sentiment around tech and the positioning in tech? how stretched or not stretch does it look? lori: i believe he is looking at the data on the flows. we watch the data and we put it out in our weekly so you can see the technology sector inflows. we look at a four week average. we have seen flows going back to the space. if you look at the chart, it is parabolic. it is one of those charts where if i look at it as a strategist it looks like it is right for reversion. i wonder if we will get confirmation we are starting to see outflows when we get data updates. if you want to put that data aside and think about general sentiment, i would urge you to look at the cftc data, which i

do not think came out on friday because of the holiday. they have some data on the nasdaq 100. it is a futures contract looking at the nasdaq 100 part of the market. if you look at that on a net notional dollar value basis, where we have been over the last six months is at levels that were a bit above the 2013 and 2015 highs. if you go back over the data, we have seen that sentiment on the mega cap growth trade part of the market very stretched, and more stretched than what we have seen over time. it has not collapsed. we look at it as the fever has come down from 103 to 101 so it could spike backup quickly. i think that is a good barometer for what i am sensing in client meetings. some of the momentum has come off. has a completely collapsed? no. dani: part of the reason people

went into this is because you look at bonds that are still negative for the year. base metals up only 3%. you would understand why people going to this trait. once that turned does happens and the conversations you having with clients, are they prepared for it or has diversification been thrown out the window for the sake of gains? lori: it is a great question. it depends which kind of investor you are talking about. i spend most of my time talking to portfolio managers and their benchmark indexes like the s&p 500 -- one of the problems a lot of these managers have had is even though they own a lot of these stocks they cannot be overweight because of structural reasons. the highflying nature of these stocks makes it very difficult for them to outperform their benchmarks. if you look at quality factors in the market, and we talked about this as well, your

strongest it within the russell 1000 most of the quality factors are starting to work pretty well. that augurs well for active manager performance. it is not necessarily a question of the people like these stocks, are they doing well, always ask about the long only p.m.. are they outperforming their benchmarks? if you take the heat out of those names it can make their jobs easier. annmarie: we have the election in full swing this week with the kickoff of the first presidential debate. you told us you continuously get asked about the presidential debate but it is like looking into the sun. have you gotten any clarity on how to position ahead of this or what you are now telling clients? lori: i would say you have to divided between the non-us investors and the u.s. investors. if we look at the u.s.-based people, people sitting in the u.s. to understand our election system the best and the issues the best, i continue to find

people do not like talking about this issue. it is something they've increasingly had to because they are getting more and more questions. if i think about some of my hedge fund conversations, i can definitely count the number of people who have told me they are not making trades on this event. they have done it in the past but they are not doing it now. i think more about investors who are less inclined to make short-term trades. they are struggling to understand the differences from a stock market or economic perspective between the candidates. you see people looking at both agendas and saying these guys are both inflationary. are we just looking at a higher inflation world? there is a lot of focus on the tax policy. that is where there do seem to be differences coming into focus. i had what investor put it to me and say there's not a lot to do but is this going to be something that paralyzes the investment community? that is a thought i think makes a lot of sense.

there is a bit of fog when you think about the 2025 outlook the election is creating, even though there is not a sense people know exactly what to do with either outcome. lisa: lori calvasina, thank you so much as always for being with us. let's get you an update on stories elsewhere. here is your bloomberg brave. yahaira: marine le pen's far right national rally is making further gains. according to bloomberg tracking polls, the party has increased its lead to 34.2%. this means president emmanuel macron faces the increasing likelihood of having to share power with opposition government. the first round of voting takes place june 30 and the second round will be on july 7. apple has been hit with a formal warning from european antitrust enforcers for allegedly stifling competition on its app store. the european commission says the

iphone maker must allow app developers to steer users to cheaper deals and offers outside of the app store. it comes under the blocks digital markets act which lays out dues and don'ts for some of the world's largest technology platforms. and billing may be facing criminal -- and boeing may be facing criminal charges. prosecutors recommend the doj charge the plane maker according to a settlement for two fatal crashes. the report did not specify what charges the justice department is considering. the doj found in may that boeing had reached a 2021 deferred prosecution agreement put in place after the two 737 max crashes killed 346 people in 2018 and 2019. lisa: up next, trump's running mate coming into focus. >> a lot of interest, tremendous interest in the debate. when you say prep, i think this is prepping.

lisa: that is coming up next. this is bloomberg. ♪

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who wants to come see the future?! get your business online in minutes with godaddy airo lisa: heading into a week of politics front and center. markets remain range bound trying to find direction after crawling to a weekly game last week. we are still crawling upward. up .1%. the euro marginally stronger. nothing going on in the bond space. under surveillance, let's get straight to the politics. trump's running mate coming into focus. >> there is a lot of interest, tremendous interest in the debate. when you say prep, i think this is prepping. these people know better than anybody what they want.

>> have you decided to your vice president is? >> in my mind, yes. nobody knows. lisa: donald trump his vp candidate will be in attendance. trumpeting the campaign trail well biden hungers down to do debate prep. terry haines writing "only if trump picks nikki haley for vice president does he have the best chance for victory in the race changes if that happens. our instinct is it is by no means impossible but it is not likely." before we get to the vice presidential sweepstakes, there is a question of this debate and what you are looking for thursday? terry: fundamentally what has to happen in the debate is biden has to exceed expectations. the expectations are very high for him. the bar is higher for him that do what i call the frame, show

he is up to the job and he is the kinder, gentler safer pair of hands as the english would say compared to trump. trump has to not only disrupt but also embody the narrative of dissatisfaction with the economy , dissatisfaction with the border and convincingly promise he will make it better. those are the basic touch club moments. the stakes are very high not only politically, but also for markets. y'all talked about politics. politics and u.s. stability is underpinning the market that has been taken for granted so long investors do not think about it.

annmarie: what you make of the fact that the president is hunker down at camp david and preparing with his team for days and taking it very seriously. not saying the former president is not taking it seriously but he is on the campaign trail and calling that prep. is that going to work? terry: i think there is a lot of theater going on with trump, as ever. saying he is prepping. he said he wanted to take this very seriously. he is a little lighter on his feet than biden is at this point but biden has more to defend. it is easier to be on the attack. there is that. he is throwing red meat to the press all the time will stop whether it be the supposedly vice presidential choice or anything else. i think there's a lot more going on behind the scenes with trump than he is letting on. annmarie: trump also said his vp

choice will be in attendance at the debate but no one knows who it is. who are you zeroing in on? terry: i do not want to step on my lead, which i think if he picks nikki haley there is a material change in the race. that depends on the debate performance. that is a republican unity ticket and trump needs that right now. the republican party remains split and independence are not flocking to him. that is the formula he needs to win. beyond that, there are a variety of candidates. you have unity light with someone like governor youngkin of virginia and you also have the attack dog idea. that could be somebody like senator scott of south carolina, somebody like senator cotten of arkansas. a lot of different choices. where i would put my money today is i very much doubt trump has made his choice because he is not to the point where he knows with clarity what he needs to do

before the convention to unify the party and move forward. annmarie: you mentioned governor youngkin being unity light. trump is going to virginia the day after the debate. is this potential. does he think he can win virginia? terry: virginia is a lot more in play than most people think. back in 2016 virginia it was one of the few states that came in under 5%. you have a classic problem in virginia, same as illinois, new york. where you have a blue core come in this case northern virginia, and then read the rest of the state. how those balance determines who wins. trump is very interested in pumping up red turnout in virginia and splitting blue turnout in northern virginia. he has a shot at that. i think ultimately he is not successful but the opportunity

to put estate in play forces biden to play defense so that is positive for trump. dani: taking a step back because this is a debate much earlier than it typically is. what does that mean for how consequential it will be? terry: i think it is very consequential because it sets a tone for the campaign. it is the first time that a great mass of the american public, much less an international audience has focused on the american election in a laser fashion. it is important in that sense. it is a tone center. the error markets may see that a lot of political people may see is this happen and that happened. that will determine the state of the race going forward. i said in my note to clients yesterday, examples going back to 2008 where the first debate

was not particularly positive. also this allows both parties, should there be an issue or problem, to have the maximum amount of time for cleanup on aisle seven. lisa: terry haines of pangaea policy. cleanup on aisle seven for the next six months. annmarie: they are themselves the entire summer to clean up if thursday does not go well. dani: i am so fascinated that they get their mics cut when they're not speaking. i want to see if anyone tries to yell over it. that is what i am watching. lisa: i am curious to see how that will work. coming up, the kbw ceo ahead of the bank stress test results heading into the end of the first half. ♪ quickly, so you need a tax-optimized portfolio. at creative planning, our money managers and specialists work together to make sure your portfolio and wealth

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lisa: the start of the first -- we are looking at a market that is trying to eke out maybe another record high but really just crawling upward. we saw the performing the nasdaq. we see outperformance. this is the big takeaway of the last week. rearing its head with the biggest outperformance in months. dani: the question is, can it

last? with so much it exposed, how aggressive of a rate cutting cycle do they need? lisa: people are looking forward to the idea of potential rate cut. is it for the right reason the rent -- or the wrong reason? we saw a cooling in the economic data but the global pmi's came out stronger-than-expected. it left people in a better place. basically going nowhere ahead of a slew of options. -- auctions. it really does seem like that will be very much in focus as a referendum. annmarie: the auctions are more

interesting because you have the fresh scores. many are pointing out that the fiscal trajectory is unsustainable. talking about what the senator told us. tax armageddon. what is potentially going on next year. not just tax spending. all of this will put into focus how much the u.s. spends. lisa: a bit of a reversal. there were warnings from the u.s. not to intervene. we saw some discussion from the bank of japan leading minutes, discussing hiking rates further. dani: it is remarkable that the yen does not believe them. even though they might say that,

they did wind that down. many people said, we are not going to get a hike next meeting. what you get is the yen weakness and this little bout of strength. lisa: it raises a lot of questions. under surveillance, benjamin netanyahu telling local tv that the country will be ending the intense siege in gaza soon. redeploying forces where the conflict with hezbollah has spanked. how much are we under -- annmarie: it will be the new focus. i was struck more by what we heard by the chairman and joint chiefs.

if this were to happen, they would get more involved. the question everyone is wondering, if this were to happen and we had more than just skirmishes but more of a conflict, will that trigger a burdening of this war? dani: it is a threatening of escalation. not even that, look at the leader of them threatening cyprus. now we are having threats against eu nations and is the exact threat that markets are worried about. lisa: europe and china agreeing to talks. earlier this month the eu announced plans to enforce tariffs on ev is imported from china fueling trade tensions. annmarie: they still want to

maintain that access, which is why potentially they are saying, let's have legitimate discussions about this. potentially they could lower tariffs and in response they could import some of these luxury goods into china. there was a call with his counterpart. both sides agreeing in full respect of wto rules. china has not been playing by those rules. lisa: that is an ongoing tension. all eyes are on the presidential debate. we will also get the results of the fed's annual stress test. jp morgan, bank of america and city must approve after a wind down after finding weaknesses in their plans. joining me is todd bashar assad.

tom, a lot of people have been raising the issue about whether we are fighting the wrong or and what some of the regulators are targeting with banks might be counterproductive for the cycle. do you think that will be in focus? todd: the banks are in very good shape. they were set up to look at an adverse scenario to show that they had plenty of capital to withstand that. we think that the conversation will move away from that quickly , which is really a positive statement about how the industry has been continuing to build capital. the industry has not only been building capital for the stress test. that has been the big story. the first box to check is that

it is being very well-capitalized and then there will be individual companies pivoting in one direction or the other. lisa: there is a question about which banks are really strong and resilient. i do not think anybody is saying that they are at risk of real potential turmoil. at what point did we get confidence there? todd: they start to go down in the super regional category. i think the market will say that they had plenty of capital. the regional banks are still in pretty good shape, especially -- except the ones that might have more concern around real estate exposure and you are seeing a downturn with some of their results. but by and large, i think it is very narrow as to where the concern is. i was interested about

dividends. there are 74 banks. if you look at the beginning, five of them cut or eliminated their dividend and 54 of them raised their dividends over that period. the industry is in pretty good shape for the challenges that we have had. the areas of concern are generally more narrow than you would think. the bank failure moment was really around a liquidity crisis . some banks had gotten offside in terms of concentrations and deposits. i do not think that was a broad-based trend. dani: the latest was a bank out of japan that was positioned for rate coming lower. when you hear about these incidents or pockets of stress, do you think they have not

hedged against the current rate environment? todd: the focus for this conversation, i will go to bank of america upgrade that we did. we have earnings models for net interest income. just about all of the 220 banks are going to hit a bottom on a quarterly basis and that is the reason why we upgraded bank of america. the second quarter is the inflection point. it is all a question of timing. the five-month -- three-month five year yield curve spread is the most important for banks. it is not key for the banks. it has been 62 years since we have seen the length of time for the inversion that we have had. all they need to do is get a little bit less bad for these

banks to do a little bit better. i think that pit it is right here, right now. as long as we do not get a hard landing, we will see them prudent over the next few quarters. this is a great opportunity. dani: i have to take you to europe. you have had the likes of jp morgan moved to paris and other u.s. banks have done something similar. if there is political volatility, what happens? >> i think it is the big picture of what is happening with the economy. banks have been the leading group in europe. so much bad news in the stocks. you needed some improvement in the rates.

interest rates were adversely affected. our sense is that it comes down to what the economy is doing. we think there are upside for the banks because the banks have done a lot to stabilize themselves and many still trade at 6% book value. it is a question of what is happening in the economy. annmarie: in terms of living wills, some of the biggest banks finding shortcomings for the likes of bank of america and citi. tom: remember that teacher that was a hard grader? i can imagine for the rest of my career that every year there will be more work to do yuan a living will. if you look at them, jp morgan had work to do. citigroup had work to do. these living wills were evolving

. given the bank failures, the fdic has probably sharpened pencil on these living wills. i view it as a living, breathing thing. our view is that the banks will spend more money preparing for them, but there was nothing devastating or significant in the results. lisa: the reason why i started by asking you is because in the past couple of years, the risks that i hear about, what profitability opportunities do some of these banks have when they are facing off with the rush of money into private capital? tom: there are sick tech -- there are some tectonic plates moving. but it comes down to is funding, liquidity and posit. thanks do not fail because of capital. they fail because there was a

cap run. i think that the greatest missed opportunity is that there has not been fdic insurance reform. it puts too much pressure on the banks. to the banks that have proven that they are too big to fail. that is the biggest. number two is that when it comes to stock selection, the way that smaller community banks earn money is very different. smaller banks have smaller spread income. the bigger banks have some of the least amount of commercial real estate exposure. they have already made the shift away from that and that is why we are leaving in heavy for the stock ideas. we think it will take more time for the regional banks to turn.

annmarie: there isn't so much of the classic market-making. liquidity risk on another level. they will not be able to shepherd this amount of bond shins and allow the treating to commence with the same kind of stability that it has in the past. does that keep you up at night? given that the market has swollen, it is also the credit market. tom: passive investing is at the highest degree of our lifetime. in many ways it is changing the investment business. there are so many funds that have impacted the liquidity of a lot of the smaller companies. if you look at a typical may cap stock, they might have 30% owned

by investors and it is happening in the credit markets as well. it is pushing more of it away from public markets. the way companies raise capital is still evolving because there is this big private market growing a lot in the last four to five years. lisa: meanwhile, we are looking at a bit of stability despite all of that. we will be talking about the fed with september very much on the table. >> we have had two great cpi numbers. we definitely think september is on the table. lisa: that is next. this is bloomberg.

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lisa: coming into a new trading week with a little bit of gain. limping to the finish with two days of losses. right now, gaining on the morning. euro strengthening just a touch. this is before a potential storm. >> we have had two great cpi numbers. it should lead to lower wages going forward. we definitely think september is on the table. lisa: we will get consumer confidence tomorrow and another round of jobless claims. the core pce deflator when it

comes to spending. writing this, cutting rates and -- in september. it leads to continuous easing from the fed after this move. robert joins us now. we saw a real shift in terms of whether the weakening was weakness. you think it will turn into weakness. pointing to just a considerable amount of strength. >> depending on what you are looking for, you can find a story and a different set of data. the pmi with surprise to the upside by gdp for the second quarter is still tracking pretty strongly -- if we look at that.

there is definitely softness brewing and a lot of other areas. if you look at the housing sector, we have had very weak data. jobless claims have consistently come in and stayed elevated over the last month or so. we have seen cracks in the cycle before that have not materialized into a sharper downturn. a sharper downturn is guaranteed, but the risks are higher than they were a few months ago. dani: one of the cracks or weakness is the consumer, but starts to shift from latin goods. so much of the language is all out price fatigue. >> it has been a challenging forecast.

you have just seen this very long tailwind and it has been much broader and lasted longer than expected. a lot of that is built on this post-pandemic appetite for services that is likely to fade and we think that those goods that were purchased earlier in the cycle are likely to wear out. people will want new goods and to incorporate new technology. that should take some of the heat out of labor markets and inflation because good sectors are less intensive. a lot of where we are seeing inflation is in the service sector. we have been expecting that for quite a while and still waiting for more of that rotation to come. annmarie: d think the cracks in

the labor market might be enough? >> i think you can still get the rate cut. we are expecting .15%. very important print this week. i think if you continue to get market progress on inflation, even if the economy holds up well, they can conclude that they have made enough progress. i still think september is very much on the table. the case that we talked about earlier of a continued easing after september, i think you need that sharper downturn, other -- otherwise the fed will start using. annmarie: they talked about this paralysis in investments. d.c. politics impacting economic

data were aware consumer sentiment going? >> i think you see it influencing a lot of market movement, especially in france, in recent weeks. on the sentiment level, you see politics influencing those numbers a lot because there is a large politics number for business confidence. i do not think anything we have seen to date is enough in terms of the data right now. a lot of what we have seen in idiot -- india is going to influence economic policy a lot in the years to come. topics like migration are on the docket in all of these elections. we have seen large gains in migration. i think that will be a heated

issue in this election. politics is important. lisa: i like that you talk about sentiment and what is affecting it. what they are doing in the u.s. is spending and spending some more. he pointed out in a recent report that it has lifted the u.s. to become one of the outperformer's in the last couple of years. how important is spending? how important is it to continue? >> absolutely. u.s. consumer is sort of in a league of its own. australia and the u.s. have been the biggest performers in terms of growth. u.s. consumer is a league above all those other major developed

economies. we continue to see resilience. we have seen soft measures throughout the cycle. but they continue to spend. i think it is very important. a lot of that spending has been on services. i am looking to the services side and continuing to spend on services, but i think that is the backbone of the cycle. if the u.s. consumer starts to pull back -- you could get a larger pool back there and i think that would be the signal that the cycle is turning but they are continue to spend, spend, spend. there was -- lisa: talking about when you take commodities without food and energy. services other than energy services rose by 5.3% more than

the fed's target. dani: i'm fascinated by the idea that if we are seeing we use, it is the tumor about a shift. it is taking a different form. annmarie: led by service sector. everyone is waiting for this potential rotation. you will see an absolute resurgence of air travel and i think ticket prices reflect that. lisa: it is something that we need to keep talking about. who is traveling? how bifurcated is it? how long before there are real problems that develop? isaac and amanda. this is bloomberg.

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>> markets are definitely moving somewhat towards this risk off, hedging that against potential weakness. >> it would be quite healthy if you could get some kind of participation over the next month. >> we have to try to protect what we have. plus i do not think we have gotten to the point where people are capitulating.

>> this is bloomberg surveillance. lisa: can goldilocks continue into the second half of the year? this is bloomberg surveillance. annmarie hordern, dani burger and lisa abramowicz. jon ferro is off. he will be back later this week. can goldilocks continue? there are signs underneath the market that there is a shift going on. some of the small caps began to say, maybe we can begin to come upward. dani: if you look at what the market has been doing, diversification -- bonds are not even up for the year. commodities up 3%. a lot has shifted to be overweight tech.

if the shift is happening, how painful does it look? lisa: it comes at a time where there has been a great deal of under waiting. even though they bought into this idea of disinflation without falling off of a cliff. going into the core pce deflator and personal income and spending at a time where there is clearly a softening underway. annmarie: we will potentially get really good news. the slowest pace this year. we might actually get some good inflation data. about jobless claims, they keep inching up. this is the third week we have seen this upside risk and a serious crack in the labor market. is that a trend?

dani: is it enough for the fed? another piece of data might not be enough. it takes months of data and this is not yet months of data. lisa: that comes on thursday. some of the political noise that is heating up. a lot of people looking to that as a kickoff. it seems like that will be the true start and then possibly even more impactful for the european markets on sunday the french elections began. annmarie: the first of the legislative pulling will happen on sunday and what you saw over the weekend, marine le pen's party is seen as doing better because of the economy. people are starting to trust right-wing politicians when it comes to the economy.

what you heard last week is investors talking about the move in the bond market and how it is not going away. lisa: that is why people are watching to see what will happen. right now in markets, coming off of mild gains. you saw a nasdaq that was flat on the week. s&p futures continuing to climb. you can see the euro gaining marginally versus the dollar after going south of 107 on friday, reclaiming some of that today. just marginally softer and higher. coming up this hour, he stretched market. head of this week's presidential debate with a busy week of bent

speak and economic data on deck. u.s. stocks looking to bounceback head of a busy week. the potential for further equity gains may be somewhat limited with valuation so stretched a soft economic landing is a necessary backdrop support for the gains. good morning. welcome. great to have you. when you talk about stretched valuations, are you talking about the overall market or nvidia? >> i'm talking about nvidia. if you look across the board market, we are really thinking about the pocket. it is difficult to look across and say, we need a broadening in the rally. that can only take place if there is a study backdrop. we are hearing more clients worried about the backdrop. when we think about risk, we are

hearing more about what will happen with hard landing rather than an acceleration. lisa: they put out three scenarios. one is potential liquidity risk and he said the base case for what could disrupt is that hard landing scenario. how important is it to really inform mother that is a more realistic ace case? >> the consumer -- whether that is a more regular stick base key -- realistic base case? >> because the job market is still very strong, there is no major job boston.

they can carry the u.s. economy. to me, it is about the labor market because if you start to see the jobless claims increasing, then the lower end consumers can no longer be able to sustain the u.s. economy. dani: we talk about what the landing will look like, but we rarely talk about what the liftoff after that landing will be. how important is it that growth is anemic? >> it is really important. when i think about the landing, you can give a soft landing up until next year. to the point that the fed starts to cut, if you do not have job losses, i worry about how the economy reacts to that. actually, i think to me, although the acceleration is not

key the movement, it is a theme that starts to return to the market. dani: it raises the question of if they will have the intended impact. does that mean that if the fed starts cutting, they need to start cutting aggressively to make sure it is not a housing market that takes off like crazy? >> they have to be careful about how they cut. they need all the evidence in hand. they need to be clear and see that the market is not showing clear cracks, but there is a rebalancing taking place, otherwise they risk disrupting the economy again. lisa: potentially, those individuals, maybe they want to upgrade but they are sitting on

a 3% mortgage. but if they come into the market and have so much supply that it dilute the power? >> i think although the supply has increased, the amount of people have been enjoying those 3% mortgage rates but are scared to buy new property. i do not think that the supply is sufficient to stop the market from taking off again. that is one thing that the fed instant keep a close eye on. there is really no sign, but i think it is a risk. annmarie: when he looked back at history and research, has it always been this complicated? fragility in a one stock is a stock market.

is it all -- it is all about nvidia. happily seen anything like that? >> there is something fundamentally driving but when i look across tech, i think some of it is macro agnostic. i think they actually create their own demand. at some point, that party will stop. that is hard to predict. >> you sound kind of bearish. >> i do not mean to. i think we should be risk on. we do have a slight overweight on equities. we think the equity gain is quite limited when you start seeing a softening. there is so much concentration and it is getting impacted where people are getting worried about high stocks.

within fixed income, we are actually back to neutral. they will be focused on slightly high quality, but it does not look attractive to us. especially talking about the fiscal deficit, i do not see yields coming back too far. lisa: i you just hovering up french bonds? >> french bonds really scare me. i think there is a reason investors should be scared about it. also, you can look at europe last couple months and say, can this be sustained? this political disaster unfolding is going to scare investors again. a political basketcase once more. i think that is a concern. dani: is that all this is?

american exceptionalism to plano? because europe is scary? >> it is key. there are markets around the world. there is an overweight where he will be focused and it will be the u.s. lisa: as much as people want to complain coming cannot really do that because -- let's get you an update on stories elsewhere. here is your bloomberg brief. >> saudi arabia said more than 1400 people died as temperatures reached 126 degrees fahrenheit. the highest level in two decades. the majority of fatalities were unregistered pilgrims were not authorized to participate. there were more than one .8 million participants who traveled to mecca for the

pilgrimage. bytedance and broadcom might be teaming up. they have held talks about a potential collaboration on nai processor. in an earlier report, they said the ship would comply with restrictions on china. the relationship revolves. taking on donald trump over the topic of abortion in a new release this morning, marking two years since the overturn of roe v. wade. >> we know what will happen if he gets another four years in the white house. they are going to try to ban the right to choose nationwide. >> trump says laws on abortion should be left to the states to decide.

that is your bloomberg brief. lisa: up next, the potential for trump 2.0. >> it tends to be as strong as possible in asia. lisa: that is coming up next. this is bloomberg. ♪

lisa: trying for maybe some more record gains after 32 of them of them -- of them this year. we do seem to be running out of that incredible momentum, about .1% on the s&p. outperforming once again after outperforming last week. the potential for trump 2.0.

>> we got there with trump and we will -- when the japanese are engaged, when the south koreans are engaged -- keep in mind all of these companies are raising defense spending because of trump. sometimes you have to be a little tough on family members. lisa: giving former president trump a lead ahead of writing on thursday. writing this, it changed dozens of times but we continue to view trump as a slight favorite. isaac joins us now. i'm sure that there will be many more regardless of the outcome, but that said, why is thursday still incredibly important at a

time when it is a close race? >> i think it is easy to dismiss this debate. we have seen these men onstage and we know what that looks like. we are discounting the impact, but this will be an incredibly close election. the last election between these men was decided by 43,000 voters in just three states, so anything that impacts the views of voters, even on the margin matters. i have looked at some data and history on this. generally you will see upwards of a 5% shift in sentiment around debates. using history when comparing these men is often dangerous, but the margins matter given that this will be a historically close election. lisa: terry haynes came on last

week and said, if president biden seems out of it or -- there could be discussion of replacing him on the ballot. do you think that is a viable option? >> there'll always be discussion about that. there has been discussion for two years and nothing has happened. you hear conjecture that this is the earliest presidential debate that we have ever had because both parties want to see if they can replace their candidate. that is nothing more than hoping at this stage. i have seen no reason whatsoever that we will see biden replaced on the ticket. biden himself and those closest to him believe he is the only candidate who can beat donald trump and donald trump believes that for himself as well. if there is a massive gaffe or an incident that shakes up the race, sure, there will be more talk of this, but i have to tell

you, i do not know who they will point to as the successor in waiting either. annmarie: also these men have been politically married and have been for quite some time. i was looking at the pulling percent races and you have some senators, some candidates doing better than the president. does biting get lifted by the down ticket or does the down ticket suffer because of him? >> ultimately, it will be a benefit in some of the states. what you have seen consistently with biden in the primary is a lack of enthusiasm. you have seen that in michigan and in brooklyn. people are just voting no or leaving their ballot blank. how excited you see them in states like ohio and pennsylvania could have an impact on the margin.

to me, i do not think it will be as meaningful in sun belt states where trump is leading like arizona, nevada and georgia. for other issues like immigration and inflation, it will be material drivers. annmarie: do you have a sense of how the votes will break in november? >> know. i do not think that anybody does. that is one of the conundrums when thinking about this election is that nobody knows how that will break. i have seen it from both sides that are thoughtful and detailed. it is about enthusiasm and who shows up. trump supporters are loyal, fervent and they show up. if we do not see that same level of enthusiasm from the biden campaign, that will hurt the sitting president. and then we have the issue of rfk, first of which, where is he

on the ballot? we know that he will be on the ballot in michigan, but we need to see if he will be on the other string state ballots. six states or 77 electoral votes will decide the election. dani: you talk about a loyal base from trump. is there any clear strategy to do that? is there anything that they are tapping into? >> i think that is where we are in this election is where are those issues that can drive enthusiasm? i have looked at those swing state voters and generally speaking, there are four that are highlighted. one is the economy, one is inflation and the final one is

abortion. you will see as we try to shift the focus. reproductive rights is something that they think will animate suburban women in particular, which is a key and meaningful group. they want to keep it away from inflation, the economy and immigration. you have seen some of the strategy around that showing up already with moves over the past few weeks where he is trying to look harder at the border. you will hear a lot of the focus from president biden on trying to lower costs, trying to focus on junk fees, talking about affordability issues. dani: i was joking but also kind of serious about what i am most interested in seeing.

does the new format make a difference at all? you do not have the prepared notes. how does it play out? >> first and foremost, it is sad that we have to foster this element of civility by turning off the microphones but if we look beyond that, i think this will be a debate that is defined in a lot of ways by body language. you will not have the audible interruptions 100 times like you had the first time that they met on the stage, but i think there will be a lot of trying to dissect the body language. that will be one of the themes the morning after, given that the microphones will be cut off like we are in kindergarten. lisa: i'm sure we are all looking forward to analyzing the body language. we have talked a lot about the mental capacity of president biden and whether he appears strong and with it.

what about trump? he is of a similar age. >> i think there is fear on both sides that there will be a gaffe. with biden, you have two different joe biden. you have the state of the union where he was strong and commanding. his off-the-cuff press conferences have not been as strong. we now have that comparison that you will have a bifurcation in sentiment. as you look at biden's performance. trump has the benefit of being more off-the-cuff all the time. that is his 100% of the time personality. i think the expectations are slightly lower for him because that is how he has always acted. biden, you have the duality of biden. lisa: thank you so much for

being with us. annmarie, that goes to the point that you are making. annmarie: it feels like they are setting the bar very low on both sides. but i think you bring up a great point about trump's age. these are the oldest men for u.s. presidential candidates ever. lisa: i'm sure it believed this debate incredibly discussed by us. blackrock calling for a shallow rate cutting cycle at a time where we are on track for our first monthly rise in corporate bond spreads, going back to october. this is bloomberg. ♪

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so i had to show them. i've run this place for 20 years, but i still need to prove that i'm more than what you see on paper. today i'm the ceo of my own company. it's the way my mind works. i have a very mechanical brain. why are we not rethinking this? i am more... i'm more than who i am on paper.

lisa: we are looking at stocks marginally higher as we take a look at the potential for still maybe goldilocks possibly. we do not know if it will shift. what you are seeing is a new trend, outperforming. up by a quarter of a percent. you are seeing some nervousness while s&p futures eke out a gain.

not a lot of action this morning. it will heat up, given the two-year, five-year and seven-year options. marginally higher after a significant rally last week led by the two-year. this is the question. is the market moving away from the fed? stop it with the jawboning already. dani: we have listened to them say the same thing. they say you need more quarters of data. the market presses ahead, but we have learned the lesson about what happens when you fight the fed. lisa: i'm curious. we were talking about the yen a lot the last hour and i'm curious about the euro. we saw a lot of euro weakness but we are seeing strength this

week at a time when we are headed into french elections. it will revive this idea of being a political mess in europe. this might be the most impactful market action of the week. annmarie: she literally said, french bonds scare me. that is why you have to look to the u.s. the u.s. is so exceptional or is it because there is nowhere else to go? we have seen the repricing in the bond market but what really unnerves investors is if there is skepticism in the european union and eurozone. at the moment, that remains to be seen, but if there is this cohabitation, potentially be able get there. lisa: she doesn't believe in the euro project, at least as of this moment, that seems to be a

resilient concept. u.s. prosecutors recommending that the doj criminally charge boeing. the charges would be for allegedly violating a settlement related to two fatal crashes in 2018 and 2019. neither side has commented. no final decision has been reached. how much worse can this get for boeing? dani: boeing has already had a lot of bad news. if they lump a criminal charge unto them, it creates another headache for them. they are a defense contractor. it presumably creates a headache if the defense department is buying stuff from a company that has a criminal allegation and maybe even a charge. annmarie: they are too important to fail.

what is interesting is that the doj can basically force the company to admit its wrongdoing. it might be very challenging from an optics point of view. lisa: i look forward to the day when we are not talking about boeing anymore. the tech giants have discussed incorporating mehta's model. already named as a partner for upcoming ai features this year. it strikes me that apple is throwing everything at the wall and seeing what will stick. dani: did apple go out to every company and say, who wants to partner with me an we are in this very kumbaya period of ai and everybody is working together and kind of complicit. a hypercompetitive all knives out, who can do the best is not

going to happen. i'm not sure it will last but we have this good feeling to last a little bit longer. lisa: there is the issue of kumbaya leading to antitrust concerns. talk about the incredible one. maybe it is not nvidia. maybe it is in openai mash-up. annmarie: i think it already has peoples attention but it is hard to regulate at the moment. nobody knows what we will be using it for. apple is notorious for being homegrown elders, so i find it interesting that they find this desperate need to catch up, that they are going after literally everyone that has ai work in the pipeline. lisa: consumer confidence coming before the fed's preferred inflation gauge. core pce is due out on friday.

absent a sharp deterioration in the u.s. labor market, we expect a shallow rate cutting cycle. corporate borrowers will need to continue to elevate. amanda joins us now. this is why i find what happened last week very interesting. we have seen the spread whitening unlike what we have seen since october. is this the beginning of a reckoning of sorts with this recognition of what higher for longer really means for the fundamentals? >> thank you for having me. it has felt more choppy than it has in a wild. we are still at spreads well below the historical average, but it feels like for the first time in a wild, they have been attuned to some bricks -- risk side growth. it has been the resilient backdrop of growth that has

allowed them to absorb these higher financing costs. even though bates are much higher, we are thinking about what that looks like if we are in a higher cost environment. the counterintuitive result that we keep focusing on is that we are seeing signs of declining, distressed activity in the liquid market, which i think is really important for us to watch. does that mean that corporate's are getting ahead of this? the onus is on two things, coming in line with the good but not great expectation and we need to at least trend or trend above. lisa: how long can you actually do that before you run into trouble? they came out last week to point out that just 15% of low-quality issuers have reset their coupons

so far. people are talking about locking in rates and it is not the case for the most vulnerable companies. at what point does that become a true liability? >> we are seeing the high-yield bond market open to be minas and triple c issuers. why -- while that may not be a fool for us among the lowest firms, you are seeing them receptive to those borrowers. that is really important to watch. the activity and the commercial real estate market is probably more important. over 200 billion was supposed to mature in the market that did not. presumably, that was pushed into 2024, making that maturity wall

closer. that is something that i would view as a short-term band-aid. when the cre loans are coming to be refinanced, it is based on the rate but also the lending standards and bank lending appetite. that is probably the bigger focus for our part. we think it is a slow moving dynamic. the banks are trying to get ahead of that, but when i think about amend and extend activity, it is probably more in the cre environment. it can change quickly. dani: if we are still in this moment, the maturity wall looks deeper. you say it is slow-moving, but what does it look like? >> i do not think it is game changing. i think the direction of travel

and giving some clarity to the market is helpful. in cre, that could help the price discovery process. you could have buyers and sellers coming into alignment on what that rate environment might look like. we might have more clarity on that now than five weeks ago. on the margin, it could -- i do not think it is game changing from borrowing costs. you have structural shifts in terms of office utilization. it cannot be painted with a broad brush. even parts of multi family. this is very nuanced and regional, but i think it is more about buyer and seller expectations coming into alignment as opposed to wholesale relief. dani: you mentioned that the

syndicate market is open. that continued its in large force, but spreads are starting to widen. at what point, and are we close to it at all where you get some of the issuance backing off? >> the bar for corporate to stand down is very high. i think that it would behoove them to move forward. we have seen periods of time where the high-yield and markets have tried to selloff. it is more about the risk off tone of the market and uncertainty as opposed to an incremental cost. if they feel they cannot get a deal done, that is a reason to step down, but embracing this higher cost of debt is something that we have seen from corporate and i think it will continue to

do that. annmarie: what gives you the most concern? >> it is that central business district office. prices are down around 45% 2019. it is even worse than suburban office. it is older, obsolete office that is not being utilized and is trying to fight for vacancy. i think we have not yet seen the price discovery come through because in real estate you need transactions to trigger appraisal and volumes are still very muted. we often think about what we are in. i was operating under the assumption that we are in the six or seventh inning. others think that we are in the fourth inning. i do not think we are anywhere near that analogy.

it took months for a peak decline. i think it will be a few more quarters. lisa: i want to end on this, in the wake of the regulation that has pushed a lot of the asset class out of the banks. how much do you see untested managers loosening up covenants, being perhaps a little bit more bold or risky in their behavior. will there be a washout were reckoning as people realize that the high rate environment is here to day? >> it is something that we are watching very closely. it is that new entrance has raised 2.5% of capital. the stains that was in the high single digit. it is showing that the market is

more discerning in private capital. they had raised 85% of capital. by the way, that same figure looked different in the low rate environment. it is showing you that the market is becoming more discerning. could there be more losses? absolutely. could some of them be consolidated yes. they just have not been that successful at gaining large amounts of capital. lisa: thank you for being with us. wonderful as always. let's get an update on stories elsewhere. >> israeli prime minister bennett men that the says forces will soon focus on targeted operations against hamas. he also directly rejected for

the first time, the prospect of a cease-fire deal with hamas that could into the end of the war. part -- partnering to expand the marketplace. vendors can now apply to sell their products on target's marketplace. this is the first partnership of its kind for target plus as they look to catch up with larger competitors like walmart and amazon. bitcoin expend -- extending its drop after one of the worst this year. it fell about 5%. the worst such decline since april. bitcoin fell as much as 4% to 84 month low. lisa: next, boeing facing more headwinds. >> our culture is far from

perfect, but we are making progress. lisa: this is bloomberg. ♪

i can't believe you corporate types are still calling each other rock stars. you're a rock star. we're all rock stars. oooo look look at my data driven insights, i'm a rock star. great job putting finance and hr on one platform with workday. thank you! guys, can you keep it down. i'm working. you people are (guitar noises). hand over the air guitar.

i've got another one. lisa: the market is core pce. until then, we get a lot of second or third tier data, including home price data analyzing significantly. right now you're seeing gains in pre-trading activity. just nudging up. the euro clawing back some of the weakening of last week. yields marginally higher going into a slew of options.

crude prices up about .5%. i have to say that a lot of people are focused on what is going on with domestic politics, but internationally, it seems like there is a heating up. annmarie: benjamin netanyahu said it will be increasingly focused for israel. we have the chairman come out and say if they were going to expand in their skirmishes and it was going to get ramped up, iran would come to the backing of hezbollah. everyone was wondering if it would trigger a more widespread. lisa: it has been shrugged off increasingly to a fault. >> much has been said about boeing's culture. we have heard this concerns loud and clear. our culture is far from perfect, but we are taking action and

making progress. we understand the gravity and we are committed to moving forward with transparency and accountability. lisa: u.s. prosecutors are suggesting that they face criminal prosecution. in 2019, george ferguson joins us. i love speaking with you but i look forward to the time where we do not have to talk about billing again and again because it deems to be this anxiety producing drone. i'm sure you feel the same way. how much is this reprising the idea that there is not the same kind of oversight, even to this day, despite warnings as early as 2018. >> it is pretty surprising. coming out of those crashes, i would expect that they would work pretty hard to put all of those controls in place.

i think very surprising and another indicator of the challenge. lisa: does it give you a sense that this is a government that has their hands tied because they cannot really new to her a company that is a crucial -- is of crucial importance at a time where it does not seem to be able to put into place the necessary safeguards that even regulators have asked for. >> i do not think the regulators answers are tied dramatically. i think they get in their and do a lot of work to make sure that they implement what they have asked them to do. i think they want to be careful as far as financial findings and anything that would impede their ability to compete. boeing is not on the best financial footing right now.

they have about $17 billion in cash and they have been burning cash pretty heavily. we are watching to see if they can ramp up production to start generating cash because they cannot really survive at the levels that they are right now. they are having to be careful from that perspective, but from the oversight perspective, i think they are all in on this. annmarie: does that mean that the financial penalties that you discussed are likely? the doj could also require them to admit their wrongdoing by pleading guilty. >> i do not know how you make them admit that they are wrong. they just have to come to that point. it has been a moot point at this stage. i think people understand that billing had problems with them.

they have kind of admitted it. i do not know that it would matter much to the company's financial performance or the marketplace. i think it is kind of moot at this point. annmarie: can you give us an update on where they are with the ceo search? >> i wish i could, but we do not know. we have watched some people take their name out of contention. it is a pretty rough job that we saw from dave calhoun's testimony. the week's blur together after a while, but it is a difficult job with a lot of questions to answer, a lot of work to be done on the factory floor. i come back to, they will need a real rockstar from a manufacturing perspective. i think that is what they need.

we are not hearing much out of the company at all about where they are in the process. dani: in that process, you talked about some outsiders. wall street journal reports that he does not want the job and you need a manufacturing rockstar. does that come from inside or outside? an outsider would face boeing and an insider has been with boeing during all of these problems. where do they pick the ceo? >> i think outside the company. i think you need a fresh look. it appears there has been a breakdown inside boeing with the core manufacturing and oversight. you need someone to come in who has done it very well where else. it seems like there is a problem with boeing culture.

lisa: thank you so much for being with us. hopefully the next time we talk to you, it will be about other things. i say this because honestly we talk about that travel season and the consumer. this is what we should be talking about is the demand. they are all over europe this summer. this is how to outsmart the crowds. at what point are they not watching anymore? annmarie: i need to look at the tips before i head back to your. we are seeing this resurgence and it seems huge this summer. the concerns are about how safe is it to travel when you get headline after headline about billing. our people holding their nose and getting on the flight? lisa: i feel like as a child i

was worried about flying and then i shrugged it off. it is like -- dani: it is more risky to drive. with people who have intense anxieties, they can get something prescribed. lisa: coming up, stephanie of wolf research. really interesting talking about credit markets and the role that they play within artificial intelligence and the trends that we are talking about. you can send a sense of pullback. this is what we will be watching. can small caps continue to perform and lose favor with an increasing number of people?

this is bloomberg. ♪

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>> for the first time this year, the market starting to get nervous about the potential or

higher probability. >> you are at the point where the unemployment rate in the u.s. is low and starting to pick up. >> it is clear to me we are going to see slower growth relative to 2023. >> a couple months ago, the narrative was re-acceleration. >> the market expects a slower growth and inflation outlook. that does not mean you will have a hard landing. >> this is bloomberg surveillance. lisa: welcome back. this is bloomberg surveillance for audience worldwide. good morning. jonathan ferro is off until i believe thursday. i begin saying it is a little overdramatic. is it the beginning of the end of this big tech dominance? but that is the ultimate question we ended last week with. for the first time in a long time, small caps were

outperforming and big tech showing nervousness. maybe they cannot keep climbing to the sky. >> if tech dominance stops, can the rest of the market catch up? the things that have done the best to date our utilities and staples. lisa: which speaks to this question of are we seeing a softening that is welcome or not welcome? later this week, we get that key inflation metric and personal income and personal spending. how much can the american hedonism engine of consumerism continue to propel the economy. >> this is the question alongside jobless claims. is it going to be a trend enough to put a rate cut earlier than december? which some people are looking at september and there are big wages in the market for potentially july. lisa: one report over the

weekend caught my attention. you were talking about bifurcation of the consumer, how the high end consumers propelling spending and the reason why we have this article about what you can do to avoid crowds in europe if you are an american traveling there. there was this report from apollo. the median expectation for inflation was higher than the average. what he looked at was the idea that the lower end consumer is expecting inflation to climb dramatically over the next five years in a way that may be the higher end consumer is not. this speaks to inflation expectations becoming on more in segment of the population. how long could this divergence continue? kailey: and can the fed cut if you have concern over inflation being entrenched? one thing is can there still be disinflation if that is the case? if you have middle income and

lower income consumers who have pulled back on spending, even if the upper end is still traveling , you probably can get disinflation, so it is how much do those entrenched expectations bleed into habits? >> how much does a rate cut rignet the housing market with people still looking to get in but not looking to get out of their houses as quickly to offset pent-up demand? the way it is shaking up in markets is the divergence in the margins continuing with futures unchanged, completely flat. you can see the russell 2000 outperforming, just a fraction of the size of the magnificent seven. euro gaining versus the dollar just about up .4%. 10 year yields higher just about a basis point and crude up about .4%, traded on.

coming up, why a broad market rally is still possible. tom narayan on why tesla's bet may not pay off and stephanie roth looking ahead to key data, including the pce deflator. we begin with our big story stocks and key earnings. a question we have heard recently is what will it take for the rally to finally broaden? we continue to think earnings growth is key in big tech and the rest of the s&p 500, expected to deliver similar growth beginning around year end provided the macro backdrop remains supportive. this could go along long way toward generating a broader rally. this is the key question when it seems like you are beginning to see a broadening out, a russell 2000 that is outperforming as

people compare bets on big tech. why do you say earnings will determine the trajectory of this going forward? venu: good question. if you look at returns, it is valuations and earnings. on the valuation front, whether you break it up into big tech or rest of s&p, that being the channel is limited. what we did see in the first quarter earnings was big tech earnings even further, but finally, for the rest of the s&p outside of tech, we saw divisions moving in the right direction, so big tech move from a formal guidance of 10% to 20%, phenomenal. the rest of the market move from 2% to 5%, so they are beginning to move in the right direction. lisa: why is some of the profit

expectations increasing as smaller companies -- rates are not going down. the consumer, people say, is weakening. why are earnings managing to increase for some of these smaller, more highly leveraged companies? venu: it is not about small caps. it is the rest of the s&p. we do not even have to go to small caps. our view has been for over a year and we have not changed our view, even though this will broadening trade has been the most popular on wall street for nine months. we still remained opposite side, so we think it is large-cap source small caps. i think it is about what you figure out from first quarter earnings. for the first time, not only did we see margin continue to grow

but in the right direction. in our view, the last three quarters, improving margin all concentrated on tech. but there are some glimmers of hope. that said, our view is we remain skeptical because it is just one quarter and we are beginning to see cracks in the consumer, which means companies which took advantage of a one-time opportunity to raise prices are seeing a competitive reaction and are facing the situation where final demand -- people are becoming more careful about where to spend their dollar. that translates into some sort of margin pressure and where equity in markets need to pay attention is that, compared to historical ways the market reacts, some of the more

defensive areas of the market are where there is still pressure. so if things were to go wrong the kind protection from staples may not materialize, so this is a complex market, highly concentrated and yet very high dispersion. they are struggling to outperform the market less than 20%, so this is a tremendous challenge. kailey: why would i buy anything other than a passive s&p 500 fund right now? it will capture the upside of larger companies and if you are an active manager you are even more overweight those companies, so how does an active manager try to get fund flow in a time like this? venu: excellent question. we have not changed our opinion

since the fourth quarter of 2022. with asset allocation is the question we had recently. i'm not an asset allocated -- advocate, but you can have the market exposure to big tech and coalition between the stocks is 14% to 15%. the collation of big tech to the rest of the market is 20%. dispersion is high, so it is the way you construct the portfolio and the cash market. you are still earning 5.35%, so keep rolling it because even if rate cuts come you are still into the forest by the end of next year. maintain market exposure to big tech and then you're left with roughly 40% trying to be active and then go and find the value

that dispersion is allowing to do that. kailey: i love that you still see cash have a place in the portfolio. people have come in and said it is time to look away from that. with all of this, you mentioned things like staples are no longer your safety. where do i get safety? if i'm not just buying the s&p 500 but want to turn to an at -- to an active asset manager, where should i find a safety trade in a we portfolio? venu: that is what we try to answer recently. it is getting scary because by any metric you look at it is in the extremes. one approach we looked at is why is big tech doing well? in a host of fundamental metrics, they are killing it. how can we look outside and try to approximate those levels of financial metrics so you can try

to come close to it? if you take a diversified approach, our hope is to be balanced and see how that is doing. traditionally, asset allocation comes from the sector. you want to wear a growth hat, a quality hat, and scour the market, but keep exposure to those big six and to cash and then played out in the middle with that 40 odd percent. annmarie: i want to ask about the presidential election. we have conviction of potentially what we may see after november. how do you prepare equities for that? venu: you cannot prepare for it because the point is that it is

a close election. it could go anywhere but you can look at history to get some sense of how the market has behaved. historically, if you look at how markets behave, less than in normal years. second is in the first year they have done better but when republicans win over a 40 year period it turns out better. the biggest thing is to focus on policies and see what the impact on the market is. so if you have a trump regime and the follow-up on tariff discussions, 60% on china cut 10% across-the-board the board for the world, we assume they will, so that impact on earnings will be -- in aggregate. if you have a blue wave and

taxes go to 15%, there is a tale -- a tailwind of earnings. if democrats raise taxes to 28%, then the hits to earnings can be almost 7.5% based on taxes going up and taxes on buybacks, so it is a mixed bag. if you have a red wave versus a blue wave. our view is it is going to be divided government and that will add to the balance from some of the more extreme measures and the market will move forward. politics we talk a lot about until we enter it. lisa: thank you for being with us. let's get you an update on stories elsewhere. here is your bloomberg brief. >> nvidia shares are falling in the premarket as the stock is set for a third session of losses, on track to wipe out nearly 300 billion dollars in market cap.

the sock has -- stock has surged this year. nvidia's market cap is below microsoft and apple. also falling, bitcoin, expending its drop after crypto suffered one of its worst weeks this year . a gauge of the largest 100 digital assets fell about 5% and the seven days through sunday, the worst decline since april according to data compiled by bloomberg. bitcoin fell as much as 4% to trade at a more than one month low. tomorrow sports has secured backing from dynasty equity partners. the funding round values the company at about $500 million. tomorrow's first project is a partnership with the pga tour for an indoor golf league scheduled to launch in january

and air on espn in the u.s.. lisa: next, the morning calls. tom narayan cutting his tesla price target, talking about the profitability will not be there as much as people thought. that is next. this is bloomberg surveillance. ♪

lisa: we are still talking about traveling to europe and summer plans because that seems to be where people's minds are. we have been looking at the market try to find its footing after seeing rotation under the surface. he did hear a bit of caution from rbc capital as well as principal. we just heard from venu krish na.

their benchmark based cases for declines. time now for the morning calls. first, upgrading planet fitness to buy. analysts say the company has compelling catalyst paths, naming it a top small mid-cap. next, baird raising its price target on micron. seeing high gross margin and pricing potential. finally, rbc cutting his tesla price target. analyst tom narayan lowering for the robotaxi venture, expecting more competition than previously thought but still seeing the robotaxi is the biggest driver evaluation. tesla is expected to deliver its autonomous vehicle on august 8, which is a key feature to the robotaxi discussion. wonderful to get your take on

this. i want to start with why the robotaxi is so essential to tesla when electric vehicles are still being sold and have managed to do it all right in china. >> you cannot get to their $700 billion valuation on just a car business. it is mathematically impossible. the way you get there is through autonomy, which is fst -- fsd but really the robotaxi business. this is a high revenue business. legalization goes up more than a regular private car and it increases the total addressable market, giving people with disability and children access to mobility. it increases the overall pie for transportation and that is why

tesla is going after this so aggressively. lisa: it is the idea of a taxi without a driver, but your big issue with the valuation is you do not think this will be as profitable as many people previously thought. why? is it competition? is a demand and where consumers are willing to spend? tom: when i did this price target cut, i got a lot of pushback from tesla bulls thinking i do not like taxis. that could not be farther from the truth. robotaxis is over half of my valuation, but compared to what i thought before i have lowered my pricing assumptions with the help of our internet team and have also reduced the amount of revenues outside of their own walled garden for things like

software and i believe ultimately the app, uber and lift mac, will have a lot of say in the future of robotaxis. there will be others making cars, but i am still bullish on robotaxis for tesla. i have been giving 70% of my robotaxi valuation to their own walled garden. it is just that i have lowered the non-tesla portion of my valuation because i think there'll will be other players. this will be a regulated market. the government will not allow one player to dominate everything. that is why pricing comes down and i think other players to play a bigger role as a result. lisa: elon musk has thrown big numbers out there when it comes to valuations for the robotaxi.

this was at their shareholder meeting this month. he said optimists, -- optimus could lift their market cap to $29 trillion someday. tom: a lot of things could happen. i am not discounting that. it is just my valuation looks at businesses that already have energy storage. i give them credit for robotaxis because of the leadership they have in fsd, full self-driving, which i think is a precursor for what they will eventually do in robotaxis. currently, i do not have the robot in my valuation. we would have to see more evidence of it to see what that looks like, but this is a name that has a lot of upside potential, so i am just looking at what we know today and that is what i am using to give my valuation.

lisa: when you talk about competition, do you mean ev's from china? >> i just mean other players making robotaxis, so look at the ecosystem of regular taxis today . i do think they will be the biggest player in the u.s., but look at china and europe. i do not think tesla will dominate china. china will want to have their own. it is more to do the fact that i think overall the ecosystem will be fragmented. i think tesla will be a strong player especially in the u.s., but in the robotaxi ecosystem, especially since the government will regulate these markets, i do not think they will hold out for one ring to rule them all, so to speak. i think there will be different

players, something i wasn't really accounting for in my prior valuation. lisa: which other auto manufacturers do you think will present a competitive edge versus tesla in this field? tom: i don't know if it will be another cut like a duopoly thing. i think will be fragmented current using let's say mobilized software or someone else's software. it will be the app will have a strong play. that could be uber and lyft. we know gm is a strong player in this. i do not see why the cannot participate as well. it is too early to see who will be strong players. i see it being a fragmented market with different types of players doing different things. tesla will have a walled garden approach with the total ecosystem, but that will be some portion.

it is not like there will be another company that will rival tesla. there will be a series of different players from different angles. lisa: his price target is not exactly calling for it to go down, just not up as much as previously. i am looking forward to robotaxis. >> 2040, that is when the global adoption people think is going to happen. where does the gym come from? >> put a treadmill in. it could work. lisa: next, morgan stanley and wolf research.

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her uncle's unhappy. th i'm sensing anble gounderlying issue.me. it's t-mobile. it started when we tried to get him under a new plan. but they they unexpectedly unraveled their “price lock” guarantee. which has made him, a bit... unruly. you called yourself the “un-carrier”. you sing about “price lock” on those commercials. “the price lock, the price lock...” so, if you could change the price, change the name! it's not a lock, i know a lock. so how can we undo the damage? we could all unsubscribe and switch to xfinity. their connection is unreal. and we could all un-experience this whole session. okay, that's uncalled for.

lisa: about one hour until the open of the trading week. the last week of the half of the year of 2024 which has seen different narratives. do we see a rotation under the surface? right now, the answer is yes. s&p futures up about 1%. the russell up .3%. it is not just the russell 2000, but in general, maybe some of

the profit estimates for big tech have gotten over the skis and for the rest are not high enough. there have some incredible multiple expansion ratios. >> it has been like 20% this year. that is momentum. that is multiple expansion. when you talk about the market turning, it could be that. maybe we just jumped the shark. lisa: a lot depends on what we see in the rate space. marginal yields up after last week a significant rally across the board. we do get to your auction tomorrow, $69 billion. five year option, $70 billion on wednesday. seven-your notes coming out thursday. you pointed to a number of estimates pointing to

concern under biden or trump. some of these auctions might be important. >> they will be tracking what the candidates say regarding spending and what that could mean for the deficit. the issue is whether it is biden or trump. the deficit will rise next year especially with a massive tax fight in washington. they do care about the auctions. lisa: in the currency market, there is a bit of a backing away from dollar strength when it comes to the euro region and versus japan. we are talking about retracing some of the weakening from last week. higher by .3%.

this is fascinating, the idea of dollar weakness versus yen strength. he is highlighting the interest in raising rates again to stave off weakening. >> throwing literally everything up the wall, and it does not work. the yen still stuck around 1.60 per dollar. they do not want to see talks of rate hikes, they actually want to see it. it got pushed back after the last meeting. the market says we did not get details, we will need those first before you hike so we will wait. lisa: i wonder how much pressure there is from people sick of seeing american tourists? they say the longer the dollar remains strong, the more tourists we will see, come on, bank of japan, get going. another reckoning for boeing. u.s. prosecutors are recommending the department of justice bring criminal charges

against the plane maker. those would be related to violation of the settlement related to 22 crashes beyond the fraud-conspiracy charge. sources are still not specifying which criminal charges the doj could be considering. how far can the department of justice go given concerns about financial viability and this is the preeminent plane maker of the united states. >> what george ferguson was talking about was whether the doj can force boeing to say we are guilty. optically, it is bad. to his point, the damage is done. there could be financial penalties, but also a third party to come in and monitor what the company is doing and if they are complying. you have to think, why have they not done that already? lisa: how many months has it

been? nine months? but also a number of years from 2019. bytedance and broadcom are in talks to develop an advanced ai processor. the proposed chip would comply with u.s. trade restrictions on china. the companies have not reached a deal. if they do, the chip would reportedly be made by tsmc. everyone is talking about geopolitical risk, the idea of cross-border insulation, and we see broadcom partnering with an entity that is supposed to be banned in the united states if senators have their way. how do we make sense of how this factors together? >> it feels like broadcom is carefully crafting the deal so it can fit within u.s. regulations. when they announced they had a new customer, they did not say its name.

these chipmakers need more diversification. the customers are so concentrated in the big u.s. tech names. i think 20% of nvidia revenue comes from meta. maybe you skirt around trade restrictions to help the diversification of revenue so you are not caught out if meta one day says we are going to curb some ai spend. >> it is certain ships the chipmakers cannot sell to china. broadcom is saying i will build around that to make sure i can still supply bytedance and other companies in china. it reminds me of what people say about sanctions. sanctions do not necessarily work, they just create new markets. these are working for some and also create new markets. lisa: they want to make sure the new markets can move forward. investors are looking ahead to a busy week.

we will also get data including consumer confidence, new home sales, and the key pce data the fed looks at so carefully. joining us now is michael mckee. what are you tuned into this week? michael: there is more fedspeak but it will not be decisive because we are waiting for data it would make a difference to them. we get that on friday. the pce index for inflation will be the highlight of the week. the problem is we already know what it will be. you can plug in the numbers and get that one on the screws. if we get that, that is more evidence we move forward. i do not think the bond market moves a lot on it because this is basically priced in. i do not think any of the fed speakers will move the needle this week. they did not last week. we are kind of in a holding pattern right now. it will be interesting to see

what happens with the auctions because we have had mixed results. we have had a couple of tales. the last few auctions stopped through and there was more demand than anticipated. people are still buying u.s. paper. that is kind of the question about all of this. what will make anybody in the bond market care? lisa: maybe summer holidays when they want to go away and not be dissipating in the market. the good news is we already know what it will be, so what are we expecting? michael: we are expecting it to go down, the headline to be unchanged, and the headline number going down. you are getting closer and closer to the fed target of 2%. if you extrapolate it out, you can see easily cutting rates by

the end of the year. the question is, how much do we move between now and then? does it bring september back into play? lisa: thank you, michael mckee. to get a sense of how to frame the week ahead and the path of rates going forward, joining us are our guests. you think rates are expected to go lower over the next couple of weeks. why? >> we are looking for the 10 year rate to trend to 4%. in the next couple of weeks, we could see a continuation of the softer economic momentum. that has brought 10 year rates back down lower in many folks were expecting.

we have seen the softening in economic momentum. seasonals tend to put downward pressure on inflation and growth in the summer months. we expect that to be the case which will bring growth expectations down. inflation should continue to miss. core pce should come in around 1.5%. that should allow the fed to be able to cut in september. lisa: do you agree with that? the data is cooperating with the auction scheduled to allow yields to decline? >> we are expect they are in line with the average. i think the economy is showing signs we expected. i would say distillation but not falling off the cliff.

we expect core pce will not be a big surprise on friday and we expect to see 10 basis points in the core pce numbers. all of that points to distillation in the pace of inflation, setting the stage for a september cut. lisa: how much confidence do you have? it sounds like a lot. is it true that we have seen the peak in yields? >> i think we are fairly confident on the trajectory over the rest of this year. we are confident inflation will continue to decelerate. we have probably seen the spike in rates. we think we are at the tight end of the range. at this point, we are neutral

pending how the debate will turn out. our expectation is rates will be lower. lisa: disagreement is what makes the market, luckily. stephanie, i have to give you immense credit for this wonderful pun, ore never. the lag that feel like it has never shown up. you think that will finally show up in june. why? >> we have not been calling it for any particular month until this month. the reasons are twofold. seasonals are going the other way. we should have seasonal downward pressure by a number of basis points.

there was a funky surge in the new york region which contributed about 12 basis points to overall oer. not should also put downward pressure. bls put out comments it was driven by noise in the region. >> we are talking about the next couple of weeks and months because that is all we can talk about. beyond that, it is difficult to have visibility. it raises the question we were talking about earlier. if you do get a fed rate cut, it could reignite inflation, particularly in the housing market. stephanie, do you believe that based on how much pent-up demand there is and the likelihood of an increase in affordability will unleash a flood of interest? >> there is an argument to be made it could be disinflationary. our base case is it will probably be more neutral.

the demand is still there but now you will get a lot of supply of existing sales because rates are coming down and it is more attractive than it was when mortgage rates were 7%. you might get more normalization in the supply and demand imbalance that could keep prices somewhat stable. >> this is an argument we have heard. i guess this is the reason it is hard to gauge the bigger risk right now. is it potentially inflation or a hard landing recession? i do not have a clear answer. it seems every investor has a different take. where do we stand on this? which is the more compelling risk? >> there are a host of uncertainties ahead of us for the next six month or so.

we get to the same answer as stephanie with perhaps a different approach. we look at the leading indicators and the index. we think there will be a lag over the next two months. i think a lot depends on what happens after. i do not think the fed cutting in september will unleash enormous supply into the market. we expect to see some supply. we think the pace will flow from now to the end of year. our base case is 2%. it is still positive but the pace will slow. we should not forget there is a huge range of uncertainty with elections and a larger range of uncertainty over the outcomes of the election. all of that is front and center. there is a lot of noise.

it is tough to sort through the noise. over the next six months, inflation will be an issue. >> we will see a lot of political noise with the debate on thursday. you write that the administrations may look more similar than people expect. >> people are worried about trump cutting off inflation and he will likely cut off the flows. the labor market might be in better balance by the end of next year so that we do not need all of those people. that might risk putting upward pressure on the unemployment rate. it might not be as inflationary as folks expect. the second is on tariffs. our base case is they would not go into effect until late 2025, early 2026. inflationary forces of the difference in administrations might not pan out next year.

2026 if we get tariffs, that would be a dramatic game-changer between administrations. for the first year, the economy might look fairly similar under both administrations. >> the writer will certainly -- the rhetoric will certainly look different. with immigration and tariffs, what happens, we might not see until 2026. >> we might not know how to think about elections after that. in the fixed income space, that put that in the range of spread products. as long as you take out that the next move by the fed is not a

hike, with the timing of cuts and when they arrive in the various policy options, it might add less to the spread products. >> what do you think will be the low in the next six months for the 10-year? >> i think we will get close to 4%. >> you are both on the same page about 4%. stephanie and vishy, thank you both for being with us. here is your bloomberg brief. >> president joe biden taking on donald trump over the topic of abortion in the video released this morning. it marks two years since the supreme court overturned roe v. wade. >> progress shattered just because the last guy got four

years in the white house. we know what will happen if he gets another four. they will try to ban the right to choose nationwide. >> trump has said he believes laws over abortion should be left to the states to decide. the topic is almost certain to come up at the first presidential debate on thursday. a hack disrupting car dealerships is in the process of being resolved. they are giving an update after auto dealers have faced days of disruption. cdk is only one of a few providers. packers work depending -- hackers were demanding millions in payments. the wall street journal reporting meta and other companies developing generative ai are hoping to take advantage

of apple's massive distribution through iphones. when apple intelligence was unveiled earlier this month at the developers conference, openai's chatgpt was announced as the company's first partner. lisa: thank you so much. the conversation continuing about the housing market. you raise a great question, is it disinflationary, inflationary? will housing prices finally go down for some people? >> people see a cut and think now is the time to move. how many come in and release supply? lisa: it is not as if affordability is getting better. next, setting you up for the day i had. you are watching "bloomberg surveillance." ♪

lisa: about 38 minutes to the start of the trading day, counting the opening bell. the san francisco fed president speaking at 2:00 eastern. tuesday, consumer confidence data and more fedspeak. wednesday, new home sales. thursday, durable goods and another round of jobless claims. friday, the pce deflator and the university of michigan consumer sentiment. you have the first u.s. presidential debate on thursday. voting in france this weekend. the question is not just what this means politically but also what it means for markets. >> the stakes are very high not only politically but also for markets. you all talked about sadly it is politics, but politics and u.s. stability is an underpinning of the market that have been taken for granted so long that most

investors do not even think about it. that is being tested. lisa: that really is one of the most important aspects of this week given what we saw in the french market. annmarie: this week has a lot of politics. paul says markets are rarely that good at pricing political risk. because it is brought up in the calendar space, so much earlier than we expect, markets have started paying attention to it more now than they would historically. lisa: it is not that i do not like politics. it is that you cannot say something that will be insightful in a way that will be predictive about politics at such an unpredictable time. that is the reason there is this feeling in markets that you do not know what to do with it. that is one reason i find it

fascinating so many people have hid out in big tech saying this is agnostic on the political and economic cycles. >> consumer staples are not a safety trade anymore. because her is squeezed. you are worried -- the consumer is squeezed. the only place they have to go is big tech. i'm interested to see if the weakness last. nvidia is down 2%. small caps are doing better. what happens if the big tech trade is taken out? where do i go? i am not certain i can go to the small caps and sensitive sectors and get any juice when we do not know where the economy is headed. lisa: that is why friday will be so interesting with a crucial point of view with the politics. >> absolutely. inflation and the economy continue to rank number one on this side of the pond and with

polling in france. the reason marine le pen's party may do well is people in france trust the right wing more when it comes to the economy. i'm struck by the fact that inflation expectations are becoming unanchored and we are seeing a diversion on the socioeconomic scale. lisa: inflation expectations becoming unmoored. coming up tomorrow, our guests. from new york, this is "bloomberg surveillance." ♪

>> from new york city, for our viewers worldwide, i am matt miller. futures the lower as nvidia falls in the premarket. the countdown to the open starts right now. ♪ matt: coming up, futures flat as investors void the latest read on inflation. the first debate on thursday. how much upside is