Citigroup, Karen Moscow, Tom Keene discussed on Bloomberg Surveillance


Karen Moscow, along with Tom Keene and Paul Sweeney and the S&P 500 ish higher at the open it's up 1% or 38 points at 36 93 the Dow Jones Industrial Average of 7 tenths percent or 209 points at 29,462, and the NASDAQ F 1.4% or a 147 points, a 10,950 ten year treasury up 6 30 seconds yield 3.9%. The yield on the two year 4.26%, nymex crude oil up one and a half percent of a dollar 14 at $77 83 cents a barrel, go make schooled up 6 tens percent or 9.7 cents at 1643. The Euro .9622 against the dollar, British found one 7 four four, the N one 44.70, and Bitcoin is at more than 5% at $20,130. Tom and Paul. Thanks so much, Karen. Sterling gives it up a one O 8 down to a weaker one O 7 54 versus dollar. It's sort of inside baseball for global Wall Street, but we'll go with it after the drama of yesterday. It's got working with drama. It's Citigroup. He joins us right now in the equity market, Scott, buried in your note. I mean, buried in your note is earnings revisions are actually going up. 104% of our audience is stunned. Explain that. Well, there's a seasonal aspect to the earnings revisions trends. They tend to move lower as you go into a reporting period and then they will oftentimes begin to turn higher on the other side of that. So we're still in the period here where we're seeing a little bit of recovery off of what happened with Q two. Of course, Q three earnings are just three or four weeks away from and so we'll have to navigate this trend again, but for now it looks like the revision patterns net net are showing some signs of bottoming after being under duress for the better part of the past several months. All right, well, given that background Scott, let's just flow right into valuation. I mean, we've got the S&P off more than 20% year to date. Where are we in terms of valuation? Are you hearing any of your clients saying, hey, we're starting to nibble here. Things are looking pretty attractive here. Well, you know, I would say that the circumstances evaluations is that we're we've come down to fair amount. We're looking at roughly 17 times our end of the year 22 estimate. And so I think that's some comfort Paul, but the issue that's unfolding here is that on the heels of last week's fed action and commentary that it appears they might be willing to accept a recession. If that's what it takes to get the CPI down to their target 2% in that scenario, you get more concerned about the earnings growth rates for 2023. So while valuations on 22 numbers might be looking more attractive, there's still this uncertainty for bailing regarding how next year's earnings profile shapes up. All right, well, given that kind of earnings uncertainty, economic uncertainty, we certainly know interest rates are going, are there some sectors that you guys at Citi feel more comfortable with kind of waiting this out if you will, giving underperformance. We've already seen. Yes. So with this uncertain economic situation ahead, what we've done, a week or so ago, we actually lifted tech from a long-standing underweight to an overweight position and we're leaning now more into the growth side of the market. The thought here is that you evaluation corrected on fed rate actions up to now and we do think into an economic slowing of the tech sector should show more earnings resilience than other sectors and so again on the heels of this setup, we're stepping back down that path. I mean, this is non linearity and equities that nobody ever talks about, but the fact is Scott, you correct my numbers. If something has a 23 multiple and you go down to 17, the value Ness of going down one more notch to 16 is extraordinarily difficult to do. So what you're saying is all the work's been done, start getting on board here. Is that dive that right? Yeah, I think what we're saying here, Tom, is that the valuation impact of rates we think is lessening the importance of the rate impact on economic activity is increasing. And so we have to think less about the multiple contracting issue of rising rates more about the economic consequence there we think. Well, tech is marginally more attractive. What does revenue do with the tech companies? I mean, this is not Scott kroner, but the Citigroup and the rest of them. What do they say about revenue dynamics at tech growth companies? Well, that's part of what's so interesting about this. You look particularly at say, for example, the software sector, more of these companies have adapted a subscription based model. So what's happening is that there's more predictability to their earnings than there has been in the past, which is part of why they get high multiples. Generally speaking, but we think that also can serve them well sort of in a more trying economic backdrop. Earlier this morning Scott Tom and I were talking about the vix here it sits here at just over 30. We were a little surprised that it's not higher. Given the sell off we've seen this year, given the big seems one and two price 2% moves in the market almost on a daily basis, that the fix isn't higher. How do you guys think about that? Well, you know, I guess my simple take on this is that you tend to get the higher mixed readings when there's an actual shock to the system and in our view that shock hit earlier in the year as the fed policy, the Russia Ukraine situation, we're all kind of falling into place. What's been happening since that first part of the year has been a more natural ongoing evolution. And so the shock effect has been left. Now, many people are still watching the vix as a contrary indicator and I think levels through 30 ten to get a little bit more interest. But I think that's the way to think about the other aspect here that comes into the discussion occasionally is that, gosh, positioning is already so negative, there may be actually an angle here where there is an ongoing covering of in the money volatility positions. And so the long story short is that yes, I think there is still a risk that moves higher, but I think the shock effect is the system. What's happening here is more of an incremental concern regarding fed policy versus what we were feeling in the earlier part of the year. He's got one of the sectors that, you know, up until a couple of years ago, we didn't really talk a whole lot about versus maybe some of the early days when you and I were in the market. Is the energy space. And it's been one of the places to hide out. But now we've got, you know, WTI crude oil, back below 80, you know, it had hit one 20 and change. How does energy screen for you? Well, okay, so energy is a really interesting one. So I think that there's the school of thought out there that energy prices oil prices will be resilient. Just because of the global economic and geopolitical uncertainty. And what I would say is that the house view has been that oil prices could fall towards 80, which is what we're circling around on right now. We've been market weight all year, we think you want exposure, but the other side of this is that in a recession circumstance, which is being discussed for next year, that's a demand destroyer for energy use. And so it's conceivable that in a recession, oil prices could fall further. I would say that since we're comparing where we are right now today with the June lows in the S&P and I would say since the June lows, the energy sector is among your worst performing sectors. Something's changed within the market where value is hitting new lows, growth is being a little bit more resilient. So we want to keep it exposure to energy, but it's not an overweight in our view. The cash debut. I talked to a portfolio manager in Texas today who is de minimis cash. They're loving enjoying placing assets now. Other people are up to cash far beyond their mandate. Where are you on that? Well, I think what's happened is that cash is becoming alternative as it's now earning income versus where we were even a year ago. And so there's no doubt when we look at our cross asset models. There's still right now there are still a bias in favor of fixed income instruments and what I would say is that again, the point is here that the interest that you can now earn on cash as money market fund yields move higher actually presents an alternative in an uncertain economic and market environment. So I say that that cash is certainly part of the equation. We're watching a closely because we think

Coming up next