MARIA: WELCOME BACK.
FUTURES ARE MIXED THIS MORNING,
STOCKS FINISHED DOWN YESTERDAY
ACROSS THE BOARD AND THIS WE ARE
LOOKING AT THAT CONTINUING.
DOW INDUSTRIALS DOWN 29, S&P
DOWN 2 AND A QUARTER, THE NASDAQ
HIGHER, IT IS UP 3 AND A QUARTER
AFTER A BIG SELLOFF YESTERDAY.
MARKETS DOWN ABOUT 1%.
JOINING ME NOW, HORIZON
INVESTMENT CHIEF INVESTMENT
OFFICER, SCOTT LADNER.
SCOTT, GREAT TO SEE YOU.
WE’RE WAITING ON THE PPI NUMBER
COMING OUT AT THE END OF THE
WEEK AHEAD OF THE FEDERAL
RESERVE’S MEETING NEXT WEEK.
WHAT ARE YOUR THOUGHTS THOUGHTS
DRIVES MARCHS GETS GOING INTO
YEAR END.
>> THANK YOU FOR HAVING ME.
COMING INTO YEAR END THE TRADE
THAT’S BEEN WORKING FOR THE LAST
MONTH IS PROBABLY YOU GOING TO
WORK FOR THE NEXT FEW WEEKS AND
THAT TRADE IS P DRIVEN LARGELY O
POSITIONING.
LARGE AGO ET MANAGERS AND HEDGE
FUNDS AND RETAIL INVESTOR AS
WELL, PEOPLE ARE NOT INVESTED IN
THIS MARKET RIGHT NOW.
IT HASN’T TAKEN A LOT TO DRIVE
MARKETS HIGHER.
WE THINK THAT CHANGES.
WE SEE SIGNIFICANT GROWTH
HEADWINDS AND THAT MEANS
EARNINGS HEADWINDS.
AS WE COME INTO NEXT YEAR WE
THINK WE NEED TO REMAIN SOMEWHAT
CAUTIOUS BUT PROBABLY THE PATH
OF LEAST RESISTANCE FOR THE
REMAIN DOCTOR OF THE YEAR IS
HIGHER.
MARIA: IT’S ALL ABOUT THE FED,
RIGHT, ABOUT WHETHER OR NOT
WE’RE SEEING AN EASE-UP IN
INFLATION.
WE’VE GOT THE NOVEMBER PRODUCER
PRICE INDEX OUT ON FRIDAY.
RIGHT NOW, THE EXPECTATIONS CALL
FOR A GAIN OF TWO TENTHS OF A
PERCENT MONTH OVER MONTH AND
7.2% YEAR OVER YEAR.
WE’VE GOT THE DECEMBER FEDERAL
RESERVE MEETING NEXT WEEK.
WE ARE EXPECTING THE CENTRAL
BANK TO RAISE RATES HALF A
PERCENT, 50 BASIS POINTS.
ARE YOU IN STEP?
DO YOU AGREE WITH ALL OF THAT?
AND DO YOU THINK THIS IS PRICED
INTO THE MARKET OR WILL THIS BE
A MARKET MOVER THIS FRIDAY?
>> WELL, LOOK, IT CERTAINLY HAS
THE POTENTIAL TO BE A MARKET
MOVER.
THE THING THAT REALLY MATTERS
RIGHT NOW IS STILL INFLATION.
THE LABOR MARKET BACKDROP IS
IMPORTANT.
BUT INFLATION IS REALLY THE
THING THAT THE FED CARES ABOUT
RIGHT NOW AND THE DYNAMICS
GENERATING THAT SO FRIDAY’S PPI
REPORT WE DO THINK WILL COME IN
A LITTLE SOFTER.
WE’VE SEEN SOFTER INFLATION
PRINTS OUT OF CHINA, THAT DOES
TEND TO FEED INTO THE UNITED
STATES EVENTUALLY.
AND SO WE DO THINK THAT TOP IS
IN FOR INFLATION ON A MONTH OVER
MONTH BASIS BUT THAT’S REALLY
FOR GOODS INFLATION.
THE NEXT THING, THE NEXT SORT OF
HURDLE ON THE INFLATION FIGHT
FOR THE FED IS GOING TO BE WAGE
INFLATION.
BECAUSE THAT REALLY DRIVES THE
SERVICES PART OF THE EQUATION
AND SO WAGE INFLATION IS GOING
TO BE LIKE REALLY DETERMINING
SUPPLY AND DEMAND OF LABOR AND
WE’VE GOT TOO LITTLE SUPPLY OF
LABOR, PARTICIPATION RATES ARE
TOO LOW AND LABOR HE DEMAND IS
TOO ROBUST.
COMPANIES ARE NOT FIRING FOLKS
YET.
THE FED REALLY NEEDS COMPANIES
TO START FIRING PEOPLE.
THEY NEED SOME SLACK IN THE
LABOR MARKET TO BRING WAGES
DOWN.
THAT’S THE FIGHT THAT WEE THINK
WE’RE IN FOR THE FIRST PART OF
NEXT YEAR.
WE’RE NOT QUITE THERE YET.
MARIA: AND THE WALL STREET
JOURNAL THIS MORNING REPORTS
LAYOFFS COMING AT PEPSICO, THAT
THE COMPANY IS GOING TO BE
CUTTING OUT OF ITS BEVERAGE
UNIT.
I’M WITH MARK TEPPER THIS
MORNING.
MARK, JUMP IN.
>> GOOD MORNING, SCOTT.
SO LOOK, I 100% AGREE WITH YOU
THAT THE FED NEEDS TO BREAK THE
LABOR MARKET IN ORDER TO COOL
OFF WAGES AND THAT’S SOMETHING
THAT THEY’RE NOT GOING TO COME
STRAIGHT OUT AND TELL YOU
BECAUSE THAT’S NOT GOING TO WIN
THEM A LOT OF FRIENDS BUT VIA
QUESTION.
AFTER REVIEWING YOUR NOTES, ONE
OF THE THINGS YOU MAKE MENTION
OF IS THAT ONCE THE FED STOPS
HIKING RATES, WHICH I THINK A
LOT OF PEOPLE ARE EXPECTING THAT
WOULD BE MAYBE SUMMER OF NEXT
YEAR, THAT THAT’S NO LONGER AN
IDEAL BACKDROP FOR VALUE STOCKS
WHICH HAVE WORKED VERY WELL SO
FAR THIS YEAR.
IN YOUR OPINION, DO YOU THINK
THAT ONCE THE FED STOPS HIKING
RATES, THAT MEANS THAT GROWTH IS
GOING TO COME BACK INTO FAVOR?
>> YOU KNOW, MARK, WE DO.
THE BACKDROP FOR VALUE HAS BEEN
REALLY EXCELLENT IN 2022.
WE’VE HAD HIGH RATES WHICH
BROUGHT MULTIPLES DOWN WHICH
HURT LONG-TERM GROWTH STOCKS
QUITE A LOT.
YOU’VE HAD REALLY, REALLY STRONG
NOMINAL GDP GROWTH AND SO VALUE
STOCKS EXCEL IN AN ENVIRONMENT
WHERE U.S. IS GROWING REALLY
FAST.
NOW, PARTLY WHY THE U.S. IS
GROWING REALLY FAST IS BECAUSE
WE HAVE HAD HIGH INFLATION BUT
EARNINGS ARE A NOMINAL VARIABLE,
NOT A REAL VARIABLE.
THE EARNING STREAMS FOR SOME OF
THESE VALUE COMPANIES, GROWING
FAST OR MORE QUICKLY THAN THE
UNDERLYING NOMINAL GDP RATE
WHICH HAS BEEN REALLY STRONG
THIS YEAR.
AS YOU GO INTO NEXT YEAR, NEXT
YEAR’S A VERY DIFFERENT STORY.
IT’S FAIRLY CLEAR, WE’VE GOT A
CONSUMER THAT EVEN THOUGH
THEY’RE IN OBJECTIVELY PRETTY
GOOD SHAPE, THEY DON’T FEEL
GREAT.
WE SEE NOMINAL GDP COMING BACK
DOWN.
THAT’S NOT AN IDEAL PROP BACKGRO