Bloomberg The Launch 02/20/2024

From New York City for our viewersworldwide, a very good morning. I'm Manus Cranny in for Jonathan Ferro.Do you have pre stage in video in these equity markets?Do ahead of those numbers tomorrow. Let's see how we go down as we countdown to the market open. It begins right now.Everything you need to get set for the start of u.s.trading. This is bloomberg the open with JonathanFerro. Coming up on the show, markets on edgeas traders start questioning the Fed's next move.Earnings season failing to move the.

Needle with Nvidia angst up next.And it's the biggest deal of 2024. Capital One agrees to buy Discover for$35 billion. But we begin with that big issue.Is the consumer starting to crack? The consumer has been trading down.I mean, we do continue to see that. And I think Walmart's strength reflectssome of that. It doesn't mean it's all bad for theconsumer out there. I do think that the consumer is choicefor, as Walmart said, and it has been able to spend where needed.Walmart topping the earnings estimates, but delivering a relatively subduedIsaac.

Home Depot posted the fifth consecutivedecline in quarterly sales. So what does it all mean for theconsumer and for markets? Let's bring in my guest this morning tojoin the conversation, BlackRock's Tony DiSpirito and Sonali Basak from FranklinTempleton. Good to have you with us.Two huge reports, which in some ways tell us a little bit about how theconsumer feels right now. Tony, good morning.The language used in the report from Wal-Mart strikes a restrained kind oftone. First take.Yeah.

So, look, I think if you look at theeconomy, the economy has been very strong and even maybe accelerating.If you look at fourth quarter GDP or if you look at GDP, GDP now estimates forthe first quarter of this year. So I would say the economy is good.Then you look at jobs. Unemployment's 3.7%.That's really good. And then you look at wages.Wages are also been very strong. So I think broadly the US consumer isstill in very good shape. Now there are a few yellow flags thatwould think of us maybe having a little bit of a slowdown here.You know, if you just look at consumer.

Savings rates, they are low relative tohistory. The consumer savings rate last reportwas 3.7%. I would think of something a little bitnorth of six as more normal. So you would expect it to slow down abit. But I think the consumer is still reallystrong. And any worries about the US consumerare misplaced. Yeah, UBS is favorite phrase.Don't ever bet against the hidden ism of the US consumer and it's not.Good morning to you. Good to see you.In terms of the takeaways for the bond.

Fixed income investor from an equityreport, it's always hard to discern. But in terms of that cautiousness fromthe consumer, it could be an indicative to pricing and to that disinflationnarrative. So I think that the real thing here tothink about is that the disinflation narrative got ahead of itself.We have always said, I've always said move from 9 to 4 was going to be a loteasier than 4 to 2. And I think that kind of stuck where weare. So it's less about the bond market.You know, if I look at ten year yields, I don't think ten year yields are aheadof themselves.

What was ahead of itself in a sense wasthe pricing of Fed rate cuts, which I think had gone way too far.And on balance, I would say equally overdone are the new fears that the Fedis going to hike next. I don't think that it's in line with theidea that rate cuts get pushed into the second half of the year.And on balance, the Fed may choose to go 50 instead of 75.Okay, Well, let's dig a little bit deeper into these two reports.We've got Katie Greifeld alongside me. We've got the retail earnings rolling.I had mixed results, Walmart and Home Depot this morning.Katie Greifeld joins me on breaking.

Those numbers down.So, Katie, what is the language here? They are being choice for at Wal-Mart inthe aisles choosey when it comes to Wal mart, you actually see shares quitehigher even though it did come out with that language.Take a look at Home Depot. It's down in the wake of these results.So let's start with the bad news. Let's start with Home Depot, becausethat is a fifth quarter of comp sales declines that we learned for Home Depotin this report. Specifically, comp sales fell three anda half percent in the fourth quarter. But Home Depot said it also expects a 1%drop in comp sales for the entire yield.

Year.That is what is dragging down the stock right now.So that down beat forecast less like most things at the moment, madness thatcomes down to higher interest rates, mortgage rates.In Home Depot's case, they're still very high.That is weighing on home sales and new construction.As a result, demand for home improvement.A different story over at Wal Mart. Like I mentioned, it actually toppedestimates. It did deliver soft guidance for thecurrent fiscal year, as you said, Slate.

Citing those selective spenders.But the CFO was quick to point out that Wal-Mart is gaining share in nearlyevery category. Perhaps, of course, as consumers tradedown. Wal-Mart also said it's buying smart TVsmaker Vizio for about $2.3 billion, just to top things off.So that's the setup as we really head into the heart of retail earnings.Yeah, it is a Goliath, isn't it? Just captures everything on the way upand on the way down. You're just riding those waves like pureKatie. Thank you very much.My guest this morning are Tony DiSpirito.

And Sonali decide.They join me to discuss where we are. I look at last week, I look at thebeginning of this week and I look at the three incidences that took place.CPI are chronologically CPI, API and University of Michigan jobs.I had them with me this morning. Michigan consumer sentiment data isentertainment and not substance. We can debate that in a moment.The back up in yield. So now.Good morning. Where are we?Do we go into some kind of suspended animation on inflation and rates in thismedium term scenario?.

So, you know, I have been calling for ahigher neutral rate for quite a while. I think the neutral rate for the U.S.is closer to four and 2 to 2 and a quarter, which is what the Fed has beencalling for and what markets anticipate. And I would just say if neutral is ataround four with Fed funds at five and a quarter to five and a half, sure,they're restrictive, but we're not as restrictive as potentially we would beif we thought neutral was at two. Now, this matters because it just meansthat you will get a more drawn out return to that 2% target.It doesn't mean that the Fed has to jump right back into a hiking cycle, but justmeans you delay that cutting cycle and.

If I look at the real economy, the realeconomy is in a good place to maintain this level of rates.Sure, it's not fantastic. I see that, you know, you see that onHome Depot's earnings. You see that mortgage rates all of theabove. But the reality is the economy is nottanking here. So do we go to suspended animation for aquarter to four and a half for ten years?I think that's not a bad place for ten years to land.Do you think you're slightly on the right hand tail risk there of assessingwhere the neutral rate is at four?.

Oh, I think I'm we are.I was trying I was trying to I was trying to be gracious and sort of notvery confrontational. No, but I think it is way out there.But here's the thing. Think about where we're coming from.You look at productivity. We see productivity over the last ninemonths. It's picked up quite substantially.If you actually look at where neutral sorry, did I say neutral real rates?I said 4% nominal, 4% nominal. Excuse me,but real rates. If I look at where a Fed funds neutralreal rates were from 1950s all the way.

Until the global financial crisis, wereally were looking at two, two and a half year.So if you think about inflation at two and you think that real rates actuallyneed to be closer to where they were historically prior to the globalfinancial crisis or the flooding of markets with liquidity, it doesn't takea lot to get you up to four. No, it does.It does not. It does not.And I think it's reasonable if you think and if you think productivity has pickedup, which actually does appear to be happening, if this is that final pick upin productivity, that would also argue.

For higher neutral rates.Tony, where do you come in on this debate and how important is it for theequity narrative for you to continue to deploy?Given what we've just had and I'll put forward in terms of the neutral rate.Sure. So from an equity perspective, the waywe look at it is there's earnings on the top and the numerator and denominator isessentially the risk free rate. And that's your calculation of what theS&P 500 is worth. And a couple of things.One is I looked at the economy and again, I think the economy has provenamazing, really resilient.

Inflation's coming down.Yeah, we saw a little bit of a blip up in January, but I don't think that's aninflection point. I don't think that's a change in thedirection of travel. And so I think the economy's healthy.So that probably means good things for earnings growth.And you're seeing companies be really aggressive in terms of right sizing,extracting operational efficiencies, etc..So I see earnings as fairly healthy. And then when it comes to discountrates, I accept the ten year Treasury where it is.And when I look at on that basis, stocks.

Look pretty decent to me.The other thing I would comment is if when you look at the S&P 500, while thatp multiple looks high relative to historical averages, the s&p 500 is alsobecome a lot more of a growth index over time as it's dominated by themagnificent seven. And so you really need to look at theequally weighted S&P 500 which is at a discount of about 23 24% versus the S&P500. It's multiples only about 17 times.Looks much more in line with historical averages.So I look at rates and I think where we are is just fine.Okay.

You touched you've both touched on theseminal theme, which is productivity. We're trying to work out what I will dofor productivity. None of us know, and anybody who comeson this TV show and tries to say that they understand what that's going toimpact me, I would question them aggressively.But Tony, to you, you said we need to be nimble to know where the opportunity isat a given stage of the progress makes investing in general.I very much an active pursuit. And this is as Jen I itself and smartand and evolves we have in video thanks this morning we've had it for about fivedays or so we're getting ready for.

Nvidia.But when you look at nimbleness within AI and within tech, can you just shine alight on that? What does that really mean forinvestors? Well, two comments, ones about the techindices and about indices broadly and then the other comments about theevolution of AI. In terms of the indices, what we'reseeing is more and more concentration in the indices.And if you look at the academic literature on diversification, some ofthese indexes are becoming less and less diversified.I'll take the tech, the world tech.

Benchmarks and not just a U.S.a world tech benchmark. Three companies account for about 45% ofthe weight in the benchmark. No one would call that a diversifiedportfolio. So I think in some of these areas,active management is becoming increasingly important as the indicesbecome increasingly skewed. So that's a general comment on activemanagement. I think in technology, active isparticularly important. Know we think about AI in terms of atech stack, right? And at the bottom layer of that techstack is the hardware, the chips, the.

Servers, etc.and that's where all the attention is right now.That's largely well known. What's more interesting is as you moveup the tech stack to the software layer and ultimately to the data layer, that'swhere it gets really interesting. And so I think some of the mostinteresting investments we had in BlackRock and fundamental equities aremaking today are at that data level. Companies that have their own uniqueproprietary data sets where those data sets, you know, they're valuable today,but they become even more valuable with a AI.The data becomes more productive, more.

Valuable, and these companies can priceup for it. So what we're doing is kind of moving upalong that tech stack from the hardware layer to the software layer, ultimatelyto the data layer itself. And that requires real fundamentalresearch, and that's where value evolves over time rather than just two and 200%return on equity in the space in the space of a month and a half.Tony, Stay with us, sir, Now, great to have you with me this morning, my guestson the markets. Let's get across to Abigail Doolittle.She's side by side with me, looking ahead of the opening bell.What have we got?.

Be Well, we may have the futures lowerat this point, but we do have at least one stock that is soaring.And of course, I'm talking about Discover Financial up at this point, up12.4% on the news. A capital one is agreed to buy them for20, $35 billion, the biggest deal of the year.That brings together two of the biggest credit card companies to compete forsome of the huge money center banks. Wal Mart up nearly 5%, heading to arecord high on the open strong quarter. Same store sales of 4% were better thanthe 3.1%, as, of course, it was confirmed that they're buying the TVmaker Vizio.

And then Home Depot down 2.3%, as Katiewas talking about earlier, the fifth straight quarter of comp sales decliningin this case, down 3.5%. Some analysts are saying the guidance isunderwhelming and apparently high mortgage rates are impacting DIY demandand, well, we have those shares down 2.4%, a big.Contrast to the game that we're seeing for Wal-Mart.I've got to get myself back to Home Depot, pick up a little bit of extracash. Abbi, thank you very much.Abigail Doolittle there. Coming up on the show, the Fedofficials, guess what?.

They're pushing back to finish the job.We'll take fortitude. We will need to resist the temptation toact quickly when patience is needed. And the Fed staying on message, urgingpatience ahead of another busy slide of Fed speak.That conversation next on Bloomberg. To finish the job will take fortitude.We will need to resist the temptation to act quickly when patience is needed andbe prepared to respond agility as the economy evolves.Fortitude. That's what you need.Fed officials continue to push back, urging patience on the harder thanexpected data, fueling concerns that the.

Fed could soon reverse course.I think May is odds off at this point and probably should be odds off.And gosh, I think we've got to recognize what no one's talking about.There's a meaningful chance maybe it's 15%, that the next move is going to beupwards in rates, not downwards in rates.That was the former Treasury secretary, Larry Summers, discussing the currentstate of play. Setting the stage for another busy slateof Fed speak. Mike McKee is with me.So we get minutes and fed speak. How much of a Shakespearean classic canI expect this week?.

I don't think you're going to get thatmuch. And I'll tell you why.Let's, as Larry said, set up where we are and where we have been.Take a look at the yield curve. January 15th, Governor Chris Waller cameout and said we can cut rates this year, but we're going to have to be measuredand slow since that date. Look what's happened to the yield curve.The white line is today. We've gone up across the curve ineverything. Now, will the Fed say anything this weekto change that? It's a very light week for economicdata, basically.

The only thing that's going to matter tothe markets is jobless claims on Thursday.And we get fed minutes tomorrow, which may or may not tell us something aboutwhen they're thinking about cutting, because it's been three weeks since thatlast meeting Thursday. We also get a ton of Fed speak.You saw the calendar there. But does any of that matter?Because on March six, Jay Powell goes to Capitol Hill for his twice yearly,formerly known as Humphrey-Hawkins testimony.And that really set the market up for what's going to happen.What does the market think is going to.

Happen?Well, as you saw from the change in the yield curve, we've had quite a change inbelief about when the Fed might move. Right now, we're looking.If you look over the whole year at about a 23% chance of a 50 basis point move, a23% chance of a 75 basis point move, and look at what's all the way over on theend. Thereis that's the 6% chance that is now being priced into the markets of a ratehike, probably because of Larry Summers. And maybe this is something that Larrydid to distract people from the beard that he has grown.Bill Dudley, the former New York Fed.

President, has a more naturalexplanation for what the Fed might be looking at out there.And he thinks that the neutral rate has gotten higher because the economy hasgotten stronger, and that means the Fed will cut less.If you look at what the projection one projection for the neutral rate is andwhere the Fed is, you can see that right now, 125 basis points is the most thatthat would project for a cut. So everybody be looking for clues thisweek to where we are on that. On that total yield curve forwardlooking, what are we going to do next? Okay, Mike, thank you very much.Beautifully put, Mike Micky there.

Tony DiSpirito, Arsenal designer on myguest this morning. Now, would you be a buyer of the tailrisk of a 66% probability, possibility of a hike?Would you be a buyer at all of another hike?I know, I know, but I'm just throwing it out there.Daggone tail risk. Sure.I'd say it's a tail risk, but honestly, there are many things that a tail risks.There's a tail risk if you get 200 basis points.Right. And I think both are not very likely atall.

Okay.You would also say, look, it's hardly surprising.Disinflation has stalled. The supply side has improved.Take out the Red Sea for the moment. That could be the spoiler alert in allof this. But you are more you're more focused onthe demand side. And it is that robust demand side thatyou you're flying the flag for, isn't it?It is because, you know, we read periodically in the market, come back totalking about fiscal policy, then we stop talking about fiscal policy.But the reality is fiscal policy is.

Alive and well and continues tostimulate the economy. And I think that's something which isimportant. Wages are doing quite well.And I spoke about productivity earlier, by the way.I was not talking about gender to the I'm stronger the last ten years ofCapEx, which has just simply not shown up in productivity.We might finally be seeing that as we did in the early 2000 when we saw theimpact of the Internet boom in the 1990 and 2000.So my view here is really that the economy, if anything, is in fairly goodhealth.

It's tolerating the higher interestrates. That in and of itself is an indicationthat the neutral rate is higher. In turn, it means that the Fed has theluxury of waiting. Why would they cut when they don't needto? Indeed.Well, as Mary Daly just said, you know, you need fortitude, you need patience,and they need confidence. Let me let me bring that back to you.In terms of the equity side, UBS have upped the guidance for this year, Tony,to 50. Let me just double check.UBS has gone to 5400.

UBS, Goldman Sachs has gone to 5200.So, I mean, these are these are not huge uplifts, but they are quite significantqualifications to the bullish scenario on earnings.Are you? Would you share this level ofbullishness? So one of the positives that we've seenis if you look at estimates for 2024, you know, there's a natural pattern ofhow estimates evolve over the course of the year.They kind of usually start high and then come down over time.And what we're seeing is they're coming down less than normal then less thanaverage.

And so that tells us that corporateexpectations for earnings and guidance that we're getting is for 2024 ingeneral is quite robust. And so that's the real positive andultimately that's the positive driver for equity markets.I'll get they're going for 240 bucks this year, up from 235.So they're going for a high single digit increase in earnings.Thank you so much for joining me and well done.So not as you say, I can throw any tail risk in there and there's plenty of themat 200 basis point cut in there as well Tony.Thank you very much, Tony DiSpirito,.

Sonali Basak.Keeping it real on the tail risk. Coming up, your morning calls.We have Joanne Feeney a little bit later on, Advisors Capital Management joiningme for the conversation on the tech moment we're facing in the next 24hours. It is a make or break moment forsentiment, is it? This is Bloomberg. I'm here.Morning. Cause you nervous ahead of the Nvidiaresults counting down. This is what we got for you.Deutsche Bank upgrades JetBlue to buy.

Pointing to improving domestic supplybackdrop. Next up, Evercore downgradingCaterpillar in line, recommending investors start taking your profits onsectors that have had a outperformance recently.And finally, Bank of America downgrades AIG to neutral.Expecting a challenging year ahead of a margins and top line revenue growth.Coming up, Feeney of Advisors Capital. See.Eventually football comes home to America.Major League Soccer, they're looking happy over at the Nasdaq.Not so happy on the store front.

You've got Tesla and in video there isin video angst. It's going to be a big swing factor,according to Mr. Emanuel, over a Barclays ending up toten 15%. If they don't fill on the now with thenumbers, it could drag these markets lower.We're lower on tech, but there are right standers will bring that to you.There is the opening bell. Equity markets are set to open a littlebit lower after Presidents Day. So that's the state of play there.We've had this jolt in yields on Friday and again at the highest level thatwe've seen in 2024.

You're looking at a ten year paper thismorning giving a tick or two back. Euro dollar, this is the euro up by halfof 1%. And you have crude trading up 7/10 of 1%at 79, 77. So a little bit of an add there on theoil market. Two stocks to watch.It's all about the deals that have been in Capital one and discover financialCapital One agreeing to buy Discover for $35 billion, creating the largest U.S.credit card company by loan volume. Abigail Doolittle has the details.How is a market taking this up? Good morning.Good morning.

And discover holders are very happyabout this. The stock right now about 12%, the bestday since November of 2020 for capital one, not so much.But that's not so surprising given the fact that when a company acquires,another company will often see those shares shrink.So in the case of Capital One today, down nearly 5% relative to the potentialdeal. As you mentioned, Capital One has agreedto buy Discover Financial for $35 billion.Discover shareholders will receive a little more than one share of capital,one that represents a 26.6% premium.

You can see, though, that the Discovershares up about 11%. That suggests that in the hope,investors and analysts market forces believe that there could be some reasonthat this deal doesn't happen. Now, I could take a guess that thatcould be the FTC or regulatory hurdles and the terms of fears around some sortof a monopoly. We don't know that's the case, but thatis a very, very wide spread between the big gain that we do see discover havingand the premium that was offered. Now, as you mentioned, the combinedentity and the reason for the deal on the part of Capital One is to be thebiggest credit card lender.

Their assets together would be above 250billion. Take Citi and JPMorgan, the nextlargest, but with around or below 200 billion.As for Discover, well, this gives them a way out of some of their legal overhangand what some analysts are calling a weak 2024 outlook minus what's going tocreate a behemoth, isn't it, in terms of the credit card data, information andsize? Abbi, thank you very much.Abigail Doolittle. Let's turn our attention to the chips.I mentioned Intel in the opening calls. It's in talks with the Bidenadministration to give more than $10.

Billion in subsidies to the chip maker.That's according to Bloomberg reporting. Simone Foxman has the Bloomberg scoop.Yeah, man. Is sources telling bloomberg that thisis going to split, but we're not quite sure how it's going to split between the$39 billion that the Commerce Department has earmarked in grants and the $75billion that they've earmarked in loans. According to our sources, thesenegotiations are ongoing, but we could get an announcement in the coming weeks.Citi, in a research note this morning, speculates that we actually could get ittomorrow. Tomorrow is Intel's global foundry day.U.S.

Commerce Secretary Gina Raimondo isexpected to speak there. One of the other things likely helpingintel this morning is an announcement that Globalfoundries will also receivegrants, $1.5 billion in grants, $1.6 billion in loans as part of these ChipsAct programs. Now, GLOBALFOUNDRIES is going to ramp upits manufacturing in New York and Vermont.Intel has enormous plans, much bigger plans to do so across the country, a $20billion factory in Ohio that would be the world's largest $20 billionexpansion in Arizona and three and a half billion dollar investment in NewMexico among its plans.

That said, it has struggled to keep pacewith rivals, especially TSMC. And Citi says Intel is still far behindin the tech. And ultimately, despite all these grantsand loans that it may get, it's going to be extremely difficult to battle TSMC.However, you have CITIC also initiating coverage with a buy at $50.50 $5 ashare. The news eliminating some of the lossesthat Intel has felt this year, though, the share is still down over 10%.Okay. Thank you very much.With the very latest on the chips in the globe and the inflation act and how itis being deployed, let's get back to the.

Earnings.And it's a tale of two retailers, as we've been saying, Walmart jumping onbetter than expected results. Home Depot under pressure after postinga fifth consecutive decline in quarterly sales.Katy Greifeld is side by side with me this morning.I mean, this is this is about Wal-Mart's power and influence and the reality of apost-COVID change of the amount of DIY we're doing.Exactly. I mean, Wal-Mart, I mean, it really hada strong quarter. It topped estimates.It did, though, deliver weak guidance.

When it comes to the current fiscalquarter, though, the CFO was quick to brush that aside.He said that consumers there being choice for they continue to spend lessper trip, but they have been shopping frequently.And of course, pointing out that Wal-Mart is gaining share in nearlyevery category. So, like you say, still very dominanthere, dominant in the stock market this morning as well, up over 5%.It's a different story when it comes to Home Depot.We were talking about the fifth quarter of comp sales declines for Home Depot.To get into the numbers here, Comp sales.

Fell three and a half percent in thefourth quarter. That is slightly better thanexpectations. But again, that's a size and scopethere. And then you look at their forecast forthe full year and that actually they're expecting a 1% drop in comp sales.Analysts had actually been looking for 8.2% improvement.So a disappointment there. And as we were talking about just a fewminutes ago, of course, that comes back to high mortgage rates that has prettymuch frozen the housing markets, even though you have seen mortgage rates comedown a little bit, they're still very.

High.And that means there's less demand for home improvement, which Home Depot,that's their bread and butter. So that's the setup again, man.As you can see, Home Depot shares currently about 1% lower.Okay, I'm off to Home Depot for the hard hat in the tool belt.Katie, thank you very much. Joining me to talk about the consumer isJoanne Feeney, partner and portfolio manager of Advisors Capital Management.John, good to have you with me. Very different stories on Wal Mart, HomeDepot, Wal Mart, size and breadth. It just is so, so significant.But they talk about a caution in the.

Consumer.You don't want to overemphasize that. But do you take anything away from thatcautionary tone about how the Wal Mart consumer is behaving?Yeah, Magnus, you know, I think we've seen that from a lot of companies thisearnings season. You know, and it's not surprising.I mean, you have to look at the consumer is not one generic consumer, right?We have consumers at different points and places in the income distribution.And those folks that are down at the lower end of the distribution or eventhe middle range have been having to deal with these higher prices.And so, yeah, they're going to be more.

Selective about where they spend theirmoney. And Wal Mart related that, you know, weown Wal-Mart in places. We also own T.J.Maxx and Target because we see that dynamic continuing to play out.But overall, we have more people employed than we've had ever.They're making good wages. Their real disposable personal incomehas been rising. So overall, spending from the consumerremains quite strong. Yeah, I mean, as you said, we were sub4% employment numbers. We haven't had that in decades.You talk about the confusion in the.

Economy.The Fed is talking about wanting more confidence by cutting rates.What is the most confusing aspect of the economy?Because wages are strong, jobs are plentiful, disinflation is taking placemaybe not as fast as everybody had estimated, but what is the mostconfusing part for you? Yeah, you know, I was I put out acommentary this morning about this because, you know, you listen toearnings calls and some companies say, hey, the macro economy is challenging,demand is weak. Other companies are saying, hey, strong2023, we expect another strong year in.

2024.So what gives? I mean, if if the economy is strong,where why isn't everybody saying that? And if the economy is heading forrecession, why isn't everybody warnings? And we're seeing a mixture ofinformation out there. And the reason is because differentparts of the economy are in different parts of the business cycle.So some companies, like in the chip industry, some of those companies aresaying, hey, we've had our customer already build up their inventory.They don't need more right now. They're cutting their orders.While other companies in the chip.

Industry, like say, AMD or NVIDIA, areseeing continued strength in demand because data centers are building outthis new AI capability. So really have to pass the data, look atindividual companies and see where they are in the in their business cycles.And then, of course, our view is you invest for the long term, try to workthrough these cycles and stay with what companies.I'm talking to the news flow this morning.It's about Intel potentially getting $10 billion of a grand globalfoundries,perhaps a 10th of that. A lot of this is obviously wrappedaround the Biden administration's.

Policy.This is about protecting America. It's about technology independence.It is about on shoring. Shoring, if you want to call it.It's any myriad of those things. When you see this kind of subsidy comingthrough to the likes of Intel andGlobalfoundries, does that set a stronger argument for these stocksrelative to in video? Do you have to look beyond Nvidia?And if so, in the chip space, where do you do that?Yeah, Magnus. I mean, clearly these subsidies aregoing to help around the margins on the.

Depreciation costs that these companiesultimately will record down the line. It'll be less expensive to build thesenew factories and. So that'll pass through the province.And you're right. And that's not going to help an Indiathat doesn't have its own manufacturing capabilities.But when you look at the long term investing opportunity, you know, that isone factor. It's not just intel that's going toreceive these benefits we saw global. But in addition, Texas Instrumentsmicrochip, other, you know, perhaps less flashy, US semiconductor designers andproducers are also standing to benefit.

And so on.The margins can help their profitability.But overall, when you're looking to assemble a portfolio with some exportsof technology and you want to look also for the secular growth in their endmarkets and in semiconductors, it's a pretty good opportunity because contentthat is a number of chips in everything from consumer products to industrials toautos is rising, and that content points to long term secular growth opportunity.So there's a lot to choose from out there.You have to just figure out what your horizon is for investing your risktolerance, because obviously an NVIDIA.

Is quite different from TexasInstruments. Well, let's just pause and think aboutthose earnings because they're coming down in the next 24 hours.So the NVIDIA results that come after the closing bell tomorrow and it couldhave major implications across the risk and the proclivity for risk globally.Alex Webb is with me. What am I going to be focused on on thisresult set? As ever, the forecast is going to befront and center. The market is looking for revenue in theorder of $22 billion. That would be compared to the 20.4billion that they're expecting for the.

Quarter that just ended.Let's put that in some context. If the company itself is forecasting forthis quarter that we'll see the results for of 20 billion plus or -2%.The market therefore is expecting the very top of that, the 20.4.It does mean that if there's any in order to meet expectations, theyprobably kind of have to beat expectations.Anything less than that, given the scale of the expectations, is likely to bedisappointing. Sometimes, though, it's easy to thinkthat the expectations are sky so sky high that you can't possibly meet them.Point It's important to remember that.

NVIDIA is trading at about 35 times itsforward earnings, and that isn't actually massively outside of the realmsof what some of its peers are doing. In fact, AMD is trading at a far highermultiple. Microsoft is also trading at about 33times its forward earnings. So yes, expectations are high, butthey're not unrealistic. Okay, let's take that thought back to myguest this morning to Joanne Feeney. Joanne, when you hear that kind ofcomparison on a multiples, do you still feel brave, too, to step in how howdefining a moment for risk for 2024 will these NVIDIA results be tomorrow?I don't think the NVIDIA results will be.

All that informative about risk.I mean, clearly NVIDIA is in the middle of ainvestment stage for generative A.I.. We're seeing those capabilities be builton. Those are expensive.Lots of chips are required. In fact, it looks still like India isconstrained on how many chips they can sell into the market because ofproduction limitations, packaging limitations, etc.So, you know, whether they beat or miss or guide to where investors expect theywill is an incremental piece of information unless they say somethinglike, oh, oh, sorry.

You know, we thought there was going tobe demand, but it suddenly evaporated. We don't see that as a possibility.And that would really be the only, you know, significant information.So I suspect, you know, they're going to either beat or beat expectations, butit's really largely going to do what their capacity of their part is toproduce the chips for Nvidia. And so that's not so informative.What we really care about is the long term potential of generative A.I.and how quickly companies want to create the capacity to run these new models,the large language models and other applications that we're just beginningto see.

It looks to us like there's a reallylong runway ahead and that we're just getting started on the applications thatare going to be rolled out. Look at the software companies for otherplaces to get information about the uptake of AI.It seems as if we spend an inordinate amount and an outsized amount of timetalking about in video as if there's nothing else.But you also make it very clear that if you pay attention to the earnings callsspecifically within TAC and whether that's Texas Instruments or whether thatis Cisco, you are a buyer of phasers, perhaps if you listen to the calls, youwant to take advantage of them.

Why Texas?Why Cisco, briefly? Yeah, both of those recently had whatsome would call weak earnings reports, weak guidance, and they're in a cyclicalinventory correction of among their customers.And so their guidance wasn't particularly strong.They're citing a slowdown in demand from their industrial customers, from some oftheir enterprise customers. And that's often a good time to buythese companies because overall, the long term is very, very encouraging.More semiconductor content, more communications network infrastructure isgoing to be required over the next 5 to.

10 years.And these are two very well companies pay a dividend, a good place to be forthe longer term. Okay, John, thank you so much for beingwith us there. Joann Feeney, my guest on all thingstech and market risk coming up on the show at it is the biggest deal of 2024.Companies are looking for opportunities to expand to include a client innovationand new technologies developments. That's a fairly normal thing given thestructural cycles that we are in. Capital One agrees to buy Discover for$35 billion. The deal in conversation.That's ahead on Bloomberg.

This is Bloomberg Daybreak and I'mAbigail Doolittle. You're looking at a live shot of theprincipal room. Coming up, Tilman Fertitta, the owner ofthe Houston Rockets. This is Bloomberg. Companies are looking for opportunitiesto expand to include a client innovation and new technologies developments.That's a fairly normal thing given the structural cycles that we are in.We're not in the sort of frenzy of M&A that we've seen in the past, but that Ithink is also logical because we're in a more normalized interest rateenvironment now.

So the deal is in capital One agrees tobuy discover financial price tag 35 billion bucks, creating the largest UScredit card company by loan volume and opening the door to greater competitionagainst other giants on Wall Street. The transaction is expected to closelater this year or early next, pending regulatory and shareholder approvals.Sonali Basak is with me nationally. I'm looking at Capital One.There's dissent in the ranks. Have they overpaid?Have they overreached? What?What have you got? One interesting example that we've beengiven here by Bloomberg Opinion's Chris.

Hughes is that if they had waited to buya Capital One here for Capital One to buy, discover, discover shareholders get40% of the combined company. Had they not waited, had they done thisbefore, discover hit some of its regulatory issues, they would have had50% of the company. So you do have a discount here to somedegree that Capital One is getting to buy discover.But remember, there are a lot of questions still about this deal.This would be one of the largest deals madness since the financial crisis infinancial services. And you do have here a number ofregulatory matters that Discover has.

Been contending to hiring hundreds ofpeople to meet those regulatory concerns.And then there's the matter of antitrust and how regulators will look at the dealthat would combine two of the top six companies by credit card loan volumes inthe United States, let alone the globe really here.So what you have is really the case that Capital One is making that it would addfor them a network. Remember, it's an issuer that you'reseeing primarily in Capital One. It is a diversifying business to add anetwork the size of discover. And therefore you have a differentcompany, even though one in two make or.

Two, three and six in this case, rathermake number one in terms of loan values and itself.So where are we on the M&A? I mean, we saw some pretty big deals gothrough on the oil majors, and that's about integration in the Permian.Here we are the first major financial deal, which is not been pushed throughbecause of angst in the market. How does it set the stage for 2024 then,Charlie? You have to understand that by this dealon the deal you're seeing for Wal-Mart in itself, you have a deal volumes upabout 55% from when they were last year. And part of that is not only the marketstarting to find some ease in itself,.

You also see divergence in major playershere. Valuations starting to find a floor inwhich it is appropriate for those larger companies to buy ones that have beenleft behind. And then there's a regulatory certainty.When you think about even just Capital One, for example, it comes after the FCCand the DOJ have outlined new guidelines for mergers.The Federal Reserve stress test scenarios have come out.There is a sense of clarity here for major acquirers to come out in a waythey have not in the past year. And another fun fact for you, the DealAdvisors is more boutiques on this deal.

The deal fees are going to smaller banksin this in this environment. And so let's see if that plays outthrough the remainder of 2024. Okay.Well, we certainly know that those investment banking teams are beefing upfor a pretty good year of deals. Let's see if it plays out.Charlie, thank you very much. On the latest with the deal flow someprice action sector price action this morning.Let's get back to Abigail Doolittle. Looking at some weak action not just forsectors, but overall, the Nasdaq 100 down more than 1%.The S&P 500 right now down more than.

6/10 of 1% from a compositionstandpoint. Yes, weakness there, too, because wehave more sectors that are down than not starting off with tech and consumerdiscretionary. We also have communication services.Speaking of the financials, among the worst, but it's really discretionary andtechnology both down more than 1%. We'll be taking a look at a piece ofthat in a moment. But those are those heavyweight sectors.So really weighing to the upside. We have the three defensive sectors,basically consumer staples, utilities and health care.So the fact that you have those three.

Defensive sectors higher is risk offbecause it tells you that which way investors are leaning.As for that heaviness for tech, well, a lot of it has to do with what you weretalking about earlier, and that is in video and fear around it.The valuation has that stock on too far right now, down sharply, weighing on thechip index. You can see over the last six days, itis down five of those six days and overall down 3.4%.Not a great way for these stocks to trade into that report tomorrow.Madness. Yeah, but as we've heard, it sort of hadthe valuation on that stock is not that.

Stressed relative to some of the othersin the peer and in the sector. Abby, thank you very much.Breaking it down this Tuesday morning. Coming up on the show market movingevents. We're building up to fed speak and fedminutes. I'll give you your trading diaries injust a moment. Punchy drop on stocks this morning.The nervous on Nvidia that's was dragging the Nasdaq lower.And of course this Fed. It could be a little bit restrained interms of the action on rate cuts. Your trading diary, we're kind countingdown to the Nvidia report card tomorrow.

Plus we get the fed minutes.Thursday we've got the US pimeyes and another round of jobless claims.Some people are saying they are the most important numbers every week.Fed speak. Jefferson.Bowman. Hancock, Kashkari, Waller.All followed the minutes on Friday. Warner Brothers Discovery Report.This is Bloomberg.

Sharing is caring!