ISM Report Presents Problems for Markets, Suzuki Says

Dan, do you do you expect, to Mike's point, any of those inflation tensions starting to show up in corporate results? Yeah. Absolutely. I mean, the question is how much? I think it's, it's it's a it's a pressure that's gonna be building, and I think we'll get a glimpse of that in this quarter. I guess the question will be how how much worse does it get going forward? Because if you listen to the company commentary so far, they've been telling us that this is happening. Input costs are rising faster than they can pass those on to consumers and customers, and and that's gonna be an ongoing pressure. So I think it's just one of many of the issues that companies are having to deal with right now. Well, can companies pass that along? I was just out in the Midwest and talking to a bunch of manufacturers, and they're basically saying, we're at a point now, especially with tariffs, where we've got to raise prices. But then we talk to others who say, yes. We've got to raise prices, but the customers go away when we do that. Yeah. I think... I... Obviously, you know, this is really a story of the k shaped economy. Right? So I think, you know, by and large, The US consumer as a whole can can can pay those higher prices. They'll probably be willing to pay those higher prices. If you look at all sorts of measures of, spending and retail sales and, you know, their... People are spending still. It's just an... And sort of the upward revision we got to the, you know, third quarter estimates is really a function of, you know, consumer spending. You know, the the revision to the second quarter GDP number was consumer. So, clearly, the consumer, can spend. I think it's getting more difficult, but I think there is gonna be price... Still some pricing power there. You you do have yields that continue to push higher. And for the past few weeks and the past month, around yields and around bond markets, there was this question, maybe this is just positioning. Maybe this is some funds that got stopped out. At what point do you get the all clear? Can you have the all clear when data continues to come in like this? No. I don't think you can get the all clear with rates rising and, you know, well above 5%. So I think that's, you know, that's the issue right now. And and and today's, you know, ISM report, worst case scenario. Right? Because growth has been the thing that's holding things up, and you've been having to deal with that growth on top of inflation. Now you get slower growth and higher inflation pressures. That's exactly what the the market doesn't wanna see. And so I think, you know, that's the issue here. I really... If you think of... Talk about rates and you talk about the breaking point, you talk about what's gonna happen, I think it's really just an oil story. Right? Because, you know, regardless of the fiscal, you know, dilemma and geopolitics and whatnot, the reality is that oil correlations with rates are at an all time high. They're at a record high, and that's what's gonna drive Fed policy, inflation, and what happens with rates going forward. Yeah. But the question is, what have you done for me lately? Oil prices, they may come down as a certain person keeps saying, and they don't they don't come down. But the Fed raising interest rates, those rates are gonna stay up for a while. Yeah. Is it at a point now where you have to start factoring that into your forward, PE outlooks? Because the the the Fed hasn't raised rates since 2023, and here we go again. Yeah. I mean, obviously, the fact that interest rates are higher, it's it's starting to bite. You know, it... It's starting to pressure sort of the lower quality segments of both the, you know, the credit markets as well as the stock market, and you have to sort of price that this is gonna continue and be the case for some time. And it... But, you know, the reality is it's already starting to be reflected into markets. Right? You know, the market as a whole is, you know, kinda near all time highs. But if you look underneath the surface, there's lots of people who've been talking about this. You know, most parts of the market are at least 5% off their all... Off off their highs, let alone, like, segments of the market that are down 15 plus percent. Right? So there's a lot of action happening beneath the surface. I think a lot of that has to do with, you know, the higher interest rates and the tightening of financial conditions that comes along with that. We've seen equal weight underperform for the past seven weeks. Yeah. Triple c's now are also a thousand basis points over treasuries. I get your point that there are these pockets, but they do feel relatively isolated. I wonder if anything can happen that makes it feel more widespread. Or as long as you have that heavy concentration in an index around AI that that can continue to be in the corners of this market and not sort of a main a main attribute to it. Yeah. I mean, I think you're alluding to... There's basically two tug of wars happening right now for markets. I mean, one tug of war is is rates and growth. And today, you know, the growth story kind of lost a little bit there. And then the other tug of war is AI versus everything else. And and the AI story is absolutely holding up the markets, and it's holding up the earnings story. But when you go outside of that AI trade, it it it... It's not just small pockets. If you look outside The US, most major markets are down significantly. You look at the RSIs, they're kind of falling off very quickly. And that's happening in pretty much every segment outside of outside of the AI story within markets. So I don't think it's just isolated pockets here. A tough question for you here. Yeah. I love it. Going back to Mohamed El-Erian years and years ago. Yes. Saying this low interest rate environment was the new normal. Are we back to a new old normal? Is is this what investors should expect rates in this vicinity out into the future? I... Mike, I think that's the perfect framing of it. I mean, we were joking about exactly what you're talking about. It's the new old normal or it's back to the old old normal. However you wanna talk about it. You know, you basically had this post GFC until the pandemic period. That's the historical anomaly. Whether you look at the level of rates, you look at the level of rate volatility, you look at a lot of various factors, that was the anomaly. I think we're just going back to a more normal period. But that normal period means there's gonna be more rate volatility now. There's gonna be higher highs and higher lows on rates, and this is just a different environment that, you know, the last ten years or pre COVID was about building your business and your balance sheet for a different kind of world than we're now in today. That's the struggle.