Wall Street Gears Up for Earnings

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This is Bloomberg Businessweek Daily. Reporting from the magazine that helps global leaders stay ahead. With insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Businessweek Daily Podcast. With Carol Masser and Tim Stenebeck.

We want to get to our ongoing AI watch and the big players moving ever closer to their IPOs. OpenAI is expecting to reach or exceed $ 70 billion in annualized revenue by the end of the year, according to people familiar with the matter, driven largely by its growth in its enterprise business. I think what's so interesting about this, Jess, so that's today's story. And just yesterday, we heard OpenAI is on track to generate annualized revenue of roughly $ 50 according to people familiar with the matter. It's an uptick from the prior year, but less than some recently reported estimates for the chat GPT maker. I think what is fascinating is we continue to get closer and closer to the IPO.

Of OpenAI Anthropic.

We're getting more details into the businesses that they are, but I'm just wondering if the expectations or the reality is going, well, the reality, I guess, match up with the expectations.

And Bloomberg, right, Bloomberg had that story just last month talking about how OpenAI is considering slowing down the development of that cutting-edge AI, and ChatGP TeamMaker's CEO, obviously, same ultimate, hoping that other AI companies will do the same. So what does that mean when, to your point, potentially mid-November.

Bailey Lipschultz reporting on that from our Bloomberg News. Maybe that could come, but it's been delayed.

Right, exactly. Let's see.

It's not our responsibility to keep track of all of this. He's AI editor at Bloomberg News. He's here in our studio.

It is a lot.

I feel like I've talked about AI more this week than I have in a long time.

We spent... like ours, just devoted entire broadcasts.

Condolences.

Sorry for you, too. OpenAI, what's the reality?

I just feel like we keep getting some mixed stories about, I mean, still generating a lot, it seems, but what are.

We finding out?

Yeah, I mean, certainly from our reporting, this is still a company that's growing like a pretty healthy clip. If anything, I think the story of this week is more about the confusion around this metric. And if you step back from it, this is not kind of your standard revenue accounting metric that you'd see on an earnings report. This has become an increasingly common metric that we see in the AI startup industry, annualized revenue, projecting what they think the revenue will be for the full year based on a week, a month, a quarter, everyone's a little bit different.

For OpenAI Anthropic, they also have differences in how they account for the sales that are through sort of their third party partners. So it's unclear whether you're measuring apples to apples here. And I think a lot of investors are kind of just confused. And unfortunately, this number, these figures are among the only real visibility that we get.

And given how important and central OpenAI and Anthropic are to the kind of wider trillion-dollar AI boom, any perception that it's weaker or not what it's expected has these broader ripple effects that we saw yesterday.

So is it weaker, though?

That is certainly not the indication that we've had so far. Who knows? But it feels more a question of calculation. We have reported... I think in July that it was $ 40 billion. Now it's $ 50 billion, trending towards $ 70 billion at the end of the year. It feels like a lot of the discrepancy happened with, admittedly, other news outlets that may have calculated it differently.

And what's the valuation we're expecting?

For the IPO?

Yeah.

So right now the company's in funding talks to raise another $ 30 billion round that we've reported could value at $ 1. 4 trillion. Anthropic, which was most recently valued at $ 965 billion. building on the private market, could go public at a $ 2 trillion valuation.

So it's a lot. So yeah, what's the PE on that, kiddo? And is there earnings?

Well, Anthropic has said that it has an operating profit, or at least we've reported that it has an operating profit. I think unlikely for OpenAI at this point.

So what about Firmus? Because that was supposed to be this really popular, related to Australia, coming out with that, with the data sitters. And then this, I mean, the news that we had coming out about that, obviously not helpful for that outlook for them. And it was supposed to be this data sitter darling.

But now it's not.

So when you're seeing pockets like that, and then you have some of these delayed IPOs, what is this telling us about the direction of where this is going when there's so much excitement about this, but now we're seeing delays?

Yeah, there's a lot of jitters. And I think the story is kind of the same now that it's been for months, really, as long as I can remember, that the more money is being invested in this space, the higher the stakes are and the less margin there is for error. And so I think every month, if not more frequently, I come on here or other shows and there's a moment of, oh my God, is this the moment that everything falls apart? And I think it just speaks to, there's so much uncertainty about whether people can keep pace with the amount of spending going in here and really see the payoff of that.

The other thing I want to throw on, and this is a column I've been a little obsessed with, and unfortunately we haven't had Chris Bryant on to talk about it, but he says data center projects are encountering holdups, including equipment and labor shortages, local community opposition and permit delays, which could impact the tech industry's ability to build server farms.

And then it says the tech industry may end up with too many chips and industry semiconductors have seen this before and not enough operable server farms due to power shortages and supply chain bottlenecks.

There's a lot of factors to be considered.

That's real, though.

Supply chains, communities saying thanks but no thanks when it comes to data centers.

Yeah, I mean, we've reported this as well, that there's been a surge in public opposition. I think there was more More projects were stalled, I think, just in the first quarter of this year than all of last year combined, totaling easily more than $ 100 billion worth of data centers. I mean, this matters a lot. Again, there's less margin for error here. So if you have these massive data center projects that are not coming online in the next couple of years or at all, that's going to fundamentally shift investors' expectations for the return on these bets. Ultimately, I think you've seen the industry and people like Sam Altman kind of acknowledge that we need to change our messaging here because that political pushback, which is only going

to grow in the midterm elections in the coming weeks, is having a real measurable impact on their pace of development and could fundamentally alter projections.

Measurable or material? Possibly both.

Possibly.

Stay with us. More from Bloomberg Businessweek Daily coming up after this.

All right, not a.

Total surprise to hear that a new Logitech Control Tomorrow study reveals technology's impact on mood, well-being, performance, and potential. Technology, we talk a lot about it, what impact it's having on society, kids, AI just takes it a whole level further, right?

Well, it's interesting because I looked into the next company we're about to talk about, and it's chief executive. So they have a joke about the mouse that built this house because they commercialized the mouse that we've used for years.

It's not just Disney, right?

Yeah, not just Disney.

There's actually another company that's tied to this very closely.

Well, and I'm curious what innovation disruption means. We so welcome Hanukkah Faber. She is the CEO of the $ 15. 8 billion market cap company Logitech International.

Their ADRs trade here in the US.

They're down roughly 2% or so year to date, but 9% of the float is short.

She joins us from San Jose, California.

Hanneke, good to have you here with Jess and myself. Talk to us about you, the business, how things are going right now with so much being thrown at companies and CEOs right now, especially with AI.

Yeah, good morning. Thanks for having me.

Hi, Carol.

Hi, Jess.

Never a dull moment, that is for sure.

And at Logitech, we've been dealt a lot of body blows in the last couple of years between tariffs, wars, and now chip shortages. Not an easy time, but we were super proud to deliver our 10th consecutive quarter of growth in the last earnings report at really record margins. So the business is strong and we're proud of that and we'll continue to battle on.

Well, we were.

Talking about obviously how you're known for your mouses, the keyboards, everyone at some point, whether they realize it or not, where it's using your products. So how do you kind of keep up to speed when you have technology changing so rapidly?

And of course, AI.

Yeah, absolutely.

So we celebrated our 45th anniversary last week, which makes us positively ancient, right? For a tech company, the average tech startup lasts less than five years. So, um, But from the beginning, we've always been the interface or the connection between technology and the human. So from the very first computers to laptops to tablets to phones, and now AI, we connect the human and the technology. And we do that with physical hardware with a lot of software inside.

But actually, today, AI is a real tailwind for us because it offers all kinds of new ways to connect humans and technology.

Well, go there because, you know.

When we were prepping for this segment, one of our producers, Elizabeth, kind of brought up an interesting point. We talk so much about agentic AI. And I am curious, agentic AI, you're going to be talking to your computer a lot. So if there are agents in agentic AI, won't people not need to use their keyboards and mouses so much and things like that? Tell us how you got evolve along with that.

Absolutely. People are looking for control.

And we just ran this big study as well called Control Tomorrow. But a lot of people feel that technology is a little bit out of control today.

So 77%.

Say that when they're in control of their tech, they feel better. They get more out of life. Whereas three out of five also say that when there's tech friction and they feel out of control, they get down. They're depressed even after working hours.

What is being in control and not in control of of tech in this environment today?

In control means you're the one who's controlling.

There's not a bunch of agents running around just doing things and you're not aware and your stuff ends up on sites where you didn't want it to. All the stories we hear, there's a lot of concern out there with regular consumers. So they're looking for control. And what we also found that two out of three people feel more in control when there's a physical element to that control.

And we all know how it feels when you click and you say yes, rather than the agent just running a mock. When you're wearing a headset with great sound and when you can say yes before the AI agent does something. So physical stuff plays a big role, and that offers all kinds of new opportunities for us in terms of innovation. And by the way, you know, my sales were up 12% for us last quarter. So this thought of the mouse is gone.

Okay. Interesting. I have a mouse right next to me. I have a mouse when I use my laptop.

Hey, speaking of control, I'd love to, you know, in this world where supply chains are constrained, everybody's competing for a lot of stuff globally. Give us an update on your supply chain, the availability of chips following you had a fab fire at one of your suppliers or your supplier. And I'm curious, you had a $ 200 million sales impact in the December quarter.

Does that still hold? And does supply normalize after the December quarter?

Yeah.

So unfortunately, as we all know, chips are in short supply. This thought of AI ate my chips is absolutely real for everyone out there. we have an absolutely great operations team. So we've been okay. But then we did have an accident. Not us had an accident, but one of our main chip suppliers had a serious accident at their.

Fab back in June.

And they didn't start back up till early October.

So that's been difficult.

We signaled that That would have about a $ 20 million sales impact in the September quarter and up to $ 200 million in the December quarter. We've obviously been working very, very hard to mitigate those impacts, but there will be an impact from a supplier being closed for an entire quarter.

Does it normalize after the December quarter?

Yes, it does. Okay, good to know. Good to know.

You know, one of the other things I just want to bring into the conversation, you know, component inflation.

Everyone's talked about it, right? We've heard Apple talk about it.

How are you able to preserve your gross margins given that component inflation that you've been seeing in recent quarters?

How tough is that and how do you do it?

Yeah, so our gross margins have been excellent in the 44% range, which for hardware companies is absolutely kind of unique and outstanding. How do we do it? Mainly from designing for value. So we're constantly looking at new cost savings that we can do without affecting quality. In fact, sometimes our interventions actually are better and cheaper and more sustainable. So a killer team that is super, super cost-conscious and constantly designing for value. And then in the recent past, we've also taken, which we don't usually do, one price increase across the line on our video conferencing business, which was most affected in memory chips, especially. So we took a 10% price increase on global video conferencing, which is about 15% of

our business.

So it's not a huge part.

And that's been fine because kind of everyone in the industry has had to do the same thing.

Mark Gurman from Bloomberg News had an exclusive story this week talking about how Apple has this upcoming push when it comes to those home devices. Does that create opportunities for you with those home devices or even other Apple products like iPhones?

We're focused mostly on work. And play.

So we're the market leaders in productivity devices at work, both.

In- Well, you mentioned the headsets earlier.

Too, because then I automatically am going to think of Zoom, obviously that we've used so much in recent years, especially during COVID and coming out of COVID. So is that more of the opportunity for you? Not as much when it comes to Apple products or some of its rivals?

Absolutely.

The other big opportunity is gaming. So we're the global market leader in gaming peripherals, and gaming is absolutely mainstreaming, just continues to grow. GTA 6 launch coming up. It's going to be a really exciting quarter and quarters ahead in gaming. But certainly headsets is another big space for us.

We're one of the global leaders in that space, both in gaming headsets and headsets for work.

We just launched a.

Beautiful new headset actually last week, the Zone 5 Pro, which you can use both for work and life.

Gorgeous.

So, yeah, just lots of opportunity in the age of AI for design-led software-enabled hardware, which is what we do.

GTA, Grand Theft Auto, right?

Sorry.

That's right.

I know everybody knows. It's pretty powerful. But I do want to go back to the Apple question. Forgive me if I misheard. So is there an opportunity for you with the Apple Home products?

Home is not so much of our focus.

We do work with Apple very closely in areas like education, where we make tablet keyboards, Logitech tablet keyboards for Apple iPads. We've also worked with Apple on their Apple Vision Pro and a stylist to work in virtual reality. Again, very important in the age of AI. So we do work with Apple, but home is not our top priority.

Can we make the Vision Pro lighter? According to Mark Gurman, it's a pretty heavy little piece there. What are your thoughts on corporate AI adoption and the impact you guys are having on your business, how you guys are using it? And I think it's interesting considering the study you did and the findings you hear and see. Yeah.

Yeah, so we're big adopters.

We're a company of engineers and designers, so they are on.

The forefront of this anyway.

We've built more than 2,000 internal AI agents ourselves in all kinds of spaces, starting some of the areas that I'm really excited about, AI manufacturing. We're seeing massive productivity increases in manufacturing from.

The AI agents we've built.

Of course, in coding and customer service, which every company on the planet is doing. But I would also say in areas like marketing, where today, unlike a few years ago, we've got so many creators working on our business, putting out thousands of creators around the world, putting out tens of thousands of pieces of content. Humans can't optimize for that in real time. But AI agents can. So this is work that humans really cannot do. So we're not replacing any people, but we're doing a better job using agents in marketing with more ROI. And I love it when that all comes together.

Stay with us. More from Bloomberg Businessweek Daily coming up after this.

How much do you watch the credit markets?

Well, those are pretty crucial just because of the tie to data center debt and when it comes to credit as well. So that's pretty crucial because you can see early indications there before you see it in the equity asset class.

So you keep an eye on it closely.

Yes. Because it's been kind of interesting some of the things that have been coming out when it comes to that. We should point out kind of the big broad story.

We know about the finance, right? The amount of money to finance the AI build.

It is causing a bit of a repricing of risks around some of the big tech companies. It's showing up in spiking prices for credit, insurance, heightened volatility, and also weakening performance. We can get into it, but Oracle, Broadcom, and SpaceX, which we just talked about in a big way, among the borrowers that priced nearly half a trillion dollars of new debt this year to pay for the infrastructure powering artificial intelligence.

That's unbelievable, the amount.

We haven't seen anything quite like that, and especially heading into earnings season soon, starting with the big banks next week. At the end of this month, we'll hear from those big tech companies, and that's going to be the crucial question for all those AI-linked companies that have been borrowing to.

Spend more on AI.

And then you've got a rising rate environment, which we kicked off at 2 p.m. talking about, like, what does that do in terms of the cost to do all that financing?

Right, being more expensive.

Exactly.

All right, so let's get to it. Robert Shiffman is Senior Tech Credit Analyst at Bloomberg Intelligence. He is tasked keeping an eye on all of this. He's joining us remotely in New York on this Friday. Bob, any cracks that you are seeing when it comes to credit broadly? Because it feels like this is part of our narrative right now when we look at the overall kind of market financial system.

Well, I don't know about you guys, but I spend 100% of my time thinking about credit. I actually dream about AI. I have to put my fantasy football league on the side because all I do every day is think about debt and spread levels and CDS. So happy to be here to talk. I wish I could be in the studio with you guys. I was on the road all week talking with investors. And I'll tell you something, they are long and strong. I've said this many times before.

I have never been more bullish on the tech space than I am today. And I'm happy to repeat it right now. I think that even even, you know, the type of things that we're talking about, we're just wrong in many different places. You know, the graphic you have on the bottom is that the tech tech markets are being hammered. It's not true. It just isn't correct. If you look at spreads for even the widest trading hyperscalers, Oracle and SpaceX, they're tighter since July. And yes, CDS levels are wider because it's being used as a trading hedging vehicle, not so much as a real risk of what fundamentals are telling us. So I just think that the media loves to spin this whole AI bubble and the tech world and debt is all blowing up. And

quite frankly, it's not. And I think the bond market is much stronger than what some people perceive it to be. And I will tell you, for all those investors out there that own these hundreds of billions of dollars of debt, they actually feel much more comfortable than we do. You know, they should be confident even with a lot more debt coming.

They're in pretty good positions.

So Skydance junk bonds hitting those fresh lows, but at the same time, you're seeing that optimism on the tech side of things. Talk to us about the difference between that, because where are, to Carol's point, the red flags versus where you're seeing those bright spots right now?

Because I get nervous when someone's really enthusiastic.

Like it's a contrarian indicator.

Go ahead. Well, you know, grab yourself a cocktail right now because we're going to get more enthusiastic. So listen, there's a difference between what happens with certain deals and what's happened with the general tech space. You know, With Paramount, this is a massive levered transaction done in both the high yield and investment grade markets, secured, unsecured loans to fund a very levered legacy style media business. So technicals looked very poor. You have to try to price it for success. And listen, the deal is actually doing fine.

It's down a little bit. I don't think there's a lot of people that are that concerned. Our analyst, Steve Flynn, thinks that they're going to have the ability to dramatically deliver. So it's basically just shaking out the hedges that were hoping that they'd get a little bit of a rally on the break to those real money buyers versus what's happening in the tech space is that people are now starting to understand that we're moving from a there's real demand for AI technology. There's real revenues. You saw today in the OpenAI article about run rate revs hitting 70 odd billion, which is, you know, it's really nothing. Those numbers are going to be, I think, in the trillions in a half a dozen years. So it doesn't really

matter if it's 50 or 70 billion. But what we're starting to see is people are realizing AI monetization in the tech space, also getting a much better understanding of what CapEx is going to look like. And on the front needs are going to look like. Even when we throw out ridiculous numbers like $ 9 billion of cumulative CapEx spend through 2031, it's not shocking people. And I think what we continue to see is that it's less of a question of can this stuff be funded? It's simply of what price can it be funded at? And what's happening is we're going to see a lot more creativity in how things are being funded. It's not just a data center. It's now going to be chip financing. There's going to be a whole wide variety of those that

have deep pockets that are going to lend their balance sheets to those that don't. But creative financing, both in public, private, secured, unsecured market, there's no one really pushing it back. going to burst. It's simply, what's the right price to buy these bonds at? And what would I rather own? A structured, secured lease for an unsecured AA or AAA hyperscaler bond?

You talk about folks getting creative.

The story we saw in Barron's, Amazon has had discussion with investors over a potential deal to spin off NVIDIA AI chips into a special purpose vehicle, an SPV, backed by outside investors, which it could then lease back. and they talk about that Amazon could raise cash to pay down its existing debt, protect its balance sheet by spinning off the hardware into an independent vehicle. I guess I'm trying to understand then the read on that.

Smart?

Or does Amazon realize, yeah, there's some.

Risk here, so I'm starting to take some moves to protect my balance sheet?

It's genius, and it's not really as complicated as people want to make it out to be. There already are SPVs that have been created to help raise debt that's off balance sheet, that's being done at private levels that offer both incentives for the buyers as well as for the sellers.

So is it just spreading the risk, but the risk is still there, I guess is my question?

Well, listen... Ultimately, this is still the debt of the issuer, whether it's in an SPV or not. Rating agencies are making the adjustments for off-balance sheet debt. Analysts are making those adjustments. Not exactly 100% sure how to make the adjustments. They come to me every single day and ask for my model. And it changes because each issue is a little bit different. But why is it smart? Listen, they need to borrow the money. If you can borrow it, better terms for yourself. If you can do it and expand your borrowing pool rather than just doing unsecured debt. Remember, they're doing debt in other countries as well. They're doing yen's, they're doing Swiss francs, they're doing Canadian dollars, they're doing euros.

It doesn't mean any of this is bad. I'm not trying to hide anything, but just simply creating an SPV doesn't mean there's any more risk. It just means that there's an opportunity to borrow money in a different form from people who want to lend it to you. And quite frankly, those people are lining up. We have done podcasts with attorneys, with bankers that can't write contracts fast enough.

So there's clearly the demand out there. And I don't think that there's anything shady just because somebody uses the term SPV. It's just simply a different alternative to raising capital. And when you have, you know, $ 300 or $ 400 billion of CapEx and maybe, you know, $ 50 or $ 75 billion of negative cash flow, listen, you want to be creative in how you borrow. But I don't think there's anything shady about it.

Well, if you're not seeing.

Any red flags just yet, particularly with tech tied to data center debt, what are you watching for to then pique kind of your interest there to see that there could be concerns, like where those pockets would be?

Well, listen, we're bond guys, so we're always concerned about everything. And there's certainly some cracks that are out there. One is this Oracle deal where they talked about force majeure. A lot of analysts had to learn how to speak French last weekend. There's actual risk to building this stuff. Just think about if you're redoing your kitchen. You need to get the permits. You have to line up the electrician and the plumbers and the cabinet guys. $ 10 billion facility, there's a lot of different things that can go wrong, whether it's power or construction or timing. What I don't think what's going wrong, though, is the demand for the compute infrastructure. So we do have to watch from the,

at least from the actual operational perspective, if there's going to be weakness in terms of slowdown, so you can't deliver the compute power as fast as possible. The other thing that used to sort of a double-edged sword is rates. You know, there's a big focus on rates nowadays. The fixing community, they love higher yields, right? You know, the higher the yield, the better the returns generally. But we don't like seeing rates going up during short periods of time.

But once they stabilize, demand for fixed income products continues to go higher. So in a near-term rising rate environment, we worry that people have to stay on the sidelines, especially when there's such known borrowing needs. But over the long term, I think higher rates are going to be very, very attractive, particularly to this space. When you can buy double-aid long bonds with a 60 on the line. I think people are going to be waving those in size, and certainly if you can get it with a seven handle, it's going to be that much more. Listen, I do get worried that the market gets spun bad news. There's a reason when you turn on your local news, you don't hear about the fireman saving the baby and running

out of the burning building until the 27th minute. Everything starts with a fire and everything that's going wrong. I think that's what's happened with these tech spaces that have People come on Bloomberg TV or doing their podcasts get a lot more attention or in news writing negative articles. And the reality is the market is doing the exact opposite.

Look at equity valuations. They're near all-time highs and for good reasons. They're selling real product and real demand. growth that you have in this tech space.

I guess I just, just to jump in, because we're running out of time here, you know, we've done some reporting, and I'm redoing a kitchen, so you've totally freaked me out with your reference to redoing a kitchen and not getting permits.

I'm living it. But it's actually going really well so far.

But, you know, Chris Bryan of Bloomberg Opinion had a good story about when you look at data center projects, either they don't have enough equipment, they have labor shortages, you have communities who are pushing back. So, you know, the go-go mentality, there are.

Some obstacles out there.

And you do wonder how that ultimately slows down the build here in the United States and then what that ultimately means for all the spending that's already being done and tapping credit markets.

Stay with us. More from Bloomberg Businessweek Daily coming up. after this.

Back with us is Barbara Reinhart.

She's Chief Investment Officer of Multi-Asset Strategies and Solutions at Voya Investment Management. They've got about $ 377 billion in assets under management back in our Bloomberg Interactive Broker Studio.

How are you? How are you thinking about the environment?

Well, I think the headlines and some of the nervousness in the market is maybe a little bit overdone. There's this narrative that bond yields can only stay high, that we're heading for this crisis, this big accident in the bond markets, because bond yields have risen very, quickly and very suddenly. You were down at 490 back in August.

The peak was at 536, if that indeed holds. But the bond market is a self-correcting mechanism. High yields are generally a cure for high yields. So we see it that the underlying picture for the equity market is probably in better shape than what most investors are giving it credit for.

News flow is positive.

Earnings You've got plenty of things to point to that say, yes, short-term sentiment is oversold. Plenty of things you can point to that you can say, there's enough room to probably rally if you can get bond yields down, if you can think about getting the price of oil down as well. Those would be big beneficiaries to help the equity market broaden out.

If we don't get oil prices down, then what does that mean? That we do stay higher in terms of rates, elevated for longer? And then we start to have some of a, we already are having an impact, certainly for some consumers that are out there.

We were talking about that before we got going.

But what is the consequences of oil staying maybe near the levels that we are right now?

That's more of an inflation issue, right? So the pass-through of oil prices onto the U.S. consumer certainly hurts. And when you have sticky high oil prices and it flows through to the pump, it means consumers have less in their pocketbooks. That's why you're starting to see some weakness in things like the University of Michigan Consumer Sentiment Survey.

But I think the real issue is if you can get bond yields to start to ease off a bit, which it looks like they had. You had a very good auction over the past two days. That has been relatively helpful. There's a lot of buyers when bond yields are this high as well, knowing that they probably won't stay here that long. But it's made the equity market very nervous. You've lost probably peak to trough about three turns in multiples.

We've come up off of that.

But this collision course that bonds and stocks can be on can only go so far. You can only overcome so much in terms of bond yields rising that you can offset with earnings. But we think that there's a good chance that you've seen the peak in bond yields.

A couple of reasons.

Some of the real-time indicators that we look at on the front end of the economy look like it's softening a little bit. So maybe the pace of growth starts to slow a bit from here.

It doesn't have to.

Fed already tightened. And financial conditions have tightened as well, which should mean that growth should slow a little bit. And if you can get growth slowing a little bit, inflation will come off the boil.

Right.

The Fed won't have to hike.

And I put a very nice bow around why the equity market can continue to rally at the end of the year.

And growth can continue.

Looking at the AAA, so the current national average, $ 4.

37 a.

Gallon right here.

You're managing money for people, retirees going in pre-retirement. How are they viewing their investments? Because obviously if they're going to still be around for another few decades. There's still a long runway here. And are they getting it concerned about when it comes to some of those gas prices, how it affects their spending? And are they not putting as much toward the equity market, toward other places?

What are they doing?

Well, you have to think about this. People that are saving for retirement, they tend to have long horizons, right? So they tend to have 30, 40 years of their working career. But the funny thing that we're starting to see also is that Securoc 2.0 is really changing the landscape and the complexion of how retirees are starting to use their money. We're finding that plan participants are staying in plan longer. We find that they're also starting to take their minimum distribution requirements later. So as that age moves out towards 75, we see that they're taking them later.

And that's a great benefit, I think, for consumers because the longer that you can let your assets grow in plan, the better off you're going to be.

So as far as we see it, they don't get terribly nervous.

They tend to stay the course over most times of market cycles. Things that really get under people's skin is when you see big bouts of volatility and severe volatility. So think of something like April of 2025 with tariffs or March of 2020 when the market fell 37% inside of a five-week time period.

Let me throw one thing at you, midterms.

And if we do see the blue wave, we talked with Aaron Cutler. He formerly worked in Congress and he is advising a lot of companies about what could be coming in terms of regulatory changes.

There could be some significant changes.

So Could that possibly be something that creates a bad of volatility, a lasting volatility?

It would have to be really targeted at a very big, important sector of the economy, right?

Even if there's tension between, I mean, I know Wall Street loves gridlock.

Well, Wall Street loves gridlock, but they also really like the past two years as well, right? So it's a little bit hard to figure out what Wall Street's going to want from politicians. I think the big issue that you probably have is just the anxiety that comes around midterm elections. But we would have thought that we would have already seen that at this point. Normally in cycles...

When you see midterm elections, the volatility generally happens in September and starts to calm down about four weeks before the election.

We haven't seen that.

We haven't seen it. It's really funny.

All the millennials and the Gen Zers, they say that January 1st isn't their New Year's Day. September 1st is. They just like to reaccelerate everything. well, maybe their September 1st was really the market starting to take off again.

So I know the gym's been more crowded. That certainly is an indication of it.

Interesting.

Well, we had a story on the terminal the other day about how high earners are skipping the 401k max. Have you seen that at all with clients? Why would that be the case?

No, so basically what they're doing, though, is also deciding, I'm going to manage and maybe invest in stocks on my own and rather not do the all-in when it comes to 401ks.

We've only got about 30, 40 seconds here.

So we don't see that in the data because Secure Act 2.0 means that you can auto-enroll people into their target date fund. So we see people continuing to use their target date fund and getting their company match as a very important source of savings.

That's what the data tells us.

All right.

What's the major risk you think? You are also optimistic. 20 seconds left here. What could derail all of this? Is it a Fed miscue or misaction?

I think probably a very bad inflation print.

But our lead indicators, like the Adobe DPI data, say that inflation is probably going to be softer. But a hot inflation print could be somewhat disturbing to the markets.

But not likely.

Not in our view. Not in your view.

OK.

This is the Bloomberg Businessweek Daily Podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live weekday afternoons from 2 to 5 p.m. Eastern on Bloomberg.com, the iHeartRadio app, TuneIn, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg Terminal.

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