Now looking at none to one. This is bloomberg surveillance with jonathan ferro, Lisa Abramowicz, and annmarie hordern. Jonathan live from new york city, good morning, good morning. For our audience worldwide, this is bloomberg surveillance with Lisa Abramowicz and annmarie hordern, i am jonathan ferro. We got to begin with this name. Apple. The latest reporting from our colleagues at bloomberg. Apple canceling a decadelong effort to build an electric car. Lisa a decade ago it was building a car would be the next vr headset, the next artificial realitytype of experience. It turns out it is a bad business to build cars. Its a Good Business to say we have something with ai in whatever form it is and it will transform your life. That will gain more traction. Jonathan there is information what theyre moving away from, moving into, and how the market responded. The stock rallied which tells you everything you need to know. Apple imagined the car being priced around 100 k but executives were concerned about a vehicle providing that Profit Margins apple typically enjoys on its products. This is a clear message. We thought this would be a highmargin business. Its not going to be, so its not one we want to be a part of. Lisa who is the poster child to learn from . Elon musk. He says this is a tech company and everyone else says, are you . Building cars is not an easy business and he is learning that the hard way. Jonathan one was a salute and one was a cigarette. He is feeling good about their decision. Annmarie this goes into the narrative about the ev market. The demand is not there for the cars apple is trying to build. Domestic ev sales will decelerate to 11 and we are supposed to be close to 50 growth. We are seeing it from gm, mercedes, these companies having to backtrack. Jonathan a big message from california to michigan. We need to talk about the primary results. Biden 81 point 1 , uncommitted 13. 3 . Annmarie more than 100,000 voters. More than 100,000 people came out to protest a vote. This will be the issue going into the general election. How many of those who came out for a message, including the representative of his own party in congress, came out for the protest vote. How many can the campaign make sure votes for biden in november and not stay home. We are saying that they are trump voters but when you have tight margins, and remember 2016, 10,700 votes was the margin that trump took michigan and that is how he won the election. They dont want to repeat. They have a lot more work to do. Lisa now we have nine more months of this. It feels like we are in the general election. Now we can be parsing the nuances of the people who are protesting the moment that they cant avoid. That is where i feel like we are at. When obama was running i think that he got Something Like 10 of the votes being noncommitted. There is some corollary here to people likely to protest with their votes. Jonathan are you committed to election coverage . Lisa because things need to get done and im frustrated we are not talking about those things. I will get off of my soapbox now. As a journalist we will have a long stretch. Jonathan another nine months of bramo getting upset with washington, d. C. The s p pulling back a touch negative by zero point 4 on. Yields are lower down a basis point, 4. 2895 on the 10year. The dollar stronger, 1. 08 on that currency pair. Companies belong past earnings estimates. Kim wallace, hopes a Government Shutdown could be avoided. And Street Research as apple drops plans for evs to gain ground in ai. Our top story, wrapping up earnings s p 500 companies are headed towards their highest quarterly rate since the end of 2021. It is not all about the mag seven, writing, we see headwinds for the group from both our brave new world regime and from a goldilocks including soft dollar outcome in 2024. Overall, this suggests a more selective approach to mag seven allocation can you talk to us about the dispersion, the group of names that has dominated the equity markets over the last 12 months . Sure. It has been a volatile journey for mag seven. We forget that super aggressive returns last year. This year on average we are seeing Strong Performance from mag seven. The remainder plus 2 only. Within that we are seeing the fragmentation. Stocks on average up 40 . That fragmentation is coming through related to themes. Ai you have mentioned. It is also related to earnings delivery. Earnings momentum working, the maddox working, but the fragmentation is even during the group. Lisa sports, ai, and the metaverse encapsulates what we have seen this year. You leave it lean into the leadership or say now we need to normalize beyond the magnificent 7 because the dispersion suggests tiredness by investors . That conclusion came out of our work last year. Looking at valuation, Balance Sheets, Earnings Growth momentum to see which themes had the best mix combination. Ai, metaverse, and sports, gaming etc. , were in the top seven themes and they performed pretty well this year. One of the snacks for the group and the u. S. Market is that we have got over the last two or three years has been sell signals for investors. Valuation and u. S. Market is back to 21 times 12 months forward, it is only been hired twice in 50 years when we have had liquidity bubbles. Second, the technicals are pretty heavy right now. If we follow the playbook over the last two or three years we have taken some risk off of the table and taken some risk out of the mag7 as well. Lisa and put it into european banks . Jonathan s, european banks are interesting because they are not long ai in the same way that some u. S. Tech giants are, but they do trade on six times earnings. So you go from one extreme to the other. There is little priced into european banks. All they need is to retain capital, which they are doing a some of the Big Tech Companies are in the u. S. , and they need the european economy to have an improvement out of the sort of stagnation technical recession we have now. We think that european banks did all right this year. For balance, you want to be selective in u. S. Tech and european banks if you are running a global portfolio. Jonathan the bar is low for european banks in 2024. We have alltime highs in germany, japan and the last week or so. What does leadership look like in those countries . Jonathan s. leadership the world over has been pretty narrow, pretty narrow in terms of size. That is a phenomenon where we are seeing a replicated in real economies where we are seeing very strong commitment from Government Spending supporting growth, but then the tale of the market, looking at Small Businesses surveys around the world, they suggest we are in recessionary territory. This polarization in leadership and equity markets has been reflected in the real economy. In europe this year, the rest of the world as well, look at the best factors year to date, strong Balance Sheets and strong momentum. Investors are running the same trades that worked well last year and Balance Sheet quality has become a big thing which is one eye on the very real serious risks that we can see around us, which are political and geopolitical in nature. The markets are being sensible and putting more weight on Balance Sheet quality. That is what is working so far this year. We would continue to run that Balance Sheet factors through the rest of the year. Jonathan its interesting you suggest taking the hedge from the equity market and not another asset class. Is that what youre hearing when you talk to clients . Jonathan s. on a blank sheet of paper, a full asset class, the Asset Allocation framework has a 25 weight on what i call my liquidity hedge, 25 percent weight on combination of cash, gold, and bitcoin. That is a high hedge but appropriate at this point of time is a mix of assets which is meant to not be correlated with risk assets themselves. If you can only invest in the equity market, we have strategies for that. One is a systematic strategy with buyback momentum and overlays various factors like quality and valuation. With the buyback strategy does is gets you into the companies that are in the habit of likely continuing to buy back shares which gives you liquidity support and a growth advantage. I want to belong liquidity and long growth and running systematic buyback strategy in the u. S. And europe. I think its pretty sensible and we write reports on that and screens to clients on that basis. Lisa government bonds, is this the era where 60 40 doesnt work and that is not a diversifier . Jonathan s. i read about that and i said 6040 is inappropriate in a postcovid world where inflation is something that investors have to consider more seriously. I have been there and im still there in my Asset Allocation framework that reflects that. One aspect is that the u. S. Equity market has added 30 trillion dollars of market cap since 30 trillion. That is the same net increase in u. S. Monetary and fiscal support since then. If you add the central bank Balance Sheet expansion and the increase in that come you see the 30 trillion delta. That is the same increase of the u. S. Equity market in terms of market cap terms over that time span. What happens next is a mixture of how much more support we get through the u. S. Channel. That is heading aggressively higher in terms of multitrillions of dollars and the impact on u. S. Risk premium on the dollar, on Interest Rates, and on the ability of the u. S. Economy to generate reasonable growth. That is where the debate is. 6040 for me is done and we need to be more nimble. I am carrying a pretty heavy hedge against various event risks around the world. Lisa youre talking about how ai and metaverse has controlled the narrative intact. Does apple qualify for that bucket now that theyve gotten out of their car excursion . Jonathan s. the way that we do this is we look at companies with their existing exposures rather than future exposures. Certain companies can accelerate the shift from not having exposure to not having exposure from not having exposure to having exposure. Those companies that have high ai exposures live will be in those baskets and that is where we calculate our analysis on. Jonathan i remember a few years ago when having an ev plan was bullish. Now, not having one is bullish. Have you noticed how that has changed in a couple of years . Lisa im old enough to remember when they put bitcoin in the release and overstock rallies and they talked about the different chains of command and the way that they used blockchain and that was it. Overstock was a bitcoin stock. Jonathan i want to squeeze in one further question. Look at the performance of the last 12 months, you talked about performance over the last 16 years. The last 12 months, nvidia is up, microsoft with a gain of Something Like 63 or 64 percent higher. For the people who have missed this equity rally who were told over the last two months that this market was priced for perfection and carried on rallying, what are you telling those people to do now . Jonathan s. it is a very important question. We see many investors who may have had three or four the mag7 stocks last year, but that wasnt enough. If you didnt have all seven your benchmarking against the market and behind the curve from the getgo. There is a very real challenge for investors and thats why think that theres a lot of price momentum strategies which are continuing to win. We think to take a step back and look at valuation and market risks and to run real time today, and every day, strategies that make sense. When we combine earnings momentum and recover with quality and valuation factors, we get some mag7 stocks, not all of them. We get stocks from the rest of the market. We think that balanced approach to investing real time today given the risks is better than closing your eyes and just buying these seven companies. Jonathan thank you, sir. Equities are negative by one third on the s p. Stories elsewhere, your bloomberg brief. Dani Deutsche Bank staff are pushing back after they were told to come back into the office more often. They were told to ask ago they had to be in at least three days a week. That would start in june. The policy allowed for many employees to work from home as much as 60 of the time. The ceo and coo are now planning renewed talks with labor representatives. Lawyers for ftx cofounder Sam Bankmanfried proposed he serves no more than 6. 5 years in prison and pay no financial penalty for the fraud that brought down the crypto exchange. Bankmanfried is facing a sentence as long as 20 years for the most serious charges. A court filing sites his charitable work and letters from psychiatrists, including an autism expert. Prosecutors have until march 15 to respond before his sentencing. A series of wildfires have ravaged the texas panhandle. Governor abbott issued a disaster declaration for 60 counties. Residents have been ordered to evacuate or shelterinplace. A Nuclear Weapons facility has been forced to shut down. That is your bloomberg brief. Jonathan next, making progress in washington. Do you believe we can get to an agreement on these issues and prevent a Government Shutdown. That is our first responsibility. A productive meeting on the Government Shutdown. We are making good progress. Jonathan theyre making good progress, apparently. That conversation is next. Live from new york city this morning, good morning. Wealthchanging question are you keeping as much of your investment gains as possible . High taxes can erode returns quickly, so you need a taxoptimized portfolio. At creative planning, our Money Managers and specialists Work Together to make sure your portfolio and wealth are managed in a taxefficient manner. Its what you keep that really matters. Why not give your wealth a second look . Book your free meeting today at creativeplanning. Com. Creative planning a richer way to wealth. Jonathan live from yields are lower by single basis point. From surveillance this morning, progress in washington. Are very optimistic. I hope that the other leaders told you the same. We hope that we can get to agreement on these issues and prevent a Government Shutdown, and that is our first responsibility. It was a productive, intense meeting. Productive meeting on the Government Shutdown. We are making good progress. Jonathan Speaker Mike Johnson willing to kick the can down the road pushing government funding deadlines to march 8 and 22nd according to fundable news. Congressional leaders expressing optimism that a shutdown will be avoided after yesterdays meeting with joe biden. Lawmakers remain far apart when it comes to International Aid and border talks. Kim wallace at 22 research joins us now for more. Tell me why you believe we cannot avoid the Government Shutdown. Kim it is in the interest of the vast majority of members of congress. Shutdowns are not a Good Campaign theme. Annmarie when it comes to moving the dates for the shutdowns, fundable news says johnson was only willing if he had an agreement with democrats on the four bills. Do you see an agreement before friday . Kim that is difficult, but possible. The appropriators have been working on routine fy 24 spending bills for the better part of three months and know each other very well. They would prefer to pass all 12 of the bills and do so behind the scenes and not with the drama. My guess is if they are given another week or two they will be able to get it done. The issue of course will be the socalled writers, the public statements of politics. Annmarie what are republicans willing to give up when it comes to the policy writers . Kim nothing until the very end. Both sides are starting from the absolutes. Democrats dont want any writers. Republicans have a long list of them. Behind the scenes there is another force that people dont talk enough about, 7 billion in earmarks for members of congress. Almost 100 members of the 535 of them do not have an earmark at stake. My guess is that they will be able to figure out the appropriations come avoid shutdowns, get the earmarks, and campaign. Annmarie the issue becomes foreign aid and the border. President biden and former President Trump are due at the border tomorrow. You think biden will have to make an executive action when it comes to assuring outmigration . To shoring up migration . Kim executive action is not is what is needed for border policy. Both northern but particularly southern border policy in the u. S. , we have a multidecade process that has resulted in a dysfunctional system that doesnt work for many people, especially u. S. Citizens. We have a lot of folks in our country who shouldnt be here. Not tracked largely because of ineffectual immigration policies over decades, not the last two to three years. Lisa do think speaker johnson is regretting being in that role . Kim [laughter] if he is not he soon will be. My sense is that he has had some remorse. It is not a bad gig, but he is in a Pressure Cooker every day with no easy answers on anything. He has the outside force of a president ial candidate attempting to steer his legislative agenda, usually against the interests of most members. From a strategic standpoint donald trump is not known to think of other peoples interests and that is showing up in his legislative advice. Immigration is a good example. Public opinion shows that it is the number one topic. They have achieved that goal but they had a comprehensive bill bipartisan from the senate that they turned down because former President Trump didnt want them to bring it up. It is a tough place to begin. It will have to be legislation. If we move on immigration policy in the u. S. It is only through legislat