tv Bloomberg Markets Bloomberg January 24, 2022 1:00pm-2:00pm EST
welcome to bloomberg markets. let's get to the massive selloff we are seeing in markets starting with stocks. the biggest drop off we have seen on the s&p since october 2020. it's been over a year since a drop this big. we saw the dow in its longest losing streak since february of 2020. the s&p down 3%. the nasdaq down 3.5%. the dow jones industrial average falling 800 points, 33,441. we were talking about 36,000 a few weeks ago. a big drop from those levels, a rough start to the year. as a result, the vix index jobs 236. a lot volatility in this market, and it continues into treasuries. investors seeking safety in government debt, driving the 10-year yield down to one point
72. 2-year yelled climbing up above 2%, now down below. drops in yields across the curve as investors by the debt. take a look at crypto, the drops in bitcoin looked to stabilize over the weekend. now we are seeing them go back up. 35423. we did see bitcoin down this morning but it has caught a bid. not the case for ether. it has been down more than 5% in today's session alone. 2346. the bloomberg galaxy crypto index is down 12%. everything else other than bitcoin seems to be falling. maybe investors see a little bit of safe haven there in terms of
the volatile crypto world. let's go deep into the crypto markets with michael purves. what do you make of today's drop? it didn't look like we were stabilizing. s&p futures were up this morning when i came into the office at 3:00. they took a hard time lower at 5:00, and it looked like it was the russia-ukraine was that drove us down. was that the issue? michael: i think that is some of the icing on the cake. friday, we had our first close below the 200 a moving average into a weekend. that is not a good sign. dip buyers require a great deal of courage to be the first to buy into that monday morning dip after a close like that on friday. all that being said, a few things to point out here. one of which is that the equity risk premium, the inverse of the
price-earnings ratio, based on consensus estimates, bloomberg consensus estimates, that lifts treasury yields. it is now at the most attractive level for equities, long equity positions, then it has been in a year. it is important to recognize, every day, the 10-year yield is a little bit lower, he s&p price index and its brothers also go lower. that puts upward pressure on the equity risk premium. one thing not going lower so far, forward earnings estimates are continuing to slowly grind higher. we have learned through the season, the earnings story is not tragic.
it will be what the markets have been anticipating. then the valuation case will be a bit more obvious. matt: this is why i have to question whether it is geopolitical risks. yes, there was more talk about federate rises, goldman sachs sing the risk of more than four increases are higher. bloomberg saying you could see 50 basis points in march. but that was all baked in. we have been talking about four rate rises for a week, 50 basis points. it seems to me the only thing new was, there seems to be more concerned that russia will indeed invade ukraine. michael: a couple of comments here. to your point, so much of the talking, rate narrative, every time you hear a forecast for a lot of hikes, the person says
that only makes powell's job easier to liberate dovish response but also allow some hikes. you can argue that is risk asset supportive. with respect to ukraine, the general sense is, i will not opine on the probabilities of us going to a more pronounced conflict there. but if you remember back when putin took over the crimea, the vix went up and then gave it back. to my mind, these geopolitical tensions can accelerate the broader trend downward here. having said that, i would also suggest this situation looks more problematic than crimea did. i look at it as a magnifying
condition unless we go to some decidedly more unpleasant news. matt: my buddy adam johnson call these corrections the pause that refreshes. peter tchir says we had some capitulation today. we seem to see the dip buyers for a moment but i have not come back. michael: just measuring on the vix curve you are starting to see something that is looking like capitulation here. that doesn't mean that we can't go higher on the vix, lower on the s&p, but i think we are pretty close. if you had a long position, may be time to start think about managing those profits. from a pure tactical trading perspective, some short term calls to play some bounces.
this nicole -- technical violation, reassessment of what will happen with interest rates, inflation, that will take time to process. ultimately, this will not be a pause -- your friend is right, this will be a pause that refreshes. we have had a ridiculously strong equity rally in 2021. dips of 4% were considered violent, so we are overdue for this, but i don't think the buy anything case can be made. matt: what about rates? i get your argument that more rate rise, notes we see, it could be a four you are, it could be 50 basis points, gives the fed more room to move, but
what about buying bonds in a time like this? trading 101 would say that if if the fed is going to raise rates, you want to find out. michael: some risk off is driving that treasury bid. but before january, since last spring, you saw a range bound back end. all the excitement was on the front end of the curve. this comes back to this discussion of what will happen with the long-term terminal rate, long-term view of interest rates. the bond market keeps triangulating that we are not going to be too much higher than 1.6, 1.8, maybe 2% on fed funds out to 2025. as long as that condition holds,
i don't see reasons why the 10-year has to explode higher here. i know you have a german centric perspective on some things. the bund yield was creeping higher here. that is an interesting security to keep an eye on, if that were to change from being negative to positive. possibly the ecb shifts here. that would be an interesting thing to reinforce a bearish 10 year treasury on the side of the ocean. those things are -- those cases are being considered. matt: at the end of the session, we are approaching a p/e on the s&p of 24.
the trailing dividend rate is only 1.4%. do valuations make sense here, do we need to go lower? michael: we certainly can go lower given the velocity of the selling, it's been really striking here. if the 10-year is going to be anchored between 1.5% and 2% for the foreseeable future, and the fed can communicate that we are going to do some hikes, catch up, but we are not going into a categorically hawkish you. that famous comment, we are far from neutral if he avoids that here, you will start to see dip buyers. if you have the view that the 10-year will be at 3% in a few months, you should invite equities.
i am pretty constructive on treasuries and also therefore on risk assets like equities. let's not forget, the big tech earnings have continued to generate strong growth, exceptional volatility adjusted earnings growth, and as earnings season unfolds, they can reinforce that concept. matt: you talked about earnings. we have been following financial conditions for some time, waiting for the federate rise talk to somehow move the needle there. on the bloomberg terminal, you can see we have come down considerably over the last few trading sessions in terms of natural conditions. what is your outlook for the u.s. economy right now? michael: at the end of the day,
we are looking at nominal gdp. these are bloomberg consensus estimates of 7% to 8%, which is exceptional here. the balance of inflation to real growth in that nominal gdp story -- nominal gdp drives earnings. if nominal gdp will be that high and the component of that is reasonably healthy, and the margin compression story for the key parts of the index is managed, then i think you will see very constructive earnings this year, and the following year, 2023, i would make the point that for all of the supply chain issues that have exacerbated inflation, some of
them are also pushing growth. they pushed growth into 2021 into 2022. when covid hit, we were like, we are going to have this massive v, and then the party will be over. i think what you are seeing is more of an extended floor at a higher level for economic growth and we have seen before. it doesn't mean there is not a lot of confusion and noise along the way. matt: thanks for joining us on this selloff. michael purves talking to us about the drop that we have seen in equities. we are still seeing the s&p down down 2.5%, not the 3% plus drops we had seen an hour ago. the nasdaq is down 2.75%. the dow jones off 700 points. so, recovering 150 points of that drop in the last 15
in equities with the s&p 500 falling within 3% at one time. investors flooding into bonds across the curve right now. on that note, there was an auction today. let's dig into markets and rates with cross asset reporter katie greifeld. who would have thought, as we look at four, maybe five rate rises, as we talk about the possibility of 50 basis points in one hike for the first time in 2000, that we would see such a demand for debt? katie: this is why i want to talk about this option. usually not too much to say, but two days before the fed, such strong demand, i think that tells you that maybe we are starting to see some dip buying in bonds. you can see that in the price action. to see this really strong demand in the primary market two days before the fed is expected to
provide some clarity on their plans, there has been a lot of chatter about maybe 50 basis points, may be a hike at every single meeting. this shows there has been a lot already priced into the market. maybe it has gone too far. matt: how much of this is safe haven seeking? you had the geopolitical news with russia and ukraine getting or serious this morning. gold buying at 1841. the bloomberg dollar index rising. is that happening today? katie: i think that is part of the narrative in bonds today. if you zoom out and look out the last couple of weeks, the entirety of 2022, if you parse out what is happening with nominal yields, you see breakevens move lower, real rates go higher. what that tells you is there is some degree of faith in the fed's expected path forward,
that they will get a handle on inflation, it will not cramp economic growth too much. i think that is the real story. layer in some haven buying on that and you have yields lower. matt: that is not what we see happening in bitcoin but we do see some dip buying. when i came in earlier this morning, it was under 36,000. what is going on in crypto? katie: really interesting story because you have that degree of dip buying, but a lot of the people in bitcoin right now -- you are seeing this in retail as well -- they have not lived through a fed tightening cycle. the last time the fed hike rates was 2018. bitcoin was around $500 a coin. you saw this entire ecosystems bring up since that. not many people were talking about ether. were you? matt: i bought my first bitcoin for in 2004 $600.
katie: it really is the biggest test that bitcoin has faced yet. people said that was el salvador accepting it as legal tender, but i think it is how it performs in this fed tightening cycle. whether it was a bubble all along, we will find out soon. to see this dip buying, whether it is a dead cat bounce, we will see. matt: even if we see bitcoin rise to 100,000 next year, the same people will still be calling it a bubble. joe weisenthal is still a skeptic. thanks for joining us, katie greifeld, talking about the slump we are seeing in the s&p today. the worst drop, one-day drop, since october 2020. the nasdaq down 2.25%. a little bit of a recovery, not
matt: this is bloomberg markets. i'm matt miller. we are looking at a selloff in equities. not as serious as one hour ago at session lows, down more than 3% on the s&p 500. we have recovered some of that but we are still looking at a drop of 2.3%. at&t is rolling out the fastest consumer broadband offered by any of the major internet fighters in a move aimed at cable providers. this comes after the 5g service went live last week. joining us to discuss is the at&t communications ceo.
before we get to that, i have to ask what is your view on what is going on in these markets today. a big selloff, looks like capitulation, but the worst string for the dow since the beginning of 2020. jeff: hi, matt. i can probably not the best expert to ask that question two. i would probably point to an outlook of inflation, concerns around that facing us here in 2022, is probably the principal driver. matt: fair point, i have to throw it out because of the big moves we are seeing. not your average market they. -- day. let's get to the network rollout. what kind of speeds are we talking about, what do you expect to achieve because of this? jeff: it is a big day for us at at&t because we are making progress on our mission to become the nation's best
conductivity provider. as you alluded to, one of the largest if the largest fiber operator in america, we are pleased to announce multi-gig across our metro markets. speeds that you can get up to five gig speeds for our fiber products, which is the fastest available. why we are doing this, we actually listen to our customers. we tested the service in raleigh-durham, north carolina. we have been testing this out. today, we are announcing with some very attractive pricing. matt: i am confused about the 5g rollout. i was getting 5g cellular service weeks before the hubbub at the airports. then we had that, a different
5g. what can you tell me about the safety of this network? conspiracy theorists have been up about it for years, and now the airports are, too. jeff: i know we are talking about this in the telecom industry. the speeds we are offering on our network, up to five gigabits. there is no correlation to the 5g wireless services we offer in the market. as you point out, we have had 5g services turned on for quite some time now. specifically what you are asking is about the 5g radiated with c band, the latest spectrum that has come out. we determined that network on last weekend we are in active work -- matt: i have to cut you off. the ceo of at&t. this is bloomberg. ♪
>> on jon erlichman. welcome to bloomberg markets. matt: i'm matt miller. stocks tumbling as investors worry about geopolitical risk and praise for fed rate rises. when i came in this morning, the narrative was about the fed raising four or more because of the goldman sachs note over the weekend. we could see 50 basis points, something that we heard from a number last week. but it quickly turned to a russia-ukraine narrative payment then we saw s&p futures come down pretty severely. at one point, down more than 3%, but we have recovered somewhat with a drop of only 2.3% on the s&p. jon: i think that is well said. we knew that we would be talking about rates a lot this week, we didn't know how much we would be talking about geopolitical risk.
put it together and it has played out in the markets. we should point out, through all of this, and certainly a day where you look inside the s&p 500, not much is getting momentum right now. correction territory off of its peak from the beginning of the year, that looks relatively modest when you compared to the peak of the nasdaq last year to today. that reassessment of risk had been playing out over the last couple of trading sessions, has picked up a lot of momentum. we have been chewing into this for hours now. janelle woodward is joining us, president of mckay shields. gina martin adams of bloomberg intelligence is also with us. janelle, i will start with you and the swiftness of the selling pressure we have seen so far this year, seems to have rattled
some investors. how are you thinking about what is going on? janelle: the volatility we have seen in markets today challenges with the fed has to do. it has a significant task ahead of itself, navigating us back to neutral, strengthening of broader economic conditions. we know that the fed watches markets, and we have seen financial conditions. the fed will have to walk a delicate balance of not being too hawkish but gardening -- guiding the tightening that we need to see. matt: what we have seen maybe soothed investors a bit because the selloff is not as bad as it was. everyone shifted the focus from the fed to russia and ukraine this morning. then we had a two-year auction that was pretty good. is that one of the reasons for the recovery?
gina: you could argue there are any number of reasons. coming off the correction level could be one of the cases, given how oversold the market got. you rarely get to a point where 14-day rsi on the s&p 500, and we did get their midday. we priced in a 10% correction which you get 65% of years. you usually see a relatively small bounce off of such small oversold levels. once you get to the 10% correction, the question remains going into the fed meeting, the busiest week of earnings on the s&p 500, where do we go from here? i think we will have a pretty rocky week as we continue to contend with those forces of where the fed goes and where do urns go, in an environment where we are comping to an incredible year of 2021, it is hard for earnings to establish themselves
as catalysts for the market. matt: our markets live blog team looking at volatility indexes like the vix, maybe some signals there that the worst has been done. hard to know. coming back to our own imaginations, i have heard strategists talk about us envisioning this scenario playing out in a number of ways. maybe that factors into how markets have gone. when you look at the challenge ahead for the fed, especially trying to measure how much people around the world can absorb, consumers can absorb when it comes to higher rates, what do you think some of the messaging will look like? janelle: i think the fed needs to be cautiously hawkish in terms of their approach. what will be important is that it gives itself the right flexibility. the market is expecting 100 basis points of increase this
year. the fed has some room but it needs to give itself enough looks ability that it does not spook the markets in the process. matt: it is good that the markets continue to expect more rate rises from the fed. mr. market is giving mr. powell a little bit of leeway. janelle: it's a great point. if neutral is around 2%, we have a long way to get there, and we need to get back to neutral so that the fed has the power to fight inflation. 100 basis points is certainly a move in the right direction, but still is accommodative. the biggest question we have is around timing. the expectation is a quarter-point every quarter, but if we look at what the fed has done around the balance sheet, it's been more aggressive than in past cycles. while we don't see 50 in march, should it be every meeting? that will help us get to the pace faster. jon: you made the point earlier
it is a busy week on earnings front. we have talked about the more dramatic selling we have seen in the tech sector. could any of these earnings stories change the tune, or will we be laser fixated on fed talk? gina: it is hard to outdo the fed when the fed is talking about the balance sheet as well as rate hikes and the market has been already twitter about when we will get qt, could we get 50 basis points in march? the real fireworks will most likely be the fed. that said, you are in the busiest portion of earnings season, and you have some heavyweights like tesla, microsoft, apple reporting this week. you could have some fireworks emerging from earnings. typically, these companies are adept at reporting lower and then beating expectations. unfortunately for the fourth quarter season, the bigger
hurdle is not just beating 4q, but knocking it out of the park on 2022. that is the problem faced by some of these companies. when you look across the landscape, their earnings forecast is to fall short of the s&p 500, while many are still trading at extraordinary premiums to the s&p 500. that spread is untenable longer-term. your needs to be some rationalization. either they really beat earnings and guide we will have a stronger earnings landscape for 2022, or their valuations have to continue to come down. matt: peter talking about the fact that valuations need to be reset here. i am always looking through the mlive blog on the terminal, fabulous to follow the markets. eddie is saying there that bitcoin has become a pretty good gauge of sentiment. it turned up before the mini
recovery that you see on the screen. what do you think the crypto world can tell us about old-fashioned markets? janelle: it is something that we certainly watch, but structurally, especially with the focus on fixed income being different, we see the volatility cascade across equity markets and then over into credit markets. one of the things that we think about with fixed income, people have been a lot of it concerned. the last week has been a reminder about the defensive role that rates can play in a portfolio as well as broader fixed income assets. watching crypto, equity markets, there's a lot of opportunity being created in fixed income as well. jon: gina, based on what janelle was saying, as the equity
strategist, how do you feel about what fixed income will get terms of attention this year versus stocks given the recent radel? gina: number one risk to the equity markets is rate volatilities. what happens in fixed income will be incredibly consequential for the market. it will be tough for the fed toout hawk the hawks. longer-term it seems inevitable that we will see rates rise. it's just a question of when, how far, and how fast. matt: gina martin adams there and janelle woodward. talking to us about the continued selloff in these markets. it is not as bad as it has been, but it is still rough. the vix above 35. the first day above 30 since november and then shoots way
looking at the worst string of losses for the dow jones industrial index since february 2020. it has been a long time since we have seen this much of a selloff. here you can see the text talks off today, the biggest names out there. amazon, google, facebook, netflix. two changed their name. are they trying to hide from something? alphabet and meta platforms. netflix down another 6.6 after a really disappointing subscription forecast. let's bring in mark mahaney, head of internet research at evercore isi. we are seeing the biggest selloff, worst start to the year since 2008. i have only heard one person say today buying opportunity. i have been on the air for four hours. what is going on? mark: sheer panic?
you started out the year wanting to be more cautious. we wanted to be more cautious entering the year. the news is high interest rates which will really challenge the. inflation uncertainty leads to uncertainty. you want to be careful. i think you can make money in these environments by buying high-quality tech names. google, alphabet, facebook, meta, and amazon. i don't think any of these are fundamentally impacted in the way that netflix is, unless we are all missing a sharp hit because of omicron, but that would be near-term. how long this correction will last is anyone's guess. if i look at nasdaq corrections in the past, they have lasted three to five months.
you may be dealing with dead money if you buy these highest-quality assets, but those are the ones that you want to be long. jon: when you talk about crunches from the nasdaq in the past, you think recently, given the scale of the selling pressure we have seen, some are thinking back to the 2000 era. there are a number of amazing companies that have gone public in the last two or three years, but some of them are still struggling to be profitable businesses. the common narrative is the biggest of the biggest in tech will be fine, it is the other companies that have already struggled and may continue to struggle. you have anything that may counter that narrative? mark: i think that narrative makes a lot of sense. there are a few names if you want to get away from the highest-quality names, google, amazon, facebook, trading at valuations below their average for multiple years. they are almost as cheap as the
market, at least facebook and google, but if you want to get beyond that, i'm still looking a covid recovery names, reopening names. uber. at some point, we will be on covid -- be on covid, so a big reopening play will help. spotify. i like them -- this will sound terrible, but the next netflix. there are still multiple years of growth in terms of where the market is, if netflix has really hit saturation. spotify has a ways to grow. if i am willing to take on risk, and nobody is willing to do that today -- but we will be at some point -- all things end. it are to consider beyond the core names. matt: netflix has a deep bench. when i look at it against its
competitors, a couple of others have a decent library, hulu, original programming on hbo, but netflix seems to have it all, even if they are looking at a little bit of saturation. it is like being a little bit pregnant. they seem to have a strong core offering. what does spotify have in terms of its competitors and library? mark: it's library is differentiated in the way that netflix is. it does have the leading streaming service. the user interface is better than what is out there. apple is only available on one operating system. it is an android world, not an apple world, once you leave most of the west hind -- behind. they are also rolling in more podcast content. these are different pitches.
people will get multiple video streaming services. they will probably not get multiple music streaming services. i'm on the sidelines with netflix. i think there are a lot of questions. it is possible this is one big head fake driven by these omicron hits we had in january which led millions of households to call in sick globally, essentially put off starting up any new subscription service. if that is what it is, netflix is a great opportunity. i also doubt that netflix has hit saturation. it just may be harder where it is more difficult to get those incremental subs. they will add 10 to 15 every year. decent growth, it just requires a recalibration of its multiple. netflix is back to where it was prior to the covid crisis, and that strikes me as an
interesting place to buy the stock. jon: appreciate it on this day that we are talking about tech. mark mahaney of the evercore isi team. let's bring in kriti gupta who has been digging into the selloff. kriti: you just heard mark talk about, as you have more hawkish monetary policy factored into the market, high multiple stocks are affected the most. no surprise, a lot of the gains concentrated in microsoft, apple, meta. what is crucial, yes, you are seeing big tech lead the selloff. you are also seeing them leave the returns. you saw them lead the s&p 500 to those highs before they went into correction territory. something to keep in mind is what is the buying opportunity, what signals should you be looking for that have worked in the past?
we talk about the conversion. we should also talk about the dollar. a weakening dollar has proven to be what it takes sometimes for foreign investors to buy the dip. that will be something to watch for in the tech space. matt: we had a couple of indicators that we could be seeing a turnaround. vix maybe gives investors to go back in once we show some capitulation. bitcoin seems to be a risk indicator. kriti: that is what is scary about the selloff. these cross asset correlations are not making a ton of sense right now. bitcoin is higher but the s&p is lower. all you'll is lower, whereas you are seeing the bloomberg dollar index and treasuries go in opposite directions. when you have the bloomberg dollar index higher, yields should be higher, but you are not seeing that, which makes the uncertainty and risk all that more scary. matt: for exciting. -- or exciting.
>> we tell putin, you do what you want. we have our own agenda. jon: this is bloomberg markets. i'm jon erlichman. the geopolitical story you were referencing earlier in the day. that was the ukrainian ambassador to the u.k. let's bring in maria tadeo who has been talking about all of this all of europe is anxious. we are trying to clear out with
a joint response is, if there is an attack. what are you hearing right now? maria: by the way, i am leaving the office and heading into the embassy. this story is very fluid. based on our understanding, u.s. foreign ministers agreed to the sanctions on russia if there was an incursion into ukraine. that has been the line pushed around by the u.s. the question at this point is how big, how much, and what kind of sanctions? i struggled to get any reporting in terms of the details. the europeans saying i don't want to reveal anything because they could use it against us. but i did ask one official, if tomorrow there was an invasion, would ascension be ready to roll beginning tomorrow? they said yes. matt: i would say the big sanction would be to stop lying russian energy. is that something europe is
capable of? maria: you bring up a great point. you cannot separate this from the gas and energy story. in particular when you look at what is happening in germany -- you know the country well -- this situation in ukraine is bring all the the ambiguity between russia and ukraine to a balding point, especially with the nord stream 2 pipeline. the german government are saying the two are connected to some point, there could be sanctions, but to the extent that nord stream 2 pipeline could be targeted, that is unclear. some are saying that germany should also be sanctioning nord stream 1. matt: thank you for that, maria tadeo. this is bloomberg. ♪
including emmanuel macron as western nations work to strike up unified position on russia. president vladimir putin has repeatedly denied plans to attack neighboring ukraine. >> he's on his own territory which he is claiming. he has been in ukraine and fighting with us for seven years. it has cost us 15,000 people and 7% of territory so why would we believe him right now? mark: nato said it would boost deployments in western europe in a bid to deter a new russian -- in ukraine. jury selection