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  • U.S. Growth Is Well Above Trend: State Street's Dixon

U.S. Growth Is Well Above Trend: State Street's Dixon

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Bloomberg Dec 30, 2024 15:53 · 9536 Views

State Street VP, Global Macro Strategist Noel Dixon discusses Trump's next term and what to expect from tariffs, foreign markets, and how to invest to start 2025. He peaks with Vonnie Quinn and Carol Massar on "Bloomberg Markets."

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Transcript

  • 00:00 How have you all at State Street been gaming out the potential for
  • 00:04 disruption and then, you know, the the ripple effects from currencies to stocks to bonds
  • 00:09 of any kind of change in President Trump's tariff theory?
  • 00:13 Yeah, sure.
  • 00:14 So I think the uncertainty is certainly palpable
  • 00:18 in the markets.
  • 00:19 I think
  • 00:19 investors are in wait and see mode,
  • 00:23 you know, tariffs, I think
  • 00:25 'cause,
  • 00:26 you know, the one thing markets hate is uncertainty
  • 00:29 and, and we don't know what the retaliatory effects are going to have
  • 00:33 and then what, how the Fed ultimately is going going to react to,
  • 00:37 to, to those tariffs.
  • 00:39 So, so overall, we think it could certainly lower global growth
  • 00:44 and then it becomes a factor of,
  • 00:46 you know, who's going to be the
  • 00:47 cleanest dirty shirt, which is probably likely the US.
  • 00:50 So
  • 00:51 right now we're just in wait and see mode and and investors are certainly a little skittish, I think going into to next year.
  • 00:58 You know, I do wonder how the US does it alone and kind of keep up
  • 01:01 the momentum if the rest of the world isn't doing so well.
  • 01:04 Noel
  • 01:05 and I'm just curious.
  • 01:06 In the great financial crisis, we thought, OK, the emerging markets world is going to be immune
  • 01:11 from what was going on in the developed world.
  • 01:13 And yet it wasn't
  • 01:15 because what happens in the US often, you know, you're going to be felt around the globe.
  • 01:18 But I am wondering if the rest of the world is having a difficult time in terms of their economy, be Europe, be it parts of Asia,
  • 01:26 then can the US do it alone?
  • 01:29 I think it's possible.
  • 01:30 I mean, we had we, we kind of have a
  • 01:33 playbook, right?
  • 01:34 We had the Trump 1.0
  • 01:37 and we, you know, he did implement tariffs
  • 01:39 on several countries
  • 01:41 at that point in time
  • 01:43 in the US actually was able to withstand
  • 01:46 a lot of the
  • 01:47 retaliatory impacts
  • 01:49 at this point in time.
  • 01:51 You know, the US growth is pretty solid.
  • 01:53 We're growing well above trend
  • 01:56 in other countries.
  • 01:57 I think we'll make adjustments.
  • 01:58 You know,
  • 01:59 China currently they have
  • 02:01 some stimulus measures.
  • 02:03 I would imagine if they were hit with high levels of tariffs, they would subsidized
  • 02:08 some of their industry.
  • 02:10 I think they would weaken their currency and that that obviously I think will will keep them
  • 02:14 sort of buoyed.
  • 02:16 So I think, you know, other countries will make adjustments.
  • 02:18 Europe, for example, they could, they may potentially turn to China
  • 02:23 to get some
  • 02:24 to get some assistance as relates to exports.
  • 02:27 So, so I think,
  • 02:28 you know, so long as we don't go into a a real deep global recession, I think the US
  • 02:34 could still chug along
  • 02:36 well.
  • 02:36 Where are the fragilities in the market?
  • 02:38 You mentioned the Chinese currency there and obviously we know that China is issuing more special bonds and so on.
  • 02:43 But where in
  • 02:45 the markets that US investors have access to, do you see the biggest fragilities?
  • 02:50 The biggest fragility I think is the bottom 40% of income earners in the US,
  • 02:56 they're still under a lot of pressure.
  • 02:58 So we, we currently have this
  • 02:59 K shaped recovery
  • 03:01 that's only getting exacerbated.
  • 03:04 So there is a potential
  • 03:06 as you get a tightening of financial conditions
  • 03:09 that that lower
  • 03:12 sort of two
  • 03:13 quintile of income earners, they could actually drag down the entire U.S.
  • 03:18 economy.
  • 03:19 So, so
  • 03:20 for me, I think that is the the, the biggest risk.
  • 03:23 I think your previous guests
  • 03:24 talked about the commercial real estate
  • 03:27 market as well.
  • 03:27 That's also another risk I think
  • 03:30 investors are focusing on.
  • 03:32 So in the 20 days leading up to inauguration Day and not 20 trading days, obviously, but what would you be doing?
  • 03:37 Would you be pulling out, you know,
  • 03:40 out of anywhere that you have liquidity in order to wait and see?
  • 03:43 Or would you just sort of take a bet now and hope for the best?
  • 03:46 Yeah, so I would definitely avoid
  • 03:50 duration.
  • 03:50 So I and, you know, I would definitely avoid the long end of the US curve.
  • 03:55 I think,
  • 03:56 you know,
  • 03:56 you have to be selective
  • 03:58 as it relates to equities.
  • 03:59 I think there's,
  • 04:00 you know, if you, if you're already fully vested, I don't think you should,
  • 04:04 you know, try to,
  • 04:05 you know, unless it's rebalancing, I wouldn't
  • 04:08 completely, you know,
  • 04:11 escape or or leave the market at this point.
  • 04:14 I think there's still opportunities.
  • 04:16 You just have to be really selective.
  • 04:18 Glass half full of glass half empty.
  • 04:19 You sound pretty cautious
  • 04:21 as we get ready to kick off a new year.
  • 04:23 Noel, how would you describe it?
  • 04:25 Yeah, I think we're going to have a lot of volatility.
  • 04:28 I think that's what we should expect.
  • 04:30 But I think, you know, the US is still going to,
  • 04:33 you know, be able to chug along, still have solid growth.
  • 04:36 But when you have a Fed that that is cautious about, you know, super core still being very, very firm,
  • 04:43 you have, like I mentioned the commercial real estate concern, the bottom
  • 04:47 40% of income earners, I think you do have to be cautious.
  • 04:51 And it's not going to just be I think a broad based rally.
  • 04:54 I think it's going to be
  • 04:55 a lot more selective this this time around.
  • 04:57 You know, Bonnie brought up a good point.
  • 04:59 You know.
  • 05:00 Earlier, and we've been talking about this a lot, when you look at the two years last year of the S&P 500 up 24%
  • 05:06 last year, we're looking at 23, almost 24%
  • 05:10 this year.
  • 05:10 How many of your clients, institutional or otherwise, or retail are coming to you and saying, we've had two good years, I'm ready to put something in very conservative
  • 05:19 and kind of ride it out for a while in 2025?
  • 05:23 Not a lot actually.
  • 05:24 I think I think what they're doing is they're being a lot more cautious of
  • 05:29 being more selective,
  • 05:30 but they still see opportunities in the market.
  • 05:34 And then also, I think they, you know, this, they're kind of skittish about the fixed income market.
  • 05:39 So they, they actually see more opportunity with,
  • 05:43 with high quality equity companies
  • 05:46 that you know, have
  • 05:48 nice free cash flows,
  • 05:50 good solid earnings, good forward guidance.
  • 05:53 So they actually feel a little more
  • 05:56 solid
  • 05:57 or or confident
  • 05:59 with those type of companies as
  • 06:01 as opposed to
  • 06:02 certainly, you know, other places in the fixed income
  • 06:05 or the US curve, if you will.