Bloomberg BusinessweekBloomberg News Chief Technology Correspondent Mark Gurman and Bloomberg Intelligence Senior Technology Analyst Anurag Rana discuss Apple's outlook following recent analyst’s downgrades. Bloomberg Intelligence Chief Equity Strategist Gina Martin Adams explains why the stock market's health is likely stronger than it first appears. Bloomberg News Tech and VC Reporter Priya Anand says San Francisco’s demise has been greatly exaggerated. Bloomberg Businessweek Editor Joel Weber and Bloomberg News Auto Reporter Keith Naughton share the details of Keith's Businessweek Magazine story Why There Won’t Be an EV in Every Garage This Year. And we Drive to the Close with Ryan Detrick, Chief Market Strategist at the Carson Group.
Hosts: Carol Massar and Tim Stenovec. Producer: Paul Brennan.
This is Bloomberg Business Wait inside from the reporters and editors who bring you America's most trusted business magazine, plus gloom O Business Finance and tech news. The Bloomberg Business Week Podcast with Carol Messer and Tim Stenebeck from Bloomberg Radio.
Whoa whoa.
Little b king. Yeah, we're a little worried. It goes like a street's a little worried about Apple, Tim, We were just talking about it, one of your decliners. Shares of Apple down for fourth day in a row, moving below it's ninety day moving average. This after analys at Piper Sandler cut their rating today, setting a week macro environment in China that will damp and demand for iPhones. We heard some worries just earlier in the week.
Yeah, that follows the more bearish move by analyst at Barclays who cut their rating to underweight on Tuesday. In all, Carol, Apple is down six percent in the last four days, shedding one hundred and eighty billion dollars in market cap. We should note there are now five cells on the stock, so that pushes the company's by equivalent ratio down even further. With the percentage of analysts bullish on the company at a three year low.
Yes, it's interesting, all right. So what's going on? Is twenty twenty four set to take a big bite out of Apple? We've got a great roundtable. Markermann is Chief Technology correspondent at Bloomberg News. He joins us on Zoom from our La bureau, and anurag Rana is senior technology analyst at Bloomberg Intelligence. He joins us on Zoom from our Chicago bureau. Guys, thank you so much. Happy New year to both of you. I do want to kick off with you.
Mark.
You cover this company like HONOURAG. You talk with them, you check out their products, you do your channel checks. Should we be saying Cooper Tina, we have a little bit of a problem here.
You know.
I think twenty fourteen good.
Twenty fourteen.
Twenty twenty four don't take me back, please?
Yes, could shake up to shake out to be one of the most pivol years in Apple's history.
There's a lot going on.
They have a pretty compelling product roadmap for the year. The Vision Pro headset, their first new category of nine years. Larger iPhone displays biggest change of the iPad since twenty eighteen, big changes to AirPods in the Apple Watch. So there's a lot going on here, but big butt. The iPhone sales concerns are a real problem. The fact that we're likely going into our fifth quarter in a row of revenue decline, that's a big problem. That's something that hasn't happened in the modern Steve Jobs nor Tim cook eras The fact that this new product category they're launching is not going to have any mainstream pickup for several years or generate any material revenue, that's a problem. The fact that Massimo proved that you could beat Apple in a patent infringement lawsuit and get their product off the market. That's a really big deal. So there's a lot of negative noise around Apple. I still think that the fundamentals, the moat they've created, the ecosystem, the iPhone, people holding onto their devices, buying news services. I think that's all pretty strong. But it just feels a little weaker than it ever.
Has on a rock. I see you nodding here from Chicago. Tell us tell us your thoughts based on what you heard from Mark.
Yeah, I absolutely agree with Mark in fact, but the only thing I would say is all of this you know, iPhone weakness came out when they reported results on November the two. That's when we knew when they missed China numbers by a big amount. We had heard about, you know, competition from Huawei. All of those things are important because we were hoping that by this year we should see a improvement in China smartphone sales only because the year before we had COVID related problems and there was a depression in sales. I think that really is something that you know, when they came and gave guidance. To be honest, I was surprised that the stock didn't react the way it's reacting now at that time. So I think it could be a year and you know, portfolio management or whatever it was. But I agree this year is going to be tough for them. They're going to grow somewhere between three to five percent revenue, then you buy you know a little bit of buybacks in between. So this is a this is the new normal for Apple. It has been for the last two years.
Well, honurk let me follow the new normal. Does that mean Apple at some point needs to think about China not being as big a market as it has planned for it to be.
Well, China is a big market. There is no there is no way out of it. But see the way you want to think about Apple in totality, and I'm only going to focus on iPhones right now because that's really what drives the product growth at least, you know, the in the near term. When you look at the global market, they have a very high market share in the US, which is a mature market. Then the next big market is China, where they have less than eighteen percent of unit market share. But as people become more rich they go out with and get a more premium brand. Then the next big market is going to be India, where they have less than five percent market share in terms of the units. So the way you want to think about Apple is over the next three to five years, the big unit chipment, you know, numbers are going to come from China and after that India. In the US, you know, we have phones, we're going to refresh at whatever three years, three and a half years, potios and that's a bit of a saturated pocket. So China is the growth engine when it comes to phones, and that's where we are seeing some you know, I would say, slow down.
Hey, Mark For years, we've been hearing about how the iPhone just powers Apple, and indeed it does account for more than fifty percent of the company's revenue. But we've also heard the risks associated with that. What is the most compelling new product category for Apple that will help offset some of this slowing iPhone growth?
You know, it's it's an interesting question people for years, like you said, have been talking about is it a risk that everything revolves around the iPhone and half the revenue comes from the iPhone? I think it's even worse than that, because you're buying AirPods if you have an iPhone, you're buying an Apple Watch if you have an iPhone, all these services that Apple are selling, Fitness Plus TV plus Apple Music, the App Store. Every time you download an app, where are those downloads happening, It's happening on the iPhone. How many people own an iPad or a Mac and don't own an iPhone. How many people buy an iPhone before they buy an iPad or a Mac. So if you really think about the ecosystem in totality, it is one hundred percent built around the iPhone. You know, this new vision prode answer your question about new product categories to drive revenue. That's not going to drive revenue anytime soon. If they sell out of all their inventory for twenty four if you're talking about a three to four billion in just revenue alone, probably about a billion in profit maybe a little bit less, that's nothing, right, I mean, Honor Rock can get into how minuscule that is. And so I think long term, mixed reality, augmented reality, virtual reality, those are fine categories for Apple, but I think right now it's nothing more than a pilot dream in terms of not becoming a revenue generator.
Honor Rok, come on in, you are not in your head?
Go ahead, yeah, I mean it's as I said, that's why you know our I would say, seventy five percent of my focus going and goes into the iPhone and the work that's you know, we do around it. And you know, at this point we should see we should have seen an improvement in China. China, you know, there are about one hundred plus million phones that need to be refreshed that we haven't seen that number move quite a bit, and in terms of the base is a little bit more than that. But you know, we you know, China is going through weakness. You know, we have a new brand, new model from Huawei, but they haven't released in a while, so people are refreshing that. So I mean it it is a big bit of an issue. But frankly speaking, we really think Apple is a unique brand. Apple is a marquee brand. There is. If you look at globally the smartphone market, Apple has less than twenty percent of market share by units. I'm not talking about revenue by units. Think of Apple very much like an LVMH, like what Coca Cola was in the fifties and sixties. Whereas countries that are that they don't have the purchasing power to buy those products right now. As they become more richer, as they become more affluent, they're going to go with a marquee brand, and that's Apple. But if somebody's thinking they're going to grow ten to fifteen percent, I mean they need to recalibrate their thinking. This is at most now a company that's going to grow in a weak economy around three to five percent. In a good economy between sixty eight percent, which, to be honest, it's not bad. This is a brand that can you conquer a lot in the long run. But in the near term we do have growth problems.
Mark Mark, I think that's such a great point. Just got about twenty seconds here this reset in terms of they still sell a ton of stuff, guys, but it's not going to be as aggressively growing. We need to think about that just quickly.
It's been the case for years now, you know, in terms of reven New Apples very much like the new IBM in terms of products. They want to prove otherwise and this is the year to do it.
Listen, guys, thank you so much. We were looking to do a smart roundtable fundamentally about the Apple story, and you guys just laid it out for us so well. Happy happy New Year. Mark Erman, chief technology correspondent here at Bloomberg News out there on the West Coast in our anaag Rana. A must read, as I always say, when it comes to a lot of things going on in the technology world, including Apple. He's senior tech analyst at Bloomberg Intelligence out there in our Chicago bureau. This is Bloomberg.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot Com, the iHeartRadio app, and the Bloomberg Business App, or watch us live on YouTube.
What doesn't kill you makes.
Us sud.
Oh, thank god we have Gena to save us. Yes, indeed, everybody, US docs have begun twenty twenty four in a sour note. Weakness, though should be reasonably short lived, according to Bloomberg Intelligence Equity Strategies checklist of sixteen key indicators, which continues to improve for our fifth straight quarter. This from Bloomberg Intelligence Chief Equity Strategist Gina mart Adams, who is here in our Bloomberg Interactive Brokers studio. So nice to have you here. Happy New Year. Can't believe it's in New Year?
Wait?
Can I ask you something? You are here listening to this conversation. What do you make of the buy now, pay later? Is there something within the equity universe? I don't know.
Oh.
I think people are less and less cash rich, and Americans love their credit. So if you're going to give them an opportunity for a free lunch, even if they have to pay for that lunch in a month, so they're going to take that opportunity, In particular in periods of time when they're a little bit short cash, and that does appear to be where we are today. I mean, they still have very little debt, which is great longer term, but they are taking on more debt on account of the fact that it's getting more expensive to live and their incomes have really caught up with inflation. Even though that seems to be improving in the near term, we've been eighteen months in which inflation has been accelerating very quickly relative to income, and so certain income classes are struggling a little bit more than others. And anytime you give somebody something for free, they generally tend to do this. Do this.
So, Gina, how do you square everything you just said right now with the optimism that you and the team have for stocks for this year.
Well, so, the consumer is not the market. The market is not the consumer. It's the first thing to consider. There are potential weaknesses in the outlook, and many of them are consumer centric. But when we look at the composition of our broad equity markets in the US, it's a lot less about the American consumer than I think is popularly believed and what we've expected.
We always talked about the consumer the backbone of the uscap exactly Yeah.
I think that's a really good point and something we talk a lot about. It's sixty five percent of the US economy, but thirty percent of the market cap of the S and P five hundred at best is consumer sense. Also, what you tend to see in a normal recessionary sequence is the consumer slows down. There spending business investment crashes as a result of that consumer slowdown, and the business investment is what really creates the cycle. Business investments already crashed. Isms are already sitting at all time near all time low levels. Lais have already crashed, We've already experienced our major deceleration. So it's very difficult to get to a sort of mental constructs that would suggest that we're not already at or near some kind of low in the economy. Maybe we have a tiny dip lower if the consumer finally capitulates, but businesses have already adjusted, and we see that in the profit cycle as well. Within the S and P five hundred profit cycle, we saw profits capitulate materially. In twenty twenty two, we went through a massive recession in profits. Profits are starting to claw their way out of that recession now, So I think what's most important to driving stocks, frankly is earnings. Earnings are not one to one with the economy and by any stretch of the amount, and there's certainly not one to one with consumption.
I am printing at the T shirts. Consumer is not the market. Market is not the consumer. Because I think about how much FI about sure, yeah, exactly, I'm going to I'm going to get it done.
You know.
The other thing I'd like to just add into this, because I'm talking about this for a note on Monday. We're so growth obsessed in the US. It's all about growth. It's all about growth. It's all about growth. But the reality of this cycle, especially over the last three years, that we've learned, or we should have learned, is that we should be a lot more inflation obsessed. And inflation doesn't always trail growth. And I think many of us in this market are conditioned on the idea that, well, if growth goes higher, inflation goes higher. If growth goes lower, inflation goes lower, and there's this symbiotic relationship that's not actually how it always happens. And we learned that the hard way in twenty twenty one and twenty twenty two, where inflation and growth really decoupled. So I actually think if there's a big risk to stocks next year, it's inflation that remains stickier than anybody anticipated. Even if growth accelerates, that's already expected. The whole world is expecting inflation, and we're.
Not accelerate, but we're not expecting We're not expecting inflation into acel. I agree, and like, as you think about the Fed minutes from yesterday, they kind of covered everything. We could cut rates, but we could also raise rates, and I do feel like that that's the one thing that's being kind of underpriced in the markets.
Yeah, and I think that that's just a natural byproduct of the fact that we're all human. We all work on recent experience. For the vast majority of the last twenty five years, we have really just been able to forecast growth and therefore forecast what was going to happen in markets. Something changed, it broke, and it definitely broke in a hard way. In twenty twenty two, Forecasting growth was not going to get you to where you needed to be with an investment strategy. So we have to consider inflation and what's going to happen with inflation in all aspects, but I think we're really reticent to do so because we're conditioned to all.
But it doesn't really the end of everything, right, No.
It doesn't necessarily mean the end of everything. It doesn't necessarily mean that things are broken. It's just different. It's just very different than where we've been for most of the last two decades.
Well, for most the last few weeks, you and the team at Bloomberg Intelligence have been very busy because I got a lot of notes.
Okay, thank you, thank you of it.
We're catching up after the holiday break.
Well, one thing that was really surprising to me looking back on twenty twenty three and how we can use this to predict what happens in twenty twenty four is the breadth, especially globally of stocks. We talked so much about the Magnificent seven, but you and the team crunched the numbers and it was a pretty good year globally.
I know, it's kind of surprising because I think, again, the popular rhetoric has been, oh, it's just all of us seven. Hey if you missed the rally because you didn't have the Mags seven. But the reality is we tracked twenty major global equity markets around the world. Nineteen of twenty posted returns. Sixty percent of global stocks posted returns. Forty five percent of global stocks posted double digit returns. Last year. It was one of the greatest years for stocks in the last twenty five, one of the top six. So we had a really good year in equities in twenty twenty three. Not a great year in small caps without a doubt. Small caps were really left behind. Emerging markets, especially emerging markets when you include China, were left behind. So there were not everybody benefited significantly. A great deal of the equity market did do quite well in twenty twenty three.
So how do you measure that? Is it the number hitting their fifty two week highs? What is it that you look at?
Yeah, so we look at a lot of different things for that study. We just looked at the absolute returns just to kind of report in on, hey, here's actually what happened, and it looked pretty decent. I like to look at the percentage of stocks trading above their fifty and two hundred day moving average as my favorite breadth measure because I tend to find it gives me some indication as to what to expect for price trend. It also gives some near term toggles for the equity market. So, for instance, at the end of last year, we got to a point where seventy five percent more than seventy five percent of stocks were trading above their two in a day moving average.
Which is significant.
It's a very big breadth number, but it's also a bit extreme, okay, and it paired really well with things like our market Pulse index, which was saying the market itself sentiment is far too, far too bullish. RSI momentum also got to a very high extreme by the end of the year, so we were set up coming into this year to have a cool off period. At the very least, we needed to move out of the party that we had in December and pull off and let the market which I find a new equilibrium. How much of a cool loss it should be relatively small, just because most of the other conditions that we tend to follow for driving equity markets are pretty supportive, in particular the earnings trends. Frankly, I think it's kind of gone unnoticed that earning's made a major low in twenty twenty three and are starting to climb out of that low. Most sectors are going to participate in earnings recovery this year. The four ninety three, so in the non seven that we talk about, the four ninety three s and P five hundred companies that don't get as much play are actually supposed to produce their first quarter of earnings growth with the fourth quarter earning season coming up, the first quarter of earnings growth we've seen since twenty twenty two, So we should see some earnings momentum gather throughout the year. A lot of it is because inflation is decelerating. It's not because you got a big growth recovery or revenue but robust revenue recovery.
It really is.
Inflation needs to continue to accelerate to power that one recovery.
We were talking about the end of the year and just got about a minute left here. Is that the money that's sitting in money markets. Do you anticipate that comes back into the equity markets this year? Or how do? I don't know?
How are you?
Yeah?
I think you've got to get probably a stronger recovery in small caps and a broader recovery into all stocks. Probably need to get the FED to ease, okay, because then that changes the math. Right Right now, the math is not in favor of stocks relative to cash because the pe ratio is so high. With the exception of small caps, the math works very well for small caps, which are training at incredibly low valuation ratios. So your earning zealed on small caps pretty strong relative to cash, particularly if we go into an earnings recovery this year. But large caps it's a harder case to make. So you'd say small caps and emerging markets, those are the two markets to watch. If we get some momentum there at the same time we get a little bit of feties, those could be the areas of the market that really trigger a broader move into the.
More so the more so into the equity market than into the bond market. From money market fund Yeah, no, I.
Think that right now investors are considering all options because you still get a plenty of yield in the bond market as well. But we've had such an extraordinary rally in the long end of the curve, it's probably more in the short end that they consider their options in the bond market. Also, I would be remiss not to note that you know, cash inequities are not direct substitutes for one another, and so certainly there's an array of opportunities for investors to consider.
Ah the God Here Bloomberg Intelligence Chief equity strategist Gina Martin Adams, a researcher who's a must read. Thank you so much, happing you hear.
You too, Thanks for having me.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Easter on Bloomberg Radio, the Bloomberg Business app, and YouTube. You can also listen live on Amazon Alexa from our flagship New York station, Just say Alexa Play Bloomberg eleven thirty.
One of the biggest news stories of the last year was the demise of San francisc.
Go right like it was over right. Everybody's leaving, it's falling apart. Businesses don't want.
To real estate yeah, collapsing.
Yeah.
The problem of the unhoused is huge. They're drug addicts everywhere. It was a doom loop. It became critics shorthand for problems wrought by remote work and drug addiction, a cycle that drove people out of the tech capital of the world in huge numbers.
But here's something folks, reality really hasn't caught up with this list of woes. In the twelve months ending July twenty twenty three, the city actually gained four thy nine hundred residents after also seeing some slight growth in the priory. Or this is according to some new data. So, you know, our team here at Bloomberg News we kind of wanted to know, like, what's going on here?
Well, look at the numbers. Pria non certainly did. Technology and venture capital reporter. She took a look at the greatly exaggerated demise of San Francisco. She writes about it for today's Bloomberg Tech Daily newsletter, which you can sign up for at Bloomberg dot com. Slash Technology. Pria joins us from our San Francisco bureau. Pria, it has been about a year since I've been in San Francisco, Carolyn. I had a pretty good trip there. We did December of twenty.
Two, right, Yeah, it's been a while.
Yeah, we had a good trip there.
And I know people are like, be careful working the street, and I'm like, I walk you around in New York, I'm like, am I gonna be okay? You're gonna be okay?
Yeah, You're gonna be fine. It is a beautiful city, one that's very certainly as a Californian and very close to my heart. What prompted you to write this story because it was a personal experience.
You know, I was walking the Crosstown Trail in San Francisco. It's a seventeen mile trail path that goes through different neighborhoods in the city, takes you to lesser known places, more known neighborhoods, ends with a gorgeous view of the Pacific Ocean on New Year's Day with some friends as sort of an annual tradition to be out and about in the city on a beautiful sunny day.
And the whole time I was just thinking, you know, there's so much.
Conversation around San Francisco being in decline, And of course I'm not saying because I had an enjoyable walk through the city one day, there aren't challenges in this city, right. I think anybody who comes here, lives here, experiences life in San Francisco is going to agree that homelessness is a huge crisis for this city.
The drug has been for years, this problem. I feel like homelessness has been a problem for years there.
That's right.
These have been long standing problems that San Francisco really must scrapple with and deal with and find a way to solve. But at the same time, there's been all the conversation around how the city's over it's in decline, but the data is not bearing that out right. I mean, I received some This is a very polarizing topic though, and clearly folks around the country who do not live here do live here. People have a lot of opinions on this. So I wrote this story about how the numbers show that the city actually hasn't lost much of its population over the last few years, which is in contrast to a law of the conversation around how this place is decaying. But I received some pretty charged reader feedback, actually more than usual. One reader compared San Francisco to Afghanistan and Detroit. I was surprised to see Afghanistan in that email. That will pop up as a point of comparison. So people clearly have a lot of feeling about this place, but I'm not quite sure how much of those people have actually spent time in San Francisco. And once again, just for the city, that's probably that's probably also true, right, the city's chief economists, though, isn't saying that these problems don't exist. And he told me, look, there is a risk that San Francisco could at enter a doom move at some point if the city responds in certain ways to its challenges, if the city were to alienate its tax base to the extent that people would leave and then create more of a drain on its finances. But the data has not proven that that doom move is actually here. Now there are risks in the city has to manage this time kind of carefully while people are still looking at remote work and the ability to not necessarily have this either setor of gravity in the tech industry especially.
But this is still a place where people in the tech industry.
Are coming in multiple days a week, as you companies, and as.
You point out PRIA, it's also a place where venture capitalists continue to deploy money to companies that are based in Silicon Valley. Talk to us about the data that you found there.
That's right.
So while there have been all these other cities that have been gaining more venture capital dollars over the years, you know, more and more stops have cropped up in New York. There was a lot of hype around Miami and the startup scene for a little while, hype more so than I think that actually bearing out in the numbers. The Bay Area by far still gets the most venture capital dollars, and at the end of the day, AI companies now are cropping up and opening offices in the Bay Area. They are mandating that their workers come in three plus days a week open. AI famously has folks in the office almost every day. They're based in San Francisco. I wrote a story or last year. I guess I can't say earlier this year. Now we're in twenty twenty four. I wrote a story in the fall about how AI offices are snapping up. AI companies are snapping up more office space in San Francisco, not necessarily downtown, in other parts of the city. So downtown still has its challenges here for sure, but AI companies are opening up offices here. They're trying to get their staffs to actually move from other parts of the country and the world to San Francisco because they believe there is a gold rush right now in that sub industry within tech, and that they need to capitalize it, and that having people together in person, solving problems in this burgeoning field is the way to do it. So there is a lot more fervor around being in San Francisco in person than there was early last year, and AI is a huge part of that.
I love your emotion behind this because it's really great to hear because you're right. The story, the narrative has been one of doomsday, no doubt about it. What about tourism, what are we seeing? I mean, I think it's a beautiful city. Every time I go. It makes me so happy because it's just gorgeous.
And it doesn't hurt that the Bloomberg office is literally on the water. You see Prio shot, like that's what you see from the Bloomberg office.
It's pretty incredible. But just got about forty five seconds left here. I mean tourism, you seeing them out and about.
There's been some rebound in that. And if you go out into restaurants in the city these days, like you got to have a reservation to go anywhere great over the weekend now again, unlike you know, the early stages of post pandemic life where everything felt like you could go anywhere. Oh look, I'm not you know, this is such a story is rooted in the data, It's rooted in my reporting on this industry, which I have been covering for about a decade now. And I'm not you know, I want to be clear that this whole storyline is not about women went on a beautiful walk in San Francisco thinks the city is great now, right, I'm not blind. This is based on the data, it's based on the facts.
Great story and really something that I think it's good to get this perspective out there, considering the backdrop. And I love your your perspective on it because I get it. I get where you're coming from. Prianna, thank you so much. Happy New Year. She's technology and venture capital reporter at Bloomberg News in our San Francisco bureau. And you know, I brought out the homeless, not to say that, yeah, to remind them that there's you know, it's been around for a long time, but I feel like people keep bringing it up, like, look the problem and maybe it got worse coming off of the pandemic, but it's been something they've been trying to grapple with for some time that by.
No means the city right now. No, we here in New York are certainly dealing with it as well.
Anywhere it's warm, where there's you know, better even warm here. Yeah, that's true, it's not it's not exactly anyway. I really fun to check in with our pre and on. You are listening and watching Bloomberg Business Week. This is Bloomberg Radio.
You're listening to the Bloomberg Business Week podcast. Catch us live weekday afternoons from three to six Eastern Listen on Bloomberg dot com, the iHeartRadio app, and the Bloomberg Business app, or watch us live on YouTube.
Wait a minute, my at a wedding?
No, because I wouldn't be dancing if we're at a wedding.
That's so sad.
Uh.
The Electric Revolution a year ago, evs were all the rage. It seemed like an all electric future. Tim was just around the corner.
You know, it's funny, this is off script.
But Katie grad are you dancing in the studio?
Yeah, that's true. Katie Greyfeld just bought a new car. She posted about it on her Instagram, So I think it's fair game for me to talk about.
Just talked about it on Area and I.
Said, did you why didn't you go to EV and she said, you know what, it wasn't even on our radar.
Yeah, it wasn't.
It's a little bit of a different situation because she lives in New York City and it's like hard to charge. But just the fact that it wasn't even on her radar, I think speaks volumes about the way that consumers in her household. No, it was a genesis.
Yeah, got it is a genesis. Today's car buyers definitely having second thoughts about them, are having no thoughts if you're Katie Greefeld, short circuiting sales growth and causing plugin models to pile up on dealer lots. Tim automakers, we know they're pouring more than a hundred billion into developing EV's this decade alone. They're now slashing prices, production, and profit forecast for the new green vehicles.
Yeah. Keith Notton writes all about the inventory that's piling up when it comes to these evs. He's Bloomberg News Auto reporter. He writes about it for Bloomberg Business Week. The story and the upcoming New Year Ahead issue of Bloomberg Business Week. It's on newsstands next week. It's already online though at Bloomberg dot com slash BusinessWeek and on the Bloomberg terminal with more. We have Keith not In joining us this afternoon. Also here is the editor of Bloomberg Business Week, Joel Webber here in our Bloomberg Interactive Brokers studio Jiel, Happy New Year, Happy.
Near to both of you, and Keith to you as well. So the Year Ahead issue we do every year, and we have this process of identifying themes and ideas and stories that we want to kind of dig into and look like the EV one is a huge one, in part because of those big numbers that you threw around there. The industry has just gone all in on this. What has been a little surprising is how consumers have been more tepid, and that is somewhat different than I.
Think it is globally.
But you know, Americans have their own way of doing things and there seems to be no exception. What's interesting, though, is that instead of going all gas and we'll have to grill Katie Greifeld about her personal decisions some other time. One of my favorite topics, by.
The way, But but but.
Keith, Hybrid's been around for a while, and yet this is what Americans seem to be turning to if they're not going fully electric.
That's for sure, Joel. And in fact, we wrote about that in BusinessWeek a couple of months ago. Hybrids now are all the rage. So Ford and Toyota in particular this week announced, you know, really great hybrid sales up by double digits. People are seeing it as a sort of a good compromise between you know, going all electric and sticking with the traditional internal combustion engine.
So what's this How's this going to play out for electric vehicles? I mean, one hundred billion dollars UH into developing evs this decade among US automakers. Those prices obviously getting slashed. But so what what's it gonna look like? How do you you know, if you're going to throw all this money into that and then start to tack, how does this end playing out?
Yeah, Well, as one am sent to me at one point, this is not a light switch kind of flipped. We don't just suddenly go from having you know, two hundred and fifty million internal combustion engine cars on the road in America to suddenly being all electric. There's there's going to be a progression. It's going to be in fits and starts. But what happened last year, as one dealer said to me, is that the pivot just happened very quickly. They went from having long waiting lists for electric vehicles. You remember all the stories were writing a year ago you just couldn't get one, to now having they have one hundred and fourteen day supply of electric vehicles on average on dealer lots right now, compared to an industry average of seventy two days supply. So they just have tons of electric vehicles that aren't selling.
Timmy, your dad was among them who was waiting.
Yeah, I waited for gosh, maybe a year for his maki, and now there's no problem getting makis. It's kind of wid no.
In fact, for this week just put a discount on the maki seventy five hundred off lease deal.
Maybe he should have waited, So, Keith.
What is it though?
Is it?
Yeah?
He should have.
Let's call him up and find out.
Well that you know, we have talked so much around this table about the expensive price. I know Elon's been cutting and I know now we're seeing it, but nonetheless, how expensive evs are? Is it just a case of we've tapped into kind of the wealthier market already. They've bought their electric vehicles from now and it's just not as appealing, certainly from a price point, to kind of the mass buyer.
Yeah, you're right, Caroly and Thames, Dad and Katie are good examples. Time's dad would be an early adopter. He's someone who wanted the latest technology. He's willing to pay up for it and not wait around for the discounts. And Katie is a pragmatic mainstream buyer. And they're looking at evs and saying the price, the average price of a need to B is sixty thousand dollars, about thirteen thousand more than a traditional car, which is already up to begin with anyway. And they're also looking at the charging infrastructure, and in places that are not California, there aren't a lot of chargers out there. One of the dealers I spoke with has dealerships in Kansas and Nebraska and Colorado, and when he does his weekly two hundred mile commute between Omaha and Kansas City, there's one charging station.
Yeah, but isn't this what the government's for to step in here and be like, look, that shouldn't be a problem.
Let's create in it.
Let's make sure the infrastructure is there where we need it, and let this you know, industry not linguish.
Who killed the electric cooky?
Isn't that the movie?
Yeah? I think it was the movie. The government is spending billions on, you know, acresting the infrastructure, expanding the infrastructure, but we're still trying to figure out what plug it should be because you know, Tesla has one type of charger which the industry seems to be moving to, but there is a lately other type of charger that's available. So we still have sort of a VHS and Betamax thing going on with charging stations. And by the way, they're not very reliable. JD Power has found over and over again many are broken.
It's not just that crazy. It's not just that the charging stations are unreliable. It's that you actually reported and Carol and I were surprised to find this that there's some reliability issues when it comes to the batteries in these vehicles. Cool thought. I thought these I thought evs were supposed to be maintenance free, never have to change the oisle. All you got to do is change the tires. Every what one thousand miles or something. No, I exaggerate, but you do have to change the tires more frequently.
Well, that is certainly the dream, but the reality is is that electric vehicles have eighty percent more problems than internal combustion engine vehicles. And as you said, most of that problem is with the battery and the battery taking a charge. I talked to Jake Fisher, the head of auto testing at Consumer Reports, and what happens is people plug in their car. This is not the fault of the external charger. This is not a charging station problem. It's a car problem. They plug in their car and it won't take a charge at all, or it will take a charge for a little bit and then it shuts off. He compared it to not being able to put gasoline into your internal combustion engine car. It's a no go proposition.
Oh, I guess.
I should disclose here that I drive a Tesla Model HY have never had that problem.
I've never heard.
Of of that problem.
But were you a relative cular Relatively it was on the no, it was like with them. But you are unique in the sense that you're actually the forgiving. If I'm giving up too much about you, I've talked about it. You live in New York and it's not an ideal place to charge New York City. It's not an ideal charge any so here.
Keith, this is actually a good segue another thing I want to talk about, because there are charging stations that you would use if you were out doing the two hundred mile kind of drive that you were just describing there that one of your sources had. But you know, for most people who have electric cars, they charge at home, right, And there are plenty of homes that have power outlets that you can plug into and charge up overnight. So why is that from a commuter standpoint, since that's what most Americans are typically using their cars for. Why isn't this working and resonating there?
Right? And that is the idea too, is to have a charger in your garage. A couple of things on that. Let's start again. The car's average price is sixty thousand dollars. And then to install or charger in your garage, because you don't just plug it in like a lamp, that's another two grand. So you have to be a fairly wealthy individual, present company excluded or included in order to afford all of this expense, and mainstream buyers are balking at that expense. They're saying, I mean, internal combustion engine cars are too expensive on their own at forty seven dollars on average, they are about they're you know, closer to thirty thousand back in twenty nineteen. So there's been this huge price inflation in cars in general, and evs are priced like luxury cars.
Just for the record, I use superchargers when I need to on the road and then have you know, while outlets on the other side that I can charge with whenever.
My cousins who live in the city who have a plug in hybrid can plug in the garage that they pay a monthly feet at park in.
It don't look like I guess it depends on how quickly you want to charge. But we are ultimately talking about a ton of energy required to this. And it does speak to Keith like when I first bought it and I was paranoid about running out, you actually discovered that the place that you in an emergency that you would need to go is actually like r v's r V like destinations. They have the outlet that you need. So have you ever really in doubt It's like that you know that you need the two twenty and you pull.
Is that listed in like this?
Well, it's just like you know, you start reading up on what happens if you're you know, in desperate times, in desperate places, and RV's are.
Figuring out these are the answer.
So Keith is some Americans know you know, well, Joel knows. Now you could write a book and now you know, I'd like to see the RVs.
I've never had to use that.
You know, there's an interesting miss crowds, right, no problem, Keith, is ultimately the final destination when it comes to cars here in the US. Is it ultimately going to be electric?
You know, that is certainly the way the regulations are heading everything. You know, President Biden wants us to be at fifty percent electric by twenty thirty and by twenty thirty two two thirds electric. That's kind of a stretch goal as far as the analysts and the industry say. But it could be coming back to the hybrid point that Joel started with, it could be that we have more of an immediate hybrid future and that's going to be more of the mainstream market. Remember, electric vehicles represented only seven percent of sales, you know, last year, so fewer than one in ten vehicles sold in America is electric.
One thing I'm curious. It's a global auto market, and if you look overseas, whether it's Europe or China, as you point out in your story, they are doing better in terms of adoption. So if the US lags like it seems to be doing at this point, Keith, what disadvantage does it put the US at versus the rest of the world.
Well, I mean we already see it in batteries. China owns the battery market. You really can't have an electric vehicle without Chinese battery or Chinese minerals or Chinese components. So China is already leading the race. But obviously the Chinese government can dictate how the electric vehicle market is going to develop. I talked to one China expert, and you know, if you live in Shanghai and you want to a license plate for your internal combustion engine car, you pay twelve thousand dollars. If you want one fear your eavy, you pay nothing.
And as policy, as Boomer has reported before, like the cost of even going on a big road trip with an EV in China is cheaper than it would be with a gas car. I mean they have fundamentally just changed the pricing dynamics.
And the way that power generated that they used to charge.
Well, they keep building solar, right, but I mean, look, no doubt they have tons of coal. So but the fact that they were able to bring that price down just and that the other amazing part about the Chinese version of this. There is one adapter you know you use.
It is a unified system.
There's no confusion. Yeah, they have just said this is a better way. And I will say, just you know, a little propaganda from the editor of Business Week, whence you go electric?
I think it's hard to go back. It's amazing.
It is.
I think it's a better technology. It's just getting people to do it and believe it. But once you do it, you're like, wow, this is more fun.
My mom drives the car more than my dad and she's like, pretty much, this is this how you still to carol?
You only places I take my dog now because I have dog mode in my car electric car.
He just goes with us everywhere. You just put him in the back and keeps the dog cool.
Yeah, you just set the temperature. Doug's in the back and then he's not alone at home, you know, just ke have you a.
Little movable dog? Create?
Keith?
Have you gone electric? Have you You've driven a lot of electric cars? Have you gone electric? Just fine, drive, I've.
Driven a lot of electric cars. No, I drive an internal combustion engine car. Why but yes, it's more convenient here in Michigan where I'm based. And uh and you know, I think what you see part of the reason that the US has been slower to adapts. We're a big country with wide open spaces that's very different than Europe.
That's a good point.
What a great story, Keith Noughton, Thank you so much. Happy New Year to you, Keith Naughton. Of course, Bloomberg News Auto Reporter, and are thanks to the editor of Bloomberg BusinessWeek, Jill Webber. The dog thing you may have got me?
Yeah, see.
This is Bloomberg.
Journal.
Now about you let me drive?
Oh no, no, no, no, please go job alright?
Please how the gravel?
Let's wat?
I want to try it. It's a good question.
This is the Drive to the Globes down Tim thing Well Byron joon and On on Bloomberg Radio.
All right, everybody, we've got just about eighteen minutes left in today's trading session, and the markets you just heard Charlie break in it down a little bit of a mixed trade higher on the Dow, a little bit lower though on the S ANDP and NOWSK. It does feel like we're kind of limping into twenty twenty four. But we've got a big jobs report. Having said that, late last year, you probably read this on the Bloomberg. Bloomberg News highlighted the stock optimists who nailed twenty twenty three. Among them Tim was Ryande Trek.
His chief market strategist at the Carson Group. He expected the US economy to avoid a recession last year, Carol. He also bet inflation would cool sooner than the market was expecting. Ryan even added exposure to stocks during the banking turmoil in March and as the SMB befetter'd Saink in October. Looking like a pretty good series of calls.
Congratulations Ryan, because you were highlighted highlighted in our story Happy New Year. How confident are you making a call for this year?
Well, happy new Year, guys, thanks for having me back.
I mean, we're still pretty confident, right, we still will we gain twenty four point two percent on the SMP this year. You know, the history would say probably not, but we think low double digit returns makes a lot of sense. And again we can get into all the details, but we just still see a strong consumer likely with housing coming back, with manufacturing showing signs of bottoming, that the odds of a recession, in our opinion, are still quite slim. And when you can avoid a recession, stocks tend to do well.
And here's one more.
I mean, I know the SMP hasn't made a new high for like exactly two years, right, two years ago, yesterday, right, and we think we're on to hit one eventually.
Here, we're not that far.
Well, we talked about this till fourteen times.
What's that?
Go ahead?
No, but I was gonna say, for in the last two years, the S and P, if you really look at it, has really gone nowhere. But forgive me, I interrupted you and you had a smart thought. Go ahead.
Oh no, I don't know how smart it was. Well, we'll see you let me know. But yeah, for two years we've gone nowhere. But here's the thing. Since nineteen fifty, Carol, I found fourteen times, the SMP went at least a year without a new high, so a.
Long time without new high.
We're in that scenario now after it makes a new high eventually, and it will this time, we're pretty sure.
We're pretty certain.
One year later, s AP's up thirteen out of fourteen times, up like fifteen percent on average. So I hear so many people saying, listen, we're up a lot. Last year, we moved a lot. That is true, but zoom out. Literally stocks almost gone nowhere for two years, and that might be a reason to be bullish for investors.
What about when it comes to the technicals at the start of the year, when because I know Ryan you have I mean I follow you on I was going to say Twitter, I follow you on X where you're always tweeting about these technicals, the S ANDPF. I've hunder down for day in a row. It has had We don't know how it's gonna close, but mike close in the rat If it does, it will not have closed in the grain once this year. It's only been three days. But does that poortend anything for the rest of the year.
Yeah, well, we would say no. I mean, it's awfully early.
Let's remember here, SMP's up as you guys talk about nine weeks in a row. Right, you look at the future returns after nine week wind streaks, it's pretty solid six and twelve months later above average. Now listen, I'm aware, right, we just had the Santa Claus rally period the last five trading days of a year and then the first two of a new year, and we were negative.
Right, that's pretty darn rare.
And you go back to last thirty years when we didn't have Santa Claus come to town during those normal seven bolish days. January has been read a good amount of time. First quarter has been flat, So maybe we're due for a well deserved break here, but we need to see more worrisome signs tim specifically, where's the leadership coming from, Like are utilities leading, is healthcare leading? You know, staple leading some of the more defensive areas. We're not seeing that yet. So the messages of the market to us is we're probably just maybe due for a well deserved break, and we still think that one more off for you. It's the first quarter of an election year. Historically, with all sixteen quarters of a four year presidential cycle, this is one of the weakest quarters, so just got to be aware. And last year is obviously a good year, right, so be aware. Maybe we're in that timeframe we could catch our breath perfectly normal. We don't see any major warning signs cropping up just yet.
Do you want defensives to rally or would that be a sign that things are coming undone a little bit?
Yeah, No, that would be a great question, Carol. I mean, that'd be a sign things are probably coming undone. We don't want to see that type of leadership. I mean, you know, you look back in twenty twenty one, right, you know, or late twenty twenty one, defensives started to lead, and we all know twenty twenty two all the spiral that happened. So there was some warning signs in late twenty twenty one that maybe something's off. We're not seeing that though, want to be very clear. So we're encouraged by that.
What are some things that could change your tune? You say you still see a strong consumer, the odds of recession are slim. What would make you say the odds of recession are no longer slim and they're looking more likely.
Yeah, I mean, we love to follow the credit spreads and credit markets, and I don't come on you guys a lot. Last year, I think we talked about these things. What are what are the triple B spreads? Investor gate corporate spreads? Keep it fairly simple. If there's a monster under the bed, we think the credit markets would show it. Back in March, when we had the regional bank crisis and obviously a lot of worry, we didn't see credit spreads blowing out, so we saw that was an opportunity. We saw the same thing in October, So that to me is one that we're gonna watch and then on our team, you know, I know, you know, hopefully I can say the f wort on on the radio, the Fed, the Fed.
You know, the producers in the control room a little nervous there.
Freak them out, you know, it's Joe, Yeah, oh my god, you did the Fed?
The Fed?
You know, could there be a potential policy mistake. We think the Fed start cutting pretty soon, right. We were on that record, like you guys talked about when I first came on that that that they could.
But now maybe they.
Can stay a little hawkish and maybe that could upset the Apple car. We don't expect that to happened in the market where the market's voting right, I mean six cuts. It might be a little high, but that's something that could could be out there as well. But all who won more for you when you have a good end of year rally, like we just did up fourteen percent for the SMP the last two months of the year. When you've gained at least ten percent those last two months, what we happened six times the full next year has been higher six times a twenty percent on average. So I call that like a sling shot, right, I mean, when you have a lot of strength to end a year, history would say, listen, probably side with that following year still being pretty strong.
It's a shame you don't have any kind of bull feelings out there, right. I want to ask that Apple, because you and I talked about this quickly, so then I can get my question. Apple's below it's ninety day moving average? Is that problematic? Quickly? Because Tim has a question.
I mean for tech potentially, I mean Apple, we all know is very large. One of our big themes we've been talking about it for a while, is that rotation from large caps to small caps and mid caps and technology to industrials. We're seeing that. So sure, if you're overweight tech, that's that's a potential concern. But I mean there's a lot of other groups that I think are going to take that baton curl and that's just the next phase of this bowl market as we move forward in our opinion.
Okay, Ryan, were you have you been at all bearish in the last few years?
Be honest, Yeah, we were neutral equities, you know, the majority of I guess we'll see twenty twenty two, right, and we moved overweight equities late of October of twenty twenty two or November of twenty twenty two. Actually, So were we outright bearish? No, we were not, but we were even weight, and we had overweight fixed income as well. We've been underweight fixed income, overweight stocks, I'm sorry, overweight equities really since the end of last year.
So you know, we'll see. But you know makes it.
I mean, listen, seventy one percent of the time the stock market's up nine percent on average.
We get all those things.
But we've we've definitely thought there's some opportunity here and we still think that's the that's the case tim.
Small caps, mid caps, financials. Those are still your three favorites. That's which told our print team just twenty seconds here.
Real quick, that is exactly right.
I maybe throw industrials in there as well, those cyclical areas if you don't have a recession. This rotation for tech and large cap the smaller names of sixtical names, that's how we're positioning the models that we run for our Carson partners.
All right, well, great to check in with you on this these first few days of twenty twenty four in d Trek, he's chief market strategist at the Carson Group, joining us on this Thursday. You are listening and watching, see you how your question is? This is Bloomberg.
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