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00:00Thanks for tuning in to The World View.
00:12I'm your host, Neeraj Shah.
00:15Lots happened between the time that the year started and now, lots of changes, some much
00:21more different than what the world had anticipated at the start of calendar year 24.
00:27What are the implications on risk assets of all of these changes, notably the geopolitical
00:32situation as it has evolved, the change in the trajectory of rate cuts relative to what
00:38the street was wondering back then and now, and the advent of indicators which show that
00:47growth may not be all that bad in multiple regions of the world.
00:51Let's try and ask all of these questions to John Stolfers.
00:55He is the Chief Investment Strategist and Managing Director of Oppenheimer Asset Management.
01:00John, great having you.
01:01Thanks for taking the time out.
01:03John, I'm trying to understand, how do you view risk assets currently?
01:08Because in the US, the move of the big seven is now coming under question, notably with
01:14Tesla but with some of the others too.
01:17And across the world, this whole belief of it being a year of rate cuts is now being
01:24challenged.
01:25Well, thanks for having me on the show.
01:27It's great to be here.
01:29We came into this year expecting that the very different than much of the rest of the
01:34market, we expected probably two rate cuts at most.
01:39We thought that it would likely happen more likely in the second half of the year and
01:44perhaps as late as the fourth quarter and even late there.
01:49Our view has been that the Fed is essentially saying what it, you know, it says what it
01:58means.
01:59And it essentially, you know, it started out with the potential for three rate cuts.
02:04I think that's back on the table again.
02:06The market at one point, as I recall, thought seven and there was some people calling for
02:1211 cuts.
02:14We've been very big believers of the fact, by looking at economic data as well as revenue
02:20and earnings growth and innovations that are taking place across the sectors, that really
02:25things are better than many bears expected.
02:29And we think that helps ameliorate some of the shock that a normal or that any Fed funds
02:37hike cycle has to an economy.
02:41And it just takes a little bit longer to get through.
02:43It requires some patience.
02:44Okay.
02:45So are you saying that contrary to what some people have also expressed, that who knows
02:51there might be a rate hike?
02:52You are negating that.
02:53You are just saying that rate cuts will come, but will come with a bit of a lag.
02:56Well, I also say that rate cuts are more likely to happen.
03:01And there's always a chance that, you know, if this stickiness keeps going, if we get,
03:06you know, a few more months with the stickiness, if it looks concerning to the Fed, it might
03:11even do one hike this year.
03:14And we've also at one point did say that in this year that we thought that was a potential.
03:18But we do not believe that the Fed is intended pushing this economy into a recession.
03:24I've been doing this for over 40 years.
03:26I've been in the investment business.
03:28So I've been dealing with Federal Reserve policy since the second term of Paul Volcker.
03:34So Paul Volcker, Alan Greenspan, Ben Bernanke, Janet Yellen, and now Jerome Powell.
03:41And this appears to be Ben Bernanke legacy.
03:45It's very communicative, Federal Reserve.
03:48And if anything, sensitive in practicing its monetary policy, whether it is taking liquidity
03:55out of the system or considering putting it in.
03:59Okay.
04:00So how bad or not bad is it for risk assets if inflation does remain sticky and if the
04:10Fed decides to not do any rate cuts?
04:12I don't know about the hike, but no rate cuts for the calendar.
04:16I think no rate cuts for the calendars so long as job growth remains resilient, even
04:24if it slows some, but if it remains resilient and corporate revenue and earning growth remains
04:31resilient as well, we'd have to think that it might not be bad at all if they just stay
04:38where they are right now.
04:39We're big believers that the end of free money or the end of that period where the Fed funds
04:45rate was in a band from zero to 0.25%.
04:49Now it stands at five and a quarter to five and a half percent is that band.
04:54We think that's a good thing.
04:55Bond issuers have to pay for the privilege of borrowing money.
05:00It makes CFOs take a second view or even more views in terms of how they borrow, how they
05:08model the economy at all.
05:10So we think it's actually more of a return to a more normalized environment, which needn't
05:16be bad for the markets and risk assets.
05:19Okay.
05:20Would an accompanying growth scenario help risk assets?
05:27I mean, I'm just not just talking about the US.
05:29I mean, I look at PMI data and you obviously know it more, but I'm just saying look at
05:34PMI data across the world and at different points or different parts of the world, there
05:39seems to be some growth statistics coming up.
05:43We think so.
05:45We think that the US at this point is leading in what are prospects for a global economic
05:52expansion at a sustainable pace.
05:55And that would be through much of Asia, through much of Europe, likely at a slower pace in
06:04some of the regions of the world.
06:06But at the same time, most certainly we're seeing central banks around the world giving
06:12consideration, I'm thinking of the ECB, of cutting rates.
06:18And then in Japan, we're seeing a reversal of monetary policy that has kept rates much
06:24lower than they might be in a re-acceleration of that economy.
06:29There's idiosyncratic issues around the world, but it looks like essentially there's a certain
06:36synchronicity in terms of the messages.
06:40Things are getting better.
06:41They're not really crazy.
06:43The geopolitical thing may be crazy, but when it comes to business, it looks like business,
06:50economic growth looks pretty good.
06:52The geopolitical thing worries you.
06:55I mean, we've learned to live with it.
06:56But a confluence of two or three conflicts at the same time is not usual.
07:01Well, it isn't usual when we consider, you know, if we consider the end of communism
07:08in 1989, the Berlin Wall coming down, but where we are now, it certainly is interesting
07:14to note that, you know, we have ideologies that were proven to be failures, heavy doses
07:22of socialism and heavy doses of communism and dictatorships and oligarchies are in vogue
07:30in some regions of the world.
07:31And it's worrisome, particularly as those governments participate and interact in terms
07:37of trade and then geopolitical risk that's related to an increase in hostilities between
07:46nations and threats of more hostilities.
07:49But historically, this has not been, it's something that will worry the markets near
07:55term.
07:56But once the markets get an idea that, you know, people still need things, governments
08:01need things, trade moves, it's a mix and one that generally, if anything, it brings about
08:08new innovations, the tensions and stress, whether it's in technology, aerospace or what
08:14have you.
08:15But no, but no major risk off because of this, you reckon, as things stand?
08:19I don't think so.
08:20I think risk off on a day-to-day basis, on a quarter-to-quarter basis, a reaction to
08:26disappointment in terms of numbers or some forward guidance, that's on the near-term
08:32end, the short-term end, the day-to-day, the quarter-to-quarter, week-to-week, you know,
08:38kind of stuff the traders will watch.
08:40But for intermediate to longer-term investors investing three, five, seven, ten years and
08:46out longer, whether it's a family office, a corporate retirement plan, people saving
08:52for their retirement or a child's education or something for the family or putting up
08:57your name on the side of a university wall, that type of investing, if anything, can benefit
09:03from volatility in that when the volatility occurs in the markets, often on a short-term
09:10basis, you see babies getting thrown out with the bathwater, essentially good companies
09:15that just get caught in the downdraft, and stocks of good companies can go on sale, creates
09:21opportunity for dollar-cost averaging, for adding positions or introducing positions
09:27that might have seemed a bit expensive just a short time before.
09:33John, how closely do you look at or invest in emerging markets at large, maybe even India?
09:40What are your thoughts?
09:42We think the diversification away from one country's centricity that began probably,
09:48oh, in 2016 and accelerated as a result of the pandemic is likely a real driver of future
09:57growth for countries like India, Brazil, Mexico, and many other countries, including Vietnam,
10:07of course, which already got the acceleration.
10:11When we look around the world, we think some developed nations, including Japan, could
10:16benefit very much, and Korea is MSCI, I think, that keeps South Korea as an emerging market
10:25to stabilize the emerging market index, but it's actually closer to what it really looks
10:31like, a developed nation and economy.
10:34On a global basis, we can't help but think we're seeing a re-globalization, just reduced
10:42dependency on one country's centricity, and we think that's healthy for everybody, by
10:46the way.
10:47Yeah, so does it make an investment case for emerging markets?
10:50Do you look at India closely?
10:52What do you think of Indian markets?
10:54We certainly do think so.
10:56We think, and we most certainly do look at India.
11:00What we would say for India to assume an accelerated role of leadership, because it already is
11:10a leading economy within emerging markets and a market that leads, but we would say
11:15is build out of infrastructure, increased infrastructure, whether it's building factories,
11:22training employees, building highways, improving port facilities, and creating an environment
11:29in which trade becomes more, a greater endorsement of the ability to export as well as import
11:38goods into India, and we think all of that is in the process of happening.
11:44Fair call, and that point is well noted.
11:48But lovely talking to you, John.
11:50Thank you so much for taking the time out and giving us your thoughts.
11:52Appreciate your time.
11:54Thank you, and viewers, thanks for tuning in to this edition of The Worldview.