Live on Bloomberg TV

00:00Katrina Dudley of Franklin Templeton weighs in on this equity market writing. The US market has consolidated after a strong run, but breadth is improving small and mid-caps along with equal weight. S & P 500 are outperforming or keeping pace with the MAX seven. Historically, such rotations signal more durable market leadership and sustained equity gains. I'm pleased Data Katrina joins us now. She's senior investment strategist at Franklin Templeton. Katrina, great to see you. Thanks for coming in this morning. Great having me. It feels like that trade got another boost today with maybe a little bit of disappointment from in video and small caps outperforming. So how sustainable is it? I think what we're looking at is the breadth of the market. It is not the MAG seven that are doing all the heavy lifting that they were doing over the last few years. We've actually seen the market cap weighted S & P perform about in line with with the overall S & P. And that's good news because it means that there's more stocks to focus on. It means that there's more stocks to generate earnings growth. And when there's more earnings growth, you know, valuations will be supported because ultimately, at the end of the day, it's earnings growth that drives markets. It's not valuation. We saw that it was a strong earnings season given, I think something like 44% of companies upgraded their outlook. But in the background, there's this real macro nervousness, let's say the stress. Is there a disconnect between the two? I feel that, you know, I was listening to the opening narrative. It's so easy to point to those negative data points. And look, I've always been in that glass half full camp. I have to admit that kind of optimism is being something that was pervaded my career. But if I take a look, unemployment rates are very, very low. If I have a look at the stock market buybacks, you know, we're at 1 trillion of announced buybacks already. We've got they're in the fastest time ever. And I have a look at that type of underlying market support. And if I pair that with good earnings growth that is supported by a good strong economy, I do think that there's a lot of good news out there and good news is supportive of where the market is. So just linger on the small caps for a moment because I have Lori Halvorson of RBC on yesterday who said, yes, there's a short term boost to small caps, expectation for cuts, but the index itself, the quality isn't as good. And so that that boost can only last for so long. So how overweight do you want to be on small caps if it is maybe just some of the rate story lifting it up for now? I always wonder when people say what is a quality small cap or what's a less quality small cap. So you're looking at small caps. You want to look at where you're buying things, and that's where active management really comes into play. So what we've been advocating for is companies with low leverage. So, you know, even though we expect interest rate cuts, you don't have any interest rate uncertainty. And they've also got a balance sheet that they can invest behind. And I think that that's very important. And then you're looking for companies which have got good returns on capital. So I think if you were to pare that, you can probably get to lower quality. But I'm not necessarily in the camp that that needs to be an investment strategy of being long quality. In short, not so quality. I think in the small cap land, that type of recipe for success is always a good one. What do you make of the fact that we had an vedere tepid and I feel like in the past when we would have said tepid in video, would have come crashing down to earth, dragging everything along with it. It's an incredibly calm market this morning. What do you make of it? I think part of it is the fact that there's zero China sales in that forecast number. So I think if I take a look at the range, I actually did meet expectations. But, you know, some of the analysts were at that new much, much higher $60 billion range. So I think it was a little bit of missing some fairly optimistic forecasts, number one. Number two, they did give you some type of glimmer of hope that if they do come to some some type of settlement with the administration over sales to China, that is additional upside to the quarter. So I think that that's why the the downdraft in the stock and it was down 3% now just down over one, that's what explains that. The second thing is I've grown up in a market where we were all trying to buy the dips. And I just wonder if this, you know, Nvidia's up so much. People are starting to really see the benefits of AI as it comes into their own workplace. And I just wonder how many people have been sitting on the sidelines and saying, you know what? This is just that. All I got to say, it feels more than just in video. That's incredibly com. It feels like this summer for all the hectic ness that has gone on. I mean, the summer has felt like a decade. I think we can all agree. But you get things like Trump firing a Fed governor and the dollar barely moves equities barely BOJ. Yes, you get some curve steepening but not huge moves in the treasury market. What do you make of the fact that overall it feels like it's been a very calm market that's just treated in a range all summer? Well, we have April. I mean, and let's just go back. We did have a lot of volatility in the market. We had such a downdraft. And you're right, one of the things when we were looking at April and saying, you know, this is a time to buy equities, we were looking for an updraft in the market and an uptick. We just didn't think it would happen this. Quickly. And so that's been one of the things that has really surprised us is the speed of the pace of that recovery. But I think when we looked at the tariff news, if you'd taken that negative news off the table, the underlying economy has continued to be strong. And that's, I think, is what is driving this market. Number one. Number two, the gains are not just sitting in a small group of people that are over there in the corner. It's actually migrating down to the rest of Wall Street. And I think that that's why you have a lot of calm, because more people are sharing in the goods and the gains of this market. It's not just a few people off to the side, but then again, it feels like this contrast again, where you have that conversation happening on one hand and then on the other hand you have the Fed turning more dovish, saying they're concerned about the labor market. Yes. And part of the concern about the labor market is also due to this influx of new graduates that we've had. I've got a couple of them at home. And, you know, it's a tough job market. It has been a tough job market. Some of that is just a reflection of some of the uncertainty that comes from the early part of the year. We didn't set out hiring plans in August for August. We set them earlier in the year. And I think there was that level of uncertainty. And I expect now that we start to see some resolution, you'll start to see some additions to that graduate job market. So they'll come into the market, but just maybe on a delayed basis. And I think that that's part of what the Fed is kind of looking at some of those numbers. And then the second part of it is we talk about the benefits from the boom. There is also another side to eye, which is some parts of the market will be dislocated. And I think that that's the other area where people are concerned. So you're trying to get the little dudleys out of the house is what I'm hearing. You've graduated. Go out there, find a job. You know what? I think we all want our kids to be as successful as you have. And the fact is, is that I you and I were talking about this, the fact that people concerned about losing critical thinking or losing ability. I actually think it actually gives us more capacity to do that. So I'm actually probably there in the in this camp that it takes away a lot of the drudgery work and actually gives our analysts, particularly with our investment teams, just so much time to do that critical thinking to do those additional meetings that really make for much more investment and robust investment thesis. So I'm optimistic not having to slog away writing code, making Excel spreadsheets, what have you. That is a nice feature to see coming. Katrina, thank you so much for joining. So great to see you. That's Katrina Dudley of Franklin Templeton.

No schedule data available.

BTV Channel FinderWatch BTV in your area

Mag-7 Not Doing The Heavy Lifting Now: Katrina Dudley

Katrina Dudley, Franklin Templeton Senior Investment Strategist, breaks down the current momentum in the S&P 500, and how small- and mid-cap companies are keeping pace with, or outright outperforming, the Mag-7 stocks. She joins Bloomberg’s Dani Burger on “Bloomberg Brief.” (Source: Bloomberg)

More From Bloomberg Brief
All episodes and clips

Bloomberg Technology
The only daily news program focused exclusively on technology, innovation and the future of business from San Francisco. Hosted by Emily Chang.
More episodes and clips