T. Rowe Price CIO：油价与美债收益率相关性达40年极值

Bloomberg Audio Studios podcasts, radio, news. This is the Bloomberg Surveillance Podcast. Catch us live weekdays at 7 a.m. Eastern on Apple CarPlay or Android Auto with the Bloomberg Business App. Listen on demand wherever you get your podcasts or watch us live on YouTube. yields ticking higher and that kind of is one of the challenges for this market in a world with global interest rates higher. It's not just the US folks, it's around the world.

What does that mean for global stocks? Well, one of the folks we can chat with is Sebastian Page. He's co-head of Global Investments and CIO of this little shop down in Baltimore called Tro Price. One of my all-time favorite spots. Some really smart people down there over the years I've worked with. Sebastian, what are the conversations you're having with global investors here who are saying, "Hey, rates higher for longer.

What does that mean for various asset classes out there?" How do you think about that?

Paul, thank you. And first of all, I'm dreaming of the day where you'll refer to Troll Price as a big shop. We're at 1.9 trillion. We're we're working on getting to big. Paul, um, everyone's talking about my biggest and best client for like 30 years. They That's how good they are, folks.

I know. Thank you, Paul. Look, everybody's talking about rates and long rates, and the main question is, why are long rates rising? You could say maybe because of growth and productivity. You could say maybe because of inflation. You could say maybe because rates are rising in other countries. You could say, well, it's this wonky term, the term premium, and we don't really know how it's measured, but maybe it's that.

Or you could say it's the deficits. The prevailing narrative, Paul, is that it's probably the deficits. But I've been looking into this, how the 10-year is trading relative to oil prices. I calculated the rolling 30-day correlation between changes in the 10-year and changes in oil prices. And I went back 40 years, and guess what? It's at 80% plus 80% correlation between oil and the 10-year yield. And that is the 99th percentile, basically as high as it's been over that 40-year period.

Right now, the 10ear is actually quite responsive to oil prices. So, I would not underestimate the inflation impact and also the fact that market participants might be thinking, well, if the war continues, that means more deficits as well. So these things are all related. But my message is do not underestimate the oil price and inflation component of rising long rates.

Okay. Are markets overdoing though the idea of rate hikes? I mean looking at Bloomberg's chief US economist Anna Wong, I'll take her word for it. That August will see tepid jobs growth that this month usually surprises to the downside. So we got, you know, the marquee report on Friday, the non-farm payrolls number and then the CPI out next week. So are we overdoing it?

Potentially. Our US economist Lina Uruchi, she's often on Bloomberg as you know, she has the probability of a hike following Jackson Hole at about 50% and the market is pricing maybe a hike of 70%. So the bigger question is, is this going to move markets whether we get a small hike or not? I think we tend to overestimate the impact of the Fed when we have 3 trillion 1 trillion a year expected of annual spending for the AI trade and when corporate earnings are growing, S&P earnings are growing at 30% 50% if you had the special adjustments.

So Caroline, I would say sometimes we just overthink the the role of the Fed in the macroeconomy and in S&P earnings.

Sebastian, what is the I don't know what is the AI trade today in the marketplace? Where do you think we are in the evolution of investors thinking about AI?

You know, Paul, I I don't know when you covered Tro how many analysts we had, but we have over three we had over 300 across our platform. Our analysts published 10,000 research notes a year. They do 4,000 CEO meetings. It's one of the top research platforms in the world. And a discussion in our investment meetings is about the def your question, the definition of the AI trade. Where are the bottlenecks? The bottlenecks are moving.

The AI trade itself is quote unquote broadening. It's not just CPUs or it's it's this memory, it's cooling systems, it's the electrical grid, it's even in some ways aerospace and even some small companies that end up producing this little golden component, right? This little piece of the supply chain for AI that becomes a bottleneck and all of a sudden those stocks go vertical. So studying understanding the AI trade where the bottlenecks are moving is a big role for fundamental analysts.

Now the bottom line when we look at all of it is that the AI trade continues. You just need to be and I hate to say it because it sounds like a cliche but you do need to be selective in how you play the AI trade.

Yeah. Okay. Selective. I mean and you're also very hopeful about the next quarter in terms of earnings out of the US. I really have to flip the narrative because when I sit in Europe and I'm in London anchoring a lot of it is about the difficulties, the pressure that European businesses are under to grow. I come to New York, I'm energized, businesses are growing. What are you thinking about this quarter and the strength of earnings that we're going to see?

I mean, expectations are higher now.

Are higher now.

You know, it's the same on our asset allocation committee. our colleagues dialing in from Europe tend to be a bit more bearish and worried about I think the big risk for Europe is just the energy prices and the sensitivity to of the economy to the energy prices because you don't have this massive AI capex cycle but the valuations ultimately are more attractive relative to the US we land in our assocation committee neutral between Europe maybe slightly underweight and we add a little bit more to emerging markets its equities because believe it or not, emerging markets are now a way to play the AI trade, maybe a cheaper way to play it as well.

But we see the exact same distinction between the mood in New York City and London and a lot of it has to do, you look at oil prices with this energy, I don't want to say an energy shock, but that it's been quite a while with elevated oil prices and this will have more of an impact on energy dependent uh economies. Uh, Sebastian, I see the Russell 2000 up 17 18% this year, kind of beating the S&P 500. Is this a prolonged outperformance period, do you think, for small and midcap stocks?

We like the broadening trade. We've been long the small and midcaps for over a year. There is a convergence in the earnings growth at some point between small and midcaps and large gaps. You do have an economy in the US to the prior question that's growing at maybe 6% nominal. That's decent growth impulse for small caps. Small caps are also now participating in different ways in the AI trade. There are lots of opportunities to differentiate between stocks for skilled active management and the valuation.

Well, if you look at the S&P 600, which has the companies that are generating positive earnings, that index relative to large cap in terms of its price earnings ratio is still in the bottom 30% of its long run historical range. So, you have a valuation advantage. And while small and midcaps are participating increasingly in the AI trade, this golden component for example, it is clear that when markets sell off on AI news, counterintuitively because you think of small and midcaps as more cyclical, they're they actually do better.

There's a there's a sort of a diversification aspect to being long, small, and midcap in a world that is essentially AI on and AI off.

Sebastian, thanks so much. We always appreciate getting a few minutes of your time. Sebastian Page. He's co-head of Global Investments and CIO of this massive financial complex down there in Baltimore, Maryland. That be T. Row Price. Stay with us. Mo