Stock Bulls Get Wake-Up Call From Wall Street CEOs

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2:48Bloomberg Business Week. Stocks dropping on this election day, the S &P 500, down almost 1%. Tech stocks getting crushed even further, Matt. And really, the only place to hide out is the dollar and treasuries today. There's also a chorus of Wall Street executives warning investors to brace for a pullback amid lofty valuations. Jillian Wolf is here. You're doubtful? I mean, you know what? It's the first thing I saw this morning. When I logged on to the Bloomberg terminal at like 4.30 in the morning, I saw this story that Wall Street bigwigs are warning about a pullback. That's what's happening.

3:22Then I read the story and it wasn't really that much of a warning. I mean, they're saying, yeah, within the next two years, you could see a 5 % to 10 % drop. Really? I think we all expect that to be the case. That is very true. Let's get Jillian Wolfe's take on this. She's global equity strategist at Bloomberg Intelligence here with us in the Bloomberg Businessweek studio. Let's just start right there because that is the headline today that Wall Street execs are warning. But Matt is right. Some of these warnings were like, stocks could drop 10 % in a year. It's not the easiest call to make. Right.

3:56Or what was it, that 60 Minutes interview that happened recently, where somebody said, oh, eventually there will be a downturn. Eventually there will be a downturn. I think we've been hearing these warnings, I almost feel like for the past 18 months about, is AI a bubble? Is there going to be a downturn? Are stocks getting too hot? And we just haven't seen it occur yet. But I think I want to point out two important things, which is one that at the start of this year, investors with a consensus really thought that AI earnings growth was going to slow and the rest of the index was going to catch up.

4:28AI just gotten too hot. The comps were too difficult. This had to be a bubble. The rest of the market had to catch up. That was the call starting 2025. Now that's been pushed out to 2026. Again, AI stocks have actually done much better on earnings than investors thought, and the rest of the market has been lagging on earnings growth. So this convergence thesis still gets pushed out further and further. So the question of whether or not is AI a bubble, we had that call at the start of the year, and it didn't play out. And the idea of this just can't get much hotter. The second thing I do think that investors are starting to look at right now, though, is capital discipline, right?

5:02And I think the meta call last week told us a lot, because meta beat, but they tanked on more CapEx spending than maybe investors with a consensus would have liked to see. I think we're now maybe entering a phase where it's not so much about whether or not these AI stocks can deliver, but are they maintaining enough discipline? Are they getting over their skis, right? Are they building out too fast, faster than necessarily companies could adopt the technology? Whether or not eventually companies will adopt the technology is still to be seen. But I think there's this concern starting to grow of, well, are we going too fast with this level of investment?

5:38I mean, the one thing I would say about Meta is that of the big hyperscalers, it doesn't have a clear line to show you what kind of ROI they're getting on their investment. And Mark Zuckerberg seems the most excited of all the major CEOs to overspend if possible. He actually said, could we overspend by a couple of hundred billion dollars? Yes, but it's better than the alternative, which is not spending enough. And that's not the kind of sort of freewheeling, loose purse strings talk you hear from the Microsoft CEO, for example. But if anything, that tells you maybe that this isn't this overly exuberant bubble, right?

6:18The idea that you can spend too much, let's not get too overzealous about the trade. Investors are still a bit wary about it, right? A bubble implies that you're investing in companies like in 2000 that don't even have an earnings stream yet, hoping that they eventually will. Now, you're definitely seeing some caution and maybe some lessons learned from that era. These stocks aren't invincible. And usually people don't talk about a bubble when we're in a bubble, right? So the idea that people are still keeping an eye out for these things and there are phrases or trends that could take these stocks down tells you a little bit that it's maybe not a full-blown bubble, at least just yet.

6:55Your recent research has looked at some metrics that you track at Bloomberg Intelligence about showing that investors still are relatively calm, right? There's some pieces of data that you're looking at that are showing that there's not that much panic when you look at, I think it's breadth, right? Yeah. So when we look at, we run our market pulse sentiment index, which takes a look at whether or not investors are getting too manic or panicky. So typically, when they get too manic, that's a sign that the rallies run too hot. Historically, it has told us that it's likely to slow down going forward.

7:29We aren't seeing that right now. We aren't seeing that in any of the underlying indicators that typically signal overbrilliance. We are seeing low volatility stocks do rather poorly compared to their high volatility counterparts. That's sort of a sign that we're in this risk-on environment. But when you look at breadth, when you look at how well highly levered versus low levered stocks are performing, We aren't seeing this mania that usually leads to a drawback because you've just piled too much into maybe more garbagey stocks without keeping an eye on what's actually happening underneath. What are we seeing in terms, though, of companies hitting weekly highs, companies hitting, sorry, 52-week highs, 52-week lows?

8:14What's the Hindenburg omen? Well, what we know is that the largest stocks, the MAG-7, we did analysis on this recently, are really what ultimately determines the direction of the index. And this has really been more and more true over the past 12 months, that the MAG-7 are up on any given day, the index will be up. If the MAG-7 are down, the index will be down. I think there was a day last week where the MAG-7, it was the day Meta reported, the MAG-7 were down on median, so the index was down. But every other stock was actually up on median if you looked at the rest. So I think looking at breadth metrics to kind of tell you where the index might be going, we're not really in that regime right now.

8:49We're in this very highly concentrated regime where just because of the nature of the index weighting, there's only a handful of stocks that are really going to dictate its overall direction. That said, the bottom isn't falling out from underneath the market or anything like that. You don't just have these MAG7 stocks doing incredibly well and everything else doing poorly. Like I said, we just had a day recently where MAG7 did poorly, everything else did well, the market was still down. So we look at it to kind of see, we look a breath to see, well, is the bottom falling out from under the market?

9:16Is the market doing well just because the MAG7 is doing well? But that's definitely not what we're seeing right now. All right. Jillian Wolf, Global Equity Strategist at Bloomberg Intelligence. Thank you for joining us. Stay with us. More from Bloomberg Business Week Daily coming up after this.

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11:45If your best finance people are doing expense reports, chasing receipts, or spending time on month-end close, it's time to get Brex AF, a Gentic finance that eliminates that work before it starts. Learn more at brex.com slash AF. You're listening to the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5 Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business App. Or watch us live on YouTube. Now, on the latest installment of our weekly discussion focused on women, money, and power, we explore all the economic implications of today's New York City mayoral election with one of the most influential women in the history of Big Apple politics.

12:29And that's Kathy Wild. She joins to discuss her view on the New York City mayoral election and how the city's next mayor will impact the local and regional economy and its related businesses. She's also set to step down at the end of the year from her role as president and CEO of the Partnership for New York City, a business lobbying group with 350 CEOs in its ranks. And I should say that our owner and founder, Michael R. Bloomberg, and former New York City mayor, of course, gave one and a half million dollars to a super PAC supporting Andrew M. Cuomo's bid for mayor and reiterated his support for the former New York governor a week before this election.

13:12So we do want to make that disclaimer. Now, having said all of that, Kathy, welcome to the program. Thank you so much for joining us. Thank you. What's your overview of this race? Because it has been incredibly energetic and incredibly well followed. Well, I think, number one, it's exciting that we have record turnouts at the polls for a local election. And we have literally hundreds of thousands of newly registered voters coming to the polls, a lot of them young people. And as our country has become increasingly cynical about politicians and their motives, it's great to see the level of excitement that this election has generated, and particularly the candidacy of a very young New Yorker, 34-year-old Zoran Mandani, who is the Democratic nominee for mayor of the city.

14:04The headline on the top of the Bloomberg terminal today, New York City to decide if a socialist will run the capital of capitalism. In your view, what does Wall Street, what is the business community, the capitalist community of New York City want out of this election? Well, I think what we want is political stability. And I don't think that the voters going to the polls are voting for Mamdani because he's a socialist or because they think he's going to transform our capitalist system. That is not within the power of any mayor. And so we're not we're not looking for a major economic change in the city.

14:48I think what Mamdani's message has been about, which the business community agrees with, is that we are, New York is the highest cost city in America. Government spending at the state and city level has gone up more than 50 % over the past decade. And we can't afford to keep that going. So everybody is looking for a more affordable city. Now, we've got opposite ideas in many cases about how to get there. The business community's position is raising taxes makes New York more expensive. Mom Donnie's position started out being I'm going to raise taxes to pay for cheaper housing and health and child care and cheaper groceries.

15:35I think that we've made some progress in the last six months in getting him to take a slightly more nuanced position where he has said, I have my goals of a more affordable city, but I welcome the business community's advice on how to get there. So I don't think that this is this is a crisis situation, regardless of the outcome of the mayoral election. And I do think it's great that more people are engaging in local politics. I do hear the concern that he'll raise taxes voiced from the traders and fund managers and analysts with whom I speak every day on the Bloomberg terminal. They're not the super rich, you know, billionaire class.

16:20They're mostly just scraping by it as a very expensive city, you know, to raise children in. Do you think even if he wanted to raise taxes substantially, he has the power to do so as mayor? the under our constitution the mayor has no power to raise income or corporate taxes that belongs to the governor and the state legislature so no i do not think that there is a reason to be that concerned because that's going to be a conversation the governor has said she does not support tax increases at this time and so what we're looking at is a situation where even if the mayor and the city council were to try to raise expenditures beyond what is prudent, at that point, we have a fiscal control board that comes into play that was set up after the financial crisis, the fiscal crisis the city faced in the 1970s.

17:19We have a financial control board that the governor, the state controller run, that gets put in place automatically if the city's budget goes out of whack. So we are, we have many protections to make sure that New York remains fiscally sound. There is a debt limit. A mayor cannot borrow more than a prudent amount without hitting that debt ceiling. So there are lots of checks and balances in city government. The mayor does have a great deal of power over real estate decisions, land use, zoning decisions, and was very glad to see that this morning Mamdani joined with Andrew Cuomo, another candidate, the former governor.

18:06He joined with him in supporting three propositions on the ballot that would change the city charter to help us develop more affordable housing more quickly and more cheaply. So I think that his housing agenda is very consistent with what the private sector wants to see. So in that area where he has real power, real estate and land use, I think we're in sync. And yet you still see these headlines about, you know, New York's wealthy wanting to leave home prices in Connecticut going up because they want to leave New York. Do you think those fears are overblown then? I think that people there is a danger of people leaving New York because they can't afford the quality of life they want in the city.

18:53Very expensive to buy a home. To buy a home in Manhattan is now over a million dollars. In Brooklyn and Queens, it's over$700 ,000. Most of the population, like 95%, cannot afford that. So we have an affordability crisis. Childcare is costing$26 ,000 to$40 ,000 per year per child. What you have to earn, a household has to earn several hundred thousand dollars to be able to afford the high rents over$3 ,500 a month now in terms of asking rents. You have to earn a lot of money right now to live in New York. That's what this campaign has been about. And people are really voting for a more affordable city.

19:38Now, you don't get a more affordable city by raising taxes. So I think that's something that our next mayor is going to find out pretty quickly. We are talking just as a reminder to Kathy Wild from the Partnership for New York City for decades, one of the city's most influential civic voices. And Kathy, I'm getting a message right now from a listener who's voicing kind of the same kind of surprise that I was talking about with you during the commercial break. It is wild that New York or that the Democratic Party couldn't come up with anyone to challenge Zoran Mondani other than a governor who was chased out of Albany by his own party and a mayor who's basically been chased out of office by his own party.

20:23Why couldn't the Democrats come up with anyone qualified to challenge this 34 year old newcomer? Well, when he started out last September in his campaigns, Armand Dhani had less than 1 % of the vote and was considered a totally unlikely candidate to rise to the occasion. He only became a viable candidate when Governor Cuomo got into the race and basically the seven other Democrats in the race, starting with the current mayor, Eric Adams, were not seen by the voting public in the primary. The other candidates were not, and the mayor dropped out of the primary. He had probably the best chance of reelection in many cases, but he dropped out.

21:09And that left us with a good range of Democratic candidates, the city controller, the speaker of the city council, a state senator, the former controller. We had a good field of candidates, but the clear alternative during the course of the election, the clear alternative to Mayor Adams and former Governor Cuomo became Zoran Mondani. And he kind of emerged out of the anti-vote for the other candidates. You've arranged conversations between Mondani and the business community. You know, we talked a lot at the beginning of this interview about the affordability crisis resonating with a lot of New Yorkers.

21:57You don't have to name names, but I'm wondering if in those conversations anyone was successfully convinced that maybe they were a skeptic of Momdani and they came out of the conversations changing their mind. I think they came out of the conversations and the meetings that we had and I we had a number of them. And to his credit, right after the primary, Zorn called me up and said, I would like to give me the names and numbers of the business leaders that I should speak to who are concerned about my candidacy. So I can reassure them my agenda is not to socialize business. My agenda is to make this a more affordable city of opportunity, which honestly is a goal that we all share.

22:46So my experience in seeing this is that people recognize he's a very smart, very young man. The worry is, would you hire this person to run a 300 ,000-person corporation? The answer to that is probably no. But if you're looking for a mayor who is willing to bring in strong professionals, And I think everybody felt better when he said he would retain our current police commissioner, who has a terrific track record and is very well regarded. Jessica Tisch is our current commissioner. He said that three weeks ago he would ask her to stay. That made a big impact because the question is, will he bring in strong professionals to run the city agencies?

23:35What people care about is that we have a safe city, that the agencies are all run well, that the sanitation department picks up the garbage, that the education system produces smart kids. All those, that's what city government does. And that all depends on who are the commissioners, who are the mayor's deputies. And honestly, I think Mamdani could be a very good marketer of the city. He's a compelling communicator. And honestly, that's a lot of what Mike Bloomberg did for our city. He marketed New York and brought us really out of the crisis of 9-11 and made New York a technology capital of the world.

24:21He made enormous contribution as on restoring people's confidence, the people here and the people around the world, restoring their confidence in New York. And Mamdani has some of those salesman qualities that I think might be very effective. Kathy, can I ask about your confidence in New York as you prepare to pass the baton in terms of the leadership of partnership for New York City? What's your view on public-private collaboration as you've spent years in this job? And what's your hope for this city? Well, ironically, as government has less money, which is what we anticipate with cutbacks in federal funds and the demands for the needs in the city for more government spending.

25:06As government has less money, there's much more motivation to bring in the private sector and build public-private partnerships. That's what happened after the fiscal crisis in the 70s. That's when our organization and many others in the city were created, where the private sector really took over leading investment in a lot of areas. And I think that we may go through the same cycle as we look forward in terms of the fiscal situation of the city and state being tough as the federal government cuts back. And I think that will be, that is the basis for building new public-private partnerships. When government has all the money in the world, they certainly want to spend it.

25:46But when they're broke, they're going to look to the private sector. And the smart thing to do is look for investment and ways to cut costs and to make it more efficient to operate here. And that's an alternative to raising taxes. And I'm hoping we're going to be able to make that case to the next mayor. Kathy Wilde, thank you so much. That's Kathy Wilde, president and CEO of the Partnership for New York City. We thank you for your time. You're listening to the Bloomberg Business Week Daily podcast. Catch us live weekday afternoons from 2 to 5 p.m. Eastern. Listen on Apple CarPlay and Android Auto with the Bloomberg Business app.

26:25Or watch us live on YouTube. All right, Mark Dixon, founder and CEO of International Workplace Group, is joining us on Zoom from Monaco to talk about the company's latest earnings and the global commercial real estate market more broadly. IWG is a provider of flexible workplace solutions, think hybrid working, co-working spaces. They have 4 ,000 locations across more than 120 countries. Mark founded his company, which was first called Regus in 1989, and then they renamed International Workplace Group just a few years ago. Let's talk about IWG's latest results, Mark. Thank you for joining us. What are the results tell us about the current state of flexible workspaces?

27:09well it's a look at the results today really reflect growing momentum in the marketplace more and more companies looking to become more capital light become more agile more flexible so high levels of growth we've seen the best revenue growth that we've seen in a number of years in this quarter. So good momentum ending the year and a very strong outlook for 2026. Mark, this is Barry Ritholtz. I'm curious as to what you're seeing in terms of return to office, the decreasing need for broad and widespread leases. And how are you guys taking advantage of that demand for flexible workplace? Well, look, the idea of return to office is an old story.