Stock Rally Wanes, But S&P 500 Closes Above 6,300

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1:44Bloomberg Audio Studios. Podcasts. Radio. News. This is Bloomberg Business Week Daily, reporting from the magazine that helps global leaders stay ahead. With insight on the people, companies, and trends shaping today's complex economy. Plus, global business, finance, and tech news as it happens. The Bloomberg Business Week Daily podcast with Carol Masser and Tim Stenevek on Bloomberg Radio. How about you let me drive? Oh, no, no, no, no. This is not a toy. Who's going to drive you home? Honey, please, I'll do the drive. Drive home. Excuse me, I want to drive. It drives me crazy. It's the question that drives us.

2:31You told me crazy. This is The Drive to the Close. The punk to music will drive us till the dawn. On Bloomberg Radio. All right, TikTok, everybody. We've got about 18 minutes to go until we wrap up the trade on this Monday, July 21st. Carol Master, Tim Stanovic live in our Bloomberg Interactive Brokers studio. And Tim, we're definitely well off our best levels of the session. Still above 6 ,300 on the S &P 500. But we're only up about 17 points. NASDAQ 100, again, of 145 points. 23 ,211. I like to do percentages. Let me go there. Up about three-tenths of a percent on the S &P 500. Up six-tenths of a percent on the NASDAQ 100.

3:10And little change in terms of a percentage for the Dow Jones Industrial Avidars. Just checking our records. I think we're back on what? July 17th? Oh. 62.97.36 was the close for the S &P. Where we are right now, we're fine. It's a record. We're set for a record close at this point. And same thing easily, right? For the NASDAQ 100. Sorry. I'll take your word for it. I only have the S &P 500 pulled up on my terminal. All right. Well, I trust you, Carol. Hey, I want to bring in Alan Zafrin. He is the co-founder and managing partner over at IEQ Capital. He joins us this afternoon. not from Northern California, but from Southern California in sunny Los Angeles.

3:50Alan, good to have you. As always, the S &P 500 up 26.7 % from those lows in the early part of April. Is the bull market back on? Tim and Carol, thanks for having me on. Yes, the bull market is back on. And I can give you a couple of reasons why, but it appears as if fundamentally and technically things barring modest correction seem as if everything every indication is we will continue to work our way gradually higher over time wait say that again that was quick wait say that one more time i think we're going to move up higher i think if you look at the technicals on the charts most indices most components indices have not hit anywhere near their 52 week highs yet if you look fundamentally earnings on balance are coming in better than expected if you look at this we talked about this last time I was reduced expectations though for those earnings right coming into the cycle that's right that's exactly right but what's really pushing thrusting this market forward is there's 22 trillion dollars globally of cash currencies and money market funds waiting around and every time we get the proverbial sell-offs of any magnitude on any semblance of hope let alone fundamentals the market gets flooded with capital that really started back in 2009 saving us from the great financial crisis, it was only accelerated by money printed fiscally and monetarily from saving us from COVID.

5:15And so the world is flush with cash. And every time assets sell off, the cash flows right back into the global financial system, mostly in the form of stocks. So I'm having a hard time understanding what changed between Liberation Day and now, or so-called Liberation Day, because the tariffs, for all intents and purposes are set to go into effect on August 1st. We've had some folks on our air today, like Gina Martin-Adams of Bloomberg Intelligence, who Alan says, well, the market's not necessarily pricing in tariffs at this rate for a long period of time. Do you agree with that? I have a different thesis slightly, which is tariffs are priced in at an effective rate of below 15%, which means, albeit it's not ideal, it's tolerable, and it might reduce a bit global economic growth, but it doesn't put the globe into an economic recession.

6:1530 % tariffs are catastrophically bad and would create an economic global recession of some significance. The other thing that's changed is the recognition of just how powerful all of these technological advances are for the growth of profits, it's not just AI, that's a buzzword, but just the rampant use of technology across all forms of business are meaningfully catapulting productivity, profit margins, and growth. And because the indices, especially in the U.S., the U.S. is really, when you look under the cover, 40 % technology or technology-like kind of companies. So when you look at the indexes going up, that may not be entirely what's going on in Main Street in America, but it's what's going on in the U.S.

7:01large cap tech overweight stock market that we watch every day. Hey, I am curious whether it bothers you or tells you something that's important when we see the Russell 2000. So those small caps and I always think about what really is the engine of the U.S. economy, those smaller companies that are out there. It is little changed on the year. Also bounce back from those April lows, but little changed on the year. Call it almost unchanged. S &P, meantime, is up about 7.25 % year to date. Similar bounce back, but certainly outperformance. NASDAQ 100 is up more than 10 % year to date. So definitely some outperformance there.

7:43What's the importance or is it even necessary that we see small caps rally to suggest to you that things are more optimistic than pessimistic? It is important. What's hidden a bit in that conversation is a challenge that the financial markets are still grappling with. And that is that when Microsoft went public in the 1980s, it might have had a valuation of about$1 billion or so and grown into its multi-trillion dollar valuation. And when it was a young company, it was part of the small cap index. Today, when prominent companies like SpaceX, let alone a lot of AI companies, have very high valuations, if and when they go public, they may never end up in the small cap index to begin with.

8:31And so part of the challenge that small cap investors face, are we going to see the same champions, many of which are technologically driven with faster growth rates, ever making it into the small cap indices going forward? It is problematic, Carol, because by definition, technology is a smaller component of that index. But that's part of what's taking place. But what's also happening over that time, Alan, and I know you can speak to this, is the growth of alternative assets and the way that clients of wealth managers are able to get access to some of these companies that you named on a pre-IPO level.

9:05Yeah, they certainly can. However, just like diversification is a way to be protected when you have very well documented public disclosures of financials and you buy into indexes. It's incredibly challenging to pick the single private company that's going to be the winner. So for those individuals that hope to speculate and invest in private companies, make sure there's an ample array of choices because you don't have much public disclosure about what's actually happening. Do you do it for your clients or do you hire managers? to do it? What do you do? Both. So we have managers that will make investments in private companies, technological driven and companies that have nothing to do with technology.

9:44And we have clients where we find private companies, we get access, but we make sure that we invest proper, meaning relatively small percentage of someone's net worth in each component and then stay very diversified. It's impossible to pick the single winner. All right, we got to run. Not if you have a time machine.

10:04Are you a time traveler? No, I'm not. But that would be... Could you imagine if you were? I would be the best investor ever. You would, right? That's all you would need. Like you just go back in time. You could invent Facebook, Carol. I could. You could invent the Bloomberg Terminal. I could. Well, I don't know about that. Yeah. Right. All of it, right? Yeah, you could. Just imagine. That's all you need. We could do that. I just buy up real estate, you know? You're thinking now. I know I got the wheels turning. Sorry. I just buy up real estate. Hey, Alan, thank you so much. Alan Zafrin, co-founder, or managing partner of IEQ Capital out there in Los Angeles.

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13:42You'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. Hey, so many, so many seem to have called it that the bromance wouldn't last between the billionaire and the president. The breakup happening after disruptions to the U.S. government under what some say was the guise of efficiency and data forging. We are, of course, talking about Elon Musk. He and his black eye, an Oval Office sendoff and subsequent spat with President Trump, the creaking of his empire and so much more, all in the cover story of the upcoming issue of Bloomberg Businessweek.

14:23It is by Bloomberg's Max Chafkin and Ed Ludlow, soon to hit newsstands. It is already, though, Tim, on the Bloomberg and online. It's also the subject of today's Bloomberg Big Take. With more, great to have back with us, Bloomberg Businessweek senior reporter Max Chafkin. He's the co-host of Everybody's Business and the Elon, Inc. podcast. He's also the author of The Contrarian, Peter Thiel, and Silicon Valley's Pursuit of Power. He joins us here in the Bloomberg Businessweek studio. You've spent many years writing about Elon Musk. You give us the backdrop. You remind us of his foray into politics.

14:54And then you get into what really matters, certainly to investors and to what made Elon his empire. How bad is it? I mean, it is challenging. He's still the wealthiest guy in the world. I think he's the wealthiest guy in the world. And investors to date have essentially allowed him to do whatever he wants and to do things that most CEOs, most entrepreneurs would never be able to essentially get away with. Um, that said, there are, I'd say, bigger challenges facing these companies today than he's experienced in a very long time. You know, of course, Elon Musk has a history of sort of flirting with disaster.

15:36And you look at the history of Tesla. There were some very dicey moments in the 2000s. Same thing with SpaceX. But you haven't had this situation that we have today where you have essentially three companies, SpaceX, Tesla and XAI. I'm going to leave off the sort of smaller ones, but those are there, too. And and then in the foreground, you have this potential fight with Donald Trump. And so, you know, everyone's focused on the fight. But those three companies, each in their own way, have very significant challenges. So let's get to it because you do write there are many more weapons President Trump could deploy against Elon Musk's business interests where he's so motivated.

16:14So so much is like, does he or doesn't he? Let's start. I love the way you guys do this. You do basically like these case studies of each of these three businesses. So let's talk about Tesla. He makes promises. Sometimes it takes longer. We have all gone along from the ride that we eventually get this stuff. And to be fair, when it comes to EVs, certainly in the United States, he moved the needle. Yeah, absolutely. And that's what's made, I'd say, the events of the last couple of years so surprising because Elon Musk is attempting this very dramatic pivot away from EVs and towards robo-taxis, which is kind of strange because the EV market is still growing.

16:49very quickly. Tesla, on the other hand, is not growing. I mean, their deliveries have been falling for the last two quarters, had a down year in 2024. We'll see what this latest quarter looks like when they report earnings. But they are selling fewer cars each quarter than they did a year ago. And that is kind of surprising for a company that is trading at just this insane multiple trading at a value that is way way way richer than than you know a normal car company now of course the reason investors are going for this the reason they're you know continuing to buy the stock at a relatively high price is because of robo taxis belief that elon musk is gonna revolutionize transportation the issue is that's been this kind of thing that musk was able to point ahead in the future and say look this is going to be great don't focus on the now focus on the future.

17:41And now we're now we have the now now we now have some robo taxis on roads. And it's really a very small number. It's it's something like 10 to 20 robo taxis in a very small part of Austin. Meanwhile, you got Waymo. And we've talked about this before. But there is this obvious competitor Waymo, which has way, way more robo taxis in more markets and is not getting valued the way that Elon Musk, the way that Tesla is getting valued. So you do wonder, you know, how long is it before investors start to look at that? And, you know, how many quarters of sort of declining deliveries, declining car sales, are they really going to tolerate?

18:17These companies have sort of always, Elon Musk's companies have always kind of used one another and shared engineers at certain points. Now we're getting to a point, Max, where Elon wants more investment from one company to another company, specifically Tesla, to invest in XAI, which is a challenging thing to do because Tesla's a public company. XAI is not. Shareholders might not love this idea. Explain the sort of borders or lack thereof when it comes to this accounting. I mean, the thing is, from the point of view of Tesla investors, and I think this is true of most of the investors and most of Elon Musk companies, they're not investing in a particular product.

18:53They're just investing in Elon Musk. And that's one of the reasons why, you know, even when Musk does something that seems on its face a little bit foolish or crazy, for instance, the on again off again, purchase of X at a ridiculous, you know, overvalued at the time. Investors go along with because they just think, OK, Elon Musk wants this. He's a he's a brilliant guy. And so you have this thing where the companies, although they are nominally independent, are sharing resources, sharing management, of course, not just Elon Musk, but other folks, you know, sort of bouncing between them or doing work on the side.

19:26And now even you have XAI, which is desperately trying to raise money, raising money from Elon Musk's other companies, SpaceX, according to Elon Musk, putting$2 billion into XAI. And then Musk has said he's going to ask Tesla for money for. And a year ago, he suggested the number would be$5 billion. So you're talking about a significant amount of money. Tesla, of course, has a lot of cash at the moment. So it's not like it can't afford it. But you got to ask yourself, what is the rationale? What's the business rationale, if you're a Tesla investor, to move money from Tesla to X, especially when X and Tesla are sort of in competition.

20:03They're both AI companies. And so that's an issue. I mean, what I think it shows is that as much as these companies add up to this big empire, they're interlocking. And if one struggles, the others are going to struggle. If Tesla's value were to decline dramatically, That would hurt Elon Musk's empire in a big way because Tesla shares are a big source of his wealth, the way he finances things. And beyond that, there's this aura of success that he has used to sort of promote himself and promote these companies. And as that has, I'd say, come into some question, you know, I think that hurts some of these other companies.

20:40So he did post on X that he's back to working seven days a week and sleeping in his office if my little kids are away. Yay. But I'm just wondering which part of his empire is he most interested? You guys talk about XAI, that that's what he seems to be super interested in right now. Yeah. And you get different answers depending on who you talk to within the empire, because, of course, Tesla also feels like Tesla employees, board members also feel like they are in the middle of this really unique opportunity with robo taxis. But yeah, I mean, Musk has spent, it seems at least over the last couple of weeks, a lot of time with XAI and Grok.

21:23Now, of course, AI chatbots, that's an area that a lot of investors are excited about. On the other hand, this is a very expensive company to finance. Bloomberg has reported that they're losing a billion dollars a month. So that$5 billion from Tesla, they're going to burn through that pretty quickly. And, you know, I think from the sort of bull cases, hey, these large language models are really expensive to finance. So we need to, you know, put as much into them now, catch up to open AI. But of course, the other side of the coin is like, why, you know, why does this very successful car company that's worth a trillion dollars by market cap, you know, what does it have to do with AI chatbots?

22:03I don't think that the answer is a whole lot. Yeah. Yeah. Elon Musk claimed without evidence that President Trump was an accomplice in the crimes of Jeffrey Epstein and alleged that the president had covered them up. This was sort of the nadir in their relationship. I think if we look back over the last six weeks, is there any recovering from that? Like, do they get back together? Do they become allies again? I think it is very hard to see. I mean, obviously, those are very serious charges. I mean, sort of like the most serious charges in Republican politics. And it's led to a news cycle, right, that that that happened, you know, as their feud was kicking off at the beginning of June.

22:46Now we're in, you know, mid late July and Republicans are still talking about Epstein quite a lot. So, yeah, I mean, it's been a bad, that's a thing that's going to really throw a wrench in any kind of potential makeup. Now, I will say, Trump and Musk are both, this is going to sound weird, but they're both kind of forgiving. They both, although they like to cultivate this, both of them, you know, alpha image or whatever, they have, you know, Trump has done this where people have been on the outside and then find their way in. Steve Bannon, of course, famously was very much on the outs. Now he's no longer on the outs.

23:20Musk is the same. Musk, you know, we will get very mad at people and and, you know, find a way to get them back in. So I wouldn't discount it entirely just because and I've said this on on your show before. There are there are reasons each of them has an interest in being on good terms with the other. That said, I mean, it is it has seemed very difficult. And you're seeing now we get into this in the story. There are lots of signs if you're looking closely for ways in which this relationship is hurting Elon Musk today. Now, I'm not just talking about Jared Isaacman, the person that Trump originally nominated to head NASA, the space agency who is close to Elon Musk, who's out now.

23:59But there are lots of little regulatory moves, policy moves. And just to give you one example, the guy who's going to run NHTSA at his confirmation hearing, I believe it was last week, suggested that we need to have more oversight of autonomous vehicles. If you're Elon Musk, you don't want to hear that when you have a fleet of robo-taxis that you're trying to get on the roads. Yeah, you absolutely don't. And so, you know, Sean Duffy running NASA now, who's he was, according to at least some reporting from inside the White House, was one of the people who was really upset about Doge. So you're seeing these little things that are potentially troubling if you're Elon Musk and certainly cut against the sort of bull thesis around the time of the election, which was like, these guys are perfectly aligned.

24:43This is going to be amazing. I mean, that's what sent the stock up to its crazy heights in mid-December. And it's fallen. I think last I looked around 33 percent since then as that that argument has sort of fallen apart. It's, you know, as you guys say, you know, you can't count out Elon ever, but it is curious to see how this ultimately plays out and whether or not he becomes a target of the administration potentially. Hey, Max, thank you so much. Really appreciate it. Bloomberg Business Week, senior reporter Max Chafkin. Max and Ed Ludlow writing this story. It's an upcoming issue of Bloomberg Business Week.

25:18It is the cover story already on the Bloomberg and at Bloomberg.com. This is the Bloomberg Business Week Daily podcast. Listen live each weekday starting at 2 p.m. Eastern on Apple CarPlay and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station. Just say Alexa, play Bloomberg 1130. Well, as we talked about last hour, a lot for investors to make sense of right now. Uncertainty when it comes to trade, questions about the economy. And get this, a chair of the Federal Reserve under attack. Carol, last week you were out. I don't know if you.

25:54I did follow some of this. Follow this? Because it did certainly fill ante up. There was a point last week where it felt like, okay, this is different than the other rhetoric. Didn't the market dip? The market dipped. And then the president made comments that said, no, it's not going to happen. And then the market recovered. But get this, just moments ago, I learned that Fox News reporting that Representative Anna Paulina Luna is referring Fed Chair Jay Powell to the Department of Justice for criminal charges. This is according to Fox. They cited Representative Luna's letter to the Department of Justice.