US debt will be an ‘important election issue,’ Brenda O’Connor Juanas says: These numbers are ‘scary’

Welcome back and it’s time now for the word on Wall Street top investors watching your money. Joining me right now is UBS Wealth Management Senior Vice President, Brenda O’Connor Quanas. Also with me is John Lonski this morning. Great to see you. Brenda, thanks very much for joining the conversation. Thank you for having me, Maria. And we got another pretty good firm tone this morning. We’re looking at futures indicating a gain at the start of trading this morning. Mid stay busy week of first quarter earnings and ahead of the PCE. He got the Dow industrials right now up 56. The NASDAQ went well up 191. On the heels of Microsoft and Alphabet earnings last night. Chevron is out this morning and beating on earnings but missing on revenue. Higher production volumes helping Chevron offset an impact from weak natural gas prices. The stock is down about 1%. Exxon also missed on earnings but it did beat on revenue. Exxon says it expects record oil and gas demand this year but planning on closing its Pioneer merger in the second quarter and then on tech pretty much a tear underway. Alphabet reporting a double beat issuing its first ever dividend $0.20 a share dividend also authorizing a $70 billion buyback program. Alphabet up 12% This morning Microsoft also reported a double beat. They reported cloud growth revenue up 21% on the push for more AI. So it’s all about earnings this morning once again but of course also the the Fed. Brenda, your your thoughts on earnings, well you know earnings have been pretty good. This has been a huge week for earnings. By the end of today we would have had 60% of the S&P report. We have 75% of them beating on the top line, around 60% on on the bottom line. You know the guidance is kind of mixed and it is going to be very sector dependent. Good point, that’s what we’ve been seeing. John, how do you see it? I think earnings will do well for these high tech companies. I mean we increasingly move towards e-commerce and of course we’re beginning to see the start of explosive extended growth for artificial intelligence. How do you, how can you go wrong betting on these companies long term on the energy side? Well, if oil prices stay where they currently are, over $80.00 per barrel, we’re going to have double digit percentage increases for oil related revenues in the second quarter. Of course the worry is going forward eventually this economy has to slow if we are going to resolve our issues with rapid price inflation. By the way, we are slowing and you know we’re seeing pretty stark numbers. We were all the way at 4.9% growth in the third quarter yesterday we got the GDP at it was 1.6%. She’s seeing that steady decline and finally an impact of the 11 rate hikes that we saw. Brenda, what about rates today? Look at the 10 year treasury this morning, the 10 year right now sitting at 4.69%, We’re right there kissing up to 4.7%, Brenda, OK, even though that’s down one basis point this morning, Treasury Secretary Janet Yellen reacting to yesterday’s weaker than expected first quarter GDP. Here’s what she said. What is your reaction, hot off the presses to today’s first quarter GDP data. A lot of the data there is actually not yet in hand. There could be revisions. the US economy continues to perform very, very well. The fundamentals here are in line with inflation continuing down back toward normal levels. Well, that was a lot of talking points. You’re talking about the slowest economic growth story since second quarter 2022. Brenda, we got the PCE index out in about an hour and 15 minutes. The expectations call for core month over month prices to be up 3/10 of a percent and year over year of 2.7%. JP Morgan Chase Chairman and CEO Jamie Dimon told the Wall Street Journal that he’s giving a soft landing long odds. Watch this, their consumers in pretty good shape. The one thing you got to be cautious about a lot of it’s driven by just fiscal spending that will have other consequences possibly down the road, you know called inflation which may not go away like people expect. When I look at the range of possible outcomes, you know you can have that soft landing. I’m a little more worried that it may not be so soft and inflation may not go quite go away. The rates may have to go up a little higher. I’m talking about the 10 year rate, the five year rate and you know that people can have consequences. Your thoughts, Brenda? So this Jamie Dimon interview is definitely getting a lot of coverage. Look, I don’t agree with everything he’s saying, especially around the probability of a soft landing. We are pricing in two rate cuts starting at September. But you know there’s one thing I’m very aligned with him on Maria and that is U.S. debt level. We talk about how these Fed rate hikes have been punitive for the US consumer. It is punishing for the US government. Let’s look at the numbers for a second, $33 trillion. Let debt levels. We had A $1.8 trillion deficit last year. 18% of federal spending goes to servicing interest. And by the way, this is assuming a 3% interest rate. Come on, these numbers are scary. And this is an important election issue. Yeah, that’s absolutely right. By the way, Jamie Dimon has felt this way for a long time. He told me the exact same thing in January, that he’s skeptical of the soft landing, that inflation is going to stay high because of all of the fiscal spending. And he’s right. I mean, look at the fiscal spending. You’re talking about the Inflation Reduction Act, the Fiscal Responsibility Act, the forgiveness of student loan debt, the CHIPS Act, green energy tax credits, all of that added up to $7 trillion. And that’s what the Fed is fighting. the Fed is fighting all the fiscal money coming at you. And I also want to ask you about the independence of the Fed, because I feel like I’m reading the Washington Post this morning with this article in the Journal. The Wall Street Journal is writing that the former President Trump’s allies are drawing up plans to challenge the Fed’s independence, urging that the president should be consulted on rate decisions. This is what the Wall Street Journal is writing this morning. Meanwhile, it was President Biden who had all these opinions about the Fed and seems to be publicly egging on Jay Powell to cut interest rates. Here’s Joe Biden just a couple of weeks ago. Watch this. I do stand by my prediction that before the year is out to be a rate cut, this may delay at a month or so. I’m not sure that I don’t. We don’t know what the Fed is going to do for certain. Would you reappoint Jay Powell? I know I wouldn’t do that. You wouldn’t reappoint him? No, because he missed inflation. He did miss. He did miss. But no, I wouldn’t be in touch. So there you have President Trump back in February telling me that he would not reappoint Jay Powell. We all knew that already. But the Journal is trying to suggest that his allies are trying to come up with some plan to make the Fed not independent, even in the face of Joe Biden publicly egging on Jay Powell to cut rates. Your thoughts, John? Well, what’s new here? My goodness, I’m really surprised that the Wall Street Journal published an article like that. I mean, the the economist who back Donald Trump know very well that you want to do nothing to challenge the independence of the Federal Reserve. If you do that, if you make the Fed look politically influenced, that would be ruinous for the dollar exchange rate, and that would send Treasury bond yields sky high with horrible implications for the US economy. Well, I mean, look, Joe Biden says we’re getting a rate cut, but it’s going to be delayed a month. Now, why would he say it’s going to be delayed a month? Did he speak with Jay Powell? Is he messaging Jay Powell? Why would he say that? Well, if Jay Powell is taking directions from Joe Biden, we are in a lot of trouble. And this problem with inflation is not going to go away anytime soon. It’ll be with us in November, and Joe Biden will pay for that. Yeah. Brenda, have you changed the way you invest? Because inflation remains sticky because it is staying at elevated levels here and it’s not nowhere near the Fed’s target of 2%. Maria, the last time we were talking right before the March CPI, I remember saying something to you specifically in that if we saw another high print after January and February, things would change and that’s exactly what we’ve seen. We’ve seen the S&P off 5 1/2% since those March highs. You know we have that tenure at 4.7%. You know, I do think the repricing of fixed income has happened. Maybe we go up to 4.75 today. I don’t think we’re going to see APCE number that we like, but I do think that fundamentally we’re going to see the 10 year fall to 3.8 by the end of the year. Yeah, it’s seems unlikely to meet you. Brenda, great to see you. Thanks very much, Brenda. O’Connell Quanas, John Lonski, you’re with us all morning and we’re grateful for that.