Speaker 1:

From the New York Stock Exchange at the corner of Wall and Broad Streets in New York City, welcome Inside the ICE House. Our podcast from Intercontinental Exchange is your go-to for the latest on markets, leadership, vision, and business. For over 230 years, the NYSE has been the beating heart of global growth. Each week, we bring you inspiring stories of innovators, job creators, and the movers and shakers of capitalism here at the NYSE and ICE's exchanges around the world. Now, let's go inside the ICE House. Here's your host, Lance Glinn.

Lance Glinn:

Welcome into another episode of our Markets in Focus series in partnership with Opening Bell Daily here on the Inside the ICE House podcast. As we get ready for our fourth conversation here at the New York Stock Exchange, Phil Rosen joins us once again to talk market trends, market insights, and the markets that sit just a few floors below where we record. Phil, thanks as always for joining me. I appreciate having you here.

Phil Rosen:

Thank you for having me, Lance.

Lance Glinn:

So I want to start by talking about clear labor market decline, because it's been all over the news. We see it really every month now. And earlier this month, you wrote a newsletter titled The Labor Market is Deteriorating for Three Very Different Reasons at Once. So I want to dive right into it. What is driving this sort of labor market shift and causing these real labor market headwinds?

Phil Rosen:

Yeah, that's a great question. And I think it's a very complicated answer because a lot of people want to point to just AI and that's what a lot of companies are pointing to. But from the way I see it, when job openings started to fall, that was right around the Fed's first rate hike in 2022. And that was also right around the time the pandemic hiring boom started to reverse. So since then, we've seen sort of this retrenchment of the labor market to pre-pandemic levels. So it's a lot more complicated than just, okay, the release of ChatGPT in 2022 is the reason why job openings have fallen so precipitously in the last couple years, but it's been these three factors combined, the AI, the Fed hikes, and then this retrenchment of the labor market.

Lance Glinn:

So when it comes to AI, I think there's been a universal worry of sorts ever since this real ChatGPT boom that technology could replace people. Now, companies, since that boom and since this worry has really started, have really tried to make it clear that that wouldn't be the case. They've always been saying it's still going to be human first. There's always got to be a human at the end of the AI to make sure that the AI is running responsibly. But as you point out in the article, since that launch in November of 2022, job openings have sharply declined. So do you believe AI is truly reshaping the labor market or is it just more of a convenient explanation for trends like the Fed, like the reversal of the pandemic hiring cycle that were already in motion? Is it AI or is it really just those two things and AI is sort of just an easy excuse?

Phil Rosen:

Yeah. I think right now the thing that companies will point to will be AI and it is a convenient and also a fitting excuse because in many reasons they're not incorrect to say that. And if you see Amazon and Starbucks and Target announcing thousands of layoffs, a lot of that is probably due to potential productivity gains we're about to see from AI. So a lot of these AI tools, they're the worst that they'll ever be right now.

Lance Glinn:

Yeah.

Phil Rosen:

And they're already incredibly effective. So if we extrapolate that to the next one or two or three years, then you could say, okay, these companies really do have a reason to shrink their headcounts right now because they're betting on those productivity gains, which are maybe not here entirely today, but they should be coming down the line.

So when you take the labor market, let's say those three factors, the Fed, the pandemic boom, and AI all at once, everyone just wants to talk about AI, which I think it's not incorrect. But again, I think we might be... It's almost overcompensating for the two other factors I mentioned.

But then again, I think about my own day-to-day work. I produce a newsletter, I produce a lot of content and video and research, and I can do all of this with a very small team because of AI. So I've seen the productivity gains in my own life as an individual, and I know that if I was trying to do the exact same business and content and research in let's say 2021, I would've had to hire multiple more people to have a much bigger team to produce all the work I'm producing. So I do think, and I observe it anecdotally in my own life and among friends' lives, AI has true impact and it's really making people more productive, and at a company level, making companies more productive. But at the same time, does it justify hundreds of thousands of layoffs? I don't know, but it's a bet on the future that AI is going to be so much better that it does justify it.

Lance Glinn:

Yeah. I like how you put it earlier. I think you said these AI technologies are the worst they've ever been right now, yet they're still so effective because of course, as we know, they're advancing and growing and getting better really on almost a daily basis at this point. So you also pointed out in that article a correlation between the Fed's rate hikes in 2022, they were aimed at obviously cooling inflation. Obviously, we've seen the decline in the labor market since then. It's clear, at least to me, based off of your article, that the central bank has sort of played a role in what we've seen in this decline, but how big of a role do you think it has played since that first decision?

Phil Rosen:

Yeah, I think a lot of it is psychological and sort of like market sentiment. So once the Fed starts hiking, that's a signal to companies saying, "All right, easy money's going away and everyone's going to have to work harder per dollar." That's sort of a very simplified explanation of it. But when companies see the Fed start to tighten monetary policy, that's their indication, okay, we should probably slow down our growth and slow down our hiring processes. So all of that's been happening for a couple years now and we just got a Fed cut last month and we could see this sort of easy money vibes returning to the hiring process if it were a normal cycle. But because of AI, I don't expect the typical boom to come back for hiring.

Lance Glinn:

So Phil, away from this labor market decline, there's obviously been a lot of chatter lately, at least from what I've seen, about whether this surge in AI stocks is starting to look like a bubble. Now, Fed Chair Jerome Powell pushed back on that idea. He said that it isn't like the dotcom era because these tech giants have real earnings and real business models. They're not just ideas, as you put it. Do you agree with his view? And what signs are you looking for to determine whether this AI boom is sustainable or if we are potentially edging towards bubble territory?

Phil Rosen:

It's a good question. Jerome Powell's going to come out and say AI is not like the dotcom bubble because he has to say that. If he said, "No, AI is just like-

Lance Glinn:

For sure.

Phil Rosen:

... the dotcom bubble," markets would have crashed.

Lance Glinn:

Yeah.

Phil Rosen:

So Jerome Powell knows that. So he's going to be cautious as always as to juicing the froth in the market, let's say. But generally, I do agree with what he said, that it is not the same as the dotcom bubble because the companies today are so big, their balance sheets are so big, and their earnings growth has been blowing away every expectation. So if it's a bubble, you certainly can't see it yet and maybe we'll get to the point where the froth and the valuations become so stretched and so obvious that even someone as optimistic as myself will start to say, "All right, maybe we're getting a little overextended." But I don't think we're close yet just based on the size of the companies and the demand for the products that they're producing.

I think NVIDIA came out and said they already have $500 billion of backlog for next year that they haven't even got to yet. So a lot of that's being priced into these stocks. So stocks are going up so much in these magnificent seven names and tech leaders because the demand is actually there for the coming months and years.

Lance Glinn:

So in news that may not make Wall Street or investors feel so great, Morgan Stanley CEO Ted Pick and Goldman Sachs CEO David Solomon recently cautioned investors to brace for a drawdown within the next one to two years, next 12 to 24 months. How do you first just interpret those warnings? Do you think it's a signal for like a healthy correction or is this something potentially more concerning?

Phil Rosen:

On one hand, I think Wall Street executives have the responsibility to try to tame markets sometimes. So if they see markets going up and up and up and the structural bull market looks super strong, they might come out regularly and say, "Look, we might be due for a little pullback." And I think that's totally healthy and normal. And generally speaking, market pullbacks happen all the time, pretty much every single year like clockwork. So if we see a pullback, it doesn't necessarily mean it's a bubble or the bull market is over or we're about to have all the bears come out and say, "Declare victory." I don't think that's true. I think these Wall Street executives are probably fair to come out and say, "Look, we might see a pullback." And they're not necessarily even talking about the current market cycle. They're just talking about market cycles in general.

And I think that the headlines around those comments, they spooked everyone.

Lance Glinn:

Sure.

Phil Rosen:

And I think markets sold off that morning because of these comments, at least partly due to those comments. But if you just look at pretty much every single year for the last 50 years, we've had regular pullbacks. So this doesn't bother me. And again, I think earnings growth has been so strong across the S&P 500 and the big tech leaders. Any pullback, it could be mostly sentiment driven or fears of a bubble, but I don't think the fundamentals necessarily warrant like, "Okay, it's time to start turning bearish right now."

Lance Glinn:

And yeah, if you look further in those comments, Solomon called these pullbacks a normal feature of bull markets. Ted Pick even said that investors should sort of welcome the possibility of drawdowns too. Do you think most investors sort of see it that way? Like you said, when these comments were made, they played in part a reason for why the markets pulled back a little bit that morning. Do you think investors sort of see it that same way of welcoming the drawdowns or is there still a tendency to sort of panic when markets dip after obviously this really strong run that we've had?

Phil Rosen:

We are seeing an influx of young people into financial markets and young people have never lived through a true bear market. So they have been trained through the pandemic and through right now, April, to buy the dip pretty much religiously. So if we get a pullback, we're going to see a lot of dip buying, which is what we've seen all year. Institutions have not been buying the dip. Young retail investors have been buying the dip. So I don't expect that trend to change if we see the next pullback.

And look, if these Wall Street executives come out and warn everyone, "Look, we might see a 10, 15, 20% pullback," to me, institutions will probably get spooked more than retail investors because a lot of these young people, they use Robinhood accounts and they're just trading at home on their phones. They're not going to be worried about stocks going down. They just see it as a discount or a sale-

Lance Glinn:

Sure.

Phil Rosen:

... for that moment. And a lot of these young retail investors also grow up with crypto. So crypto, you can see 50 to 80% drawdowns and then you keep buying anywhere.

Lance Glinn:

Yeah.

Phil Rosen:

So in the stock market, 20% drawdown, it's kind of peanuts there.

Lance Glinn:

Absolutely. So Phil, as we wrap up our conversation this month or begin to wrap it up, I know there's obviously exciting new things happening at Opening Bell Daily, specifically Full Signal. Our listeners obviously watch and listen to our conversations each month, but just give us a little insight on what Full Signal is and some of the exciting things readers of Opening Bell Daily can look forward to in the weeks to come.

Phil Rosen:

Yeah. Thanks, Lance. I appreciate the opportunity to chat about it. So I'm very excited to announce we did launch Full Signal, our new show this week, and it's an extension of the reporting I already do every day for Opening Bell Daily. And that means the show is data driven. It's for people optimistic about where the world is heading and where markets are going. And it's going to be interviews. It's going to be me doing commentary and analysis on charts and data and the story of markets. And what makes it unique, I think, is the view that we're coming from. It's very easy in financial markets and financial media to be pessimistic. And that's generally the temperature of the room in media, almost in any cycle. So what we bring to the table, we believe the world is getting better and we believe that the role financial markets play in that is important to understand. So I'm very excited to get the show on the road.

Lance Glinn:

And it can be found wherever Opening Bell Daily can be found?

Phil Rosen:

Yes. So we put it in the newsletter every morning and you can find it on Spotify, Apple, YouTube. We're going to publish it on X natively. We're published on LinkedIn. So it's very easy to find, as easy to find as typing my name in as well. So it's around.

Lance Glinn:

Well, Phil, we wish you the best of luck in this new venture. Obviously, I always enjoy our conversations each and every month. Looking forward to next month's conversation too. Looking forward to everything coming out with Opening Bell Daily and Full Signal as well. Thank you so much as always for joining us inside The ICE House.

Phil Rosen:

Thank you, Lance.

Speaker 1:

That's our conversation for this week. Remember to rate, review, and subscribe wherever you listen and follow us on X, @ICEHousePodcast. From the New York Stock Exchange, we'll talk to you again next week inside The ICE House.

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