S&P 500 Sets Fresh Record; US-Vietnam Deal Signals New Pressure on Beijing
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The U.S. equity market rose to record highs today. That was after President Trump said he reached a trade deal with Vietnam. And in the process, Vietnam will avoid higher tariffs that were set to take effect next week. In a moment, we'll get more on this deal from Bloomberg's Jill Desus in Hong Kong. But we begin here in the States.

For a look at market action, I'm joined by Brian Krause. He is the president at Scharf Investments. Brian is on the line from Los Gatos, California. Brian, thank you for making time to chat with me. Certainly, there is still a lot of uncertainty in the market. Can you justify record high levels today for the S&P and the Nasdaq comp?

Well, it's getting harder on a valuation basis. The S&P is in the 95th percentile on valuation. And as you said, there's still a lot of uncertainty. I mean, you just mentioned there's a tariff deal with Vietnam. But if you look at the last 20 years, the average tariff has been sort of 1% to 2% on the US economy. Now, many economists are thinking once these deals are all done, they're going to be 10%, 15%, 20% in aggregate. I mean, that's a pretty big change from what we've been used to. So,

It's sort of like investors were really, really nervous about tariffs and other policy uncertainty in April. And we seem to have forgotten that. In fact, last quarter was the first quarter the S&P had gone down 10%.

and finished up by more than five in the history of the S&P 500. So it's been a real crazy run. I think given where valuations are now, it's getting a little harder to justify even with positive news on tariffs. So we're going to get the monthly jobs data tomorrow. Today, we had ADP reporting employment for American private firms was down for the first time in more than two years.

We've heard from the Fed that the labor market remains solid. If we get evidence tomorrow of maybe a bit of softening in payroll growth and maybe a spike in the unemployment rate, is it too much to say that the Fed is behind the curve?

You know, it's very hard to say. The Fed is in a tough spot because, first of all, as they've said, you've got tariffs coming. A lot of the big companies have said, we did pre-buying, we've done other stuff, and so they're out ahead of these tariffs. But you're starting to see some of it translate through, and we haven't even really seen the tariffs go into effect yet. So you've got tariffs as number one. But I'd also point out, you

you know, there's other potential risks, healthcare. You saw Centene today down 40%. They said, uh, healthcare costs are higher than they thought. Uh, you've had this consistent problem in the ACA, which is the, is the pool of, of, you know, insured buyers that can't quite qualify for Medicaid. Uh,

uh likely rates there are going to be going up quite a bit you could have people coming out of the pool so as we go into next year we think healthcare costs could be be spiking up and that would be another problem in terms of inflation so sure if we get weakening labor uh you could maybe see inflation come down maybe let the fed you know do something but you know we're certainly not out of the woods yet with tariffs and and i think healthcare is something that people need to also be looking at in terms of inflation

As we're talking about the labor market, I'm reminded of the news today from Microsoft that it's got more job cuts coming, about 9,000 workers. This is the second major wave of layoffs this year for Microsoft. The company, as we know, is looking to control cost. It's also trying to ramp up artificial intelligence spending. Do we need to consider the impact now of AI as companies begin to adopt it more aggressively, the impact that AI is going to have on the labor market?

Yeah, that's a very good point. I mean, this is sort of a counter argument to what I just said about healthcare inflation and tariffs. If AI leads to lots of productivity, you could see that being a deflationary force.

It could have an impact on the labor market for sure. I think Microsoft has already gone on record of saying they're hiring less interns and they're having a lot more computers doing their actual coding. And so this is definitely already here. The future is going to be a lot more, but it's already here. It's already impacting the labor market. I've got several friends who have kids that just graduated from school with CS degrees and they're actually struggling getting jobs, which is

You go back two years ago and they were getting 10 offers, and now you've actually got computer science majors, much less history and English majors. The job market for new college grads is really tough already, and I think that's in part because of AI. And so it's definitely impacting the labor market, and how much it does I think is still an open question.

It's definitely going to have some impacts. And the spending on AI continues apace. Today, we learned that OpenAI is going to be running a massive amount of computing power from Oracle data centers. How are you feeling broadly about the AI trade still? Names like Oracle, names like NVIDIA.

Yeah, well, we actually own Oracle. We've owned Oracle for a long time. It's getting a little bit more expensive than it's been for a while. But as I like to remind people, if they bought the top 10 tech stocks at the end of '99, they actually would have done pretty poorly

over the next 20 years, despite the fact that the internet became more ubiquitous than any of us imagined, cell phones became really big. But back then you would have bought Nokia for cell phones, not Apple. You would have bought Yahoo for the internet, not Google. You would have bought AOL for email. You would have bought Cisco systems.

When I talk to a lot of people now, 35-year-olds that don't even know Sun Microsystems was the dot and the dot com, you would have bought that for sure. So it's really hard to pick the winners. So AI will certainly be huge. But investors might be getting a little over their skis

you know, really is particularly with these kind of down, down the market cap ones that are like, that are going crazy and you're seeing a lot of speculation. So I think there's some risk there. Names like Oracle and Microsoft are going to be winners. It's just a question of, you know, what's the right multiple. And so even there, I think maybe,

they're starting to get a little bit more pricey. But certainly I would be very cautious of the kind of more speculative names. Okay. So away from tech, let's talk about the financials. A number of the big banks boosted their dividends after passing the Fed stress test, the latest stress test. KBW Bank Index today was up 1.5%. We've got names like JP Morgan, Bank of America, Goldman Sachs, Wells Fargo, the big guys.

is this a trade that interests you right now taking a position in the big banks well we we like quality companies uh for our style so banks are typically not as qualities we like to do but i will say for the banks uh you know that was very good news um and some of the reserve requirements are also going down so i think the quality of those banks is going to go up we talked about ai ai actually can be a big help in the financial sector going forward um

And so actually, you know, for the AI trade, we think things like that that are really going to get benefited from productivity enhancements are probably a good way to play it. Within financials, we like things like insurance. We like insurance brokerage.

You know, things like Visa are going to continue to be winners. Fiserv is one of our favorite names. So, there's a lot of things within financials we like, but banks are one of those that are also benefiting. But financials broadly, I think, is a sector that is going to continue to do well. So, you're very close to Silicon Valley. I'm curious, Brian, about the conversation that you're hearing there. What's it like? What are people discussing? What's the focal point?

Yeah, well, it's a shame. Enough of my brother's an executive at Microsoft. Definitely, there are conversations about cutting. It's very interesting to see young people coming out with engineering degrees suddenly finding themselves struggling to get jobs. And so that's the biggest thing. That's a very big change. I haven't heard that kind of thing since 2008.

say 2000, 2001, when a lot of layoffs were happening. And we're still in a pretty good period. Tech stocks are going up. So it's not like back then when you had a big internet bubble and a lot of companies that were just hanging on and a lot of layoffs. But today, even with all the success, you are hearing a lot of younger people having trouble getting jobs. So that's a very interesting development that I would say is

really only like in the last six, seven months. And I think that's in all likelihood AI and kind of where tech companies are putting their money. You mentioned AI, they're putting their money into capital investments and less into labor. And so it definitely is affecting the labor market. I still think though in Silicon Valley, there's a lot of optimism for AI. And so it's not all doom and gloom, but it is for people in certain areas

parts of the labor pool, you know, a tougher market. So tonight in the U.S., the House of Representatives is kind of debating the next procedure here for a President Trump signature tax bill. It seems like there's a little bit of resistance. For the moment, let's just set that resistance aside and assume that this big, beautiful bill does get done. It moves to the president's desk. Do you have a sense of the impact that this may have on the economy?

Well, it's a big, beautiful bill, so I haven't read it and it's hard to know. I mentioned Centene earlier. I think that if you're going to cut Medicaid and you're already having problems with one of the major ACA insurance providers who's already going to have a big increase before this announcement and now they're going to go back and ask for an even bigger increase in 2026, I think

I think we're going to have one impact of it, in my opinion, would be a higher uninsured population, which always translates into more health care inflation. And that might be an unintended consequence of this bill. Obviously, we could be wrong on this, but that's usually what you end up with if you have more uninsured population.

And whenever you have healthcare inflation, it tends to ripple through the economy and tends to be one of those issues that your average American really cares about. Your average American is really looking at food, housing, and healthcare. And so if that's gonna really impact them, I think it could

have ramifications for the economy as we go forward. In terms of keeping the tax cut, that's obviously positive for the economy. There's all kinds of things, like they're taking away solar credits and stuff like that. But one thing I haven't heard a lot of people talk about is sort of the impacts

of healthcare translating to the economy. So for us, that's one of the things we're kind of evaluating. Brian, we'll leave it there. It's always a pleasure. Thank you so much. Brian Krause, he is the president at Scharf Investments, joining from Los Gatos, California, here on the Daybreak Asia podcast.

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Welcome back to the Daybreak Asia podcast. I'm Doug Krisner. President Trump says the U.S. has reached a trade agreement with Vietnam. It will give American companies full market access. And at the same time, the U.S. is slapping a 20% tariff on all Vietnamese imports. Now, Hanoi hasn't confirmed the framework deal. For more, we heard from Bloomberg News desk editor Jill Desis. She spoke with Bloomberg's Sherry Onn and Heidi Stroud-Watts on the Asia trade.

Jo, what do we know about the contours of this deal and what's been agreed, even though, of course, there hasn't been a confirmation from the Vietnam side?

Well, yeah, I mean, Heidi, I think first of all, I just want to point out that we do not yet have a term sheet from the White House. They haven't released anything, you know, giving a lot of further details on there. So really, I think there's just two numbers that I can give you here. First of all, the deal that Trump has announced would include a 20 percent tariff on Vietnamese exports to the U.S., as well as a 40 percent levy on goods deemed to be trans-shipped through the country. So what that tells me is that as part of this deal, there's at least somewhat of a focus on

perhaps on goods that may be shipped through Vietnam from China, for example. That's one thing that the Trump administration has made very clear as it continues to negotiate these types of deals that one thing it's focused on, particularly in some of these Southeast Asian countries, is that it really wants to try to

figure out a way to box out China or otherwise convince more manufacturers to move goods that they manufacture from China to other parts of Southeast Asia, including say, Vietnam. So that's one thing that those numbers perhaps tell me. But again, I do want to caution that we don't have a term sheet. We don't know exactly

what the Vietnamese are saying about this. Still, obviously, waiting more fulsome confirmation from Hanoi about what exactly we're expecting with this deal. But yeah, so it does tell you, obviously, you know, we're approaching that July 9th deadline that Trump has set for, you know, kind of coming up with some deals to announce, to address the reciprocal tariffs they announced back in April. But we're still getting a lot of information that's, you know, still coming out. We'll see what ultimately is in really kind of the nitty gritty of this particular deal.

Jill, let's talk a little bit about China, because as you mentioned, they're trying to box in China, despite the fact that they do have the supposed framework in place that has cool tensions when it comes to those tariffs. What are they trying to do in terms of using other trading partners and new deals in order to restrict Chinese content?

Well, again, Sherry, I think, you know, you look at some of the strategy that's actually being, you know, coming here. I think that, you know, first of all, the idea is really kind of putting pressure on the U.S. trade partners to restrict trade that they're doing with China. Obviously, we've seen this happen not just in this latest round of trade deals, but over the last several years of the U.S. attitude toward China has been very much particularly with it.

biggest allies saying, you know, are there sanctions or are there restrictions you can put in place in terms of dealing with, you know, in terms of working with Chinese technology or Chinese good? There's a lot of, you know, obviously this more fulsome effort to sort of, you know, prevent China from developing, you know, advanced

technologies or working with, say, manufacturing parts or parts that other companies in other countries might make and sending those to China. So that's always a big part of this equation. But again, now you're seeing this kind of play out, I think, a little bit in some of these trade deals here. Obviously, we're still waiting for more on that Vietnam deal, but that

transshipment element of this trade deal, again, does lead me to believe that there's a component in there that's kind of directed toward trying to shut out China. So, again, yes, obviously, as the United States continues to, you know, it's made its own trade deal with China in the wake of all of this, the fact

that you've got all of these other countries that are still up in the air in terms of what their individual agreements look like with the United States, I think does suggest that there is a strategy on the part of the United States here to try to unite a lot of these countries and kind of create deals that are obviously favorable to the United States, but that also may be ultimately unfavorable to Beijing.

Which is also why we've seen Beijing on this, you know, multilateral trade and diplomatic charm offensive, right? The foreign minister Wang Yi is in Europe through to this Sunday over the weekend for the high-level strategic dialogues with the EU. He's really, you know, pushing home the point of collaboration, working together, confronting differences as such. There's a lot of sort of really historic trade and diplomacy ties there. Could that be a point of strength for Beijing?

I mean, potentially and certainly, yes. I'd imagine that if you're Wang Yi, you're the foreign minister, you're trying to smooth over things in Europe, particularly ahead of there's a pretty critical EU China summit that's happening in Beijing later this month. So I think, you know, a lot of what he's doing in Europe right now is kind of paving the way for those further talks.

that they're going to have at the end of the month. Yes, obviously, there's a ton of incredibly critical trade that goes through between the EU and China. You know, we know that Chinese EVs, you know, obviously have a pretty big presence in Europe. I think, you know, China is obviously, you know, interested in continuing to develop some of those types of ties. So, yes, obviously, if you're the, if you're,

in all of this. You're trying to strengthen your position as well with all of the trading partners that you had. I would point out that as Donald Trump and the Trump administration were trying to develop all of these other trade deals, Xi Jinping himself

The president of China was going through and trying to foster ties with a lot of trading partners in Southeast Asia. So this really is a case where you've got the world's two foremost economic superpowers that are ultimately trying to strategize and trying to work with their individual trading partners because these are such important economies. They do have incredibly strong trading partnerships and relationships, and they obviously have vested interests in keeping those strong.

Bloomberg News desk editor Jill DeSantis there with the latest on trade.

Thanks for listening to today's episode of the Bloomberg Daybreak Asia Edition podcast. Each weekday, we look at the stories shaping markets, finance, and geopolitics in the Asia Pacific. You can find us on Apple, Spotify, the Bloomberg Podcast YouTube channel, or anywhere else you listen. Join us again tomorrow for insight on the market moves from Hong Kong to Singapore and Australia. I'm Doug Krisner, and this is Bloomberg.

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