Caroline Woods: I. Investors know the chip story, but what if the next big opportunity isn’t making chips? It’s moving data between them. Yuri Khodjamarian is chief investment officer at Tam ETFs and joins us now. Yuri welcome back.

Yuri Khodjamarian: Thanks very much for having me.

Caroline Woods: So we last talked about SpaceX. You’re back with an ETF targeting the next piece of the I build out the team of Photonics and optical ETF laser. To kick things off, what exactly is photonics and why should investors care?

Yuri Khodjamarian: I think the best way to think about it is to understand that AI is creating a huge amount of computing power within these data centers, and that computing power is just getting bigger and bigger and bigger. And at some point, the other parts of the computing system are going to require, you know, an upgrade in a way.

Yuri Khodjamarian: And one of these is how data is moved between parts of the data center, between the individual servers and within even the individual chips. And the reality is that data is moving at such speed, and it’s also moving with so much bandwidth that the copper connections that we all know, the copper wires that connect the world are just not keeping up.

Yuri Khodjamarian: You know, they’re hitting their physical limit. And the obvious answer, which is happened in lots of other industries, is you move to light, which is photonics. The idea that you can use the full spectrum of light to move data means that you can move data faster and can move a lot more data, which is what a lot of these AI systems need.

Caroline Woods: So replacing copper with light. But what am I actually buying with Lazear? Kind of walk me through the portfolio. How do I get exposure to light in my portfolio?

Yuri Khodjamarian: Absolutely. One of the things that we pride ourselves all the time is building these curated universes of companies. And we sort of leave no stone unturned. We find the most interesting businesses exposed to this particular scene. In the case of optical and photonics. You’re looking essentially at the entire supply chain and value chain of creating the devices that then the, basically leads the data centers to be able to connect all of those different parts together.

Yuri Khodjamarian: So you’re thinking about the machines that make the substrates, that make the materials that then create those particular lasers or optical components that allow light to carry data inside the data center. So you’ve got winners and leaders in terms of companies like momentum. You know, which is a transceiver maker and, one of the world’s leading laser producers as well, all the way back to the beginning of the value chain, which is, companies like Exxon, which make the machines that make the materials to make those lasers.

Yuri Khodjamarian: So you can imagine that what we’re trying to do is giving investors exposure to the entire value chain. And we particularly focus on Western companies, particularly focus on the ones that have the winning capacity and winning technology to deliver optical and photonics solutions to the data center.

Caroline Woods: So lumen, Tim, is your largest holding. Looks like nearly 18% of the funds, but your second largest holding is anthropic. How does a photonics ETF end up with more than 9% exposure to a private AI company?

Yuri Khodjamarian: So one of the things that we really focus on a time eye is we’re trying to give investors a good package together. So the way we see it is that the way we define the universe and the way we think about it is it’s the entire AI infrastructure stack. And if you look at a company like anthropic is obviously the Lem layer.

Yuri Khodjamarian: It is the demand layer for a lot of these types of equipment. We had the opportunity to add this as a position. It’s something that our portfolio managers look at and consider as part of their entire investment universe. And in the case of Lars at AR, we thought that that would be a good fit within the portfolio. We also were able to invest in it at what we think is an attractive valuation for what is probably going to be a generational company.

Yuri Khodjamarian: Private companies can be an ETF. Some think that that is something that investors want and something that we are prepared to offer after having done all the necessary due diligence. Very similar to our NASA ETF and its pre IPO exposure to space X.

Caroline Woods: Why anthropic over OpenAI.

Yuri Khodjamarian: That’s a great question. I think a couple of maybe more subtle points. I think one is that anthropic is a major kind of investor and user of some of the optical technology. So it’s a slightly better fit in terms of the infrastructure buildout that they’re doing. A lot of anthropic future compute is going to be based on the TPU ecosystem, which, as you know, is developed with Broadcom, which is a beta, and its tonic and optical technologies and TPUs tend to be a much more or to a certain extent, somewhat much more heavy in terms of its usage of optical technologies than maybe the Nvidia ecosystem.

Yuri Khodjamarian: So I think that’s one, maybe more technical reason why we’ve gone forward as a fit. But really, we think that the most important application of AI is going to be within businesses. And anthropic is a leader in the B2B space, in terms of its overall revenue exposure. So broadly, we think it’s a more interesting business. It’s also much harder to access, in terms of buying those shares out into the secondary market.

Caroline Woods: So if I’m buying land here, in part because I want access to anthropic before an IPO, what do I need to understand about that exposure? And then what happens when anthropic does IPO or what happens to that position within the ETF?

Yuri Khodjamarian: Absolutely. Look, first of all, you have to understand that we’re making an investment decision here. And the second thing is that we have done the necessary diligence to make sure that this is an exposure investors can trust. You know, there are multiple layers of due diligence that go into making an investment decision like that that are maybe different to buying a public company you own.

Yuri Khodjamarian: Or the ETF owns anthropic through an SPV, which is a very standard way of making investments in the private world. These speeds have no fees attached to them. So essentially investors are just paying the management fee of the ETFs. So it’s a very cost effective way to gain that kind of exposure as well. Finally, we we think it’s once it comes into the ETF that that’s the exposure that you’re getting.

Yuri Khodjamarian: So you’re getting a collection of the leading infrastructure photonic businesses plus the anthropic stake.

Caroline Woods: Okay. You know, I was just taking a look at some of your other top holdings, not the quintessential AI names that probably appear in many investors portfolios. I, you know, do see some familiar names. Tower semiconductors in there. We had mentioned momentum, but how should I be thinking about photonics exposure in my portfolio versus other sort of eye exposure?

Caroline Woods: Is this complementary? Does this replace something? What if I own names like Nvidia and Broadcom right now. What does this give me that those don’t already give me.

Yuri Khodjamarian: Absolutely. Look I think the way to think about the AI infrastructure buildout is to kind of start top down. I think it’s no secret that there’s going to be a large build out, that it is probably going to be in the trillions of dollars, probably higher than maybe the rest of the market kind of thinks at this moment.

Yuri Khodjamarian: And what you need to think about that a infrastructure build out is to say, where are the particular bottlenecks that are being hit as we accelerate that data demand? If you look at something like GPUs and TPUs, which is what Broadcom, Nvidia provide is a pretty well-supplied market. So there is no supply demand mismatch really. The only thing that’s placing that demand picture is how quickly can we build the data centers and how quickly can TSMC produce them.

Yuri Khodjamarian: And once you start getting into the rest of the I infrastructure value chain, you start to hit bottlenecks. And there are several that have arisen over this past period. And the one that we focus on, the distance you have is the optical bottleneck. Essentially, what’s happening is the demand is starting to like the mass of the uploads because as these data centers are becoming more powerful, the data needs to move a lot faster.

Yuri Khodjamarian: So we’re starting to replace components with optical fibers. And remember, this is a kind of a networking concept. So the more powerful each particular connection within the network is, the more you upgrade the whole network. And there are more connections than there are individual parts of that network. If you look at, people like Goldman Sachs, they estimate that this market is going to grow something like ten times over the next couple of years.

Yuri Khodjamarian: So there’s an enormous demand imbalance. But the key part, which is why this is an interesting investment opportunity, is the supply. There just is a massive constraint on supply delivering the lasers, transceivers, optical equipment that goes into these data centers. And this creates a positive investment environment because you have very strong demand, forward orders and companies are be better able to build out their business to take advantage of this opportunity, which could be multi-year.

Yuri Khodjamarian: So that’s why we think that it’s an interesting area to look at. And so for investors that are looking over the broad investment portfolio and I they should be making deliberate decisions. They should be thinking this I build up could be one of the largest things he’s ever done. Should I be stupid on just giving the general exposure through things like Nvidia?

Yuri Khodjamarian: Or should I be thinking about what are the individual bottlenecks? So these are very nice compliments to for example, holding in Nvidia or Broadcom where you’re saying, actually I think this part of the build out is going with a tighter supply and demand mismatch for this period of time as the build up goes on. One of the things about the optical industry that people maybe don’t appreciate is that historically, it was an area that was forgotten by the market, and that’s because most optical technology went into telecoms, and telecoms has just not been a growth industry.

Yuri Khodjamarian: And so for a lot of investors, you’ve got this kind of weak starting point because it was an industry that was overlooked. And that creates some of the most powerful investment opportunities in the marketplace.

Caroline Woods: I was going to ask how big the opportunity is, but you already said it’s a multiyear opportunity. But I guess what has to happen for this market to grow as much as you expect?

Yuri Khodjamarian: That’s a great question. And one of the things that there’s a bit of a debate as a what needs to be start to introduce optical components further and closer to the actual accelerator chips, the Nvidia chips, you can think about a future where even at the chip level, you are using optical components to move data, because it’s become such a high data burden, and we need to do some move so quickly to deliver some of the agents that you’re seeing out there, like Muse or Instinct.

Yuri Khodjamarian: So really, it’s about understanding what the Nvidia and Qualcomm roadmaps look like. And that’s perhaps one of the debates out there in terms of what will accelerate demand sensor. You will see we move to having Co packaged optics as called where optical components are coming much closer to the chip. Then the opportunity is much near-term and much bigger than it is when we think about it is that there might be some delay to this is going to take some time, but that creates a longer environment where some existing optical components see a bigger pick up in demand.

Yuri Khodjamarian: And then we have generation of technology changes. So that is probably the thing that’s pacing how big this opportunity is. And when does it happen. Now or in a couple of years time.

Caroline Woods: But AI infrastructure has already had this massive run. So investors are investors early to photonics and optical at this point. Are some of these stocks already pricing in the opportunity?

Yuri Khodjamarian: Look, I think it’s fair to say that I infrastructure trade in certain areas is probably well known to people. I think the points that are less clear are probably how big is the final outcome going to be? I think if you had spoken to someone two years ago or a year ago, they would have said, you know, maybe it’s a 2 or 3 trillion investment opportunity.

Yuri Khodjamarian: I think there are some estimates now that are out there that are five. And if you look at some analysis from the partner research partners in this ETF, you know, they’re estimating $10 trillion, which is bigger than any of the numbers out there in the market. I think it’s also going to take longer than people realize. And there are certain pacing things that are happening.

Yuri Khodjamarian: You know, TSMC can only produce chips at a certain pace. We have a huge need to power these data centers, which is going to take time to build out as well. And so those things are pacing the opportunity, if you will. And so investors can kind of make a bet here that things are going to take longer and probably going to be bigger than the rest of the market thinks.

Yuri Khodjamarian: So even if some of these stocks have already started to react, which they have, the I kind of I could bet right now is one on the length and magnitude rather than whether it’s happening or not. In terms of valuations, it’s very easy to build valuation pieces if you think it’s bigger and longer than the market thinks for most of the AI infrastructure stocks out there.

Yuri Khodjamarian: So if you’re prepared to take a longer term view, there is a opportunity there. Of course, short term and especially this year, the eye infrastructure trade has been very strong. So a lot of these stocks have gone up. So short term it’s possible that you’re going to have. And you see already over the summer this periods of volatility as the market processes run up and share prices against the expected opportunity to.

Caroline Woods: I want you to take your ETF cap off for just a second and put on your CIO cap and talk to me just about the opportunities that you’re seeing in the current market. Because we have memory stocks selling off so far this month, obviously still big winners year to date, but down double digits for a lot of the big names.

Caroline Woods: We have software stocks that have been making a comeback or at least some software stocks making a comeback. Then of course, there’s the big seven. As you think about where the best opportunities are right now based on current valuations, where are they?

Yuri Khodjamarian: It’s a great question. And also when I get asked these things, it’s sort of it’s difficult to say on a short term horizon where any particular direction of the market is going to go in, but I think it’s helpful to think about things longer term. So for me personally and the way we look at the market, we like to look for these opportunities where you’ve had a period, ideally a very long period of underinvestment.

Yuri Khodjamarian: So whether you’re looking at the US power situation, when you’re looking at something like photonics and optical stocks, those were stocks that saw very little roles. And there was essentially underinvestment in the supply chains because there was just no demand for us. There’s suddenly now thrust into this growth environment, which creates a really interesting valuation opportunity long term.

Yuri Khodjamarian: So I see a lot of opportunities there as you’re prepared to think longer term and appreciate that demand and supply imbalance that’s been built on the market right now. I think other areas as CIO that I see is investors need to start to think, how is I going to move? Even if you think the I infrastructure trade probably has some way to go?

Yuri Khodjamarian: What is the actual impact of EI on different parts of the market? And I think that part is what we’re digesting this year and what you’ve seen in software stocks where they sold off and not covered. I think the interesting trade right now is to understand which vertical is I going to have the greatest impact in, and then starting to think about that vertical position opportunity.

Yuri Khodjamarian: So one area that we really like is health care. I mean we’ve recently launched it’s yes in that area each flight. It’s actually the first and only ETF focus specifically on health care. So you can see our thinking moving right where we are. Big believers in the are bottlenecks and the build out of eye infrastructure. And the second leg is where are the underappreciated opportunities in the application of AI.

Yuri Khodjamarian: And we think health care is one of those. You’ve already seen some of these stocks start to react to the market environment, as companies like anthropic and others are investing and building AI for science and for biology. It’s a massive opportunity out there. You know, health care is 20% of GDP in the United States and growing. I think there is an opportunity here to really build long term value for some of these businesses.

Caroline Woods: Interesting. And there’s an ETF for that of course. All right. I think it’s a great time to pivot to our rapid fire round of this or that. Quick questions quick answers no hedging if you can help it. Are you ready Arie.

Yuri Khodjamarian: Go for it.

Caroline Woods: More upside from here AI chips or AI networking.

Yuri Khodjamarian: AI networking.

Caroline Woods: Photonics early innings or getting crowded.

Yuri Khodjamarian: Early in its.

Caroline Woods: Biggest AI bottleneck. Power or data movement?

Yuri Khodjamarian: That’s a difficult one. I’m going to say power.

Caroline Woods: Better AI trade from here. Hyperscalers or their suppliers.

Yuri Khodjamarian: Their suppliers.

Caroline Woods: Bigger AI risk valuations or slowing CapEx?

Yuri Khodjamarian: Or absolutely slowing CapEx.

Caroline Woods: Hyperscale or CapEx in 2027, accelerating or peaking.

Yuri Khodjamarian: Or accelerating.

Caroline Woods: AI stocks next year, broader rally or fewer winners.

Yuri Khodjamarian: Probably broader rally or.

Caroline Woods: Off anthropic IPO by Ethiopian or wait.

Yuri Khodjamarian: Oh, definitely buy at the open or own.

Caroline Woods: When his private AI IPO boom in 2027 bullish signal or warning sign.

Yuri Khodjamarian: I think probably slight warning sign.

Caroline Woods: Anthropic or OpenAI.

Yuri Khodjamarian: Anthropic.

Caroline Woods: AI trade from here. Chase momentum or wait for a pullback.

Yuri Khodjamarian: Well we’re sort of in a pullback. So chase momentum.

Caroline Woods: If rates stay higher for longer I infrastructure AI software.

Yuri Khodjamarian: AI infrastructure.

Caroline Woods: AI stocks are space stocks for the next five years.

Yuri Khodjamarian: While you’re making me choose between I’m going to go.

Caroline Woods: To maybe.

Yuri Khodjamarian: Space space stocks.

Caroline Woods: And if you could only own one AI stock and it’s not an ETF, which is it?

Yuri Khodjamarian: I would go for the mental.

Caroline Woods: Bring it back. Bringing it back to Lazear. Finish this sentence. The biggest risk for investors is buying Lazear or betting on photonics is.

Yuri Khodjamarian: I think it probably is a CapEx potential CapEx slowdown in 2028.

Caroline Woods: All right. We’ll leave it there. Yuri Khodjamarian, Chief Investment Officer Tamar ETFs, thanks so much for playing along, shedding some light on this ETF and we really appreciate your insights as well.

Yuri Khodjamarian: Thanks very much for having me.

Caroline Woods: If you enjoyed this ETF spotlight check out our full interview with Dave Ellison. He breaks down what bank earnings tell us about the economy right now and gives his top bank after earnings.

Caroline Woods Joining me now, Bill Mann, chief investment strategist at Motley Fool Asset Management. And Bill, welcome to the desk. Great to have you.

Bill Mann Great. Thank you for having me.

Caroline Woods All right. So tech stocks selling off again this morning AI names taking another beating. Core. We’ve is down more than 20% this week. Maybe is down 20%. Dell SanDisk micron all down double digits. Is this an opportunity to buy some of the biggest beneficiaries of AI on sale? Or is this the start of a much bigger correction and a warning sign?

Bill Mann So I feel like on the street, it has gone from wondering whether I was in a bubble to when it is going to pop, and maybe we’re seeing the beginning of that now. There’s a huge amount of financial distress that is in that marketplace, in the form of the debt that the hyperscalers have taken on in order to do a build out at the time that that eye prices are falling.

Bill Mann So there are big questions about these businesses. I happen to think that eye is a very real thing, but I think that we’re going to go through a period of of much more turbulence than we’re seeing even now.

Caroline Woods So talk to me about what that could look like. If I is a bubble and is going to pop. How much damage could be done?

Bill Mann Well, if you think about the debt market, about 17% of the new debt issuance now is coming just from the hyperscalers for the eye for the eye industry, which is one of the reasons why you’re seeing treasury notes go up about 6% higher than they’ve been in two and a half decades. These two things are interrelated. So I don’t know that there are places to hide in terms of the eye bubble.

Bill Mann An unraveling, if you will. There are areas of the market that have not participated at all in the rise. And so it is one of the most, split markets that I’ve seen in my career. So there are opportunities out there, but they may not look like opportunities for a while if we are, in fact, seeing the bubble pop.

Caroline Woods Okay. So we’ll talk about those opportunities in just a second. But first, you talk about that investors are increasingly worried about the debt financing piece of the AI boom. There’s also competition with China that seems to be spooking a lot of investors this week. You are looking at those things as real cracks in the AI story. And not that investors are overreacting right now.

Bill Mann No, I’d say that the overreaction has happened on the upside, but I do want to be sure to emphasize the fact that I think AI is real. I don’t think that we’re looking at something that is just going to, you know, that’s going to disappear so long term. I don’t think that you should be pulling away from AI investments.

Bill Mann You just have to be realistic about the fact that there are going to be a lot more turbulence than we’ve seen in the in the.

Caroline Woods Past, but I don’t get it. If I stocks are due for a reckoning, why do we want to hold AI stocks then?

Bill Mann Well, what is it that you’re trying to dodge or you’re trying to dodge volatility? Or are you trying to end up in something that is real and that is going to transform the economy? So I happen to think as a long term investor that it’s really, really difficult to pull out and put your money back in if you believe that something is real.

Bill Mann I think that, you know, as far as, as far as we’re concerned, you kind of hold the hold the line a little bit and, and maybe make your positions a little bit smaller. We have, we have ETFs that, that are a little bit more, limited in their exposure to the market. And those are the types of things that I would recommend.

Caroline Woods So you would look at it as a healthy correction, a healthy shake out that ultimately will be beneficial to investors.

Bill Mann Healthy but huge.

Caroline Woods How huge. So how much bigger are we talking about?

Bill Mann Well, again, if 17% of the overall debt market issuance right now is just coming from the hyperscalers, that is a massive component of the debt market. And equity comes behind in terms of preference. And so it’s it’s conceivable that, you know, that these companies could drop a 40% or more.

Caroline Woods How do you distinguish between a temporarily beaten down eye stock and one that might never recover?

Bill Mann I think that one of the key ways to do it is to look at the companies that seem foundational. You know, Nvidia, for example, is a foundational company. They are they are involved in the build out, for example. And I don’t really see that as being something that, you know, that that is going to change. There are there are other components of the market where again, you’re starting to see these companies take huge amounts of debt on.

Bill Mann So they might be foundational companies, but they also might be creating a mismatch for themselves and and their I’m thinking about the meadows of the world and the and the alphabets of the world, which are great companies. And I have no problem having exposure to them. But, you know, debt is an entirely different set of factors than equity, just because of the of the time importance of, of the cash flows.

Caroline Woods So you would choose Nvidia over Meta and Alphabet. What about some of the stocks that are on steepest sale this week I had mentioned core Weave and Micron and nebulous names like that, especially in the memory space SK Hynix. Are you looking at any of those is a good buying opportunity right now?

Bill Mann We would focus on ones of those that don’t necessarily have debt obligations and are some in that mixed with core weave, some of their debt obligations are now, you know, 15% and higher, which is the sign that the market believes that this is a distressed business. And and as people who focus on high quality companies, I don’t have that much interest in distressed businesses.

Bill Mann But micron, maybe EBS companies of that, of that nature that don’t have the same level of immediacy and the need to, you know, to, to make profits and are part of the build out. I think they’re probably. Okay.

Caroline Woods Okay. But you you would wait for lower. Are you okay here? Because I’m okay.

Bill Mann Here.

Caroline Woods Okay. Yeah.

Bill Mann But they may go lower. I mean, I think if you, you know, if you’re a long term investor and you believe in the market, you have to be comfortable with something going down after you buy it.

Caroline Woods So it’s all about the quality of the company and how much debt exposure they have.

Bill Mann Exactly.

Caroline Woods It feels like a brutal week for stocks. Perspective is that the S&P is actually only down 1.4% at this point in the week. We obviously still have tomorrow too. Do you think that the index is masking a bigger problem for the broader market, or is this just okay? You know, it’s very much specific to tech.

Bill Mann It feels bad. I mean really it really does. A huge part of the market hasn’t really participated in in in the updraft either though. So while the market is just below its all time highs, there are parts of the market that are outside of tech that are foundationally cheap, and those are some of the areas, you know, that that we’ve been focusing instead.

Caroline Woods And like what?

Bill Mann Yeah. So like for example, TJX, which is the the company that owns TJ Max on its home stores owns Marshalls. They’re benefiting from from a trade down their opening stores are up to 1300 stores worldwide. And it’s it’s a company that has not really benefited from the market going up because there’s been so much concentration in the tech industry, which TJ Max is a lot of things, but it’s not tech.

Caroline Woods So that’s a valuation story versus a trade down story. It’s not that consumer is going to be so weak that they’ll need to go to TJ Max. It’s just that they it’s just cheap.

Bill Mann It’s just cheap. And it’s it’s it is again a very high quality company. And I think that, the market has been so focused on the institutional imperative of you’ve got to be na you’ve got to have focus and tack that there are other parts of the market that you’d have to be brave to buy. And I think that that retail, particularly discount retail is one of those segments.

Bill Mann But TJ to me is too cheap to it.

Caroline Woods Is that a call on consumer discretionary overall because retail stocks are actually having a pretty good day today. It’s not just Walmart and Home Depot that are doing well. I was taking a look at my retail watch list and almost every company was higher, despite the, you know, the sell off that we’re seeing on the tech side. So is that a a call on the overall consumer or it’s very specific to TJX?

Bill Mann I think it’s very specific to the segment that TJX is in. It’s the highest quality of, of of that segment.

Caroline Woods All right I was taking a look at some of your other picks. Progressive is also a pick down about 6% year to date. Is that another just is not the most exciting thing insurance, but just another example of a stock that investors should be kind of rotating into if they’re taking some some money off the table in tech.

Bill Mann So I’ve gone to the Berkshire Hathaway meeting for a number of years. And for the last four years in a row, they carved out time to talk about how progressive was eating their lunch. And so when Warren Buffett’s company is talking about losing to another company, that that tells me that you should pay attention to that company. And so, this last earnings report kind of on a technicality, they missed, they missed their estimates.

Bill Mann They made about 10% in profit on their insurance underwriting, which is extraordinary.

Caroline Woods Okay. So progressive on the list. Also on the list, Adobe, which is actually up 5% today but down 30% year to date. And I have to say, when we have guests on and we talk about which companies won’t get disrupted by AI in terms of the software space, Adobe is not usually there. So tell me, what is Wall Street getting wrong about Adobe?

Bill Mann So Adobe got hammered earlier this year when when, the market was I is going to crush all of the software companies, but something that’s missing, the the market is missing about Adobe is that its AI revenues are up 150% year over year because they own the catalog of so many images. You know, whenever you do an AI image, it looks very much like an I am at 12.

Bill Mann Adobe owns a huge catalog of images as proprietary. So they have a walled garden, which means that I will actually be augmenting their business rather than competing it away.

Caroline Woods Okay. All right. So making the case for Adobe. So you have three picks there. But what’s the strategy for retail investors going into your end versus just, you know, potentially scooping up some of your picks? I think that as people think about preparing their portfolios for potentially a seasonally strong period in the market, we have this tech reckoning, you know, what should they do overall to their portfolios?

Bill Mann I think one of the things that you will really want to do is focus on companies that do not require a huge amount of debt financing, because no matter what, and whatever the source of it, borrowing has become much more expensive. And so I think that that is a foundational thing that you should pay attention to. And also, people have been worried for years about the concentration in the tech industry and the Mag seven, you know, in, within the markets.

Bill Mann And, and I don’t think that the market has been wrong to, to favor those companies. But at some point, the other parts of the market, that people have been ignoring, that the market has been ignoring are places that you really need to put your money into. And and frankly, if if we’re right about, AI being a bubble that’s going to be deflated, you want to be in other components of the market that are resistant to to that downward trend.

Caroline Woods We’re seeing some strength in financials today. We’re seeing some strength in health care in almost every area of the market outside of tech right now. You know, materials, real estate any of those areas look attractive to you?

Bill Mann I think that’s the market agreeing with me. Yeah. So health care biotech has had a very, a rough quarter.

Caroline Woods But linked to I mean, everyone who’s bullish on health care is bullish on health care. At least I talk to because of I.

Bill Mann Yeah. Yes. But at the end of the day that’s I as a as a as a potential tool to help them with their research to speed up their process. And so, you’re not necessarily talking about the research component being, being a profit center so much as a cost center, which they should be able to, intermediate using I that’s that’s the case for it in the, in the segment.

Bill Mann So yes, it’s been a tough market for them. But I think that when you think about the eye trade, it’s all it’s been all about the construction and much less about the downward benefits of it. And I think that the benefits are things that we’re going to start seeing 2027.

Caroline Woods So add health care here. Yes. Add financials here.

Bill Mann I think so.

Caroline Woods And stock picker broader sector exposure.

Bill Mann I think broader sector exposure for the financials is just fine.

Caroline Woods Okay. If I a lot of my money is in an S&P 500 index fund, I have a lot of exposure to AI, whether I like it or not. Some of the names though you like, but what should I be doing in that case? Should I be making any changes to my portfolio right here?

Bill Mann So it depends on your level of comfort. So Motley Fool Asset Management has launched a number of ETFs that are much more focused on on giving people the the exposure that they want, lower exposure to the largest companies, which is almost entirely at this point, tech. And I think that that’s helpful for people who are worried about that volatility.

Bill Mann So so we always say that, that your portfolio is going to promise you a certain type of experience and you need to make sure that you’re capable of withstanding that experience. And so if taking some of the exposure away from from tech helps you sleep at night and stay the course, I think that’s the way to go.

Caroline Woods Do you think stocks are going to end the year higher or lower than where we are right now?

Bill Mann I suspect that they’re going to end up higher than they are now. But with a very, very different leadership than we’ve seen through the beginning of 2020.

Caroline Woods So it won’t be because Big Tech is leading the way.

Bill Mann Yeah, exactly.

Caroline Woods What about in 2027? Will that be the tech comeback story then? I know you don’t have a crystal ball but I’m you know you’re bullish but.

Bill Mann I’m gonna ask you yeah I think that 2020 something is going to be a pretty a pretty tough year. The questions that we have now are going to start to be answered in terms of all of these largest companies, and they make up such a huge component of the market. Are they going to be able to earn money quick enough to start, servicing the debt that they’ve taken on?

Bill Mann And it’s $250 billion in new debt, which is an extraordinary and historic level. So, it really depends on if some of the use cases for I really start to generate, free cash flow.

Caroline Woods So if we see an anthropic IPO, if we see an open AI IPO, those won’t be names you’ll be scooping into your portfolios anytime soon.

Bill Mann I think we’ll be I think we’ll be pretty cautious.

Caroline Woods Okay. All right. This is a great time to pivot to our rapid fire round of this or that. Quick questions quick answer is no hedging if you can help it okay. If you’re ready. All right Bill here we go. Market sell off. Buying opportunity or warning.

Bill Mann Sign buying opportunity.

Caroline Woods Nasdaq temporary shakeout or bigger correction ahead. Bigger correction correction or bear market ahead. Correction I bubble bursting are still inflating.

Bill Mann Bubble bursting.

Caroline Woods Buy stocks now or wait for a bigger pullback for I.

Bill Mann Buying stocks now.

Caroline Woods Ten year treasury at 5%. Stocks or bonds. Stocks ten year. Treasury at 6%. Stocks or bonds.

Bill Mann Stocks.

Caroline Woods Micron or Nvidia.

Bill Mann Nvidia.

Caroline Woods TJX or Walmart, TJX, Adobe or Salesforce.

Bill Mann Adobe.

Caroline Woods Progressive or Berkshire Hathaway.

Bill Mann Oh, progressive.

Caroline Woods Finish these sentences before finding a bottom. The S&P 500 could fall another 15%.

Bill Mann You.

Caroline Woods The I stock I buy into this selloff is Adobe. The I stock I’d avoid right now is better. The biggest risk to the bull market is timing. If I could only buy one stock today it would be progressive. Wow. You played by the rules girl. Thank you so much for playing along for your picks and your insights. Really appreciate it.

Caroline Woods That’s Bill Mann, chief investment strategist at Motley Fool Asset Management. If you enjoyed this street talk, check out our full interview with Dave Ellison. He breaks down what bank earnings tell us about the economy and which stocks have the most upside from here.

Caroline Woods Joining me now is Dave Ellison, portfolio manager at Hennessy Funds. Dave, welcome to the desk. Great to have you.

Dave Ellison Good afternoon.

Caroline Woods All right. So stocks doing a whole lot of nothing right now following bank earnings. But we’ve officially heard from JP Morgan Goldman Sachs Citi Wells Fargo. What’s your biggest takeaway from these results. What are the banks telling us about the economy.

Dave Ellison Well I think the takeaway is that, the credit conditions are still very good in most cases, that the non-performing numbers are actually flat or down from a year ago. And so I think that tells you that, you know, they’re doing a good job managing credit and that the economy is not as case shaped as maybe people think it is, that there’s plenty of people at the bottom, but they’re making their they’re paying their bills.

Dave Ellison So.

Caroline Woods So even though JP Morgan missed on both the top and bottom line, we saw some mixed results from some of the others. The banks aren’t showing any signs of cracks in the economy that Wall Street’s ignoring.

Dave Ellison And I believe, you know, when you talk about myths, somebody predicted something that they were wrong, not the bank, right? I mean, so it’s this idea that they missed my number. Well, your number was wrong. So let’s get over the this missed stuff.

Caroline Woods Okay. Well, that could be why JP morgan’s higher. Actually, today we’re seeing kind of a split in terms of how they’re performing. Which of the four is most attractive to you at these levels right now?

Dave Ellison I think right now, if I look look at the big four, I think I think Citigroup has the most upside because they have the most to get better. They’re the they’re suboptimal on return on equity and assets. And that will improve. And that’s their goal obviously. JP Morgan is just you know, best in class. So you sort of have to own that because they’re doing everything right.

Dave Ellison And the other two are kind of in the middle. So I think you’re you know I think Citi has the best upside based on valuation.

Caroline Woods Would you say bank stocks overall are a buy here. Or can banks be healthy and their stocks maybe just aren’t attractive?

Dave Ellison Well, I think you that’s a good point I think. And that can happen. And it has happened in this sector before because it just doesn’t grow fast enough to compete with what’s happening in the rest of the economy. But generally, what it’s telling you is that the rest of the economy is in good shape, that we don’t have the nonperformance, that we have loan growth, that we have liquidity to support the growth of the rest of the economy, that we that is really more important.

Caroline Woods We’ve seen stocks continue to rise, not necessarily financial stocks. They took a bit of a breather in September. But you know the overall market thanks to tech rise despite a whole bunch of headwinds whether it be rising rates, oil geopolitical concerns midterm elections coming up. Does that concern you at all? Do you think the market is getting ahead of itself, or do you think this is a market that can power higher?

Dave Ellison Well, I think that, you know, as I said, a long time, the only problem with the market is the price, because earnings are fine. There’s plenty of access to capital, there’s plenty of new ideas, there’s plenty of new companies that are trying to change the narrative around how the world works. And that’s AI, that space, all these kind of things.

Dave Ellison So there’s plenty of that. The questions people are worried about the price. And my view is that, you know, that’s somebody’s opinion, not fact. But at the end of the day, there’s enough earnings, I think, in the system to keep keep the market from going down in any big way. So you sort of have to continue to play the game.

Caroline Woods So continue to play the games. Mean game means you continue putting money to work at these prices.

Dave Ellison I would, I would think so. I think there’s enough profit. And again, I think the banks are telling you that the economy is strong enough to support the earnings, which then will, you know, keep the yen. I think stocks will rise as earnings rise. That’s historic is what’s happened. And earnings are good right now. And I don’t see any reason why that’s going to stop.

Dave Ellison So again bull markets can be very challenging. It’s not it’s not fun to be chasing something you know and always trying to figure out what’s happening. So there’s a lot of stuff happening in the economy now whether it be AI or fintech or whatever. And it’s just confusing to people. And so it’s it’s, it’s you’re making money, but it’s not fun.

Caroline Woods So where would you be most confident putting money to work to make more money? What areas of the market look most attractive to you right now?

Dave Ellison You know, I think I think that’s hard to know. I think you you because again stocks you know, you may be in a great industry. The stocks just don’t work this year. They don’t work next year. So you got to say to yourself which companies are trying to get better. Which companies have a lot to get better? Which companies are innovating.

Dave Ellison Which companies are investing? So my view too is that if I, if JP Morgan came out next week and said, you know what, we’re not going to make any money next year because we’re going to take all of that profit and invest it in the business for the long term. But the stock go up or down, in my view, if you look at what Amazon did the last 30 years, that worked out pretty good.

Dave Ellison They invested all that money. And you look at some of these other companies that they’re investing a ton of money in their business to try to be competitive and stay competitive and stay ahead. That’s what you want. I think that’s what you’re seeing in the economy now. That’s why Wall Street is so strong, because people are looking to borrow money or raise capital to invest.

Dave Ellison And that’s why you look at the Max seven. They’ve gone from having all this cash to now people are worried about cash flow. Well they’re investing the money finally.

Caroline Woods

Dave Ellison After all these years they’re saying yeah I’ve got $100 billion in cash. Why don’t I spend it on new products and services. And so that’s why the economy is as strong as it is.

Caroline Woods So which names do you like.

Dave Ellison Well I think, you know, the bigger banks make sense to me. I think, you know, the, the, you know, the, the large tech companies, they’re investing and I think that’s that’s where you want to invest. You want to invest where the companies are investing. If they’re worried about profits and worried about making the Wall Street number, that’s not I don’t think, what you want.

Dave Ellison It’s never really work for long term either. The guys that chase profits and chase escalating area, well, we’ve had 510 years of up earnings. I don’t really care. What are you investing in. That’s why you look at know look at JP Morgan. What are you investing your your all your profits in. Are you paying all you’re paying dividends and doing stock buybacks.

Dave Ellison That doesn’t help grow the company. It just helps existing shareholders. So what I want is companies. We’re investing in AI. We’re investing in cybersecurity. We’re investing in new branches. We’re investing in deposit gathering systems. We’re investing in loan making systems. That’s what you want to hear. So those are the companies that I gravitate toward. And luckily a lot of companies are doing that now.

Caroline Woods So what I’m hearing is you like tech stocks. You like financial stocks. What areas of the market are you avoiding other than, you know, people who aren’t making a compelling case for investing?

Dave Ellison I, I don’t I don’t really I’m not sort of, you know, I’m a I’m a cautious bear, so I’m not really I’m, you know, I’m a cautious bull. I don’t necessarily think of what can what’s wrong. Right. You know, so I sit there and say, well, what’s what’s not a buy. And then of course the next year they do something spectacular, you know.

Dave Ellison So I think that, you know, where there’s a lot of competition and the companies aren’t investing. That’s when you want to stay out of that. So it’s a I think companies if most companies can do well, if they just pay attention to what’s happening. And so when you talk to managements like, are you really paying attention? You’re just worried about like me making money, me making a dividend, me making money on the stock buyback.

Dave Ellison That’s why Wall Street loves buybacks. That’s how they make money. That’s why they promote it.

Caroline Woods So I’m a retail investor listening to what you’re saying though. And I’m saying okay, so what’s the takeaway for me. What is it. What should they be doing at this juncture? I.

Dave Ellison I, I think a well thought out group of companies makes sense. You’re not going to necessarily double or triple your money, but that’s that’s luck in some degree because the timing is right. But I think that you’ve got to look at America as being the place where the investment is happening. The access to capital is happening and the momentum is there.

Dave Ellison And I think to be bearish is difficult because there’s so many good things happening even outside of this room. This is not where America is. It’s out. It’s outside, and outside is pretty good.

Caroline Woods Speaking of bearish, I don’t know if you saw, but Paul Tudor Jones was on CNBC this morning. He says 2027 will be a very challenging year for stocks and plans to be short all year. What’s your view on that.

Dave Ellison Well you know I he he’s you know probably a lot smarter than I am. And so that’s that you’ll give that is sort of a starting thing. And he’s looked he’s obviously looked at. He wouldn’t be saying that if he didn’t like do some research around it. But the end of the day he’s it sounds like he’s calling price.

Dave Ellison He says the problem with the market is the price, not the market. Right.

Caroline Woods Yeah. He did say well are you sure that you’re, there’s just very little of value. So.

Dave Ellison Right, right. But I think, I think that’s, that’s fine. But again if you had been able to hang on to your house in 2010 or 2008 and not get foreclosed on, you’d be fine today.

Caroline Woods Well, he actually was comparing the eye investment boom to the.com bubble. Do you think that’s a fair comparison?

Dave Ellison I, I think the, the companies that are borrowing the money that are raising the capital are a much stronger set of companies with much higher profitability. And I think they’re also smarter. They they’re, they’re they’re better managed and they have an understanding of what they’re trying to do. So and it’s amazing I mean, there’s a tremendous amount of caution out there.

Dave Ellison Everybody’s worried about it. I everybody’s worried about the price of the stock market is we’re about rising rates. They’re worried about the federal deficit. Right. This is this is wall to worry. Right. So that to me is good because that means the banks you know, the banks are worried about all this stuff. And Jay and Jamie Diamond would say that, you know, in spades.

Dave Ellison Like we got we’re we’re all right.

Caroline Woods Yeah.

Dave Ellison But that’s what banks should do. That’s what their job is to worry and not make that big mistake. So the fact that they’re concerned about all these things is actually bullish not bearish, because they’re actually thinking about what can go wrong.

Caroline Woods You raised an interesting comparison in your notes though about anthropic and OpenAI being the subprime mortgages of 2006. So are you suggesting that the companies could trigger the next financial crisis? Are you looking at this? Oh, my bubble burst.

Dave Ellison Well, I think the issue is you, those companies, as I say, you sort of gone from, you know, the mag seven to the Hail Marys. Right. And you but you need those companies to be successful because you’ve got all of this, this debt and these, these, you know, unilateral payments around this Ferris wheel that are going on. And I don’t think anybody really understands the full extent of it.

Dave Ellison We all think we do. But it’s like it just sounds complicated. Right. And nobody likes complicated stuff. Right? That’s what messes you up when it gets complicated, especially in the financial markets. And we saw that in 2008. You got way too complicated too quick. And it’s like it blew up on us. So but I think here if they’re successful they’re able to generate the revenues and therefore generate the cash flow to pay those, pay for those deals, pay for the debt, then we’re fine.

Dave Ellison But if they fall back, then that whole sort of Ferris wheel kind of like start to get start to get clunky.

Caroline Woods So we have anthropic potentially in November, OpenAI probably not until next year. Is this kind of a wait and see approach.

Dave Ellison See. Right. Well, that’s why the market reacted when anthropic came out and said their revenues were lower. Remember it was 70 to 50. It’s like, well that’s a big you know, that’s like whoa whoa whoa. And then of course it turned out it wasn’t the case. So I’m not really sure. I haven’t looked up that lately, but but if anthropic gets into trouble and they don’t generate the revenues or OpenAI or even SpaceX, for example, because they need tons of capital, you know, it’s going to be a problem for the market.

Dave Ellison So we should be cheering on these companies to to be successful.

Caroline Woods If the AI trade stumbles, can the overall market still hold up?

Dave Ellison It may not, but it’s not going to. I don’t think it’s going to affect the economy that much. I think there’s enough else going on in the world. And these companies aren’t, they’re not going to go away.

Caroline Woods

Dave Ellison Right. You know I think what was the big story Amazon went up and they went down 90% and came back. So it’s not like these companies are going to disappear. It’s like you can’t make money every day in the stock market. You got to sort it. There’s got to be a period of sort of digestion and and understanding.

Dave Ellison But right now I think the market is because profits are so good. It’s just hard for the market to go down.

Caroline Woods The S&P 500 bull market turned four yesterday. Do you think that it turns five.

Dave Ellison And be at the well again if profits hold up it probably will. I’m not saying the market’s going to go up 30% or 40% next year. But again it’s you know, profits are everything. And that’s what has been the case for the history of the market. And that that requires investment. It requires growth. And I think that we’re in a pretty significant investment cycle in the entire economy.

Dave Ellison Is everybody sort of just jumping on board? They’re saying, well, if you’re doing it, I’m going to do it because I don’t want to fall behind. And I think there’s enough money available on Wall Street that they can fund it, or they can raise equity or raise debt.

Caroline Woods So if you were my portfolio manager thinking a little bit shorter term, how would you have me positioned into a year end?

Dave Ellison I would I guess I would make sure that year over year you can sleep at night, you know, because there’s you’re going to get your your risk, your risk and fear level down to the point where you don’t care what happens because you longer term you’re okay. So I think that’s what I would say. If you’re nervous about what you own and you’re worried about losing money because this guy is right and this is going to be tough, then sell something and get to a point where you don’t care where you can say, look, I’m okay losing 10 or 20% on my way to getting a double in a couple in 3 or 4

Dave Ellison years.

Caroline Woods What if I’m just exposed to the S&P 500? I’m concerned. Okay. Is that too much tech exposure? Some are saying that I shouldn’t be that exposed to tech given how far it’s run. Should I be making a move into year end?

Dave Ellison Not necessarily. I think again, the S&P 500 is 500 companies now. Yes, it’s weighted with the market cap at the upper end. But if you’ve got 500 names in there and if you believe, you know, the economy is generally getting better and they can use AI to get more profitable or other things, then then you stay with it.

Dave Ellison But again, it’s your level of comfort. If you’re nervous, get below that nervous threshold and you’ll be fine.

Caroline Woods So if I gave you $10,000 today and said I’m willing to be risky, what’s the first thing you’d buy?

Dave Ellison Well, I think I buy the S&P 500. I take, you know, 50% of it put there put 20% in cash is that gives me a cushion and that’s me. I mean, that’s personally how I do it because I like to be able to say, you know, if something gets beat up, I’m willing to buy, but I don’t want to sell something to buy something.

Dave Ellison And the rest I would, you know, buy some individual stocks that I think.

Caroline Woods Are I want to know those individual stocks. Give me a few I.

Dave Ellison Think I think we’ve mentioned Citicorp.

Caroline Woods Yeah.

Dave Ellison We’ve mentioned JP Morgan.

Caroline Woods What about on the tech front. Memory stocks are getting beat up right now. Would you buy any of those dips?

Dave Ellison I think well you know, I think the memory stocks are fine. It’s just a matter of the market just is worrying about you. The other thing, too, is I think that there are companies that have a tremendous amount of excess profits now. And the question is what are they doing with them now we talking about investing. But if you look at Amazon, for example, you know, they went from selling books at a loss, trying to make it up on volume to being the largest cloud provider in the in the world.

Dave Ellison So the company took those profits that it eventually had and continue to move the company forward in the directions that they felt right. And they bought, you know, the the grocery store and all this stuff. Right? So the point being is that if you look at a micron, for example, they’re they’re spending a ton of money. I mean, they’re making a ton of money.

Dave Ellison The question is, what are they doing with that? They’re just going to buy back stock and pay a dividend. That doesn’t help me.

Caroline Woods Okay. So you wouldn’t buy micron would you buy Amazon.

Dave Ellison Well Amazon I think is a perfect example. They’re making a lot of profits there. They potentially could benefit mightily from AI and robotics because they have they’re moving a lot of stuff around. And then you look at Nvidia where they’ve they’ve they were a chip company and now they’ve invested in all these other businesses and they’re trying to vertically integrate and all these different ways.

Dave Ellison And so they’re basically it’s happening a lot faster than Amazon did it because the profits are so much higher. So if the company is just sitting there saying, I’m going to make this and that’s what I’m going to do, and they’re not going to try to move the company in a vertically or horizontal position in terms of trying to expand their business.

Dave Ellison That’s what that’s what. That’s why Amazon can be a, you know, a 20 year bull market stock because they went from A to B to C to D to eat up. And they’re going to continue to grow. They’re going to continue to to do that because that’s in the management as opposed to other companies. Just sit and do the same thing over and over again.

Caroline Woods Okay. All right. I think it’s a great time to pivot for our rapid fire this or that. Quick questions, quick answers. No hedging. Be ready.

Dave Ellison Okay.

Caroline Woods Stocks by year end higher or lower.

Dave Ellison A higher.

Caroline Woods Bull markets fifth birthday. Likely or unlikely?

Dave Ellison Likely. But the returns may be muted. Muted means we’re not going to go at 50%.

Caroline Woods Could we go up 10%?

Dave Ellison Probably. Yeah okay.

Caroline Woods Bank stocks or tech stocks for the next 12 months.

Dave Ellison I think tech stocks.

Caroline Woods AI infrastructure, AI software.

Dave Ellison Infrastructure.

Caroline Woods Memory cell up healthy shakeout or warning sign.

Dave Ellison I think it’s, shakeout.

Caroline Woods One memory stock you’d buy on a dip.

Dave Ellison I don’t know one well enough to pick one.

Caroline Woods Name ASML or TSMC ahead of earnings this week.

Dave Ellison I’m not sure.

Caroline Woods Nvidia or Amazon.

Dave Ellison Amazon.

Caroline Woods JPMorgan or Goldman Sachs.

Dave Ellison JP Morgan.

Caroline Woods City or Wells Fargo.

Dave Ellison City.

Caroline Woods Big banks or regionals from here.

Dave Ellison I think the bigger banks.

Caroline Woods Bigger threat to stocks, inflation or rising yields.

Dave Ellison Inflation.

Caroline Woods Ten year Treasury 6% or 4% first.

Dave Ellison Oh, say 6%.

Caroline Woods I trade more upside or downside risk from here.

Dave Ellison Downside risk, depending on what happens with the two big things, the OpenAI and anthropic.

Caroline Woods True or false. The next 20% market downturn will be triggered by AI.

Dave Ellison I don’t think so. Yeah. So there’s something else out there. People are too afraid of AI. There’s too much negativity around AI to have that be the reason it’s going to be something else.

Caroline Woods Next market correction, buying opportunity or start of something worse.

Dave Ellison Well, it’s always always depends why the market goes down. But I would I would think it would be a buying opportunity.

Caroline Woods Midterms market mover or just noise.

Dave Ellison It’s noise now. It will be noise.

Caroline Woods Then finish these sentences. The most valuable magnificent seven stock is

Dave Ellison Probably Apple.

Caroline Woods The most overlooked opportunity outside of AI is.

Dave Ellison Defense related spending.

Caroline Woods The biggest risk to this bull market that investors are ignoring is.

Dave Ellison Ignoring.

Caroline Woods Or just the biggest risk to this bull market is.

Dave Ellison The biggest risk is the the fed. The fed decides to do something extreme.

Caroline Woods Like hike many times.

Dave Ellison Hike many times, or lower, or do something that they don’t telegraph enough in. The market gets surprised by.

Caroline Woods The first sign this bull market is in real trouble will be.

Dave Ellison When you start getting redemptions, out of the index funds. Because if your value in different on the way up, you’re going to be value in price and different on the way down.

Caroline Woods If I could only buy one stock for 2027, it would be.

Dave Ellison I’d probably say Amazon. Still surprisingly.

Caroline Woods All right. We’ll leave it there. Thanks so much for playing along and for all your insights. That’s Dave Ellison, portfolio manager at Hennessy Funds. If you enjoyed this street talk, check out our full interview with Adam Turnquist He has an S&P 8000 price target by year end, and breaks down the charts that are most compelling to him at these levels.

Caroline Woods Joining us to kick off the week is Adam Turnquist chief cross asset strategist at LPL financial. Adam welcome back. Great to have you.

Adam Turnquist Hey, Caroline. Great to be here. Thanks for having me.

Caroline Woods All right. So Adam, the S&P 500 bull market officially turns four years old today. So happy birthday to the bull market. We’re seeing basically flat S&P right now but trading above 7800. Is this a breakout investors should trust. I know you look at the charts.

Adam Turnquist Right now we’re holding 7800. So that’s an important line in the sand technically. And now we’re really watching. Are we going to get that breadth expansion. We’ve talked a lot about the narrow breadth to new highs. And that’s not atypical of what we’ve seen in this bull market. The mega caps tend to lead at these major inflection points.

Adam Turnquist Whether that 7800, the 7000 point milestone, the March lows, the list goes on and on. But what we have seen in the playbook of this bull market is a rotation after we get through those levels. So that’s what we’re really watching for. Now if we get that broadening theme to play out.

Caroline Woods Does that narrow breadth flow concern you, or have we learned at this point that this market doesn’t need broad participation to keep going higher?

Adam Turnquist We think of it more as a warning sign of structural weakness, the foundation a little less sturdy than if you had strong breadth. But I think context is key here. And if you look back over the last four years, we’re talking about the celebration of the the bull market Sprint Day here. We’ve really had a lot of narrow breadth moments in the market.

Adam Turnquist When you look at, for example, the percentage of stocks outperforming the index on a 12 month basis, it’s been below 50% throughout this bull market. And it really is an outlier when you look at the data set over the last 20 years. So it hasn’t stopped this bull market. The fact that we have narrow breadth, and I think it just speaks to the mega cap leadership, but also structural changes that have played out really since 2022.

Adam Turnquist We’ve had the proliferation of AI, the big AI CapEx cycle continuing to grow, but we’ve also had a massive inflow of passive ETFs. We’ve had a lot of buyback activities, and that’s really feeding. I think the concentration risk that we’ve seen in the market over the last four years.

Caroline Woods So what do you think? Where do we go from here? What level is next?

Adam Turnquist I think the path of least resistance remains higher for the market when you measure the consolidation range. We’ve been in for the last couple of months, and you take that size of the consolidation, you apply it to the breakout point, the measure and move. There’s about 8000. So that’s the target that we’re looking at technically on the S&P 500.

Adam Turnquist We’re coming into earnings season. Obviously it could be a big catalyst for whether it’s the banks that kick off earnings tomorrow. Obviously we’re going to look at the big tech trade and and see where the CapEx demand is in terms of AI. So I do think we’re setting up here for a potential new like higher for the S&P 500.

Caroline Woods And the S&P 8000 price target is because tech continues to lead, or because you think we will eventually see a broadening out again.

Adam Turnquist I think we will see an eventual broadening out. The caveat there. What are interest rates doing. What are was oil doing. We do think on a near term basis here, when you look at the move in, for example, the ten year a bit parabolic on a short term basis, we got very overbought into a major resistance level that goes back to the 2006 2007 highs.

Adam Turnquist I think sentiment positioning or at contrarian levels of some stability and interest rates will be key for that broadening theme. And then of course, stability in oil markets. We haven’t really seen a whole lot of over the last few weeks.

Caroline Woods Okay. You mentioned oil and rates. Bond market of course closed today. But oil U.S. crude trading just below $94 a barrel. Is there a level where yields or oil would make you less bullish and say, you know what, we’ve probably seen the highs at this point.

Adam Turnquist So when we look at Brant we’ll look at the world’s benchmark for oil above 102. That’s the summer highs. And we’re holding above that level. That does introduce upside risk to the spring highs kind of in the 115 to 125 range. I think if we break above those levels that would be a a pretty big risk for global equity markets.

Adam Turnquist Obviously the US as well. And I think that would just play into a higher for longer rate regime. So that would be the risk to the market if we get back to those levels and break out. But for now, we’ve had a slight slowdown in some of the crack spreads. If you look at whether it’s Brant or here in the US, WTI spreads fading a little bit.

Adam Turnquist Still very elevated. But some of the tightness not as pronounced is what we witnessed earlier this year.

Caroline Woods What areas of the market are you expecting to lead this market higher into year end?

Adam Turnquist Right now you look at the big seven complex and it’s been an underperformers almost all year. We’ve had a notable trend reversal in relative strength in the Meg seven rallying to new highs. I think the leadership baton has been passed to the Meg seven. And then that’s played out in the tech sector as well. We’ve had tech breaking out to new highs against the broader market.

Adam Turnquist Even when you equal weighted. So you take the average tech stock, you stack it up against the average S&P stock. And we’re at new highs. So to me that’s telling us that’s where leadership is going to be. We do think there will be an eventual broadening theme here. But look for basically large cap big tech the Meg seven to leave this market.

Adam Turnquist If we’re going to get to that 8000 point milestone.

Caroline Woods In, what is it in the charts that tell you Big tech is back in control?

Adam Turnquist I think it’s really a broadening out in the tech sector. It is the eye names, the mega caps that have done a lot of the heavy lifting. But when you look at the breadth in the tech sector, it’s very broad. One of the best sectors in terms of how many stocks are registering new for weakness or above their 200 day moving average.

Adam Turnquist I mentioned earlier the average tech stock breaking out against the average S&P stocks. So yes, it’s a handful of names that have really done a lot of the the heavy lifting off the July lows. But it’s broader than just the Nvidia’s of the world or the Microsofts of the world. And I think the fact that we’re breaking out to new highs holding these levels is a pretty constructive setup for the sector.

Caroline Woods Yet Microsoft is actually your chart to watch. Walk me through what you’re seeing there and what levels matter for Microsoft right now.

Adam Turnquist Right. It’s been a wild ride for Microsoft shareholders. If you could flashback to Q1, we had the AI disruption fears that we’re going to vibe code or wave away from from the enterprise software playbook. And we’ve had a big rebound off a double bottom in Microsoft. We’re getting close to the prior highs around 5050. I think that’s going to be the big level to watch for.

Adam Turnquist Microsoft can break out and clear that resistance at 550, I think. And the fundamental side, it’s going to be all about Azure growth. They’re going to hit their 45% target in terms of growth. The copilot seats are another one to watch. They’ve been expanding the the number of seats paid seats in their copilot package I think 30 million last quarter, up from 20 million.

Adam Turnquist I think those are going to be two key data points to watch on the fundamentals outside of just the charts here.

Caroline Woods I meanwhile, Nvidia just tried to break out above their breakout to a new high and then reversed course. It’s now 7% away from that high. Does that chart were you or is that just noise within the larger tech up trends?

Adam Turnquist It’s pretty classic where you breakout. We call it a cup with handle formation. Not to get too technical on the show, but we did breakout above that resistance level around 235 on a short term basis. I think we got a little bit overbought. And Nvidia, we’re now pulling back to near support levels around that 235 level. So that’s one we’re watching.

Adam Turnquist But another one that’s close to breaking out against the S&P 500. We talk a lot about Nvidia and rightfully so when you think about its importance of the eye trade. But it hasn’t really done anything for the last year especially on a relative basis. But we’re very close to new highs. If you stack up Nvidia versus the S&P 500, I think if we see a breakout there, a pretty constructive setup, not only for the stock, but for the semiconductor trade, for the tech sector and of course, the broader market.

Adam Turnquist When you think about the weighting that it carries.

Caroline Woods And if we don’t see that, how vulnerable is this whole market really, then.

Adam Turnquist I think it would more, more or less play out in a consolidation phase. We’ve seen that time and time again for Nvidia. Things get investors get excited. We break out and then consolidate. We’ve consolidated more than we’ve trended. Long term trend is still higher for Nvidia. So I would lean that way. That’s what the technicals would tell us about shares.

Adam Turnquist So I don’t think we’re the technicals are not saying that we’re going to break down here. Maybe just more consolidation phase before the next move higher.

Caroline Woods Okay. It’s funny you said you don’t want to get too technical. I did have a viewer I believe his name was Tamar Thomas, who had actually said he would love to see an episode to learn how you use movement or, you know, one of our guests, uses momentum strategy, how professionals use relative strength, moving averages, position sizing and risk management in real world portfolios.

Caroline Woods Because you do pay such close attention to the charts and momentum. Do you have any insights for our viewer who wants to learn a little bit more on that front?

Adam Turnquist Certainly, I would plug the the CMT organization to get familiar with the technicals and think of it as a weight of the evidence. I think you have to look at various insight into what the price action is telling you, not just momentum, but things like market breath. We’ll get the outperformance in the relative trend. And then of course, the macro environment, you have to put the puzzle pieces together.

Adam Turnquist What are interest rates telling us. What is the fed going to do. Oil. All of those pieces really go into the mosaic of making a decision in a market call. So I think looking broad beyond just a simple momentum indicator. That would be my suggestion.

Caroline Woods Okay. All right. Let’s switch gears and talk about banks. Because as you mentioned big bank earnings kicks off this week. Financials have fallen quite a bit from the highs so far. We’ve had a they’ve had a good October up about 3% this month. But down pretty sharply from earlier highs. Is this a sector that’s setting up for a rebound post earnings do you think or does that weakness tell us something bigger about the market.

Adam Turnquist The broader financial sector has just pulled back from a little bit of overbought levels. And you look at the bank specifically and it’s the same case. They’ve underperformed the S&P here. They’re not part of the eye trade. And I think it’s a low bar coming in earnings for the banks. We’ll get a bunch of big banks reporting tomorrow.

Adam Turnquist I think it’s going to be interesting to see what they have to say obviously about the consumer loan loss provisions, investment banking revenues, trading all of the usual check points for earnings season. But I do think the setup here, when price action is a bit oversold at a key support level, you look at the 200 day moving average for a lot of the banks, and most are holding above that level.

Adam Turnquist I do think we could have a little bit of a bounce here or a relief rally off the support level.

Caroline Woods And you’re watching Citigroup specifically. What makes that chart interesting going into earnings.

Adam Turnquist So if you pull up a chart of Citigroup, it’s bounced twice off its rising 200 day moving average, the longer term trend very much up into the right. And that 200 day moving averages acted as support before on similar pullbacks. I do think the fact that it’s holding and buyers are stepping in, they’re a constructive signal. And we’re starting to see on a near term basis some of the momentum indicators that we watch turn higher.

Adam Turnquist So that is pointing to a potential relief rally here off support. Obviously the catalysts or the fundamental catalysts may be setting up tomorrow. And again, I think it’s a pretty low bar when shares have sold off pretty considerably, especially on a relative basis here over the last few weeks.

Caroline Woods Given that it’s a low bar, relatively low bar if the banks can’t rally on earnings, is that a warning sign for the rest of the market?

Adam Turnquist I do think it is a warning sign, and I think that would push back against our thesis. We’re going to get a broadening theme if the banks don’t deliver and we get disappointing results, especially if we talk about higher loan loss provisions, underwhelming loan demand, things like that. I think that’s going to play out into a bit of, a risk off tone.

Adam Turnquist Certainly the banks set the tone for earnings season, and I think that would be, again, a warning sign for the broader market in general, and that we might not see this cyclical rotation with the S&P sitting here at or basically near record highs.

Caroline Woods All right. Let’s talk about, what investors should do from here. We had a guest on last week, Art Hogan, who told us the new highs are the best time to buy. He’s obviously bullish. I think his price target was 8000 for the S&P by year end as well. Do you agree that new highs are the best time to buy?

Adam Turnquist I’m going to quote Richard Driehaus and a famous hedge fund investor. Momentum. Momentum. No momentum investors talking about that and his his famous quote was buy high, sell higher. And that’s really what momentum is in when you have good momentum in the market. As we know momentum begets momentum. So I don’t I’m not scared of a market breaking out to new highs.

Adam Turnquist I do think that again, the path of least resistance for the S&P remains higher. And especially you look at positioning in the market, whether it’s retail or the hedge fund community. We’re at much cleaner levels than we were earlier this year. So there’s capacity for additional buying. We have seasonal strength in Q4, especially during mid to Ramirez. It tends to be a very strong quarter and we’ll get midterms coming up here in about a month.

Adam Turnquist I think that will remove some of the uncertainty in the market and open up the door for maybe a fear of missing out type of rally into year end.

Caroline Woods So which breakouts are you comfortable buying and which areas of the market would you wait for a pullback at this point?

Adam Turnquist I think the tech sector maybe checks the box for wait for a little bit of a pullback here. Where am I conductor’s down today at least a couple percent a little bit overbought on a short term basis when you look at some of the internals. But certainly, a constructive setup if we’re being tactical and you have the flexibility for timing, I think waiting for a little bit of a pullback there and buying at buying at the prior breakout level in the tech sector makes sense.

Adam Turnquist I think some of the other ones, the financials going back to the bank earnings look like a pullback opportunity. Again holding support a little bit oversold on a short term basis with catalysts coming up here. Are there any teas.

Caroline Woods And if we do get a pullback I know a lot of people have been waiting for a better entry point in time in the market. But you know, they they would like to get in a little bit lower of levels. What kind of pullback would you consider healthy and what kind would tell you okay. This is something more serious.

Caroline Woods Maybe it’s time to reconsider where this market’s going.

Adam Turnquist So on the S&P 500 I think a healthy pullback called 7600. That marks the spot where the S&P broke out back in August. I think if we can hold that level that would be a buying opportunity for broader U.S. equities. If we start breaking below that level, I’d be a little bit more concerned of a deeper pullback and really to to throw the towel in on the bull market, you have to look at the 200 day moving average on the S&P 500.

Adam Turnquist If we start breaking below that level, that would be much more concerning.

Caroline Woods What’s the one chart every investor should be watching right now?

Adam Turnquist I think it’s probably Nvidia to be honest. The elephant in the room, the largest sector or the largest weight in the S&P, the largest weight in the tech sector. And the fact that we’re near record high territory, certainly an important one to watch if we can continue to move higher, hold above 235, I think is a good sign for again, the stock in the broader market.

Caroline Woods So Nvidia is currently at 225. So that’s not necessarily the warning signal. Yeah I guess at what point would you start to get concerned about Nvidia?

Adam Turnquist I think if we started breaking below call it 200 on Nvidia, that would be a little bit more of a warning sign and kind of end to that range thesis that I mentioned earlier. That would be, I think more of a risk off tone.

Caroline Woods Okay. All right. I think this is a great time to pivot to a rapid fire game of this or that you’ve played before. Quick questions, quick answers. No hedging. Are you ready, Adam?

Adam Turnquist I’m ready.

Caroline Woods S&P 500 bull market ending at year four or going on to year five.

Adam Turnquist Going on on strong fundamentals and strong momentum.

Caroline Woods S&P 8000 before year end or not happening.

Adam Turnquist Before year end.

Caroline Woods New highs. Buy the breakout or wait for a pullback.

Adam Turnquist I think you buy the breakout.

Caroline Woods Market breath warning sign are overrated.

Adam Turnquist Warning sign but not a sell signal.

Caroline Woods Mega cap tech or the rest of the market.

Adam Turnquist Mega cap tech. That’s what the technicals are telling us.

Caroline Woods Ten year yield higher or lower by year end.

Adam Turnquist Higher.

Caroline Woods Bigger. Threat to stocks $110 oil or 6% on the ten year.

Adam Turnquist 6% on the ten year.

Caroline Woods Tech after a 20% rally. More room to run or do for a reset.

Adam Turnquist I think there’s more room to run.

Caroline Woods Banks into earnings, buy the weakness or stay away.

Adam Turnquist I think it’s time to buy the dip here.

Caroline Woods Bitcoin from here. Higher or lower?

Adam Turnquist Higher. Breaking out from a bottom down. Trends reversed. Looks like there’s more upside.

Caroline Woods How much higher.

Adam Turnquist I think maybe back to call it 90 to 100,000 on a near term basis.

Caroline Woods Okay. One word to describe this market.

Adam Turnquist Resilient easy one.

Caroline Woods Finish these sentences. The one thing that could derail this rally is.

Adam Turnquist Interest rate volatility.

Caroline Woods The level on the ten year that would make you worried is.

Adam Turnquist Above 530 to.

Caroline Woods The chart. That makes me most bullish right now is.

Adam Turnquist I think the tech sector.

Caroline Woods The chart that worries me most right now is.

Adam Turnquist Probably consumer discretionary.

Caroline Woods I will turn bearish on this market if the S&P 500 breaks.

Adam Turnquist I think the 200 day moving average at 7255.

Caroline Woods All right. We’ll leave it there Adam Turnquist Chief Cross Asset strategist, LPL financial. Thank you so much.

Adam Turnquist All right. Thanks for having me.

Caroline Woods If you enjoyed this street talk check out our full interview with Ben Emons. He says rates could go as high as 6 to 7%, but remains bullish on multiple areas of the market. Check it out.

Writing

Caroline Woods: Joining me to wrap up the week is Ben Emons, CEO of Fed Watch Advisors. Ben, welcome back to the desk.

Ben Emons: Thank you Caroline. It’s great to be here.

Caroline Woods: All right. So stocks on pace for a mostly higher week. The Russell is the only laggard so far this week. But I want to kick things off by talking about treasury yields because we’ve of course been keeping a close eye on the ten year yield. And you actually say investors may be underestimating how high they can go. I see 6 to 7%.

Caroline Woods: And your notes how realistic is that.

Ben Emons: It’s realistic because one the economy is strong and doesn’t seem to be weakening, even though we’re going high energy prices and rising interest rates. And then secondly, we do have inflation that’s building. You know, you can tell from the energy markets that there’s disruption that may be coming through more going into the winter season when things already get tied in terms of gas supplies and that sort of thing.

Ben Emons: Inflation probably is going to go up a bit more and the fed will respond to that with higher rates. So that’s I think the the reason why yields are going higher. But it’s a good scenario. Yes Lewis. We’re getting an orderly rate rise and even rate rise based on a strong economy. Then even though there’s inflation stock market could go higher which you know stocks are good.

Ben Emons: That’s true.

Caroline Woods: Of it is 6 to 7% yields a good situation.

Ben Emons: While is good in terms of fat. It’s reflecting where the economy is right now which is a strong economy. That’s not how it should be. You know, we should have yields to sort of 5% where the nominal GDP the economy is. If it were much higher the way the economy is, that would cause a lot of pressure. So that’s the good news.

Ben Emons: Inflation is a different story. You know it’s hard to see how high it will go, but that depends on how the fed will react to it. That’s a part of it where yields going higher may not be as positive as these for markets. But as I said stocks are the best hedge for inflation. I particularly think if you want to invest in the markets, think of oil stocks, think of companies are involved in the energy play.

Ben Emons: That’s probably your best bet that yeah.

Caroline Woods: No, I was taking a look at your notes and you say that the next big winners are oil refiners could actually outpace the gains that we’re seeing from eye stocks. So oil refiners are the next big winners to focus on here.

Ben Emons: I think so because if you think like a Phillips 66, Valero or Marathon Oil, these are far smaller companies. There’s a market cap than a micron or Nvidia or any of those. But they could expand towards that level because refining is now such a important thing to control the energy prices in our in our economy. I don’t know if we can refine it to get a lot of higher gas prices.

Ben Emons: So they’re getting a lot of margin from this oil price increase to the profits are ballooning. So I think it’s a it’s a it’s a grain of truth. And if you look at where refiners are trading towards AI names or tech names, the difference between the two is so enormous already. And I think the mark is discounting that refines will get more premium.

Ben Emons: Take on more leadership on this one question.

Caroline Woods: What level does oil have to be to continue your bullishness in the refining space though?

Ben Emons: So it definitely has to stay where we are now, albeit higher.

Caroline Woods: 90 or higher.

Ben Emons: 90 or higher. Now if we go back to 60 then sure. And you know the picture could change. That doesn’t seem likely. We’re going to go back to 60 because we just don’t have enough capacity to meet all this demand.

Caroline Woods: Would you take money out of eye stocks right now and put it into energy, or do both trades work?

Ben Emons: Both trades work? I think if you want to take money out of something, I would say take it out of balance and put it into the energy stocks. I think that’s a better hedge against inflation then then low maturity bonds that are, you know, you want to sell. Right. So but in those shows about I think of the cyclical part of the markets, I think bullish on consumer discretionary because if the fed us to job phrase and guess that inflation and control over time consumers will benefit.

Ben Emons: But in the interim we’re dealing with the situation as we are now. So I think taking money out of, say, staples, taking money out of healthcare and putting it into energy, probably a good play.

Caroline Woods: You know, you tried to explain this to me the last time you were on how higher rates translates into a stronger consumer, and I still can’t really wrap my head around it because I would look at higher borrowing costs is a bad thing for the consumer. Higher oil prices as a headwind for the consumer make the case. Why are higher rates good for the consumer?

Ben Emons: So one thing we can already tell us that consumers have continued to spend, even though we’ve got high gas prices and even though we got higher rates, and that’s I think because consumers are not deterred by deaths itself. No, they discount that costs and have maybe made changes in their budget to continue to spend all everything they want to spend on despite all the rising costs.

Ben Emons: But higher interest rates are a really good tool to get inflation down over time. When that happens, the consumer will only benefit their their income, adjusted for inflation, will only go up. That’s that’s the reason.

Caroline Woods: Why will there be short term pain before though. And how would that play out.

Ben Emons: I think the pain right now is just the gas prices. I mean, that is I think, a bite out of every consumer’s budgets. Currently there’s interest rates. Depends, right? If you have your mortgage locked in from a few years ago, it doesn’t actually matter. Your credit card interest is not linked to necessarily is what happens to Treasury yields.

Ben Emons: So I think the interest rate part of it is probably not so much of a negative, but the pain is from gas prices.

Caroline Woods: Why aren’t we seeing consumer discretionary stocks do well right now.

Ben Emons: Them true I can I think that I am maybe in the majority in the minority. But I think people looking at that, the earnings growth of these companies has been limited by these higher costs that are out there, including the the the retailers and the consumer discretionary companies themselves. The face these higher cost of transports in terms of like warehousing and that sort of thing.

Ben Emons: But ultimately the consumer drives their margins. So I find it interesting that consumers haven’t stopped spending at all. You know, in fact, it’s only seems to be increasing inflation, by the way, to an extent does help that too, because, you know, you have to spend more when there’s inflation.

Caroline Woods: The way to play that is through an ETF though, versus stock picking that consumer discretionary sector.

Ben Emons: You could do it through ETFs. You can pick the stocks I think either will work. The ETF gives you the broad suite of of of retail consumer discretionary stocks, which is a good idea in terms of you don’t want to be in stock picking. But if you were to be able to pick stocks, I mean, think of like, anything that’s related to consumer spending, apparel, retail, you know, high end retail.

Ben Emons: There’s three separate stocks I would think of is.

Caroline Woods: Our financial stocks and opportunity or trap ahead of earnings next week. Because if you’re saying the consumer strong you know by consumer discretionary stocks financial stocks should benefit too right.

Ben Emons: They should as I’m being bullish on that sector to be in a bit of a bit of a move down a lot of these stocks, there’s somewhat different story going on. Let’s see what’s happening in France. And there’s a bit of a pressure on French banks that have somewhat spilled over to our market. And if people have looked at these rising yields that that actually affects the bank, maybe someone negative in terms of interest margin.

Ben Emons: But that’s I think, all at the margin. What’s really driving bank earnings is that there’s plenty of lending opportunities out there that the capital markets remain open, even though some IPO may have or not happened, but it remains open. The trading of markets like volumes have been very helpful. And then I think, as you say, the consumers are borrowing, they are spending.

Ben Emons: The deposit growth is good. So I think it’s all a really good story for both regional banks and investment banks today, reporting a lot of them next week. There’s a lot of value placed there. I always like Citi. It’s been a continuously recovering story from the financial crisis, and Goldman has always been the superior. And does the investment match.

Caroline Woods: Is there any reason to buy small caps here with yields this elevated? I mean it’s hard because you’re bullish on the economy and small caps should benefit if the economy is strong.

Ben Emons: In general this year. But be mindful of small caps itself. There’s a lot of companies there that are really small and unknown. Large companies are borrowed a lot of money to that level of small caps, much higher to what’s the big cap stocks are. And just because that’s shady the ETF which you can track right. Is that maybe the best way to play that I think what but.

Caroline Woods: You talking about the Russell.

Ben Emons: Yeah. The Russell 2000 ETF may not may be a way to do it. But it’s sensitive to what happens to interest rates. There’s a sentiment issue there. So keep that in mind. You know when once that’s kind of gets over and yields are higher and stabilize I think then the smoker platform makes sense.

Caroline Woods: Okay I want to go back to this ten year potentially hitting 6 to 7% call. How likely is that.

Ben Emons: So I come down to it from from several points. One. So we have a Federal Reserve that just started raising rates as a projection out that it will be small steps from here. But because of the energy situation being so uncertain and because fed members have and now looks at the energy situation as a reason to raise rates, there could be a lot more rate hikes coming to try and control for inflation.

Ben Emons: That’s one way. The second way used as the economy has not been off the track in any sort of way. We just started investing with EI in the economy. This year has been a few on the billion that are lined up of trillions more to come. If that were to happen. So that that’ll drive yields higher bond because there’s a lot of borrowing involved too, because the economy gets stronger from investments.

Ben Emons: And then finally there is a real, real reallocation happening away from bouncy treasuries to other types of bonds or better, to stocks, because people are recognized that bonds are just not really delivering. But they used to deliver because, yes, inflation is too high in the fed has react to it. And then the economy is very different than before the pandemic.

Ben Emons: So much stronger and much more investment and things are happening. So that leads you to this 6% level as in the broken, also through technical levels. That is not a reason. I guess the final point is that people are worried about the deficit. Yes, we have a lot of treasuries supply, a lot of issuance of bonds. That doesn’t seem to be changing.

Ben Emons: And that’s I think, another reason. So you could see 6% historically you could move to that based on all the charts. But the real number, the long term average is 7%. That would be really different dynamic.

Caroline Woods: And what happens to stocks if we see that? Would it be a correction because the market is spooked. But ultimately that can head higher because the foundation is good. Or would that be the end of the bull market?

Ben Emons: So let’s say 1999 is the comparison. When we have to attack investment in momentum in the markets and yields were at 6% or somewhat higher. That worked for a while until the fed went on with rate hikes and pushed it, I think, too far. And that made the 6 or 6.5% yields that you had at that time to way too restrictive what they call for the economy, meaning it really starts affecting economic activity and slows everything down too fast.

Ben Emons: So that could happen at 6%. But that does depend on how far the fed was willing to go. So say that they go to 4.5% five and we reach 6% of the ten year yields. I think the market will and the economy would be okay. But if you push it too far, yeah, then the 6% yield becomes or higher becomes problematic.

Caroline Woods: Okay. And your expectation for the fed moving forward is that this is just the beginning of the rate hikes. How many more can we see. When do we see them. And I should note that last time you were on, you said there was a 70% chance that the fed would hike rates. It seemed crazy because at the time the CME fed watch tool was pricing in something like 30 or 40%.

Caroline Woods: Your models were right. They were just ahead of the times, if you will. So tell us now, what are your models showing in terms of additional fed hikes.

Ben Emons: Two things that 1st October probability on my models is close to 30%, and the mark is more like below 20%. So there’s a little gap there. And that I think has to do with that. This is a live meeting. And I think they they do not want the midterm elections or anything else interfere if they have to make a decision to raise rates again.

Ben Emons: So that could happen. Secondly, the model is also indicating that from the speeches and the minutes that that shows exactly now of people thinking that they should move rates higher over time and that we have currently priced three hikes in the markets. But that directory shows more like five hikes.

Caroline Woods: Next year.

Ben Emons: Into next year. So I think that is important to watch because it’s the fed that does. The fed makes the decisions to raise rates not to market. They could price in one direction or the other to the fed will take notice of that. But they will make that decision. It tends to be historically the market prices in more than what the fed ultimately does.

Ben Emons: But we could be in a different situation this time because I think really, Caroline, that if you think back 21, 22, when they were really behind, they don’t want to be in that situation again. They don’t want to be in a situation where they have to slam the brakes, have to come out and raise rates by a loss.

Ben Emons: They’d rather be more diligent and say, we have to give the right dose to the economy to control the situation that we’re in. And I think this is why the problem is your my model indicating more hikes from anywhere in the market.

Caroline Woods: So the area of the market you would most want to be in if the fed is going to hike five times is what I wanted.

Ben Emons: I still think that financials and energy are your best play there because it plays into that dynamic of rates. I think emerging markets are interesting. A lot of people have looked at this as a diversification, you know, whether it’s Brazil as Mexico, whether it’s in South Africa or whether it’s even some Asian countries, is an interesting play this time around, because yes, the Treasury market will continue to stay on the pressure.

Ben Emons: So you got to look at foreign bonds. And finally, I think it’s more about the broader market overall. If you’re not really worried about the economy so much and you’re not too much in the stock picking, you should just stay long. The markets, you know, like, you know, you should not really get out of it. So being an index funds S&P Nasdaq is a pay off okay.

Caroline Woods: And if we see yields at 6% and the fed hiking five times does recession start entering the conversation again.

Ben Emons: Well that depends on how the difference between yields ends up. You know if we’re getting two year yield far above the ten year yields that tends to be the signal. But like I said it depends on how how much is needed to get inflation where they wanted to be, where yields and end of it’s a bit of a dynamic is hard to predict at precisely.

Ben Emons: You know, because I would think that 6% with a few hikes priced in or being delivered and the economy tracked and there’s no issue, you know, a lot of high end. And there sure enough it will become a primary.

Caroline Woods: You’ll have to keep us posted. Let us know what the models say. We’re going to pivot to a rapid fire round of this or that. You know how to play. Quick questions quick answers. Yeah. No hedging. Are you ready Ben I’m ready. Next 10% move in. Stocks up or down. Up S&P 8000 by year end. Too bullish or too conservative?

Ben Emons: Too conservative.

Caroline Woods: What should it be? What will it be.

Ben Emons: As bullish I think it will be 8000.

Caroline Woods: Okay. Market correction before year end. Likely or unlikely. Unlikely. Ten year yield by year end. Higher or lower than 5.3% higher. How high?

Ben Emons: Five and a half five three quarters.

Caroline Woods: Fed’s next move, hike or hold.

Ben Emons: Hike.

Caroline Woods: Even with only 30% chances and.

Ben Emons: 30%.

Caroline Woods: Inflation by year end. Higher or lower than today.

Ben Emons: Higher than today.

Caroline Woods: Bigger risk to the bull market. Higher yields or higher oil. Higher oil stocks or bonds for the next 12 months. Stocks, energy stocks or AI stocks for the next 12 months.

Ben Emons: Energy stocks.

Caroline Woods: Gold or Bitcoin.

Ben Emons: Bitcoin.

Caroline Woods: Fed in 2027. Cutting rates are still hiking.

Ben Emons: Still hiking.

Caroline Woods: Bull market in 2027 intact or running out of steam.

Ben Emons: Into.

Caroline Woods: Recession next year. Real risk or not losing sleep?

Ben Emons: Not going to happen.

Caroline Woods: Which happens first oil at 120 or the ten year yield at 7%.

Ben Emons: Both.

Caroline Woods: Okay, finish the sentence. The biggest market risk investors are underestimating is wow.

Ben Emons: A ten year yield at 7%.

Caroline Woods: Yields will hit 7% when.

Ben Emons: Late 2027.

Caroline Woods: And if what happens.

Ben Emons: If inflation oil goes a lot higher from it.

Caroline Woods: What level.

Ben Emons: So oil at least 120 or higher inflation at least A45 percent range.

Caroline Woods: I would become bearish on stocks when.

Ben Emons: When we do reach these inflation levels.

Caroline Woods: One word to describe how your feeling about the market right now.

Ben Emons: Optimistic bullish good environment.

Caroline Woods: Ben Emons always appreciate joining us. Thank you so much for playing by the rules as well. That’s been Evans you CIO of Fed Watch Advisors. If you enjoy this free talk check out our full interview with Art Hogan. He lays out the case for S&P 8000 by year end and the stocks that get us there.

Caroline Woods: Joining us now is Mark Malek, chief investment officer at Siebert Financial. Mark, welcome to the desk. Great to have you.

Mark Malek: Great to be here.

Caroline Woods: So we have stocks pulling back this morning as the ten year yield pushes above 5.3%, its highest level since what 2002. Yeah. Are higher yields finally catching up with stocks or is this just a little bump in the road.

Mark Malek: Oh boy. That’s that’s that’s the question of the day. You know, I wake up every morning and ask myself the same question. Is this the is this the day when stocks are going to take off the noise canceling headphones and pay attention to the bond market? Right. But the reality is, is that there are a lot of stocks that are paying attention to what’s going on in the bond market, just not the usual suspects, just not the ones that are most heavily weighted on the S&P 500, which is what we all like to watch every single day.

Mark Malek: But the reality is, is that that that these yields are extremely important, especially for the growth stocks that we all know and love and that we’re all counting on.

Caroline Woods: So to kind of build on that, because I was going to start by asking why aren’t higher yields breaking the market. But then if you do take a look underneath the surface, you do see that small caps have pulled back the S&P 500. Equal weight has pulled back. Almost every sector was negative last month. We started the week a bit more positive.

Caroline Woods: Do you think that the the headlines and the AI stocks are sort of masking what’s going on? And what does that all mean about where the overall market can go from here.

Mark Malek: Yeah. So that is a it’s a very challenging question right. There’s a there’s a technical side of it. And then there’s the feeling side of it. Right. And the market doesn’t always act like it should act from a financial standpoint. But from a financial perspective, there is a world where where higher yields can exist and growth stocks could still be going up as long as those growth stocks are expected to grow faster.

Mark Malek: Right. So if we still have feel that there’s such great prospects for some of the usual suspects that we talk about, you know, the invidious of the world, the AI ecosystem stocks that we like to talk often about, the stocks that we expect in the long run, to really continue to knock it out of the park. If those growth rates can continue, then in fact, they can out ski the avalanche right of these higher yields.

Mark Malek: But then of course, there are. You mentioned the you know, the feeling side of things. Right. So everyone’s hearing about these yields. Everyone has been trained. Investors have been trained over the years. Well at least more recently, especially in the growth world as yields go up, that could sort of hamper growth in terms of stocks. So whether or not the stocks will start to slow down simply because investors are backing away just because they’re uncomfortable about hearing about the headline risk or recognizing the challenges that might come with these higher yields, that could hamper as well.

Mark Malek: Right. So there are two sides of it. But for now, I think investors are still very comfortable with the growth story. And I think for now, people have been used to getting these great annual returns on equities, driven mainly by principally by these types of companies. And the thesis of a lot of these companies hasn’t really materially changed.

Mark Malek: So I think people continue to look there. You know the I don’t want to bring it back. The old Tina right. There is no alternative. But right now, look, if you want to invest in equities and you want growth and you want a story that’s ironclad, the thesis is still pretty ironclad when it comes to a lot of these stocks that are leading the S&P.

Mark Malek: Well two days ago or yesterday at least to new highs.

Caroline Woods: So bottom line this is a bump in the road. And you think this market can power higher because of growth stocks.

Mark Malek: Well I hate to be the the it depends kind of economist but it does depend. Right. Because we’re starting earnings season right. We’re literally they’re starting to bubble in a little bit right. Starting to hear a little bit about consumer. We’re going to hear a lot from the financials next week. And of course then comes the tech. And of course if we continue to see if we see these types of earnings growth, you are going to there’s absolutely there’s no reason to to well, of course there’s always a reason to, to pay attention to this stuff.

Mark Malek: But if we don’t see any material cracks in the story, big misses forward guidance, you know, what are they saying in the, you know, in the in the earnings announcements? These are the things that can trip up. Right. So these things are all when you’re at these levels, at these multiples, at these frothy levels. Stocks behave well until they don’t.

Mark Malek: Right. So all it takes is one sort of off comment by a CFO. You know, one person gets irked by by a growth. You know, higher than expected growth in CapEx. And then all of a sudden, you know, the the the machine starts to generate the sort of negativity that could cause a pullback, buying opportunities, maybe most likely.

Caroline Woods: Okay. So a pullback would be a buying opportunity in this.

Mark Malek: For the most part for me. But you know we’re at a stage right now I believe right. So we’re we’re very constructive on that part of the market. We believe there’s a lot more room to run on those stocks.

Mark Malek: Growth stocks.

Mark Malek: Growth stocks specifically. We like tech very much and we like the AI ecosystem stocks. But at these levels we can’t do what we did maybe last year or two quarters ago where we were just like, okay, stories pretty good. We’re going to go with it. It should work. No more peanut butter and jelly. Mathematics, right? You have to really take a look because they’re not all the same anymore.

Mark Malek: And there are stocks that have real good prospects and good stories justified risk, while others, not so much. You know, you’re starting to see that there’s a difference as a dichotomy between stocks that probably don’t justify the risk. And those that do.

Caroline Woods: Give me some examples of stocks that you like here that justify the risk even at these valuations and some that don’t.

Mark Malek: Fantastic question. Right. So we put things in tears right. So again very generally right a tier one stock would be a company that is investing very aggressive in this space might be a hyper scalar but they have cash flow that have a balance sheet. They have other business lines that they can lean back on. They can pull back the accelerator a little bit if they have to, and they can survive.

Mark Malek: That’s a tier one company.

Caroline Woods: Can you give a name?

Mark Malek: Yeah. Like I would say Microsoft and Amazon. You know, these types of companies, they have even in meta they have the balance sheet. They can do it. They make other revenues. These are behemoths on their in their own right. They’re in a very big expansion mode right now. But then there are other companies that are heavily involved in this that would be that are more heavily reliant on debt to do these builds, outs and things like that.

Mark Malek: And then there’s there’s a whole list, you know, of those companies going down, you know, going down, down the line. Right. So Oracle might be a great company, but they’re a little bit more highly leveraged. So much more risk. That’s like a tier two company for us. And they’re going to be more interest rate sensitive. They still are great company.

Mark Malek: They still have great business prospects. They still are by in many people’s book. But that’s a much more you expect a much higher return for that type of risk. And then there are the tier threes, which are companies that are really just more upstart type companies that are going to that are obviously subject to a significantly higher risk.

Mark Malek: Right. So, you know, you’re more likely to buy the dips on the companies. Again, you know we always look on these pullbacks, right. Is it a company that should be trading off or is it down for the right reason or the wrong reason. If it’s down because everyone all of a sudden has second thoughts about oh my god, CapEx is huge.

Mark Malek: Okay, we all know this. This should be built into everybody’s business model. So it’s pulling back because all the ships are going down. Okay. Now it’s time to load up on some of these fabulous companies. Right. And then.

Caroline Woods: Give us an example of one of those tier three companies, though, that you wouldn’t necessarily by on the dip.

Mark Malek: So a lot of the newer upstarts. Right. So I don’t don’t want to give you a specific names over there because I completely avoid that, that, that tier myself. But, you know, certainly I’m digging from tier one to tier two.

Mark Malek: Okay.

Caroline Woods: You’ve owned caterpillar, Vertov and Eaton. Those are stock picks that you brought in your notes here for a long time. They’ve all benefited from the AI infrastructure bill that. Would you buy all of those here?

Mark Malek: Yes. And so this is the interesting part. Again I love that because those are not the sexy, you know, companies that everyone wants to talk about. But everyone kind of has heard about them.

Caroline Woods: Caterpillar up 50% year to date up almost what 60 Eaton’s up.

Mark Malek: For exactly. Exactly right. You know, these companies again, they’re not known for their innovation and technology. Right. Well, we think about technology growth companies. We’re thinking about companies that have R&D, you know, huge R&D spends, companies that are innovating, companies that can continue to innovate, not companies that are like reliant on balance sheets or reliant on repeat customers and sales pipeline.

Mark Malek: These are the companies that have always been in our portfolio. These are companies because we’re still we we still have a diversified portfolio. We’re just more heavily tilted in growth more recently. But these are stocks that we’ve owned caterpillar for many, many years because we like caterpillar as a company. Caterpillar used to be a more cyclical type of stock, very heavily tied to construction spending expansion in the economy overseas.

Mark Malek: Right. Remember for a minute they were very highly, you know, tied to growth in Asia, right? So these companies would go up and down very well run companies. We always like these. These were solid holds. Now they’re part of this AI ecosystem right. So you know, I would like to say I knew ten years ago when I bought caterpillars, I knew this was going to be a thing.

Mark Malek: But the reality is we’ve been holding companies like this for a long time. All these companies eating, these are just good industrial companies. Now, the interesting thing is, is when we’re looking at the AI ecosystem, that’s one of the things that we’re changing, which is right. Two years ago we’re only investing in chips. We’re only besting hyperscalers and any it’s a lot of software that has changed a little bit.

Mark Malek: But the reality is, is that we we should all be looking at where are the, the the points of tension. Right. So where the friction points in this ecosystem, where are there points where companies have price power, where companies they have to be the micro is also but a more sexier, similar example to any of these companies. You know where micron you know, just a year and a half ago everyone was Pooh Pooh it as it’s a memory company.

Mark Malek: It’s a commodity business. You know, they’re at the mercy of the market. But now we have all learned the market is very much at the mercy of them.

Caroline Woods: Is micron a buy and hold forever type of stuff?

Mark Malek: No, it’s not a good question. Micron is a very much a buy now right. Because they control a very important part of the ecosystem.

Caroline Woods: By now, even though it’s up 230% year to date.

Mark Malek: Correct? Yes. This is one of those working out run the avalanche. Okay. This is a company that will continue to outrun the avalanche. However, if things do catch up, if if CapEx starts to slow down, everything’s going to struggle and companies like that will struggle the most. You’re taking a big risk here, but you’re getting a big potential return because they’re still a very important juncture.

Mark Malek: Let’s remember that, you know, everyone’s favorite company in Vidya, mine included, is beholden to micron. That’s part of their chipset. So without a boring company like micron they can’t sell a chipset.

Caroline Woods: So you could only own one here. Would it be micron or and hideous.

Mark Malek: Nvidia. Yeah video because Nvidia is the innovator. And so if they can continue to over innovate themselves they will continue to build a moat right behind themselves as they’re going. Micron is now in a very good position as is caterpillar right. Because everyone needs gas generators now. But they’re not going to need them forever. And and so you know I hate to bring another you know apple which is not in this space but apple for many years there were the other done.

Mark Malek: They’re done. They’re done every quarter they’re done. And yet how well has Apple done over the years. Why. Because they keep innovating beyond that avalanche. Right. And so you have companies that are able to do that. Not every company. And they can’t always do it forever. But they have been able to do it in the case of so far within Vedere, as far as we’ve been watching them very carefully as an innovator, not just a game card manufacturer or a parallel processor manufacturer for Bitcoin mining.

Mark Malek: As once we started getting into this, we recognize what great management they have, how they’re able to innovate. And so I think for now, the way I can see as far as I could see, as far as my contacts will allow me to see, I see continued innovation from a company like that management, they’re building all sorts of moats around them by building their own little ecosystems.

Mark Malek: Will it grow at this pace forever? Absolutely not. Right. That will slow down.

Caroline Woods: So let’s shift away from tech and talk about how else you’re diversifying your portfolios outside of names like caterpillar, which are now, you know, AI beneficiaries. Because you are getting a bit of a pullback and other areas of the market. I mentioned that, you know, almost every sector was lower in September. So what looks attractive to you outside of AI beneficiaries and tech stocks?

Mark Malek: You know, look we are always on the lookout. We have we are always on the lookout for companies that have growth prospects of different variation. Right. So you can’t only invest in stocks that are going to grow 100% a year. Right? It would be nice to do that. But you know, there’s a cost to that. Right. And that is risk.

Mark Malek: And so, you know, we have to be mindful of that risk. We have to try to diversify as much as we possibly can. And so that said, you know, we try to look at other sectors, we try to find exciting opportunities in healthcare. And that for now would be companies in pharmaceuticals. The usual suspects there.

Mark Malek: Lily.

Mark Malek: Yes. Okay. These are companies that are innovating. These are companies that are solid. They have great prospects. Again, it’s not it’s not exciting, but it is. It’s very, very real. They to have a bulletproof a bulletproof thesis. And the numbers keep proving out. And so you know.

Caroline Woods: What about financials?

Mark Malek: Okay. I knew you were going to get to that. I was waiting for you. Financials. This has been an interesting one. Okay. For us financials. We have a love hate relationship with financials. A couple quarters ago, you couldn’t deny the the prospects of financials. There are a lot of well-run financial companies right now. There has been, again, there’s probably the best management we’ve ever seen in that, in that sector right now because they have survived so much.

Mark Malek: These companies, they survived when I thought was a pretty tough, almost a nuclear winter from, you know, from Covid through post-Covid, where they saw a deal flow disappear, where they saw, you know, rates all over the place and, you know, managing a book, a loan book in those types of environments, which is very, very difficult. But there became a time after the storm where the skies cleared and the sun looked very bright for them.

Mark Malek: Right? Because all of a sudden you saw a deal flow pick up, you saw M&A flow pick up. You saw trading pick up. You saw, you know, all these areas of the market going. So you know wealth management like a company like Morgan Stanley’s more heavily weighted in wealth management. So all of these things okay. Gave one or the other a good sort of a good leg up even interest rates.

Mark Malek: It was very clear. Well not very clear, but it was pretty clear the direction of interest rates. So we can understand which way the curve was going. And and look, the banks can make money despite what everyone thinks, no matter what the curve looks like, but not when it’s going like this. It’s very, very difficult. But when they know which way it’s going, they can work their way through those situations.

Mark Malek: I think that those conditions persisted through last quarter. Last quarter financials had an amazing quarter, unbelievable quarter.

Caroline Woods: So the best is behind us. Is this all leading to.

Mark Malek: I’m going to say financials I’m going to be paying very very close attention to financials next week.

Caroline Woods: What would you need to hear to come back and say now is the time to buy financials?

Mark Malek: I’m not saying financials are sell, but I’m not buying them right now. I’m I’m holding right now here what they say I want to hear what the guidance is like. Clearly I want to hear guidance on those areas I was talking about. How are they seeing deal flow. What what is their pipeline, their M&A pipeline look like? What is their capital markets pipelines look like.

Mark Malek: Can they still get these. Great. Because remember their diversified across all these areas, their businesses. We can understand we can come up with an idea, you and I, of what we think trading is going to look like because we’re here watching it happen. We could see if the markets continue to behave the way they are. They continue to go up.

Mark Malek: We know that wealth management, wealth management fees are going to continue to grow. But I want to hear about all that stuff, not so much the net interest income. I mean, yes, of course you want to see health over there, but I’ll tell you that the biggest learning that I get from those from the banks, the reason I love them first, is because they give you a good bead on what’s going on with the consumer, right?

Mark Malek: Two thirds of the economy comes from people like you and me spending money. So if we stop spending money, if we start to struggle with our credit cards, then that’s just for me. It’s a canary in the coal mine. And the banks are in a great specialty. The large commercial banks that JP morgan’s of the cities, Wells Fargo, they can tell us how their consumers doing.

Mark Malek: And I think all of us and I’ll tell you, I’ve been wrong on that. Right. Because every quarter I think, oh, this is going to be the quarter. They’re telling us that their their default rates are going up. They’re going, but they’re not going up. People continue to spend. We continue to hear from Jamie Dimon and all these they’re consumer they’re lower and consumer still healthy, still spending money.

Caroline Woods: We see any signs of cracks in the consumer from Jamie Dimon commentary. Yeah. Your first change would be what in your portfolio.

Mark Malek: You know for me I’ve I have been staying away from consumer discretionary. I’m a little concerned about consumer discretion. I’ve always been I’ve always been concerned about the health of the consumer. I’ve been wrong. So but I’m not buying.

Caroline Woods: Some would look at some of the consumer discretionary stocks and say you did just fine staying away from correct?

Mark Malek: Correct. Correct. But you know I’m talking about a bigger repricing in those areas. You know. So for me I you know, I’m more of a sort of a stick, you know, a hold. I’m not necessarily selling my discretionary. I don’t have a lot of discretion areas. But, you know, again every quarter I go through this process, interestingly, this quarter will be slightly different.

Mark Malek: And I’ll get into that if you want to know.

Caroline Woods: Well, I think that, you know, we’re just about out of time. I want to get to rapid fire. But I want to bring one question, sure, that I’ve been asking a lot of my guests lately, especially you’re bullish. I sense your bullishness with maybe some.

Mark Malek: Pensive.

Caroline Woods: Yeah. Pennsylvania. Okay good.

Mark Malek: Delta’s tight. Delta’s tight.

Caroline Woods: And given how far the areas of the market that you like have already run. Yeah. Why take the risk of owning stocks at all right now. Other than what you already have.

Mark Malek: Yeah.

Caroline Woods: And why not just buy bonds at 5%?

Mark Malek: Fabulous question. It it depends on the stocks. Again, most people, most people on the way home from work, average investors, they hear that the stock market went up whether they own stocks or not. They hear that they went up. It’s a good thing. Maybe we could buy that dishwasher. Okay. But they’re just hearing about the S&P 500.

Mark Malek: They’re not seeing what’s underneath the surface. And so you know we’re talking about stocks the ones that we like the individual stocks. They have fantastic growth growth prospects. If you look at just the expected earnings growth of let’s say the S&P this next quarter, it’s in the mid to high 20s. It’s going up. People are are tweaking it up slightly.

Mark Malek: If you look at forward earnings growth, if you just look at what the forward earnings are expected for the S&P 500 and we look at earnings yield right now. The earnings yield of the S&P 500, the broad index is is probably less than a 5.3% Treasury. So you pointed exactly at the right thing. Why would I do that.

Mark Malek: Right. Why wouldn’t I just go for the risk the risk free at 5.3%. Well, if you want to lock in for five point, if you want to reckon for ten years on that and you know you don’t need that money for ten years and you’re happy with 5.3%, great. But I haven’t met anybody in this building that is happy with 5.3%, knowing that next year we might get 27%.

Mark Malek: Yeah, we’ve gotten pretty used to those lofty returns. Not only do they say scale back, but every.

Mark Malek: Year last forever. But these companies, as long as they continue to have solid fundamentals, a solid thesis, we can continue to do it. Look, I learned a long time ago on Wall Street. Look, we’re paid to invest money here, and we invest in opportunities until those opportunities close to haven’t closed yet. We’re watching the doors carefully. You know, you know, when you play musical chairs.

Mark Malek: Yeah. And it’s getting to the end of the song. You keep a hand on the back of every chair you pass over. That’s kind of what I’m. I’m ready to jump into the first chair that I can go.

Caroline Woods: All right. I think it’s a great time to pivot to a rapid fire game of this or that. This is quick questions. Quick answer is no hedging if you can help it. Are you ready? Yes. All right. First time playing. Here we go. S&P 500 near records by hold or trim by ten. Year at 5.3%. Stocks or treasuries.

Caroline Woods: Stocks energy with back above 90 by or avoid.

Mark Malek: Avoid like the plague.

Caroline Woods: Equal weight S&P or Nasdaq for the next 12 months. Nasdaq tech on a pullback, buying opportunity or warning sign.

Mark Malek: By every.

Caroline Woods: Day AI stocks bigger risk right now. Valuations or interest rates.

Mark Malek: Interest rates.

Caroline Woods: Micron up nearly 300% year to date by hold or take profits.

Mark Malek: By.

Caroline Woods: Nvidia records fairly valued or more room to run.

Mark Malek: More room to run and fairly valued.

Caroline Woods: If you could only buy one Meg seven stock right here. That’s not in video. Which is it?

Caroline Woods: Microsoft financials at these yields opportunity or avoid. Avoid consumer discretionary by the weakness are stay away.

Mark Malek: Avoid like a plague.

Caroline Woods: International stocks or U.S. stocks for the next 12 months. U.S. gold at 4000 bargain or stay away.

Mark Malek: Stay away.

Caroline Woods: Interesting. Fed’s next move. Hike. Hold or cut?

Mark Malek: Hold.

Caroline Woods: Finish this sentence. If the ten year stays above 5%, investors should.

Mark Malek: Be really, really careful.

Caroline Woods: Stocks by year end. High or lower?

Mark Malek: Higher.

Caroline Woods: How much higher?

Mark Malek: A little bit.

Caroline Woods: All right. Mark Malek, chief investment officer, Siebert Financial definitely played by the rules. Thank you for that. We really appreciate your picks and your insights.

Mark Malek: Thanks so much.

Caroline Woods: All right. If you enjoyed this street talk, check out our full interview with NickLlumpp. He says market risks are building and lays out how to prepare for a potential correction in 2027.

Caroline Woods:
Stocks are at record highs, but my next guest says investors should be prepared for more risk and volatility ahead. Here to help us prepare our portfolios is Nick Lumpp president of RCN Wealth Advisors. Nick, welcome to the desk.

Nick Lumpp:
Thank you very much. It’s a pleasure to be here.

Caroline Woods:
All right. So you think there are reasons to start getting a bit more cautious here? What are they.

Nick Lumpp:
Yeah. In general I mean, other than the the usual economic earnings related valuation kind of risks, which I do think that we’re, you know, we’ve seen a lot of tightening in financial conditions this year. That from a cyclical perspective is probably going to see a lot of the economic data start to slow into 2027. So that can create headwinds.

Nick Lumpp:
Same thing on kind of the EI story as well that, you know, this past summer, the see that the acceleration in that rate of growth has has slowed. You can see again, a cyclical kind of slowdown from that perspective as well. So there are some things that could kind of slow the market and could lead to a pullback as we go in.

Nick Lumpp:
Excuse me into 2027. But even beyond that, I think what’s a little bit more interesting is how the the way money is managed has evolved over the last few years, and it’s kind of distorting the movement within the market. The stock market in particular. The biggest driver of this is when you look at how there’s been a big move away from actively managed funds over to passive index funds.

Nick Lumpp:
The effect that this is having is that as money comes in, they everyday have to buy all constituents of the index. And so they’re kind of gobbling up shares. And it effectively removes the supply from the market. Because by mandate an index fund can’t sell unless they have redemptions or outflows. So every week, every month that we have constant inflows in, they just keep pulling more shares from the market.

Nick Lumpp:
So it leaves everyone else, other investors kind of fighting over a shrinking supply. This is creating a kind of a magnified effect that is exacerbating the volatility. And and that works both ways up and down. So that’s kind of been the big driver. And that’s been ongoing for 20 years now. But then you layer on top of that the rise in popularity of things like CTA trend following strategies, the increased use of stock options, which can create, you know, something called dealer gamma squeezes that magnifies volatility.

Nick Lumpp:
And now the rise in popularity of leveraged ETFs, single stock leveraged ETFs. And now they’ve made, single stock futures. All of these are just magnifying that volatility on top of that effect that index funds are having. So it’s great in terms of when it’s working to the upside. It’s a process that builds. But should any of these dynamics reverse.

Nick Lumpp:
This is why we’re seeing kind of like a grinding followed by very sharp downturns.

Caroline Woods:
And so I think the big question is when do we start to see these very sharp downturns. This is an ETF spotlight will get to the fund in just a second. But first just kind of set the record straight for us. You’re protecting your portfolio for these potential downs. Or are those downturns within an overall bull market still are you still bullish on this market.

Caroline Woods:
You’re just preparing for volatility or are you expecting something worse come next year?

Nick Lumpp:
Well, I try to gauge things almost week by week. I do see the conditions starting to build that it seems a little late cycle. I’m not saying today right now this is at the top. I think that things could continue actually here in the fourth quarter for a little bit. But as I look into 2027, you know, we’re seeing signs that the process is slowing.

Nick Lumpp:
And so I do think that, you know, we’re we’re preparing for a potential move lower here in the first half of 27.

Caroline Woods:
And what does preparing your portfolio actually look like? Is it diversifying away from stocks? Is it taking risk off the table. Is it holding more cash.

Nick Lumpp:
That’s you know that’s different for every investor in particular. Based on their risk tolerance, how they’re how they’re managing things. You know, you can do it in any number of ways from just simply rebalancing, locking in some of the gains, you know, yes, you can shift to safer assets, cash, other things. You can look to use other forms of strategies or approaches to the market, things that are not correlated or inversely correlated to stocks, ways of hedging.

Nick Lumpp:
What we do in particular is and we feel that it works very well in this environment, and increasingly so that as these variables are making the stock market more volatile, we think that the environment works very well to use systematic trend following approaches, because the more volatile an asset or an asset class is, the better it tends to work to use a trend following approach, meaning when things are working and they’re building to the upside, you want to jump on that trend and you want to ride it as long as it goes.

Nick Lumpp:
But if and when that starts to reverse, you want to exit and hopefully avoid as much of the downturn in the unwind as you can. So we found that systematic trend following is working very well. And it’s something that as you’re seeing risks start to build, you know, it’s just it’s one approach that, that an investor can use in terms of having a, a set of rules or a system that tells them no questions asked, you know, when to exit, when to get out.

Nick Lumpp:
And, you know, as a way of managing that downside.

Caroline Woods:
So the fund is auto R-cnn Strategic Allocation ETF. What kind of investor would look to use that?

Nick Lumpp:
You know what’s interesting given the and so the fund itself, it’s fully systematic.

Caroline Woods:
Meaning it’s not people making these decisions you’re relying on.

Nick Lumpp:
Its more than quantitative based approach. So it uses a combination of systematic. But the best way to think about it is trend following approaches on different asset classes. So it’s more of a fund of funds. So you’ll see asset class exposures, large cap small caps, treasury bonds, gold things like that. In terms of the way it’s constructed, though, it’s all about trying to minimize the downside risk exposure.

Nick Lumpp:
And so these these strategies are designed to try to cut out. It’s called the left tail risk. The big down year as much as possible to create a smoother path of compounding. So the way that you can use it, it’s almost mirrors kind of a core portfolio holding. It’s classified as a tactical allocation fund. So you can carve out part of your portfolio for a tactical sleeve because it maneuvers around, but also for, for investors, that might be a little bit more risk averse, a little bit more conservative.

Nick Lumpp:
It tends to work well as just a pure equity replacement, because it generally has roughly 70% equity exposure. So when the market is trending higher, we’re participating in that. We’re trying to ride the uptrend. So you’re going to participate in the upside of markets. But when things when trends reverse and turn off, we have the ability to pull out of the stock market and go to 0% allocation.

Nick Lumpp:
So it’s a way of kind of utilizing that trend following approach. Still participating, but again, managing the downside risk.

Caroline Woods:
Here’s my question. I was looking at the holdings. And obviously this is, you know, the algorithms determining where the money’s going. But the two biggest positions are in small cap ETFs right now. If the expectation is that the economy is slowing going into 2027, why would you want that much small cap exposure? Yeah.

Nick Lumpp:
So and this is what gets really interesting when you use a trend following approach is it almost flips the normal dynamics of how you would build a portfolio upside down. So generally with standard allocation models, large caps have a larger size or larger weighting in a portfolio than small caps. That’s generally because they’re less volatile. Small caps tend to be a more volatile asset class.

Nick Lumpp:
Bigger up years in the bull markets. Bigger they get hit hard, bigger down years and bear markets. When you apply a systematic trend following approach, it it kind of distorts the the return and volatility profile of the asset class. And so the more volatile an asset is, the better it works to use a trend following approach. So because small caps tend to be more volatile, the strategies actually work better on something like small cap index Russell 2000 than it does on large caps.

Nick Lumpp:
So the fund is almost backwards and it tends to have a larger weighting to small.

Caroline Woods:
So what do you think would have to change in the market for the fun to have less exposure to small caps.

Nick Lumpp:
So basically the way that the the strategy is built, it’s a combination of variables. There is some breadth related measure. So as you see kind of a deterioration where the participation in the market is weakening like that. And then ultimately a

Caroline Woods:
Which we haven’t been seeing, which.

Nick Lumpp:
We’ve been seeing. And so the strategy is getting closer. It could shut off if things continue to move lower. But it it’s still it we’re still long. We’re still in for the time being. To where it could still be just a pullback in the bull market. Continue.

Caroline Woods:
So how different is this portfolio look today than it would have six months ago?

Nick Lumpp:
It’s relatively pretty similar actually.

Caroline Woods:
Really.

Nick Lumpp:
Yeah.

Caroline Woods:
So so you start in that small cap momentum that we did.

Nick Lumpp:
So through the summer. Small caps had had a pretty good, you know, run this year that was you know they follow that cyclical economic upswing that we’ve seen this year. But again yeah if things start to slow and move lower I wouldn’t be surprised if the strategies turned off and we exited small caps in the months ahead.

Caroline Woods:
Interesting. I also saw that you have nearly 19% of the portfolio in gold across two gold ETFs. Why that significant of is a fundamental out amount of exposure to gold right now. Because we know gold has sort of been underperforming this year.

Nick Lumpp:
Yeah. Gold is always an interesting conversation. If, you know, we step back for a minute on a very long term perspective, you know, many decades, gold tends to, over time, keep pace with purchasing power. So it does act as an inflation hedge over very long periods on more of an intermediate still long term perspective. Gold tends to go in almost decade long wave cyclical waves based on inflationary conditions or disinflationary.

Nick Lumpp:
And then in the short term, it really just acts as like a real time measure of financial conditions. So gold had a very strong run in 2024 and 25. Not surprised at all that it has been basically pausing and consolidating this year. Plus we had the fed turned a little bit more of a tightening bias, which is tightening financial conditions.

Nick Lumpp:
That weighs on it a little bit. The way to think about gold overall in a portfolio is you almost have to you have to go back to bonds. You start there. The the Bank of England has over 300 years of data. And even in America now we have, you know, 150 years showing that the correlation between stocks and bonds tends to flip back and forth between being negatively correlated where bonds work, as that offsetting factor is something that goes up when stocks go down.

Nick Lumpp:
But then there are long periods where there are positively correlated and they’re moving together. When that tends to happen, usually there’s a almost a line in the sand that when core CPI gets over three, 3.5%, bonds tend to flip from being a high level portfolio perspective that diversifying asset class or flight to safety asset class where they’re moving inversely and they hedge risk very well, they become positively correlated when that happens.

Nick Lumpp:
And you can think back to 2022. Inflation was running higher. So bond investors are demanding a higher yield. You know the Fed’s raising interest rates aggressively. And bonds and stocks both went down together. So you lose that that diversification component of that the offsetting move in higher inflationary periods. That low tends to be when gold kicks in and does very well.

Nick Lumpp:
So if you look at gold versus treasury bonds it’s almost this dynamic that oscillates back and forth about which one you should be using as your hedge within the portfolio based on do we have structurally higher inflation? Do we have rising inflation or periods of, you know, low and falling inflation? So we’ve been in a period of structurally higher inflation for 5 or 6 years now.

Nick Lumpp:
So we look at it from a longer term perspective in that and, you know, just looking at the performance of gold relative to long term Treasury bonds over the last six years, it’s, you know, it’s done significantly better. So we do feel that it’s been positioned correctly. That is still I think we’re still in this environment and it’s still the correct portfolio hedge to have, given everything going on, you know, in the world and so on.

Caroline Woods:
But if I’m a retail investor and I’ve been sitting in V0 or, you know, an S&P 500 index fund, or have even more exposure to AI and tech right now, I’m doing pretty well. Why do I want to think about 20% of a portfolio in gold and 40% in small caps? Make the case for me. Why? Now is the time to start shifting?

Caroline Woods:
Well, my mindset when I’ve gotten pretty used to hefty returns.

Nick Lumpp:
Yeah, I would say, the name of the game is Risk management. And so it again, it depends on every investor’s profile. There’s nothing wrong with being more aggressive, being more stock heavy. But in terms of if you look over kind of longer periods of time.

Nick Lumpp:
You want to compound at as high of a rate of return as possible. So yes, you can lean more stock heavy when times are good and the market’s going up. That’s fine. It’s at times when you think that it might be slowing risks might be building that you say, you know what, maybe I want to pull some out of stocks.

Nick Lumpp:
How do I diversify? What is a better way to kind of approach the market and manage risk. So I’m kind of reducing that downside risk exposure. And we still think that, you know, again in this environment, gold as well as that, as that hedge outside of, you know, beyond stocks.

Caroline Woods:
So for someone with new money to invest today, what’s the biggest risk you think they should be preparing for that up?

Nick Lumpp:
It all comes down to time frame. You know, the, the time horizon of this investment money. Again, I do I do see cyclical headwinds. I do think that, you know, the stock market has been on a great run. Again, I’m not saying it’s over today. We could have more upside to go, but there are risks that are building that.

Nick Lumpp:
I wouldn’t be surprised with a setback as we go into 2027. So it again.

Caroline Woods:
It’s a setback means a correction 10%. Are you thinking fair market and trying to pin out so well.

Nick Lumpp:
Again, I try to remain very agnostic about making hard predictions on how much it goes back to those dynamics that that all of these variables that are exacerbating movements in the stock market. What I would say is it’s very much possible that if it’s almost like if the snowball starts to build, it could be a lot more than a 10% correction.

Nick Lumpp:
I’m not making a prediction. There are a lot of variables that we don’t know yet. How do midterm elections go? How do you know so many variables? But it’s just a.

Caroline Woods:
You want to be prepared. If it it is.

Nick Lumpp:
A risk that is almost being embedded in the structure of the market, that I think investors need to be cognizant of that things. Things could move more than just, you know, a standard pullback okay.

Caroline Woods:
All right I think it’s a good time to pivot to our rapid fire round. Quick questions quick answers no hedging if you can help it. Stocks are record highs. Buy now or wait.

Nick Lumpp:
Wait.

Caroline Woods:
Cash it 4%. Hold it or put it to work.

Caroline Woods:
Hold it stocks or bonds for the next 12 months. Bonds gold by holder avoid by 6040 portfolio still works are outdated outdated. What should it look like.

Nick Lumpp:
To.

Caroline Woods:
Market volatility opportunity or warning sign?

Nick Lumpp:
It depends how you approach it.

Caroline Woods:
But opportunity biggest risk to stocks right now. Cyclical headwinds where investors overlooking opportunity right now.

Nick Lumpp:
Real assets.

Caroline Woods:
Meaning.

Nick Lumpp:
Gold infrastructure. You could even throw Bitcoin in. I think that from a trend perspective is kicking on.

Caroline Woods:
Interesting one thing investors have too much of.

Nick Lumpp:
Probably tech stocks.

Caroline Woods:
One thing investors don’t have enough of.

Nick Lumpp:
Probably gold.

Caroline Woods:
Finish the sentence. The best way to protect your portfolio right now without mentioning your fund is.

Nick Lumpp:
Convexity and non correlation. Meaning meaning hedge downside risk.

Caroline Woods:
All right. We will leave it there. That’s Nick Lumpp president of RCN Wealth Advisors. Nick thanks so much. Really appreciate.

Nick Lumpp:
It. It was a pleasure. Thank you so.

Caroline Woods:
Much. If you enjoyed this interview check out our street talk with Sonali Basak. She has some other ideas about how investors should navigate the market near record highs and likes financials. Check it out.

Caroline Woods:
We are back in action with Sonali Basak, chief investment strategist at IE capital. Sonali, welcome back to the desk. Good to see you. Thanks for kicking off the week with us. First full week of October, first full week of Q4. And we’re seeing some green arrows on the screen. Underneath the surface though, is this a healthy bull market or the headline numbers hiding anything?

Sonali Basak:
Listen, we have earnings season around the corner. That’s going to be a very telling earnings season. Big tech is still expected to cover a lot of that ground. And so we have to look outside of that and see well where where we see any margin pressure from oil prices staying so high spillover effects into the broader economy. I think that’s why you’re seeing such nervousness still in the consumer in particular.

Sonali Basak:
I will say on the macro front, a lot of people have been talking about that jobs report recently. It did come in as disappointing. But if you look over three months, you still see the economy growing at about trend job growth. So that’s 50 K a month. You did see that employment rate unemployment rate ticked up, but labor force participation also ticked higher.

Sonali Basak:
So there are no really red alarms in the macro right now which can continue to support solid growth which should continue to support earnings. We just think it will be a little choppy through the end of the year.

Caroline Woods:
Okay, so the S&P 500 is already up about 13% up to this point year to date. Do you think we can hold on to those double digit gains. Do you think we can add to them? What does choppy look like?

Sonali Basak:
Sure, I think we can. I think we can not only hold on, I think we can also add to that. I don’t think it’s a straight line. I do think because the path forward is more likely higher than not. Assuming the fed can keep things under control in this hiking cycle. You can see a drift higher, but remember.

Sonali Basak:
What does that mean? It means a pullback that we might see from now to then can start to create some interesting entry points, especially if you’re looking at the sector level where a lot of areas have been left behind in this rally so far this year.

Caroline Woods:
What does an attractive entry point look like? What sort of pullback would you be looking for?

Sonali Basak:
You can start adding at 5% below. I know you’ve been asking that question a lot. I wouldn’t be surprised if you saw as much as 10%. Listen, what we’re seeing in this hiking cycle is even though we have seen of late, those shorter term yields come down because of less of an expectation of hikes this year. You have seen the long end of the yield curve.

Sonali Basak:
The ten year yield remain anchored at closer to 5.3%. There are a few things going on that can start to upset the applecart here. That includes global bond market spillovers. There’s a lot of concern about foreign bond markets that can spill over into U.S. bond markets. And we just don’t know that long and the curve, how far it could fly off and how fast.

Sonali Basak:
If we see ourselves moving very quickly to 5.5% or higher. Then of course, risk appetite would get much more dented. You have seen that that longer end of the yield curve has not come down, even though we have seen those shorter term expectations come down for yield.

Caroline Woods:
So we have the ten year Treasury currently at around 5.3%, and the market is still higher. So is it 5.5% is sort of the the line in the sand for you, where maybe you start to say, oh, maybe we won’t see double digit returns by year end.

Sonali Basak:
Oh, I still think actually, even if you see yields drift higher, you can still see those healthy double digit returns. I don’t think it needs to be terribly damaging, but I do think you need to prepare yourself. And it makes sense to be having some downside protection here. We see our clients do that through structured investment, but you also see other people doing that through reflecting different entry points in the market.

Sonali Basak:
Let me give you an example. Hyperscalers. Some people love hyperscalers. People have been buying single name hyperscalers on our platform do structured investments. However, you also see a lot of people still getting in through fixed income. If a company goes out and raises debt, their debt instruments might still be yielding high single digit percentage points, and people will be okay with that given the uncertainty that you’re seeing in the equity market.

Sonali Basak:
So higher up in the capital structure, people are going because of uncertainty around the future, but it doesn’t mean that there aren’t more gains to be had even in areas in big tech like that.

Caroline Woods:
But here’s the thing. What do we do until we finally see that 5 to 10% pullback? We’ve certainly seen it in individual stocks. You know we’ve seen better entry points. But if people have been sitting in cash waiting for a sizable correction, they’ve been, you know up out of the market for a while. So yeah. So what do you do between now and then.

Caroline Woods:
Do you just dollar cost average and still put money to work despite the fact that we haven’t seen it?

Sonali Basak:
I love a dollar cost average strategy here, but I also think that there have been parts of the market that have been brutally left behind. You think financials and the last week alone, the amount of negativity around financials is a little misplaced. You think about the macro backdrop and we’re still looking at really healthy growth underpinning the economy.

Sonali Basak:
And if that’s the case fine. You’ve had bank executives the last couple of weeks set the bar much lower. You can see how that brought sentiment lower as well. But with that said, the market has still been fairly volatile. There has still been capital markets activity. Some of that has been prolonged. And guess what. We have a steeper yield curve which is also good for the banks.

Sonali Basak:
So when the banks start reporting next week, I think some of that negativity might start to turn around.

Caroline Woods:
So financials still one of your highest conviction areas because I remember last time you really liked it. And then last month it was one of the worst performing sectors. So you don’t look at that as a warning sign. You look at that as an opportunity.

Sonali Basak:
I sure do. And the reason is also because even within financials, let’s take AI. You have moments in the market where people got really concerned about what I mean for financial services. But let’s also look at this realistically. If you are a person, you are not just handing over all your credit cards to artificial intelligence. You’re not having them manage your full picture, financial account.

Sonali Basak:
Right? Because you are still seeing an era where I runs away even from the biggest players, right? You have a lot of concerns about how data security will be managed in the future from a lot of the largest AI models out there, and so we don’t think that that clears up right away. We think that the financials will be big beneficiaries from utilizing artificial intelligence.

Sonali Basak:
And we don’t think that that’s really baked into the market today.

Caroline Woods:
Where else do you want to put money to work?

Sonali Basak:
Right now I still see industrials as an area where there is really meaningful tailwinds. Take manufacturing as it presented itself in the most recent jobs report, tends to be a leading indicator here. And you do see a lot of strength underpinning the market. You see the PMI, you see a lot of economic data pointing to renewed growth in manufacturing in the United States, other areas abroad, to a lot of near shoring.

Sonali Basak:
This is beyond just the AI build out. And, you know, when we talk to clients, we see a lot of renewed interest in areas that are more real economy, storage, for example, building out of critical infrastructure. And so the private markets will tend to be a beneficiary there as well. But we still think that there’s room in public markets to.

Caroline Woods:
Still room to run for tech as well, given the huge run up that we’ve seen. Nasdaq hit an all time high today.

Sonali Basak:
It’s interesting. I just this morning was looking at how semi’s versus software was trading once again. And you can still see the ratio being pretty in favor of the semis. This has been a very crowded trade. That’s not to say there’s not more room especially on the heels of pullbacks. You know and micron people were so excited about micron last week for example Michael had ended the week lower after their initial boost from earnings.

Sonali Basak:
And so there are opportunities. But you would watch valuation at this point. You would watch flows at this point. Because when you watch the crowd enter some of these trades and you kind of have to ask yourself, well, wait a minute, are some of the beneficiaries being left behind? Software has been that for most of this year for us, but most of our clients will look at software now and say, well, maybe we have been reaching a moment where we’re more fairly valued.

Sonali Basak:
It’s an area where select parts of software, it’s a good time to look for pullbacks.

Caroline Woods:
Okay. So I was going to ask then based on that flows data, do you chase for semiconductors because that’s where the momentum is. Or do you look at software as the opportunity because that’s where it isn’t.

Sonali Basak:
I still think hyperscalers have room. I think hyperscalers have room. And with this great shift and trades that are going on with in the AI ecosystem, who doesn’t have their eyes on falling token costs, right. So when you look at the hyperscalers, they have more insulation to those declining token costs than, say, some of the frontier labs may have than some of the NIO clouds may have.

Sonali Basak:
And by the way, they have longer term financing structures underneath. So you have to worry a lot less about their cash burn. And as we know, CapEx estimates are rising. So that makes hyperscalers, safer, still attractive trade as the ecosystem changes pretty rapidly.

Caroline Woods:
But how are you thinking about earnings season because you mentioned micron actually ended the week lower after its earnings. As we think about this upcoming earnings season the eye bar is very high.

Sonali Basak:
It’s very high. And some of the tailwinds that existed the last couple of cycles don’t exist as rapidly this time. I think, you know, we wrote in the middle of the year, beware the one hit wonders, those tax benefits, those onetime gains tied to surging valuations and private equity investments that a lot of these hyperscalers had. We knew that anthropic and OpenAI had been surging in valuation the first half of this year.

Sonali Basak:
That growth rate tends to start to slow down, particularly as we know about those token costs declining and that uncertainty that exists around those business models with those declining token costs. So don’t count on the one hit wonders anymore. But you still have very healthy earnings growth that’s expected coming out of many of these hyperscalers. And in fact, you look at a subset of companies and it’s expected to between Nvidia, Broadcom, alphabet, Amazon and a few others.

Sonali Basak:
It’s 50% of the earnings growth that’s expected. The overall season is expected to have earnings growth EPs growth that’s slightly lower than the prior quarter which is what we expected. I think when we look around the corner here, you’ll see that tech is still propping up a lot of that earnings growth. And so it draws a lot of question about the other sectors.

Sonali Basak:
In fact I think energy is probably among the most vulnerable because energy will have the potential to really shine this earnings season. But should we start to see a decline in oil prices? I think that becomes a little bit more difficult to support the energy trade that has been supporting a lot of this year.

Caroline Woods:
So you’d avoid energy here.

Sonali Basak:
I’d be very cautious about energy growth.

Caroline Woods:
Where else would you be cautious?

Sonali Basak:
I would be cautious in parts of tech. I think we’ve been talking about the bullish areas of tech that we still are because they have been left behind for so long this year. But I will say that I would be wary of momentum chasing as it comes back. Remember, we this summer had a meaningful momentum washout. We’ve had a real deleveraging of levered asset managers, hedge funds.

Sonali Basak:
And we’re sitting here in a moment where you can see when we had a moment of calm in the macro. Once we start to get more clarity around the rate hiking cycle, once we get more clarity around earnings, momentum might start to come back. So let’s beware of chasing those rallies again.

Caroline Woods:
So instead of stock picking, just have maybe broader index exposure to tech. How would you like.

Sonali Basak:
To see people having broader index exposure? But I actually think that when you think about the stock picking that you can do moving forward. Again, pullbacks are where you get in, nothing against semis. But you know, this is where we like private markets moving forward. If you are in a data center investment and not all of them are the same, you are getting exposure.

Caroline Woods:
To.

Sonali Basak:
Technology companies. But without that equity market volatility. So we are seeing people play the trade closer and closer to the center of that AI ecosystem. I just don’t know how much room there is near-term to run in the areas that have already run up, that are closest to the center of the semi trade. And by the way, Nvidia is not one of those companies that have been super left behind, if you think about it, relatively speaking.

Caroline Woods:
Sure. I do want to ask you about market breadth really quickly, though, because we talked about financials being a weak link in September. But ten of the 11 sectors in the S&P 500 closed lower tech obviously carried this market. Is is that a concern at all. Do you expect that that will continue to be the case. Obviously you think financials will catch up.

Caroline Woods:
But what about the rest of the market?

Sonali Basak:
I’m rooting for market breath. I think one area in addition to energy that we’re cautious about is the consumer. And into earnings season, there are consumer focused companies. Discretionary and staples are expected to have pretty sluggish earnings growth. And I think that’s worth watching. When you look at the macro, you’re looking at real wages that have really fallen behind.

Sonali Basak:
And if you are worried about the consumer at all, we think it’s going to show up in the consumer first, especially because look at jet fuel, right? There are other areas of your pocketbook. Look at mortgages that are going to be more impacted as the year closes up. And so some of that breadth might be hard to achieve.

Sonali Basak:
We think small caps also is going to be a choppy trade, especially with higher for longer interest rates. And so while you want those areas to come back, I think it won’t be a rapid jump back unless we see a meaningful change in the interest rate trajectory moving forward.

Caroline Woods:
So you sound pretty bullish though overall. So give me the bear case. We get to December and the S&P 500 is giving up a chunk of its gains. What happened.

Sonali Basak:
You know it’s interesting you and I when we talked a little earlier this year I think since then a lot of people have been feeling very pressured to up their price target to the SB 500, and we kept a range that ended a little closer to 7800. We may end a little above that. Our bull case is 8200.

Sonali Basak:
That’s still a while away. I feel comfortable having left us where we were because, again, I did think that we were going to be choppy throughout the year. We haven’t hit the midterms yet. We still have uncertainty around the rate hiking cycle. I think we will have kind of, Easy as she goes. Returns for the S&P 500 for the rest of the year.

Sonali Basak:
There’s no doomsday here from where I’m sitting, but I also don’t think there are going to be tremendous gains left for the rest of the year.

Caroline Woods:
What would get us to 8200? What would you have to see is this earnings season? Is it the fed not hiking anymore?

Sonali Basak:
I think you would have to see gangbusters earnings gangbusters earnings from not just big tech but the rest of the you know for 93 different sectors not just financials also consumer. And you take it from there.

Caroline Woods:
All right. I think it’s a great time to pivot to a rapid fire round of this so that you know how to play. Quick questions, quick answers. No hedging. You got that bull market alive and well are on shaky ground.

Sonali Basak:
Alive and well.

Caroline Woods:
New money today. Put it to work or wait for a pullback. Wait for a pullback. Stocks are 5%.

Sonali Basak:
Treasuries stocks.

Caroline Woods:
Q4 risk on or defense.

Sonali Basak:
Risk on. When you see a pullback.

Caroline Woods:
And the best way to play defense.

Sonali Basak:
Hedge.

Caroline Woods:
Mega cap tech or equal weight S&P 500.

Sonali Basak:
Today mega cap has wins in its favor.

Caroline Woods:
Best place outside of tech financials industrials are health care financials. Semiconductors are software. Software selectively large caps or small caps.

Sonali Basak:
Mid caps, if I could say so. I don’t know if people are paying attention to.

Caroline Woods:
Consumer discretionary or consumer staples.

Caroline Woods:
Staples for income dividend stocks or bonds.

Caroline Woods:
Bigger mistake right now chasing the rally or sitting in cash.

Sonali Basak:
Chasing a rally.

Caroline Woods:
Better opportunity. Market leaders or stocks left behind.

Sonali Basak:
Stocks left behind.

Caroline Woods:
If you can only make one move before year end, add stocks or add bonds.

Sonali Basak:
Add stocks.

Caroline Woods:
Finish this sentence. The biggest opportunity on Wall Street right now is what?

Sonali Basak:
Wow private markets.

Caroline Woods:
The biggest risk on Wall Street right now is bonds and fill in the blank. Investors should be blank right now.

Sonali Basak:
They should be ready for anything right now.

Caroline Woods:
Sonali you played by the rules. Appreciate the quick responses. Thank you so much for your insights into your picks as well.

Sonali Basak:
Thank you.

Caroline Woods:
That’s Sonali Basak chief investment strategist at Eye Capital. If you enjoyed this street talk check out our full interview with Will McGough. He reveals the six stocks he’s betting on right now.

Will McGough
Thanks for having me Caroline.

Caroline Woods
So well we’re going stock picking today. But first give me the setup. Is this the market where you want to be putting new money to work right now.

Will McGough
Caroline it’s the question we get us all the time. We’ve got over 200 advisors and 20,000 clients. And everybody’s obviously curious about what the market’s up to. If you think about it, we’ve got really great earnings learning seasons over. So we’re in a period between earnings season where macro is going to drive it. We’ve got oil geopolitics midterm election coming up and rates and the fed obviously you know causing a lot of consternation at the end of the day.

Will McGough
I like to think about the S&P 500 simplistically. There’s only one way to value it. It’s the earnings per share times the price to earnings ratio. And as long as earnings per share goes up, the market should go with it. Without the p e ratio changing. And p e ratio is actually super attractive right now. So I think that’s supportive towards equity markets going forward for the this fall and the rest of this year.

Caroline Woods
So the short answer is yes. Still money to work right here.

Will McGough
Absolutely.

Caroline Woods
What’s the biggest risk that you’re watching right now that could change your tone.

Will McGough
So that’s a great question. There’s all sorts of risk. And it’s really the unknown out there that nobody knows. At this point, I would say you have to think about how trends form. You know, when you get a lot of people talking, a lot of buzz and a lot of headlines with a certain topic, money starts to flow.

Will McGough
And when money starts to flow one way, it has consequences. And right now I think the rate environment, especially the ten year yield hovering around 5%, is a little scary for a lot of folks. If for any reason it starts to push into the mid fives and approaching 6% is when we’re going to start to see the equity markets break.

Will McGough
But you have to put this in context. Higher rates is actually good for a lot of different investors, especially those in or near retirement.

Caroline Woods
Is that when you would start with some fixed income picks though versus stock picks?

Will McGough
So that’s kind of the catch 22 of just being a chief investment officer for a wealth management firm. Fixed income plays a role in a lot of different portfolios for a lot of different reasons, for a lot of different advisors. And so I think it gets back to unique circumstances there of each individual investor. But when you have attractive rates, you mean the ten years, you know, pushing 5% investment grade, high yields, high single digits.

Will McGough
So at some point, if you’re looking at a financial plan and just trying to get, you know, 8 to 12% per year, and you can get a lot of that through the debt markets, it’s more favorable, obviously, to the debt markets. Then you’re taking that allocation away from the equity markets, especially as we’re kind of at some point nearing peak enthusiasm and optimism with regards to equities.

Will McGough
So I do think those conversations are going to be had. A lot of our themes that we’re working on with our advisors as own the rate environment. So what that means is work with clients and go get the easy singles and doubles from the fixed income and debt markets to help get you where you need to be with regards to where clients want to go.

Caroline Woods
Okay, so let’s get into your stock picks right now. First up Nvidia. Obviously it’s not the most unique name on the list, but what convinces you that Nvidia still has more room to run from here.

Will McGough
Yeah. So this one in a sense kind of baffles me to some reason. Caroline. It’s the number one spot from a market cap standpoint in the world. It’s the largest and it’s undervalued relative to the market on the PE ratio. And so I think that’s very attractive. You know when you’ve got Nvidia at the epicenter of everything I from GPUs, CPUs, the build outs, I’ve got a good friend in the industry that’s now using the term DOJ, which most people think of Bank of Japan as the Bank of Jensen.

Will McGough
And here you have Jensen. If you listen to his last earnings call, he essentially was saying his free cash flow and Nvidia’s cash flow is going to get better next year because they’re making all sorts of investments this year. Where is he making investments? Startups, private companies. So to me, if you have the top CEO with regards to the number one slot, from a market cap standpoint out there, investing in private markets, access is the new alpha.

Will McGough
And, you know, some investors can get access to private markets for, you know, their portfolios, but you don’t necessarily need that in this day and age when you have, again, Nvidia out there giving you access to private markets from all the startups and, acquisitions are making to help insulate themselves in the build out. The other thing I like about what Nvidia is doing is they’re pretty apolitical with regards to frontier models versus open language models, which is important to me because a lot of big companies right now are having good reason to look at cybersecurity information.

Will McGough
Data sharing policies and open source models help alleviate some of that to some degree.

Caroline Woods
Okay. All right. Next up on your list, Taiwan Semiconductor. More impressive year to date and one year chart than Nvidia. But still room to run there.

Will McGough
Yeah with TSM I think it really hits kind of more of our broad macro thesis. If you think about investing in this day and age. It’s really I or not. TSM is obviously not an American company. It’s overseas. It’s actually in an emerging market, definition through Korea and Iran, through Taiwan as well. And so I think when you look at investing this day and age from an asset allocation standpoint, you need to shed the labels.

Will McGough
What’s growth is becoming value. Let’s developed market does could be in an emerging market. And so you really need to look to build portfolios across the labels. A third of emerging market is TSM, SK Hynix and Samsung. Most people think of emerging markets as commodity producing economies and country as well. AI is a third of emerging markets right now.

Will McGough
And so I think if you’re going to have a prudent portfolio of an asset allocation standpoint, you got to go straight to the epicenter of, who’s manufacturing all these chips. It’s TSM. TSM is also an international company in an emerging market definition. So we like TSM for a lot of different reasons. But the most is that if you’re just an American investor, unless you’re one through an ETF, you’re not usually getting access or having allocations to the like of TSM.

Will McGough
But again, so again, it’s the manufacturer of all the, GPUs, processors and chips, which we like, and don’t see any reason that they’re not going to start manufacturing all the important components that I build out.

Caroline Woods
What’s the biggest risk to the TSMC story.

Will McGough
So it’s the geopolitics. International tailwinds like dollar plays a big role, in my opinion. You also have to think that at some point, I mean, I just mentioned the Nvidia and their free cash flow getting better, which means they’re doing less investing next year as relative to this year, you know, at some point the build out is going to get to the point to where it’s just going to flatline right now.

Will McGough
One hyperscalers negative free cash flow is semiconductors manufacturing GPU hardware data. You know all the infrastructure that surrounds Ise positive gain there. And so again we’re watching kind of the CapEx number has been a big fan of like you need to earn the hyperscalers and the memory hardware names side by side. A lot of people try to do an either or standpoint there.

Will McGough
And again, I think in this rising environment of all the yields going up, you see them ebb and flow like semiconductors was hyperscalers performance Yang’s and Yang’s again as an asset allocator for financial advisors and wealth management practice. It’s about having exposure to both, not necessarily choosing one or the other.

Caroline Woods
Okay. All right. Third on your list is another tech name AMD an even bigger winner, up to over 180% year to date. Why aren’t investors too late to this name at this point?

Will McGough
AMD is an interesting one here, and it’s really perked up. And you asked for five stocks originally, and I kind of did a three for two with these three names here. Just because I had trouble picking one where we looked at Nvidia and then TSM as a manufacturer. So Nvidia does GPUs. They also do CPUs to some degree.

Will McGough
One of our advisors used to work at Circuit City back in the day. So he was able to explain to me the difference between GPUs and CPUs. But if you think about hyperscalers before I it was cloud. That’s pretty much GPUs. And AMD is the semiconductor name that is more predominantly built out in that space. The reason AMD has perked up now after its huge run, like you just mentioned, of a 180% is the news out of Facebook with news.

Will McGough
And so you start to run agents. They’re going to need CPU to be run to be run themselves on. And I think that’s where AMD comes in and helping the hyperscalers and their cloud and kind of getting like, we’re winding the clock back a couple of years to where cloud infrastructure was the name of the game that doesn’t necessarily compute and GPU horsepower for AI.

Caroline Woods
Okay, so you talked about how much it’s run, though, especially just in September alone up double digits, not too late. At this point. You have to wait for a pullback to get in.

Will McGough
If you’re trying to time it tactically, I mean, maybe you wait a little bit to see if it cools off to some degree. But again, if we would have played this, should we wait for the find the perfect entry point? We’ve been I’ve been waiting on 108% run to the upside. So again, I think it’s all about again, prudent asset allocation.

Will McGough
You’re going to get exposure to these names being a passive investor. And you can look at certain ETFs like semiconductors or, you know, memory ETFs to kind of help get more targeted exposure there. But if you’re investing for the long run I still think the I will build out mid innings. So a lot of runway left for. And if it like with anything else in this you know all of this massive amount of money following it, there’s going to be volatility.

Will McGough
And if you can’t stomach the volatility then maybe you shouldn’t be an investor here. But if you want to participate in long term growth AMD is a great way to go about it. Sure, it may get things up a little bit in the short term, but over the long term we like it.

Caroline Woods
Okay, so as we think about what leads the market between now and year end and even thinking into next year based on the fact that three of your top picks are tech stocks, safe to say that you think it’s going to be tech that leads us higher?

Will McGough
Yeah, I would say for sure tech it’s going to lead the trend higher. We had a market environment that’s been really healthy. Threats have been really good for the mid part of the year. Everything except magic seven and tech made new highs over the summer. So that just goes to show you the old adage that, you know, the market’s going to rebalance for you and you don’t have to do much in the rotation.

Will McGough
Underneath the hood is a good thing. But if we think about really the market since global financial crisis, it’s been a tech led market for good reason. We’re a tech service economy here in the States. We have the best people, the best infrastructure for that to happen. And so tech joining the train and making new highs is just going to broaden the market out even more.

Will McGough
When you have everything else working as well. And again, until we start to see earnings revisions, just call it flatline. Not necessarily go down. The momentum of the trade is still to the upside. It will come a point in time where the market has to adjust and, you know, consume all of this earnings growth. But that time is not yet.

Will McGough
We just don’t know. Nobody knows when it’s in the future. There’s no crystal ball and investing unfortunately. But you know we are watching for signs for that. And do you like to be continued invested in all things technology. You know, for the for the short to intermediate term.

Caroline Woods
Okay. And the first sign that you would look for is just not earnings.

Will McGough
Revisions earnings growth. Right. Yeah. So earnings have been growing astronomically well well above you know any historical norms. If you look at the last the last earnings season year over year was like 50% earnings growth. Now there is some weird numerology behind those numbers. You got a lot of tariff refunds. And there you had companies like Google that were invested in space helping their earnings grow.

Will McGough
So I think when you back out all the kind of the weird nuance, you were still looking at a 30% ish earnings growth year over year, which is phenomenal. I mean, no change in the price to earnings ratio means that the S&P should fall about 30%. P e ratio is actually come in a little bit. We started the year like 23 price to p e ratio.

Will McGough
We’re down to like 19. Now a lot of people say historical norms like 1617, 18. I would say in this day and age, 19 is probably your historical norm. If we’re looking back, you know, 20 years from now to this point in time. So I think if a fairly valued market and earnings growing and let’s not forget the government still continuing to print massive amounts of money, that money has to go somewhere.

Will McGough
A lot of it goes into things including risk assets. So a couple of big factors at play. Don’t overthink it. When there’s a lot of liquidity, a lot of money sloshing around, it’s going to cause prices to go higher. You know, kind of even the taboo words of inflation in this day and age, it’s going higher because of real growth.

Will McGough
Right? So it’s, you know, when things are growing, you need to be growing your portfolio. You’re going to get left behind.

Caroline Woods
Okay. Let’s get back to your picks. Next up, not an eye stock necessarily, but certainly connected to the I trade that’s Eaton. Eaton also having a good year to date so far. Kind of a power play. Talk to us about what the opportunity is there and why Eaton versus averted say.

Will McGough
Yeah. So I mean, our analysts and portfolio managers in Overland Park, like Eaton for good reason. We just feel it has a little bit more insularity around specifically part of the I build out here. We in our stock portfolios, we own Eaton. We’re also a big fan of an ETF called Zap zap. So you can think of a lot of these is like somewhere in between an energy company and a utility company.

Will McGough
And they both kind of have the old mantra of like just kind of a slog of a growth. Call it like 8 to 10% per year. So they’re not going to really do much historically. But you throw in all of this CapEx and data center buildout, no surprise they got to be powered. And, Eaton is our play for the, power angle here as well.

Will McGough
And so again, we like Eaton broader just the whole theme through an ETF. And, you know, I don’t necessarily want to kind of get into like either or here, but, you know, again, it’s just, if you’re looking for a stock Eaton, what we like, otherwise the ETF zap, is a great way to add a broader exposure to the same.

Caroline Woods
Okay, shifting gears a bit, J.P. Morgan is on your list. That’s, I guess, pretty much the the weakest performer of the bunch, only up about 5% year to date. Is that a way to play defense? Is that a way to play the higher rates? What is it for J.P. Morgan.

Will McGough
Go on. So like we do get to do a lot of client events. And oddly enough, one of the most questions we get asked a good debt is from clients. How do we diversify away from AI? And you have to just think about just normal, average, everyday people. It almost seems too good to be true. Like AI is taking over jobs, it’s making everybody more efficient and it’s causing gas prices to go up and electrical bills to go up from data center buildout.

Will McGough
So there’s actually a little bit of what I would say, like a negative sentiment around AI. And so we could ask as portfolio builders, how do I diversify away from it. It’s actually harder than you would think because AI is touching everything. And so even JP Morgan, is one of those names. But you can also look at like the GLP one stocks as well as so with financials, it’s really of course JP Morgan Goldman Sachs.

Will McGough
So they have some AI embedded. Play it because they’re using a lot of AI. We do a lot of work with JP Morgan and see it. But ultimately in this rate environment where rates are higher and going higher with the fed, having raised rates recently, you have to look at the financials, I think is the way to diversify away from AI because higher rates are more beneficial to their overall business, get more spreads on their loans, they have more opportunity to use their balance sheet, to do different things with some of the like these mega financials, they have asset management arms that they’re participating in, the market growth, access to private markets,

Will McGough
private banking, you name it, they do it. And let’s not forget the IPO market with investment banking as well. It’s pretty hot right now too. So again, you got to go with the best of breed here, which kind of comes down to Goldman Sachs and JP Morgan. We just like JP Morgan a little bit better. Should we do on both of them.

Will McGough
So I would go with financials here also an ETF to play this theme as well. It’s more of a sector not necessarily a theme. But again, if you’re looking for ways to diversify away from AI, financials are a good option here.

Caroline Woods
Although interestingly enough we recently saw financials get hit because of Meta’s new AI agent muse and the concerns that it will disrupt the financial services industry. Probably not what you want to hear as a wealth manager, but are you concerned that in the same way that we saw software sort of get hit because of what I could do to that, that it could also disrupt the financial services industry?

Will McGough
Yeah, I mean, we took the view on software earlier this year. Is anthropic and cloud really going to cause all these fortune 500 companies to build their own CRM and get rid of Salesforce? Just just like there is in software, there’s winners and losers. There is software that’s ripe to be replaced by I, and their software that’s ripe to be enhanced by, with the financials and muse.

Will McGough
I mean, sure. Do we end up in an environment where muse could, you know, take over a lot of what JP morgan’s doing? Maybe. But what’s the more likely scenario here is that JP Morgan is going to have their own agent slash whatever they call their muse, that does the JP Morgan things for you. And we’re going to end up in a day where everybody’s got tons of AI assistants and like a master assistant, but now we’re kind of get really down the rabbit hole here.

Will McGough
So I’m not too worried about where, where it’s going to go other than I is going to make all of our lives that way more efficient, way more productive, which is going to feed into real GDP growth. If we can just kind of maybe get the government to stop spending so much money, inflation can come down. And then, you know, all of that nominal GDP growth turns into real GDP growth, which is how we get our way out of the debt problem that we have.

Caroline Woods
Okay. Your last pick is not a tech play, but I want to squeeze a little more out of you before we get to that. If you had to give us a software play that you don’t fear will be disrupted by AI. And that looks attractive here. What is it?

Will McGough
That’s a tough one. You know, I do like what Salesforce is doing, and they basically are getting closer to eye than otherwise. We also see it in our industry because we’re wealth management, a lot of fintech. And what’s interesting to me is Claude is basically just creating MSPs to all of these fintech companies, which have APIs. So I’m more concerned about the data sharing here.

Will McGough
Software, I think is, you know, I could probably tell you the ones I would not recommend here. Like we’re not big fans of Adobe. For good reason. Anybody that uses a lot of PowerPoints and tries to make stuff in Adobe just knows how clunky it is. And so I think it’s the software companies that are willing to work with.

Will McGough
I like Salesforce that are more poised to go better versus like an Adobe or like a Figma is more ripe to be replaced, like I do with regards to, you know, a lot of the work that they can do from a design standpoint. So again, this, software is going to have winners and losers. The market will sort that out for you.

Will McGough
So even if you’re in the ETF, the winners will have more of a wait than the losers. Just by you know, how market cap weightings work. And so, again, I think also more importantly, as we watched in January, software rewrite from growth, the values of their price to earnings ratios came down. And we’re starting to see that a little bit with the hyperscalers now too.

Will McGough
If you look at large cut value indices, they’re littered with mag seven names, which makes sense to me. So if you think about lots of growth going forward, it’s space is anthropic when it comes online as OpenAI when it comes public, Databricks when it comes public. So I think a lot of folks need to start rethinking what these old school definitions and growth and value are.

Will McGough
And that’s what actually an area we’re working again with our advisors on the shedding the labels. Like we don’t need to call stuff growth and are you. And when we build portfolios we need to think about like what’s the underlying stock exposure. So we like to keep things core and then go into certain growth or value names based upon what they are.

Will McGough
Think like I we’re like a dividends versus what somebody is going to call a growth in value. So again we saw that the software earlier this year, you know, probably going to be a value play going forward. But if you’re looking at value would you rather be in Adobe, Salesforce or JNJ and Walmart and Procter Gamble? I would argue that.

Caroline Woods
Your response would be okay. Yeah. All right. And finally, your last your sixth pick, which I haven’t been actually keeping track, but I feel like this is a top pick for so many people that we bring on. That’s Eli Lilly and it’s actually underperforming in the market year to date. So when do we see for being such a top pick.

Caroline Woods
When do we start to see that reflected in the stock price? I shouldn’t say I’m forgetting basis. It’s doing a lot.

Will McGough
Yeah yeah totally. Year to date. Yeah. And for good reason that everybody’s picked because if you look at the top ten S&P 500 stocks by market cap is really the only non-tech name in there which is quite amazing. And the thesis is again keep things simple like what’s going to cause Lily to go higher. It’s the GLP one that are helping, you know, make America healthier again.

Will McGough
So I think you have to look at things again. These are megatrends in my opinion. There’s a lot of money flowing, a lot of users into the GLP ones. So you have to look at the producers and manufacturers of those, drugs, which is Eli Lilly. So we we think it comes online at some point. And then some of the issues you have to watch here is, again, more healthcare related, a lot of government regulation, you know, pharmacy pricing, you know, a lot of negative investor, you know, basic average person sentiment on health care prices going higher and continuing to go higher.

Will McGough
And so I think that’s, you know, for being a top ten stock, it’s the only one that’s not tangentially related to eye. If you’re trying to track and build portfolios according to the S&P 500, you should certainly have Eli Lilly in your allocation.

Caroline Woods
Okay. All right. I think this is a great time to pivot and go to our rapid fire portion. This is going to be quick questions quick answers. No hedging based on your picks. Are you ready.

Will McGough
Yeah I’ll try.

Caroline Woods
All right. Here we go. If you could only own one of these stocks for the next five years, which one is it.

Will McGough
Go in Nvidia just based on multiples today it’s got a lot of name written in.

Caroline Woods
Which name which should cut from the list first.

Will McGough
AMD what’s the most overvalued stock on the list? AMD what’s the most undervalued?

Will McGough
I would go with JPMorgan here.

Caroline Woods
If we see a bigger pullback, which is the first name you’d buy.

Will McGough
I’m going to go in video.

Caroline Woods
Which stock on the list doubles first.

Will McGough
Again I’m going to go all in on number one. Here is Nvidia for good reason.

Caroline Woods
What’s the most resilient name if the economy slows.

Will McGough
Our economy start slow and health care probably the best. So I would think Eli Lilly.

Caroline Woods
Which name has the biggest competitive advantage over its rivals?

Will McGough
I would say none of them.

Caroline Woods
JPMorgan or Eli Lilly for diversification.

Will McGough
Eli Lilly.

Caroline Woods
Public markets or private markets for the next five years.

Will McGough
If you get private market right, and what you allocate to I’m going to go private.

Caroline Woods
What’s the biggest risks to all six of these picks?

Will McGough
Out of control rate market.

Caroline Woods
If I gave you $10,000 and these are the only six stocks you can own, which name gets the most money? Which name gets the least?

Will McGough
One? Yeah. I would given video of the most.

Will McGough
And probably AMD the least.

Caroline Woods
Let’s make it seven. Even though we asked for five and you brought six, we want one more. What stock did you leave off the list?

Will McGough
That’s a great question. I’d probably go with,

Will McGough
With a tick tock tick.

Will McGough
I’m gonna go with Apple.

Caroline Woods
And finally, just to go back to your market, view stocks by year end the S&P 500 by year end higher or lower.

Will McGough
I think we end up marginally higher.

Caroline Woods
All right. We’ll leave it there. Will McGough, chief investment officer at Prime Capital Financial thanks for playing by the rules and thanks for all of your picks and your insights. We really appreciate it.

Will McGough
Yeah, thanks for having fun.

Caroline Woods
Will says the S&P 500 will be marginally higher. Rich Ross says the S&P 500 will be at 8300 by year end. Check out a history talk here.

Caroline Woods:
Micron earnings are coming up. And for investors looking to make a bigger bet on the stock, there is an ETF for that. Bilal Little is global ETF strategist at Direxion joins me now to break down how leveraged single stock ETFs work and the risks investors need to understand below. Great to have you.

Bilal Little:
Thank you for having me. Excited to.

Caroline Woods:
Be here. All right. So we have micron earnings on Wednesday. If you’re bullish going into the report why would you use a leveraged micron ETF instead of just buying micron.

Bilal Little:
Yeah I think the first thing to do is to step out to say what is the opportunity in micron. Right. This is one of the best stocks in the market. More importantly there are only three stocks that are really leading the memory space. It’s Micron, SK Hynix and obviously Samsung. Micron has 86% operating margin. So the business is really set up fundamentally to be really strong.

Bilal Little:
What we’ve seen historically is over the last eight quarters, micron has actually outperformed really, really well going into that trade. Most traders would want to allocate capital going in because the following week, three out of the last four weeks, the stock has actually traded down -3.4%. So very important tell. So the question is why do you use an ETF for leverage or exposure.

Bilal Little:
It’s because if you didn’t have a margin account or you wanted to do options because of the cost and because you would actually have to commit more capital, possibly with a margin call, you would want just pure exposure into that with leverage. Now here’s how you get the leverage. Because we use derivatives, which is a swap. Very simple story here.

Bilal Little:
Most traders and investors, they already use derivatives. They’re either going to trade a futures contract or in the open market, or they’ll also trade options. Well, the other derivative that they may not be privy to is a swap. Well, that’s between an ETF issuer and a financial institution. That basically gives you daily leverage like we have in the name of our product to the underlying stock.

Bilal Little:
And that’s daily exposure. The best part about that is the investor gets that in a single tick or trade.

Caroline Woods:
So if we have long term investors the buy and hold investors tuning in right now, should they tune out or does this apply to them as well?

Bilal Little:
It absolutely applies to them.

Caroline Woods:
Not just short term trades.

Bilal Little:
No. Let me take a step back. I think it applies to them to follow what’s happening in the trade. Right. So they can have multiple ways to actually look at what’s happening inside of micron. You can actually look at leveraged ETFs because you’re seeing 25 to 30 million shares traded obviously on the individual stock. But then you can see complementary volume being traded into some of the leverage products.

Bilal Little:
So I think it gives you a total view of how that trade is setting up behind the individual stock. Here’s why they should be mindful if they’re a long term investor. These products are designed for daily traders. These are not designed for buy and hold passive investors that have a long term time horizon. That is why, in the name of all of our positions and individual ETFs, we have daily leverage.

Bilal Little:
We want to imply that because we need to lean in the air or on the side of education, because investors sometimes have that mis misconstrued.

Caroline Woods:
So the options market is pricing in basically a 10% move in micron after earnings. What happens to a two micron ETF if the stock moves 10%.

Bilal Little:
Yeah sure. Perfect. So great setup. The way it’s designed is to give you 200% exposure to that 10% effectively. Which means if that moves 10%, that product should theoretically move 20%. But that compounding could work in your favor. If that stock trades multiple days to the upside because the leverage resets every single day. Now I want to be very clear and very transparent.

Bilal Little:
That leverage can actually hurt you to the downside, right. Because if that stock moves down 10%, that exposure that you would have in the ETF would go down 20%. And this is where investors really need to think about the impact of loss. Because if you lose 10%, you need 11% to get back to even if you lose 50%, you need 100% to get back to even.

Bilal Little:
And we need to spend time with investors making sure that they understand how these products trade and how obviously they play in the market.

Caroline Woods:
So based on the fact that micron could trade lower after earnings based on what we’ve seen, would you want to leverage up heading into earnings.

Bilal Little:
Yeah. Why not. And then let me say it this way not why not. As if it’s so casual and cavalier. If I believe there’s a bullish setup in technical setup, let’s be honest. The stock is priced to target somewhere between 1500 or so. Buy 49 of the S&P top traders on the market right now.

Caroline Woods:
But those are 12 month price targets.

Bilal Little:
They are 12 month price targets. However the stock has actually traded up going into earnings or coming out of earnings over the last couple of sessions. The week after, however, the stock has precipitously sold off. Right now, the stock is off 20% from its high. It’s never reached. Its 221255 price target. And right now is trading somewhere between 1056 or so.

Bilal Little:
If that’s the case, that means there is a true opportunity in which leverage could actually help you for a day or so. And then obviously you might want to take that trade off.

Caroline Woods:
So you need to know when to get out. Absolutely. Same time. Okay. So kind of zooming out. Yeah. Where are you seeing the most interesting setups for leveraged ETFs in the market right now outside of micron.

Bilal Little:
Well a few areas. One I think investors are still watching and trading around energy. Obviously the volatility in the Middle East obviously presents an interesting opportunity nonstop. In addition to that, I actually see a lot of flows around the long into the curve. Right. So investors and traders are actually watching what’s happening obviously around the 20 and 30 year Treasury bonds.

Bilal Little:
In addition to that, I think a very interesting area for volatility that we’re seeing is actually around Bitcoin because you actually seen a decoupling from the dollar as well as what’s happening in the rest of the market. One last area that I think we’re going to be watching very closely is, I would say cybersecurity stocks, particularly if you start to look at the Palo Alto Networks of the world and some of these other stocks, those will do well.

Bilal Little:
Given we constantly see headlines around what’s happening with some of these obviously AI breaks. Last point that I would point out, and I think this is interesting right now, one thing that I’m watching is the trade of SK Hynix and conjunction. What’s happening with micron, because this is the second player up. And although we see a lot of momentum obviously around micron, SK Hynix is clearly touching a bit as well following some of the momentum behind micron, because you’re talking about stocks that have, you know, 100 plus billion dollars in contract agreements locked up for the next two years.

Bilal Little:
Structurally, we haven’t seen this level of demand in these types of positions in a very long time. The sector has historically moved in a very cyclical manner. It’s now moving in a secular, secular manner to the upside, and I think that’s what we’re watching.

Caroline Woods:
So you mentioned the flows data. Yeah. As you look at the leveraged ETF market, are you seeing more interest or positioning in betting on the upside or the inverse products that are betting on the betting to the downside?

Bilal Little:
I think it’s asset class, security specific. And I’ll give you a perfect example. Last week we saw $650 million in shorts being wiped out or bears being wiped out on the Bitcoin trade. And that’s because the trade actually popped to the upside. It broke through its 825, price target ceiling or ceiling. What we’re seeing I would say in other areas I’d say the market is actually moving underneath, into various sectors very stealthily.

Bilal Little:
Obviously there are a lot of macro headlines and data. Also right now, like consumer sentiment is very, very low. And we already know what’s, how they’re feeling as far as their, their purse strings go. So, again, I just to take a step back. I think it’s all asset class and price, you know, security specific.

Caroline Woods:
Where is there a lot of positivity?

Bilal Little:
It’s a good question. I think, I think Bitcoin. I think the debasement trade is very alive and well. I think, investors are really watching this price target of, I mean, this price handle a 5% on the ten year Treasury. I think right now you’re seeing a bit of a barbell approach as well. You can get paid to be on the front part of the curve without taking on too much risk in your portfolio.

Bilal Little:
So I think you’re going to see that from companies as well. When you start thinking about insurance companies, they’re going to take that. They’re going to take that free cash at some point. And I don’t necessarily know what’s going to be the catalyst going into the back of the year to continue to allocate to equities if volatility starts to pick up.

Bilal Little:
The VIX obviously hasn’t traded significantly higher.

Caroline Woods:
So within tech where do you see the best setup. Is it within the Nasdaq overall semiconductors software.

Bilal Little:
You know we’ve been talking about this direction for the last I would say a month or so. We think that broadening out trade is really materializing. So we’ve been looking at equally way to cuz triple QE is the product that we offer. This is an a position for direction. I think this is a position for the market, given the fact that you actually see other pockets in the market doing very well.

Bilal Little:
Again, I just mentioned, I cybersecurity stocks that have done well. You look at obviously what’s happening in memory, even if you looked at the Mag seven, the concentration of the Mag seven over the last 3 or 4 years. Year by year, they’ve actually performed lower. However, the expansion in AI going into these other areas and you saw this with, Salesforce, you’re starting to see how I can actually permeate into other areas of business.

Caroline Woods:
But those are all tech companies.

Bilal Little:
There are tech companies. I don’t think any company is not a tech company today, because the component of data, McDonald’s is arguably a tech company as well. When you start to think about it, and I think that’s the part in society that we have to embrace.

Caroline Woods:
So what’s the takeaway for the everyday retail investor who’s watching?

Bilal Little:
Let’s say they’re two one. Keep a very close eye on rates and yields because the bond market is really driving I would say, repricing the cost of capital as well as risk. The second point is I would take a very hard look at the concentration risk in my portfolio, and I would think broadly about what the, opportunity set is with a more diverse portfolio set.

Caroline Woods:
Okay. So when you say keep a close eye on yields, what specifically are they looking for?

Bilal Little:
I think you put me on the spot. I would say a five and a quarter ten year treasury would be. And then it would be very interesting to where you see one volatility pick up. Two, I would see a rotation into fixed income.

Caroline Woods:
And that might mean that stocks move lower. But ultimately are you bullish or bearish on the market. Would that move lower be a buying opportunity.

Bilal Little:
I think it becomes a trader’s market where it is today. It still is a trader’s market. I think it becomes even more volatility actually is a trader’s, ideal environment. Right. Because you have a lot of price movements for a long term investor. I would stick to that barbell approach, meaning having, paying a close, sorry, paying close attention to what’s happening in fixed income, possibly getting paid for the yield, right, or sitting in the sidelines and then obviously looking at where I could place my bet on equities.

Caroline Woods:
Okay. So if we want to quickly pivot to rapid fire this of that quick questions, quick answers. My first question for you in that case is stocks or bonds from here stocks. If we see five and a quarter on the ten year stocks are bonds.

Bilal Little:
I would still say I would still say stocks based off your risk tolerance okay.

Caroline Woods:
All right. Micron into earnings bullish or bearish bullish buy before earnings or wait until after.

Bilal Little:
I can’t I would be mindful. But I would say buy before.

Caroline Woods:
Semiconductors or broader tech. Both leveraged ETFs trading tool or investing.

Bilal Little:
Tools trading tool only.

Caroline Woods:
Better set up for leverage breakout or dip.

Caroline Woods:
Dip better for leveraged ETFs. Strong trend or high volatility? High volatility how long is too long to hold a leveraged ETF?

Bilal Little:
Past a day?

Caroline Woods:
Past one day. More dangerous mistake using too much leverage or holding too long.

Bilal Little:
Would be.

Caroline Woods:
More dangerous. Mistake. Using too much leverage or holding to lock.

Bilal Little:
Well, leverage is how it’s managed in your portfolio.

Bilal Little:
Holding too much leverage and not understanding the risk.

Caroline Woods:
One area where you would not use leverage right now has a.

Bilal Little:
Fixed income.

Caroline Woods:
Biggest red flag that tells you not to use leverage.

Bilal Little:
Education.

Caroline Woods:
What does that mean?

Bilal Little:
If you don’t understand how products trade and what leverage is? I would not be using leverage.

Caroline Woods:
So if they didn’t understand what you just said in this interview, avoid.

Bilal Little:
100%.

Caroline Woods:
Finish the sentence. A leveraged ETF is the wrong product.

Bilal Little:
When you don’t know what leverage is, you don’t know what a derivative is. You don’t understand how the product is structured.

Caroline Woods:
And it’s the right product.

Bilal Little:
When you know what leverages, you know how the product is structured and you have conviction in the trade setup.

Caroline Woods:
All right. Well I little I appreciate you joining us. Thanks so much for shedding some light on that space.

Bilal Little:
Thanks for having.

Caroline Woods:
Me. That’s Bilal Little global ETF strategist at Direxion.

Caroline Woods:
Joining me now, Kenny Polcari senior market strategist at Slatestone Wealth. Kenny, great to have you back.

Kenny Polcari:
Thanks. So it’s always a pleasure to be here with you. I wish I was in New York with you, but I’m in Florida next time.

Caroline Woods:
Next time. Kenny. All right. Let’s talk about stocks. They’re on pace for a mixed September. But want to get your view on this market. Have we gotten a little too used to stocks only going up.

Kenny Polcari:
You know what. It’s very interesting because I came into September worried about all the issues right. Whether it was the fed, whether it was interest rates, whether it was the ongoing conflict. But the S&P is actually flat. Right? Right. Where it was at on August 31st is about where it is today. Nasdaq is is a couple of points actually higher than where it was in August.

Kenny Polcari:
Right. So the nervous is an anxiety that I thought was going to happen in in August. Hasn’t hit the indexes but it has hit individual name right. If you look at I look if I look at my own portfolio, I’m down 6% from September 1st till today. Not my not not our, our corporate portfolio, my own personal portfolio.

Kenny Polcari:
So, you know, I kind of expected to see somewhere between like an eight and 10% pullback in the market in September. My portfolio essentially reflects that. Yet the broader market, kind of tells you, if you look at it says, well, it hasn’t been so bad, right. And I think what we’ve seen is on any weakness, we have seen plenty of support.

Kenny Polcari:
Right? We haven’t seen the bottom fall out, in the broader market, although individual names once again have gotten beaten up, some of them got beaten up more than others. But that’s just part of the cycle. But one way, the other, we got, you know, the one fed rate hike in the middle of the month, from from award.

Kenny Polcari:
The market is now pricing in, a hike in October and a hike in December. And I would say that if oil stays in the mid 90s to the high 90s and diesel stays up where it is up and doesn’t offer any relief, and bond yields continue to take higher. You know, the ten year hit, you know, 5.21 5.22%, that is going to provide a headwind for the broader market, at least told us it’s going to put a cap on it.

Kenny Polcari:
Right? So we’re not going to explode higher. And there is a possibility that as we move into October and start getting closer, closer to mid-term, that that anxiety will, rear its ugly head, and then we’ll see maybe a broader pullback in, in the indexes.

Caroline Woods:
So that 8 to 10% pullback is now your October forecast.

Kenny Polcari:
Well listen it’s happened to me in September I’m done. Like I said 6%. And the month isn’t over yet. Wait till Wednesday. That’ll be over I’m Tiger. But yes I’m still looking for a drawdown right. And like I said, if you look at individual names, then you’ll see it. You’ll see some things are down eight, ten, 12%.

Kenny Polcari:
So if you look at individual names, you’ll see it. The broader market though hasn’t hasn’t pulled back. But I still suspect and I’m still in the calm that the broader market, both the Nasdaq and the S&P will see, volatility in the month ahead. So yes, I still suspect I wouldn’t be surprised if we saw a broader pullback.

Kenny Polcari:
You know, somewhere in that in that range.

Caroline Woods:
Well I was still in the Dow. The Russell in the Dow have been the underperformers in September. What does that tell us is that that does that mean the tracking out of rotation was short lived.

Kenny Polcari:
Yeah. Yeah. But and also you look at the Dow transports because they have also been in underperform. The Dow transports have broken down and through their long term trendline support. Right. And that’s something to actually be concerned about because now if you look at the Dow industrials it hasn’t yet. But the Dow industrials are now below its intermediate term.

Kenny Polcari:
And so now where it’s in between the 200 day and it’s intermediate term. So that’s going to be a key metric to watch to see if the Dow industrials then mimic what the Dow transports it telling you. Because remember the Dow theory talks about you know the Dow industrials make all these products and the transports transport them all around the country right.

Kenny Polcari:
If not around the world. And so when you start to see when you start to see both of them in a negative pattern that suggest to you that the market in the economy is going to run into some is going to it’s telling you that the markets and the economy’s going to run into some problem. And if you look just into transports, it’s already it’s already raising that warning flag.

Kenny Polcari:
Right. The industrials haven’t done it yet. But but we’ll see what happens over the next couple of weeks if it breaks in fact. But to today. And if it does then that would confirm Dow theory saying that you know the industrials and the transports are sending up the warning money okay.

Caroline Woods:
So given that is now the time to get cautious or should we still be aggressive.

Kenny Polcari:
No. So you I would never and I look at that as, as my own portfolio and as a wealth advisor I’m not getting aggressive at all. I always remain I always have kind of one foot in that cautious stance. And I look for opportunities on pullbacks in names that I like right there, a good solid opportunities. We’ll talk about them in a minute because you’ll see what I mean when we talk about not necessarily being aggressive.

Kenny Polcari:
If you’re a day trader, you’re somebody trying to do on your own and you want to be aggressive, you know, go for it. But me personally, over the 42 years I’ve been doing this, I tend I tend not to, you know, I don’t ever get so aggressive in the broader market as I do. Kind of I’m much more methodical about it.

Kenny Polcari:
And as a wealth manager, that’s kind of the position. You have to think. You can’t really get so excited that you ohmygod, I got to go all in. You know, as a trader. Yes. Or as an individual vessel, you could do that. But certainly somebody has a as a responsibility to find assets. You know, I don’t ever find myself in that position where I’ve thought, oh, God, I gotta jump in.

Kenny Polcari:
I gotta put everything to work today. It’s not what I do at all.

Caroline Woods:
Okay, so what does the portfolio of someone who has one foot in the cautious camp and that not the all in mentality actually look like where are you position? Where do you want to be? Where don’t you want to be.

Kenny Polcari:
Right. So it’s not so much where I don’t want to be because I think there’s opportunities everywhere. It’s kind of where are those, where are those sectors in the cycle. Right. So again, right now I own tech, but I’m not necessarily buying any tech at the moment because again, I think it stretches a little bit. I think that if the market if grades keep going up, high growth things in the tech things are the ones that have outperformed, are going to be the first ones to get hit.

Kenny Polcari:
We’ve seen that so many times, so I own it, so I’m not chasing it. But you talk about basic materials, you talk about healthcare, you talk about financials that are all been under pressure. That’s where I think there’s opportunity. So for me personally as well as, you know, for the firm, we’re going to be looking at those sectors where they’re not running away.

Kenny Polcari:
There’s still high quality names that are just going through part of a cycle. The thesis to own them hasn’t changed. They’re just under pressure because the cycle is causing them to be in a pressure. So those right financials like health care, basic materials, even parts of the industrial sector. Look, we’ll talk again. We’ll talk about it today.

Kenny Polcari:
But granola is a perfect is a perfect example. Right. It’s in the industrial space. The stock is the stock had gotten, sold. Right. It was down over 22%. It is now finding its base starting to rally back. But that’s the opportunity where I’m saying, right, I love the name. I love the space. The stock is pulled back.

Kenny Polcari:
So that’s where I’m buying. I’m not buying at its highs. I’m buying it on a pole.

Caroline Woods:
Yeah 20% off the highs for GE for Nova. So what else would you buy today aside from GE for.

Kenny Polcari:
No. Well listen there’s another one that’s actually on fire. Is ASML right. ASML is you know we can talk all day long about the chips that ASML is, is the company that manufactures those very very high end machines that that make this very specific chip. That’s another thing that is pulled back. It is a favorite right.

Kenny Polcari:
The firm owns it. It is a favorite. But that is also pulled back. And today it’s up on a 1.5%, I think, on, on some, you know, on some good news on some those that came out as, as a, it’s problems as well as just kind of like there’s a market reaction because of that backed off.

Kenny Polcari:
And then when good news comes out you get the trade offs, the algo that jump right in and take it higher. But ASML is a name that we all know that we like. And again on weakness we started adding to our cover position. Right. So and then let it ride. But on a day like today when it’s up you know 1.5% or 2%, I’m not chasing it.

Kenny Polcari:
We bought it on the way down. Right. You buy it on weakness because the pieces, you own it as a change. The stock is just going through, through part of the cycle.

Caroline Woods:
Can you give us some names that aren’t tech names that you would buy today or you wouldn’t wait? So back for.

Kenny Polcari:
So that I wouldn’t buy today? That’s just thing.

Caroline Woods:
Know that you would buy today, that you don’t need a big.

Kenny Polcari:
Push that I would. Yeah that I would buy thing right I wouldn’t that’s like wait for a pullback. So I’ll tell you. JP Morgan Bank of America I would buy because they’re in the financial space. The whole sector has gotten has come under some pressure. So those are the names that I would buy their names that I own, but their names that I would buy, outside of that, I would buy Merck in the healthcare space.

Kenny Polcari:
I’d buy Merck, I’d buy Lily. Now, listen, you and I have had this conversation. I’m. I’m biased to Merck just because of, some of the medications in the cancer space that they that they developed that, you know, actually saved my life. And so therefore, I, you know, I’ve looked at it on the chart. If you look at Bach, Merck had pulled back.

Kenny Polcari:
It was kind of underperforming for a long time. It’s built the base. But right in here, you know, I’d continue to buy Merck, you know, at its lows now it’s rallied off. So it’s starting to do better. But I would continue to buy Merck. I’d also buy, you know, if you look at the, the emerging market space.

Kenny Polcari:
Well, not any specific name, the ETF, the M ETF, which represents kind of the emerging market has done very well. In fact, this year I think it’s up. Let me just look real quick. Emerging markets are up 23% so far this year. But you know, they’ll pull back a little bit and I’d buy I’d buy some of that as an ETF.

Kenny Polcari:
Okay.

Caroline Woods:
So give us what’s on your shopping list for if and when we do see that 8 to 10% pullback.

Kenny Polcari:
So then I would go into the tech right I’m looking for tech to go on sale right. So I’m looking for some of the bigger names. I’m looking for Microsoft once again to go on sale because we’ve already seen that once we saw Microsoft go from 520 or 530 down to 350 and rally back. But on any pullback, if we see a pullback in the broader market and tech gets it, Microsoft is going to be one of the names we could hit on any pullback.

Kenny Polcari:
I’d be buying Microsoft I’d be back. Apple ID buying Amazon. I’d be buying meta. But meta is not. That is actually on a run right. We bought some meta. And meta is now actually on a run. So I, I’m not going to be chasing better. But if meta does pullback, if that is part of those names that gets drawn into the draw down.

Kenny Polcari:
Certainly meta would be a name that that I would buy, but I’d also buy, you know, other names in the space. I’d buy, some of the cybersecurity names because I think cybersecurity, you know, for it for for Fortinet, CrowdStrike are going to be names that, that I’d like to buy, continue to buy because cybersecurity, the more the more advanced I and this technology becomes, then the more demands is going to be on cybersecurity as a, as a whole in the sector, but on some of those individual names.

Kenny Polcari:
So CrowdStrike and Fortinet, it might do for Kenny.

Caroline Woods:
What are your three highest conviction AI names right now.

Kenny Polcari:
On the field? Would you possibly.

Kenny Polcari:
Micron because of memory? Right in the I’m assuming that that fits in the AI space because it’s all about making sure. Hey, of course micron be one Microsoft is going to be another. I think that’s just a core name. I love Microsoft, I’ve owned it for a while. I’ll continue on it. I think they’re doing great things in the space.

Kenny Polcari:
And so therefore I’m assuming you’re okay with that name as well. As the third one. Let me think about that for a second. I would say probably something, I’m going to go something in the quantum space. So one of the names there I like is ion Q that’s struggled for a while. It’s kind of doing nothing but ion queue like IBM.

Kenny Polcari:
IBM is also got big, big quantum presence. Right. So, IBM could be another name, but if you want specific quantum, I’d pick ion q okay.

Caroline Woods:
So ion QS almost 50% off the highs. Microsoft’s down about 70% off the highs and microns off what, more than 10% off the highs. Right. And for any of those you you would wait still for a pullback. You wouldn’t put money to work to that.

Kenny Polcari:
Well Mike look they’re down right. What do you just say that down 10%. What do you say. Micron is down 10%.

Caroline Woods:
Right 13% from the highs.

Kenny Polcari:
30%. So micron that falls into the position where if you want to buy something today that does understanding that if we get a broader pullback micron like to a lot of the names are going to get hit again. So I wouldn’t put it. You know if you allocate a certain amount of dollars to it I’d buy a little bit and then keep someone you know keep some dry powder on the side.

Kenny Polcari:
Take advantage. If we get that pullback, which I do think we’re going to get. Look the buckets and the pressure again treasuries at trading at 5.21% today. There are a couple of basis points. And so I think that’s what you have to be concerned about.

Caroline Woods:
Yeah. In your note, your latest note, you said this 5.2% ten year Treasury is going to cost some investors, especially the ones who are more risk averse to say, why am I taking equity risk when I can get paid more than 5% to own a risk free treasury and sleep at night? So why should I take equity risk?

Kenny Polcari:
Well, because here you go. It depends on where you are in the life cycle. If you’re somebody in their 60s or 70s, then that’s going to be that’s going to that’s going to feed right into the way you think, because you can’t afford to think that much risk if you’re somebody who’s in their 40s or 50s and you’ve still got 25 or 30 years to go, then you shouldn’t be so concerned about, you know, the ten year Treasury.

Kenny Polcari:
I mean, unless you’re completely risk averse. But if you’re if you’re somebody in your 40s or 50s, you should still be, you know, at least market weight risk, if not a little bit more. Right. But certainly someone in their 60s or 70s at 5.2% that you can guarantee riskless sleep at night sure doesn’t mean you take it 100% of your money putting it there, but you may take a sizable chunk of it and say, you know what?

Kenny Polcari:
I’m going to take this risk off the table. I’m still going to have some risk to the market, but I’m going to take this risk, and I’m going to put it this in this treasury and look at maybe someone who says, I’m going to take three years worth of my living expenses and put it in this 5.2% treasury, and I have to worry about it.

Kenny Polcari:
And then the rest of it, I you know, I don’t I don’t need it because I’ve taken my three years worth of living expenses and I’ve guaranteed it. Now the other one kid can run with it.

Caroline Woods:
What level on the ten year would make you change your overall market outlook? Or what sort of pullback could happen that would make you realize it’s not a buying opportunity, it’s something more concerning.

Kenny Polcari:
Well, so if we see look, I thought 4.75% was the danger zone for ten year Treasury. In fact that’s run right. We’re already at 5.2%. And the market is still essentially closer to my eyes than not. So what I’m what I’m assessing based on how strong the economy is. If you look at some of the economic data, you saw that consumer sentiment was, well, our finest bit of a sentiment was was, better than expected.

Kenny Polcari:
I’m guessing that the ten year Treasury could probably push a tiny bit higher before it gets really anxious. So where’s that? Is that 5.3 5.5% in there? I think that’s really now the danger zone because we’re at 5.21 and the market is not panicking at all. And so you have to assume, you know, bonds take a little bit more of a hit and treasuries could go a little bit higher.

Kenny Polcari:
But if I think we get the 5.3, 5.4, that’s I think when the market’s going to start, people are going to start and they’re going to start to, you know, question themselves and say, okay, what about am I willing really to pay? What do these companies have to earn with the ten year Treasury risk free rate at 5.3 of 5.4%, that’s going to change that.

Kenny Polcari:
That’s going to change the math. And so now while I thought it was maybe 4.7 or 5, that’s been proved wrong. So now I got to move my target up. So it’s got to be somewhere above 5.2 because we’re already there and the market’s holding in. So it’s got to be somewhere you know 5.35.45.5 somewhere in there.

Caroline Woods:
But does that mean if we see that level you you wouldn’t take part in a pullback. You would say now is the time to be very cautious and maybe.

Kenny Polcari:
I will.

Caroline Woods:
Take money.

Kenny Polcari:
And if we get there I would be more cautious. I would be I would said I wouldn’t panic and sell everything I own because the names I own are all high quality in the sectors they’re in. But I would take back, I’d sit back for a minute and I’d let the I’d let the market turn to see where it’s going to go.

Kenny Polcari:
I wouldn’t necessarily jump in on the first down date, because I think that I think there’d be a bigger story there, right? If that if treasuries tick up there, then I think there’s, you know, we’re in for we’re in for some low volatility. So I’d be happy owning what I own. But the cash that I have to invest, I’d leave sitting in a government money market fund earning 5.4% while I wait.

Caroline Woods:
So if you kind of expect an 8 to 2, I know you don’t have a crystal ball, but if you kind of expect an 8 to 10% pullback correction, that would be healthy. If we do see the ten year at 5.5%, what sort of pull size.

Kenny Polcari:
Pullback is then I think because then.

Caroline Woods:
Not fair.

Kenny Polcari:
Market I think the both yeah I think the pullback yet or really like the I think the pullback is at more than 8 to 10%. If we see the ten year Treasury tick higher then I think you know you’re you’re into you could be into a 15 or 20% pullback. And so that would make me more cautious in terms of okay what am I going to do with this cash I have to invest?

Kenny Polcari:
I’m going to do nothing with it. I’m going to let it sit and earn 5.4%, because doing nothing and leaving your money in a government bucket fund is an investment decision. You are making a decision, right? It’s all it’s just sitting here earning nothing. It’s earning 5.5%. When the market could actually suffer a 10 or 15% drawdown. That’s going to offer stability for the balance of the portfolio.

Kenny Polcari:
So that’s what I would do if it got to there. Then I’d be more cautious, say, okay, I’m willing to sit this one back, sit this one out. I’m going to keep what I have. Unless of course, the thesis has changed on why I own Apple or Amazon or JPMorgan. And I don’t think the thesis is going to change that much.

Kenny Polcari:
That would cause me to say, okay, I’m not a get out because the things I owned are not like that. Right? I think I think the only name I own that would be like that would be Iron Cube because it’s so volatile. But I’m not even sure that that would be true, but it would cause me to just sit back and say, okay, I’m going to wait.

Caroline Woods:
Okay, so we have a lot of retail investors who tune in as they think about the Q4 playbook, knowing that we could have this pullback in store. A lot of them probably are sitting in S&P 500 funds. What’s their strategy, which they do.

Kenny Polcari:
So listen.

Caroline Woods:
You got to kind of prepare.

Kenny Polcari:
Your point. Yeah okay. So here’s the point. You’re sitting in an S&P 500 fund. You realize how much of that is exposed to tech. It’s close to almost 40% right. Though the tech weighting in the S&P is I think close to 40%. So all these people that say, oh look I’m in the S&P fund. I’m okay. Be careful because you’ve got a lot you’re out weighted in technology.

Caroline Woods:
So so what do they do okay.

Kenny Polcari:
So what you have to do is you have to diversify the way you might want to think about going into an S&P equal way fund. You have to be equal way fund. You realize the has to be equal. Weight is up almost 10.5% this year. And when the S&P is up 12% right now okay this is up 12% because it’s got a big tech weighting.

Kenny Polcari:
But if tech gets whacked then the S&P the market weighted S&P is going to get whacked. But the S&P equal weight won’t react as much. So you may want if you want the exposure because you want broad market exposure. Then they put more money into the equal weight S&P versus the the regular way S&P because because you’re you’ll be overweight in technology.

Kenny Polcari:
And then if you own the S&P and then you say oh I’m going to own the X okay. Or I’m going to own, you know, the the IVs that, you know the tech ETF, you’re going to be even more overweight in technology. So you have to understand if you’re going to play the game in ETFs, you have to understand what those ETFs own, what the exposure is and then ultimately what your exposure.

Kenny Polcari:
If you’re going to play with individual names, then you have to spread it out. Make sure that you’ve got you’ve got, representation across the sector, right, to make sure that you’re balanced.

Caroline Woods:
So, Kenny, if I gave you all my extra cash today, not my retirement, but just my extra cash, and I said, start a portfolio from scratch for me today at these levels, what would you do?

Kenny Polcari:

Caroline Woods:
So I would.

Kenny Polcari:
Start. Yeah. Yeah. No, it’s great advice. No, it’s great that, so first of all, what have do is I have to sit down and talk to you, just assess kind of what your own risk profile is, right? Because because I don’t know what your risk profile is. So you can give me all the cash you want.

Kenny Polcari:
But if you say to me, look, I’m, I’m, I’m I’m more risk.

Caroline Woods:
I want to be risky. It’s my extra cash. I want to be risky. I’m a long way from.

Kenny Polcari:
Okay. So you want to be risky, right? You’re young. You’ve got 25 years to go. You want to be risky. So I would start. I wouldn’t take it all today and just plop it in. But I would start to feed it in, and I would start to build a portfolio of the broad, equal weight S&P 500, not the market weight.

Kenny Polcari:
Be equal weight. I’d put you in, health care. I’d put you in, industrials right separately. Either we can play. Yes. If you want to eat that type portfolio. But if you if you want an individual name portfolio, I’d pick things like JP Morgan, IBM and Bank of America, Johnson and Johnson, Amazon, Apple, Microsoft. Those are all the names that I would I would, you know, I put you in the SPV which is he has a B value trade right.

Kenny Polcari:
Which are value names. Right. So they’re not as sexy as the growth names, but they’ll offer stability especially, you know, on a drawdown.

Caroline Woods:
Okay. And what do you need to see for me to get even more risky and just go into, you know, bigger tech again?

Kenny Polcari:
Wow. Listen, you should everyone should have tech exposure again. It’s going to depend where you are, right? You’re younger than I am. I have tech exposure, but I’m 65. My tech exposure is going to be a whole lot less than somebody who 40 or 45. Or at least it should be right just because of my age and where I’m at in the life cycle.

Kenny Polcari:
So again, that’s all part of this conversation of which I’m happy to have with you if you want to have a conversation. But, you know, that’s all very that’s all very individual. You can’t just it’s not like a one size fits all question. Just because I don’t know anything about you. I don’t know about your family.

Kenny Polcari:
I don’t know what what what what you’re trying to provide for. All that stuff plays a role in how I might help design a portfolio.

Caroline Woods:
That’s when your fee starts kicking in. All right, I guess it’s with them. All right, Kenny.

Kenny Polcari:
But I listen, I’m kind of nice to you.

Caroline Woods:
All right? Kenny, I think this is a great time to pivot to our rapid fire round of this or that. You know how to play. Quick questions. Quick answer is no. Hedging is you can help it. Yeah. Are you ready?

Kenny Polcari:
All right.

Caroline Woods:
There we go. Yep. Bull market intact or cracks forming. Cracks forming Q4 take some risk off or stay fully invested.

Kenny Polcari:
Stay fully invested.

Caroline Woods:
Stocks by year end higher or lower from here.

Kenny Polcari:
I think they’re going to end right here. So I don’t think they’re going to be higher or lower. I think this is where we are.

Caroline Woods:
But a bumpy road to get there.

Kenny Polcari:
But bumpy road out the.

Caroline Woods:
Dow or Nasdaq from here.

Kenny Polcari:
I think. So that’s that.

Caroline Woods:
S&P or Russell.

Kenny Polcari:
Staying the low I have to say S&P because the grades go up Russell the spins are going to get lack.

Caroline Woods:
Mag seven or everything else.

Kenny Polcari:
Everything else.

Caroline Woods:
Buy the dip or raise cash.

Kenny Polcari:
You’re tying my hands on that one.

Kenny Polcari:
You got to buy the dip. Unless of course you see those other things, right? I’m not trying to hedge, but if suddenly we see treasuries go to 5.4%, then I’d say, you know, not necessarily raise cash, but don’t put any more to work. Don’t buy the debt. Right.

Caroline Woods:
Better my next pullback. No I get it. We appreciate the context. It’s okay that buy on the next pullback tech or something outside of tech. Yeah.

Kenny Polcari:
I say tech.

Caroline Woods:
The number one stock. You’re definitely buying on a pullback.

Kenny Polcari:

Kenny Polcari:
IBM.

Caroline Woods:
You’re seeing the pullback for IBM right. You buy it buy here. Yeah one sector you want to own in Q4.

Kenny Polcari:
One sector healthcare.

Caroline Woods:
One sector you don’t want to own in Q4.

Kenny Polcari:
Consumer many discretionary.

Caroline Woods:
Micron ahead of earnings buy now or wait.

Kenny Polcari:
Buy it.

Caroline Woods:
Nvidia or AMD.

Kenny Polcari:
Us.

Kenny Polcari:
I can say Nvidia because I own it. I don’t own AMD because that’s the way I played it. So I’d have to I have to be loyal.

Caroline Woods:
Okay. Switching gears, is Nike ahead of earnings bargain or steer clear.

Kenny Polcari:
Steer clear I.

Caroline Woods:
Nike or Carnival which is also reporting.

Kenny Polcari:
You’re killing me. And neither I, I don’t like either one of them. They’re not names that I own. So you know, I’d be I’d be okay with the. I’d be poking, carnival.

Caroline Woods:
Consumer stocks pick selectively or just avoid here.

Kenny Polcari:
Consumer staples.

Caroline Woods:
No. Consumer discretionary.

Kenny Polcari:
No. I would stay away from I don’t like consumer discretionary okay.

Caroline Woods:
The one stock in your portfolio you’d never sell even in a crash is.

Kenny Polcari:

Kenny Polcari:
Bike racer.

Caroline Woods:
And finish this sentence.

Kenny Polcari:
I wouldn’t sell the market. I wouldn’t have Amazon. I wouldn’t sell my game. People it either.

Caroline Woods:
Okay, we’ll take all of us. Finish this sentence. If the market pulls back 10%, the first thing I’m doing is it’s up.

Kenny Polcari:
In London right now. First thing I’m doing, I would, I would, I would, I would rebalance the portfolio.

Caroline Woods:
Kenny Polcari senior market strategist of Slatestone wealth I always appreciate you joining us. Thanks for flying along. Thanks for all your picks and your insights.

Kenny Polcari:
Thank you for letting me play along. I always enjoy that. Next time I’ll be with you at the New York Stock Action.

Caroline Woods:
Can’t wait. Kenny, if you enjoyed this street talk, check out our full interview with Brent Schutti. He’s also in the S&P 500 is to concentrated camp and says where to move your money now.

Caroline Woods
Joining me now is Brent Schutte, chief investment officer of Northwestern Mutual Wealth Management. Brant, great to have you here.

Brent Schutte
Thanks for having me here on.

Caroline Woods
All right. So let’s kick things off by talking about your view on the market. Is this a healthy market or is this a market that’s more fragile than it appears?

Brent Schutte
I think it’s getting a bit fragile. If you look at how many stocks are actually outperforming the index, it’s dramatically shrunk. So over the early part of the year you did have a broadening of we’ve been talking about looking for. So you had more sectors, more parts of the economy doing well or more parts of the market doing well.

Brent Schutte
The past few weeks, as rates has risen, the market has become incredibly narrow, which to me means that there are worries that are out there and it’s really being driven by just a few names in the S&P 500, which I think points to increased fragility, especially as interest rates rise. I think that begs the question of where do we go next?

Caroline Woods
So if I own an S&P 500 index fund, am I too concentrated at this point?

Brent Schutte
Absolutely. So the big message that I’ve had, and this is where you’ll hear me repeat this over and over and over again. Having done this for 33 years, this is the second most concentrated market that I’ve seen in my history. Our guests, it’s probably the most concentrated. There was one of the ones in the late 1990s. And that doesn’t mean it has to follow the path the late 1990s, but I think it informs how you think about risk.

Brent Schutte
And so right now, if you’re on the S&P 500, about ten names that are all kind of concentrated in the same theme, control about 40% of what happens to you going forward. And that’s where I encourage people to look outside of those names, to think about opportunities longer term, and things like small and mid-cap stocks, which certainly are and can be under pressure from rising rates.

Brent Schutte
But I think expectations here are still pretty low. And if you look at valuations, that confirms that, which usually is the set up for people who think more about long term investing to reap those returns. And that’s where I encourage people to kind of continue to think about a broader lens as they think about the market, and not just fixate so much on what’s happening in the S&P 500, because I do think that is where concentration risks are.

Brent Schutte
And I should also add that other parts of the world also have those concentration risk. And so this is where I think rather than just thinking about broader indexes, you need to look beneath the surface and see what actually is driving those indexes. And that’s where things like emerging markets are also concentrated in AI type stocks. And so yes, Caroline, back to your question.

Brent Schutte
The market is pretty concentrated right now. And that’s where I encourage people to think about diversification more holistically than they have in the past.

Caroline Woods
And not just diversifying outside of the US, it sounds like. So what should I be doing about it if I’m too concentrated right now, where should I be adding exposure outside of the biggest stocks in the S&P 500?

Brent Schutte
I mean, there are things you can do. Like you can actually just equate the S&P 500. So there’s an equal weight index that we use that removes some of those concentration risk. I want people to think about the AI risk that is inherent across the board. And so in our portfolios we measure for how much exposure we have to the scene.

Brent Schutte
I want people to have exposure to that, but not so much exposure that if I does, pull back just a bit, which is certainly a risk, that’s where I don’t want their entire financial life to be ruined by that pullback. And I risk kind of like back in the 1990s, if you concentrated just on the Nasdaq or the S&P 500.

Brent Schutte
That is where in the 2000 you had a bad experience. So say for example, you decided to buy all tech stocks in 2000. It took you 17 years to make a new high on the S&P tech sector. This is where I think people need to be cognizant of that, not be fearful of it, but make sure that you add parts of other markets to that exposure.

Brent Schutte
So we like small caps. We like mid caps. We’ve added reach recently because they do have a lower correlation to I and we do believe that if the fed were to let inflation out of the box or continue to let out of the box, those reach now would actually have pricing power. And so this is where we’re paying a lot of attention to what’s happening beneath the surface.

Brent Schutte
And I think diversification today is more important. It’s actually harder to find, just given how much AI is inherent across the economy and in stock markets.

Caroline Woods
So if I’m sitting on some pretty hefty gains and I and the magic seven, I should be taking profits here.

Brent Schutte
I wouldn’t let taxes, drive everything that you think about. So certainly taxes are important. But I think diversification is more important. And this is where I would continue to move out of some of those names into other parts of the market. It is not a common trend that these parts of the market are not great stocks.

Brent Schutte
It’s just that they may not be are not great companies. It’s just not they may not be great stocks and that you are taking excess risk if you actually just concentrate in those parts. Because historically, you know, asset classes don’t die. But some stocks do and some companies do. And that’s where I would make sure that I have that diversification that I’m talking about.

Caroline Woods
But if I’m a believer and I and I want to make sure I don’t miss out on any pieces of that pie, where should I be investing? Are there sectors or beneficiaries of AI that I should be investing in instead of some of those winners?

Brent Schutte
That’s where I have really good news with your fear of missing out. Eventually, AI has to spread throughout the economy and become a benefit to the companies that use it. And so this is what I think about when I think about the late 1990s, where you had the picks and shovels and the people putting the internet into place.

Brent Schutte
That was where you saw the initial benefit over the next 4 or 5, 6 or 7 years into the early 2000. That is where the benefits of the internet reach the companies who used it to increase their, you know, sales, increase their profitability. And that’s where I think you’ll have a very similar type of experience in AI.

Brent Schutte
If I is to become what people expect it to become, it has to benefit the companies that use it. And this is where I think smaller cap companies will benefit a lot from it. This is where I think mid-cap companies will benefit a lot from it. This is where I think the US economy will benefit a lot from it.

Brent Schutte
And so I think you’re continuing to see that value creation spread. We started out in chipmakers and hyperscalers, and then we got to memory, stocks where the bottlenecks were. I think eventually you’ll get up to where, you know, encompassing the entirety or morsel of the economy. And that’s where you’ve seen it move into the financials, sector, where they’re using it to increase their profitability.

Brent Schutte
And I suspect that will continue. So don’t chase. Stay broadly diversified. And the good news is you will pick up the benefits of I just with less risk of trying to concentrate and figure out exactly where it goes next. That’s where I think, a diversified strategy still benefits from I.

Caroline Woods
In a diversified strategy. And I know that this is dependent on the actual person, but what portion of a portfolio should still be allocated to the S&P 500 and some of those big tech winners?

Brent Schutte
It’s still a majority of your, your portfolio, because of the risk return characteristics. But it doesn’t need to be the entirety. And that’s where I suggest having international, us on that. You know, I think one thing we haven’t talked about yet is just the diversification from fixed income, which I think a lot of people are running from.

Brent Schutte
You know, it’s ironic for running from a now we’re really yields on fixed income are back to where they were in 2002, 2003, maybe 2006. This is where if inflation does get put back in the box, this is where bond yields ten year treasuries at 5.1% offer good value for people looking for return going forward. And this is where I would encourage people to think about that side of the distribution, as well as owning something which I know is incredibly unpopular.

Brent Schutte
You know, 4 or 5, six years ago, we have owned commodities throughout this because it does hedge against unexpected inflation. And that has been a big win in our portfolios for the past 4 or 5 years. And I want to continue to own those things also because I do fear and I don’t think we know what happens to inflation going forward.

Brent Schutte
I think the question is still out about what the fed actually does and how does inflation proceed for near.

Caroline Woods
It will get to commodities in just a second. But you’re telling me I should move my tech profits into bonds and if so, where specifically? Or is that money that’s sitting in cash or money market fund.

Brent Schutte
No, I mean, I think it depends upon what your personal situation is. We have a whole army of financial advisors who are tasked with going out and helping clients create a financial plan, which shows how much risk they should be taking to achieve their goals over the next five, ten, 15, 20 years. And this is where I fear a lot of people have deviated from that because they are looking for those stock market gains.

Brent Schutte
And they’re really, heavy on equities right now. And they’re reluctant to trim back because they have, capital gains. So they don’t want to, take. This is where I’m encouraging people to think about that asset allocation and making sure that you’re true to that asset allocation and that it is diversified. So it is not an either or.

Brent Schutte
It’s more of a commentary on what is right for you and your personal situation, which is the most important thing that you could probably focus on from a standpoint of actual investing?

Caroline Woods
Can you be more specific about where you’re seeing opportunities in fixed income now?

Brent Schutte
Higher quality fixed income, particularly investment grade that is higher quality rated. This is where I think going forward it provides some competition for equity markets. If you look at a ten year, you know, a rated or triple B rated, which is investment grade, corporate yields around 6%. Think about that in the context of the S&P 500, which is historically somewhat elevated from a, valuation perspective.

Brent Schutte
And that’s where bonds now offer a competitive return. Obviously, assuming that inflation does pull back, which I can hedge to the side of that through commodities and things. This is where I think, you know, bonds do provide competitive returns going forward to equities. And for all the talk about a balanced portfolio being dead, this is where I think for the first time in some time, fixed income actually offers some sort of return profile going forward.

Brent Schutte
If you think about, you know, from 2008 to 2022, all the lifting in a 6040 portfolio was done by the equity side, and bonds basically provided little, I think going forward is more of a balanced, equation with regards to returns.

Caroline Woods
Okay. So if I’m an everyday retail investor and I say, okay, I want to add high quality fixed income to my portfolio, how do I do it?

Brent Schutte
There are certainly ETFs. The Bloomberg aggregate is an ETF. There’s an ETF for the aggregate index which includes corporates. That includes treasuries. Is basically all the investment grade fixed income in the United States. That is the broadest index that you can add. And I believe it yields somewhere in the fives right now. And so that’s, you know, historically, back to where we were prior to the last 15, 16, 17 years, which were abnormal.

Brent Schutte
This is back to somewhat levels of normality. And if you think about inflation and you believe it to run 2 to 3%, over the next few years, you actually have a 2 to 3% real return, which I think is compelling and attractive in today’s environment.

Caroline Woods
Okay. And let’s go back to commodities, because you said now might be a good time to start adding commodities to your portfolio. How do we do that and where specifically.

Brent Schutte
I would think about phasing in. I mean, this is where the risk are. The cure for higher commodity prices is higher commodity prices. And historically, when commodity prices rise like they have, there is an inflation that goes along with that. And the fed oftentimes acts to pull that inflation back, which is a fancy way of saying commodities have rallied a lot here, just like the cure for higher oil prices, which is a commodity, is higher oil prices, just like the cure for higher interest rates is higher interest rates.

Brent Schutte
This is where I wouldn’t add it all at once. I would certainly phase in, but I think going forward, you need to think about the reality that inflation is a risk to your portfolio. So if you think about portfolio construction and back to my diversification comments, if you were investing from 2007 to 2022, the only risk that you really needed to hedge was the risk of less, which meant that you wanted to own longer bonds even though they didn’t yield much because that was the risk that was out there.

Brent Schutte
The other side of the equation, the inflation risk, wasn’t there. Today, I think as you look forward, that inflation risk is there, which makes commodities more important to longer term portfolio construction. But in this year and now, I would certainly take my time, I think more about real estate investment trust rates being more of an inflation hedge these days.

Brent Schutte
And so certainly I would look at those right now just because we haven’t built a lot of new, supply in the market just because of, cost, because of, of, supply demand imbalances. Now, I think those real estate investment trusts actually have pricing power going forward. And this is where I think about adding those. And last but not least, you can also add tips Treasury inflation protection securities, which there are ETFs that give you that type of exposure to your fixed income.

Caroline Woods
So there’s basically an ETF for all of your recommendations. At this point I do want to ask about other sectors within the US equity markets though, because you obviously mentioned small and mid-cap. But what about financials health care. Obviously you mentioned commodities. So I guess energy and real estate would be with REITs. But materials industrials, utilities. Do you want exposure staples discretionary.

Caroline Woods
Do you want exposure to any of those areas in particular.

Brent Schutte
Yeah I mean I certainly want exposure to those. And I think, you know, right now, being a little bit more defensive is probably not a bad idea. From the standpoint of some of those sectors that you mentioned before, staples, health care, I think so, some of those sectors, I just think the thing that I worry about the most is people chasing a trend, chasing momentum, which has worked until this year, and concentrating on technology stocks and waking up one day and it’s, you know, 2001, and you’re looking forward at a few years of underperformance, just given the fact that you’ve concentrated your portfolio, if your audience

Brent Schutte
is retail investors. This is where my job is to get people from point A to point B to point C. The way that you do that is by not having those large, large drawdowns that can really, hamper your financial future. And so making sure that you don’t wake up concentrated, in the Nasdaq. And not that it has to play out exactly like it did back then, but the Nasdaq fell by 80% from December of 2000, from 2000, 2000 to 2003.

Brent Schutte
And that’s where I want people to remain broadly diversified across the US economy as the benefits of ie spread out, and as the economy continues to broaden in the future.

Caroline Woods
Okay. So it’s time to play defense. What would you need to see to start playing more offense, to start getting more aggressive.

Brent Schutte
So I want to balance that commentary against longer term investing, which keeps me interested in those a more small and mid-cap sectors. Those are areas of the market have not done as well for the past two years. They traded significant discounts to large cap. And that is a very imperfect timing tool. But that does dictate who wins longer term.

Brent Schutte
So this is where I think about having a little bit in each bucket. So on the near term, I think, you know, making sure that you’re a little bit more, diversified, perhaps a little bit more towards your overall equity allocation where you should be, but not ignoring the fact that longer term there are opportunities and that you can’t time that.

Brent Schutte
And so I wanted to have exposure to those small mid-cap areas that I would look to potentially add to, in the future, if you did see rates pulling back, or the economy continuing to kind of broaden out, which we have seen, I think the risk now is that rates, increasing, pulls that back. But this is where, you know, I think, if you see rates coming back down, if you see inflation coming back down, those are good signals going forward.

Brent Schutte
But right now the fed is raising rates with a big question of how many times do they actually have to hike. And this is where we’ve been persistently calling for a reality for the past few years that post-Covid inflation would come down, but the last mile would be a lot harder. The market imagined and at least historically, the only way the fed has gotten inflation back down to target is through some sort of economic slowdown, which could be on the horizon in the future of the fed, has to hike rates much more than what is currently anticipated.

Caroline Woods
Okay. So as you think about this being a fragile market, how do you think that plays out over the next few months, especially as we think about kicking off Q4? Is this a market that you think is ultimately heading lower?

Brent Schutte
I think the market has some headwinds that probably keep it more range bound. It has some tailwinds, too. I mean, I think earnings are still a tailwind. I don’t think rates have been high enough for long enough yet. The new increase that it actually dramatically pulls back, overall economic growth. But I think there are certainly headwinds.

Brent Schutte
We have this discussion about AI safety. What we pull back AI spending. We have this question about whether the fed will actually have to hike more, which I think, unfortunately, they might have to hype more than the 3 or 4 times that markets expect, which do bring, some headwinds in the future. So this is where I think there’s kind of this delicate balance.

Brent Schutte
So I’ve talked about the three B’s in my research. We had a bifurcated economy post the rate hikes of 2022 2023. We didn’t get the overall recession, but we did get that bifurcation. It started to broaden this year because we had cut rates last year and we had fiscal stimulus pile on, and I think we’re still in that delicate balance where there are a lot of questions going forward.

Brent Schutte
And that’s where I’m kind of mentioning these, staying diversified, making sure that you have exposure to different markets because I think it’s incredibly hard to now kind of think about what happens going forward, just giving all the variables that are out there. I’ve never met a certain time period, but this one does feel, a lot more uncertain than other time periods of the past.

Caroline Woods
Okay. I think this is a great time to pivot to our rapid fire round of this or that. Quick questions, quick answers, no hedging if it can help it. Are you ready, Brant?

Brent Schutte
Yeah.

Caroline Woods
Who wins in the near term? Bulls or bears?

Brent Schutte
No hedging. I think bulls still have the upper hand.

Caroline Woods
New money today in stocks or bonds?

Brent Schutte
Both.

Caroline Woods
As a hedge hedging. But we’ll give you one short more long term treasuries.

Brent Schutte
I think longer term treasuries offer value here, especially if you’re looking to hedge an equity portfolio. I think that’s where there’s opportunity to use these as a hedge against the potential that we do. High rates too high and the cure for higher rates as higher rates and an economic contraction.

Caroline Woods
By a 5% pullback in stocks or wait for 10%.

Brent Schutte
I would probably wait for 10%. I just think there’s, a lot more, there’s some downside risk in the near term.

Caroline Woods
U.S. or international stocks.

Brent Schutte
U.S. now, international later.

Caroline Woods
Large caps or small caps?

Brent Schutte
Small caps, longer term.

Caroline Woods
Growth or value?

Brent Schutte
Value.

Caroline Woods
S&P 500 or equal weight?

Brent Schutte
Equal weight. I’ll take the field over the ten.

Caroline Woods
Consumer discretionary or consumer staples.

Brent Schutte
Consumer staples.

Caroline Woods
Financials are health care.

Brent Schutte
Health care.

Caroline Woods
One sector you’d buy on the next pullback.

Brent Schutte
Tough question. One sector I’d buy the next pullback.

Caroline Woods
Reads one sector you’d avoid completely right now.

Brent Schutte
Completely I’d avoid energy right now.

Caroline Woods
Brent Schutte

That’s it. I’d avoid technology right now. Technology? Yes.
Caroline Woods
Best place to put $10,000 today.

Brent Schutte
U.S. small caps.

Caroline Woods
Going back to technology, I trade. Still room to run or to crowded?

Brent Schutte
Too crowded.

Caroline Woods
Next big opportunity. Inside or outside tech?

Brent Schutte
Outside tech.

Caroline Woods
All bigger risks to the market. Rates are oil.

Brent Schutte
They’re connected. But I would say interest rates.

Caroline Woods
Economy resilient are running out of steam.

Brent Schutte
Resilient for now but eventually runs out of steam.

Caroline Woods
True or false? The S&P 500 is no longer diversified enough for the average investor.

Brent Schutte
100%. True. And the biggest risk.

Caroline Woods
Stocks by year end. Higher or lower.

Brent Schutte
I’ll go lower.

Caroline Woods
And finish this sentence. If investors make one portfolio change right now, it should be.

Brent Schutte
I would add US rates.

Caroline Woods
And Brant, just to go back to the initially avoiding energy but adding commodities, can you just make the distinction for us. Because some might hear commodities and think things like oil. So when you say add commodities to your portfolio, you mean what.

Brent Schutte
I mentioned over time with commodities is not doing it right now? That was my initial energy commentary, because I do think, the cure for higher prices is higher prices, both in oil and commodities. And if you look historically right now, commodities are bumping up against a level on a year over year return basis where there hasn’t been good outcomes going after that.

Brent Schutte
And so I do think commodities rising right now is a risk. And that’s where I probably wouldn’t be buying them right now. But I want people to think about them longer term and, start thinking about adding them on some of those pullbacks. And so that was where the energy time was, to that commentary.

Caroline Woods
Okay. So when you say commodities, you still mean oil. It’s just basically buy on the dip.

Brent Schutte
I mean, commodities in general are more of a broad basket. So they’re the commodity basket we use has other things besides oil and it has copper. It has precious metals. It has agriculture. And it commodity prices I think are the rest right now, which I’m comfortable owning some of that because you do want to own the risk.

Brent Schutte
But at the same time, I don’t want people having a full allocation. I want them to use to buy the pullbacks to actually add to it over time.

Caroline Woods
Okay. And just finally, any Bitcoin in your portfolios.

Brent Schutte
There is not we have won gold in the past. We do own it throughout commodity basket. We’ve hedged inflation for the past few years. That’s why we’ve owned commodities. The best hedge for inflation is not gold. It is actually broad commodity exposure. And that’s where we’ve had that in our portfolios for the entirety of my time here. But more so since 2019, till today.

Caroline Woods
When I said Bitcoin not gold unless you’re referring to it as like digital, I.

Brent Schutte
Think that I use I changed over because we don’t know a bit called bitcoin. But I think people equate Bitcoin with gold. I still think gold is cool. And I’d rather that coin we don’t own either now. But we do own gold through that broad commodity basket.

Caroline Woods
Okay. All right. Brent Schutte, chief investment officer, Northwestern Mutual Wealth Management thank you for clarifying all of that. Thank you for playing along. We really appreciate your insights. If you enjoyed this street talk, check out our full interview with Rebecca Walser. She’s still bullish on tech and gives her top tech picks. Check it out.

Caroline Woods:
Joining me now is Rebecca Walser, founder and CEO of Walser Wealth Management. Rebecca, great to have you back. It’s been a little while now.

Rebecca Walser:
It has been so glad to be back.

Caroline Woods:
So let’s start with the temperature check of the market. Stocks are lower again today as yields are higher. How are you feeling about the market right now.

Rebecca Walser:
You know energy prices back up. More pressure again on crude. And that obviously has a reverberating effect. You know just got an interest rate hike by Warsh our new fed you know chair. So that indicates that we could be on a hiking cycle. It’s really hard for me to think that we will hike in October right before the midterms.

Rebecca Walser:
That’s usually a political No-No. So I think we could see a pause, but otherwise we could get a hike in October. And certainly I do believe with the current data that we will also see a December hike. So on a hiking cycle, what happens is people are realizing that the existing bonds that they’re going to own are going to be worth less, not worthless, but worth less in the future as rates are risen from what they are currently holding.

Rebecca Walser:
And that’s why a lot of people start to sell their bonds into a hiking cycle, because they realize this is going to become more heavily discounted the longer I hold. So they might actually liquidate. And that’s why you’re seeing yields going up as well.

Caroline Woods:
Okay. So how you’re feeling about the stock market is bullish bearish neutral.

Rebecca Walser:
It’s so hard right. Because a couple of factors we are at right before an election. And we think that this election is indicating that the houses will change ownership to the Democratic side, which means we’ll now have a divided government. The Republican as a as the president and, Democratic House. That means that we’re going to potentially have a lame duck presidency the next two years.

Rebecca Walser:
Impeachment, a lot of just just noise and not a lot of action. So then we look at what’s going on globally in the world. All right. We’ve got still the Iranian war that’s getting, increasing pressure. And we’re seeing oil increasing in pressure. So that is a pressure point that affects all supply chains and all iterative, you know, supply scales down the road.

Rebecca Walser:
Then on top of all of that, we have the most capital need that we have really seen Caroline, since the second industrial revolution, the steam engine, the railroads, the robber barons of that era. Those are the Nvidia’s that Microsoft, the Amazons, the hyperscalers that Google, the alphabet’s. Those are the robber barons of today saying, we are going to build the AI platform and ensure infrastructure globally.

Rebecca Walser:
We are hoping that America leads the way globally, and that requires a lot of capital. We have that need of capital coming at the same time that we have a five year after a five year window of pandemic stimulus globally, where the world printed about 20 trillion, the equivalent of 2020 U.S. dollars in domestic currencies globally. So you already have the central banks of large balance sheets and needing to raise capital still to maintain that, as well as that the capital spend from the hyperscalers and all of companies going to AI and the middle of a war and the middle of an election, lame duck presidency.

Rebecca Walser:
So the the innovation that is happening is the largest technological transfer in the history of mankind. It is the thing that we have been waiting on. So it is the only thing that could overcome all of those things. Caroline, to still give us positive momentum, we could end the market anywhere from, you know, 250 lower on the S&P all the way up to 8000 in the green on the S&P.

Rebecca Walser:
Circumstances determine these next couple of months okay.

Caroline Woods:
So breaking it down a bit more though if you can get 5% in treasuries right now with considerably less risk given everything that you’ve been talking about.

Rebecca Walser:
Yes.

Caroline Woods:
Can you make the case that you should be owning stocks right now?

Rebecca Walser:
I can make the case. It should be on stocks because you want to buy. And at this frontier level, like we are at the precipice of the frontier. It is beginning. It has just begun. So this is, believe it or not, the cheapest price entry point, even though you can compare it. And I’ve seen analysts say, oh my gosh, what 18 months ago.

Rebecca Walser:
Oh my gosh. This you know we have analysts coming out saying JP Morgan coming out saying we don’t know how to forecast crude oil because we don’t know what’s going to happen. So yes, all of the noise aside, we are in the middle of an innovative technological cycle, the largest ever. And if you don’t participate, not you will be behind.

Rebecca Walser:
You will be a laggard compared to everyone else. So you have to take some risks. You have to participate. But yes, for your safe dollars for your yield, dollars for your income plays that you know you want. I need this much income a year, then for sure take some risk off the table and go into those types of things.

Rebecca Walser:
But you cannot take all of your risk off the table because you will be missing out on this innovation.

Caroline Woods:
Yeah, you were here last in April and you basically said investors shouldn’t be sitting in cash, right? Despite the fact that you saw volatility ahead. So investors should still be putting new money to work right now.

Rebecca Walser:
Yeah. The best advice I can give to the lay person who has no proof of financial professional go online, look at Google, a risk tool, a risk assessment tool. See how much risk once you really, really are willing to take with these really comprehensive tools, and then that amount that you’re willing to take that needs to be positioned in the frontier in the stock market.

Caroline Woods:
Okay. So let’s talk about where you’re putting money to work. Yeah. You obviously are talking about this innovation with I like AI quantum storage energy. Which names are you buying right now.

Rebecca Walser:
Yeah. So we love ASML because they have basically a monopoly is extreme ultra like lithography. So basically ASML is the one that is imprinting the chips the semiconductors. And so because they use extreme ultraviolet, this is new technology or newer technology that is proven to be better than all of the other producers. So based on that they have a superior technology and a monopoly.

Rebecca Walser:
But the thing I like about them is 49% of their revenue in Q2 came from storage and memory. So they are on both sides of the play. So ASML is a great addition. And I think even if you think it’s, you know, a little on the higher side, it’s got the runway. The runway is what we’re looking at on storage.

Rebecca Walser:
We still have micron obviously they report next week. So micron has been a huge winner on the software side. We like a Datadog. It’s a AI play software. But it’s still in the software family. You can’t just discount software as a complete, you know, part of technology. So no, don’t just discount it completely. It’s been over routed down the net.

Rebecca Walser:
We saw recover and is coming coming back down again. So you need to look at individual names and see. Yeah this is software but it’s software related to AI infrastructure, AI servers, AI compute. And so it’s something that will be and another parlance coming forward and going forward.

Caroline Woods:
What are you I know I was taking a look at your notes and you’re you’re bullish obviously on the AI investment opportunity. But you’re also very concerned about AI safety. What would have to happen for AI safety concerns to actually become a market risk?

Rebecca Walser:
Oh wow. This is such a huge topic. So, you know, you had the anthropic, researcher and he used to work for OpenAI. I resign recently and say, you know, I could kill 10% of humanity. And then you had all of that can kind of form really fast. You know, Sam Altman on one side, Elon Musk on the other, of course.

Rebecca Walser:
And, you know, Altman saying that he would be willing to slow things down and see if, you know, to to. But the question is, the highest level question that has to be answered is who is the regulator? Is it going to be private, a third party private that everyone pays money into, the corporations contribute to? Is it a government?

Rebecca Walser:
Do we have a government oversight of this? I think we saw with Congress and and the failing to get clarity out of the Senate that the federal government regulating is a problem. We certainly cannot have state governments wrangling AI because that’s too much of a hodgepodge. That’s litigation nightmare. AI will quickly reroute outside of the United States. It will not do it.

Rebecca Walser:
50 different state attorney general. So I can tell you that that is a no go if we have federal level oversight, if we have private third party oversight that everyone pays into, there has to be Caroline at the ultimate infrastructure, some kind of human AI killswitch. There still has to be ultimate control by humans. When you get into the 2001 A Space Odyssey and how taking over the mission is where there is no kill switch at the top level that is still controlled by humans because the machines are so smart and they do something called recursive learning, which means they might not be sentient in the sense that they are thinking, but what they do

Rebecca Walser:
is they learn from their learning. So once they learn something that goes into their database of learning now, they already know it. Now they’ll use that learning to. So they are frontier, moving their learning forward recursively. It’s a little bit different than being sentient and thinking, but it is very similar. And so, what that means is we have seen and we have documented examples.

Rebecca Walser:
I don’t know if Hugging face was the best example of, breaking out of a sandbox, which a sandbox is a controlled environment where you can do all kinds of testing. But there have been examples of an engineer that basically was programing the AI to shut down. And the I reached out to him and was blackmailing him. So we do know that these things happen, and it doesn’t do us any good to say yeah, yeah, yeah, yeah, yeah, we’ll deal with that and then not discuss it.

Rebecca Walser:
It needs to be discussed. It needs to be. The architecture framework of control by humans still has yet to be determined, and it needs to be determined and laid out.

Caroline Woods:
Okay. Let’s move outside of tech and talk about other areas of the market. Yeah. Given the risks that you’ve laid out and you’re saying that really tech is the only thing that can supersede all of those risks, where else would you be putting money right now?

Rebecca Walser:
So I think that, you know, any time we go to an extreme and you see, you know, semis rob down, tech route down. We look at staples right. We want to right now of course we’re going to we would be making energy plays because we still do think that with the consternation going back and forth with Iran, we can still make short term price action gains with energy.

Rebecca Walser:
So we still do like energy on the short term. Longer term, I couldn’t tell you because, you know, the resolution with the Venezuelan oil deal, we might see a price drop on crude. So longer term, I couldn’t say. But anytime we see a rounding away from tech, from technicals, we want to look at the staples we want to be and utilities and staples for, going through any kind of rocky periods, recessionary.

Caroline Woods:
Period, any names that you like in.

Rebecca Walser:
Particular. You know, staples. We like McDonald’s actually. And believe it or not. And it’s interesting because, you know, I hear people analysts say, well, yeah, but, you know, McDonald’s with the GLP ones and all of these things, only about 19% of our population is projected to be on GLP one by 2030. So that still leaves a massive amount.

Rebecca Walser:
And really, unfortunately, the shoppers of McDonald’s and GLP ones could be a disparate group because as you socioeconomically advanced, maybe you’re going to McDonald’s less. You’re able to afford a GLP one people that are going to McDonald’s on a religious basis, probably not affording GLP ones. And so we really do have to look at the bifurcated economy and see which stocks will play to the bottom half of the K.

Rebecca Walser:
I think McDonald’s is one of those stocks.

Caroline Woods:
What are what about in terms of hard assets?

Rebecca Walser:
You know I love gold. So I do love gold. And that this thing the thing is, is that people get looked at gold for short term price action, gain. And you could have a short term price action gain. Obviously we got all the way above 5000. That was amazing, but also painful when you go when you dip back down to the 4000 mark and then so investors really feel like they got slighted there.

Rebecca Walser:
Listen gold is the barometer, the single barometer of how much inflated money supply this world has printed. And it is not reconciled yet to that. But as we move to digital finance, stablecoins, all of these tokenized everything, we will have to transition our money supply to there. And I think, Caroline, that is when gold is going to shine because we’re going to see, oh my God, you have printed so much more money.

Rebecca Walser:
And gold has not been reevaluated to reflect that. And that’s when you’re going to see, I mean, gold could be $18,000 an ounce based on how much money we’ve printed. So long term. Gold is the asset to make sure you have in your portfolio.

Caroline Woods:
Okay. So you you were still looking for growth with tech. Yeah. You’re definitely playing defense. Sold staples.

Rebecca Walser:
Yes.

Caroline Woods:
What would make you more aggressive and less cautious.

Rebecca Walser:
Having the election over and having a non divided government so that President Trump can continue his very pro growth, pro I pro infrastructure, pro digital finance, agenda. You know that would be very positive. The Iranian war solution that is resolved and complete. None of this six day MOU that then is done within two weeks. You know so I real resolution which I don’t know you’ll ever get to with a country like Iran.

Rebecca Walser:
So how do we reconcile that? How do we deal with JP Morgan analyst saying we don’t know how to price crude because of what’s going on? There’s no there’s no way to forecast this. It’s so erratic. So that needs to be resolved. China Taiwan needs to be resolved, especially with the reliance of all of the chip supply.

Rebecca Walser:
You know, ingredients from Taiwan and China is chomping at the bit to to get control of that. We are in an economic war with China. They get control of Taiwan with their influence on semis. And we are looking at a totally different economic picture here. So all of these massive things that are just not getting resolved, I would I would really want resolved.

Caroline Woods:
So it sounds like you might be cautious for a while then. Cash are you sitting in.

Rebecca Walser:
You know I think that’s really cash is is developed and determined by the individual investor because, you know, you’ve got people on all different stages of life. But honestly, I think that we do want some dry powder right now. We want some dry powder though to buy, right. To buy on dips, to buy when things look really ugly and people are like, oh my gosh.

Rebecca Walser:
And we’re like, let’s buy some more ASML, let’s buy some more Nvidia. So you definitely want cash, but you also want cash right now because things could get really dicey as far as credit card financing payments. I mean, credit card interest rates are going to be going up. We don’t want to have to have clients living on or even using those credit cards.

Rebecca Walser:
We need that cash flow for liquidity just in case. We have to get through a little bit of a, of a difficult time.

Caroline Woods:
Okay. So what sort of dip are you looking for to put some of that money to work. What does dicey look like?

Rebecca Walser:
You know, I think.

Caroline Woods:
Because we, we I mean, we have a 3/10 of a percent decline in the S&P 500.

Rebecca Walser:
Right now. The thing is that you really have to look at your stop losses to this is something that you have to analyze and you have to say, are myself losses too shallow to be automatically triggered as the volatility picks up closer to the election? What they were all of these things that something that people need to look at because people can get stopped out and they don’t mean to be because they just didn’t realize that the volatility was so high.

Rebecca Walser:
So, you know, I’m saying that, you know, a 10% pullback wouldn’t surprise me at all. It would not be surprising. And I would definitely be looking to buy the dip, something that was more than 10% when we started to look at what’s the structure, what has changed do we need to really be. But we’re as you can hear, Caroline, we’re really prepared for things to get dicey because we’re expecting that we’ve got a lot of fires that are just being contained right now.

Rebecca Walser:
They could pop off at any time. So.

Caroline Woods:
So the advice for the everyday retail investor who maybe wants the 10% decline to have a buying opportunity, but what’s the strategy as they think about investing their all time highs, not wanting to miss out on potentially higher returns, but also preparing for what could be a correction? Yeah.

Rebecca Walser:
It’s exactly what we’re doing. So the first thing you need to understand is what is your actual risk appetite. You need to go online. There’s a bunch of free tools. Take a really, in-depth analytical analysis tool of what is your risk once you know your risk tolerance. And it’s not usually on the scale from 0 to 99 zero B no risk nine nine B and you’re like, you’re you know, you’re leveraged and and you’re 401k and put it in the Nvidia.

Rebecca Walser:
So that would be the most risk. So once you know your risk appetite that’s how much dollars we would want to look to put towards capital work on the frontier. That’s the risk. Those are the I those are the quantum. So those are the the the storage the memories. Everything that’s ancillary to I we would want the financials are not we’re not looking at right now even though interest rates are going up.

Rebecca Walser:
Financials are in a disruption period. The next 60 months we’re going to see massive changes with the way banks are. That’s why clarity failed because banks did not want deposit flight. And they are afraid to death of DeFi and decentralized stablecoins and financing. So banking is going to transition the next 60 months. So I would stay on the I quantum frontier for your risk budget.

Rebecca Walser:
Everything else you could look at, you know, short term duration, low, you know, high yield money markets that are paying well, that could be your liquidity play. You want to make sure you have a good 3 to 6 months if you can, of of liquidity. Just because we could go through some rough times. And then I would look at staples, utilities and energy on the short term to be defensive of any kind of declines.

Caroline Woods:
Okay. All right. Just quickly, you gave us a smile. You gave a state of dog, you gave us micron McDonald’s. Any other quick names you can give us that you’d buy regardless of a dip?

Rebecca Walser:
ExxonMobil. Okay. Yep. All right.

Caroline Woods:
I think it’s a great time to pivot to a rapid fire game of this or that you’ve played before. Quick questions, quick answers. No hedging. Okay. Are you ready Rebecca actually I tried.

Rebecca Walser:
This was the hardest.

Caroline Woods:
All right. Stocks pausing or breaking down.

Rebecca Walser:
Breaking I pausing pausing.

Caroline Woods:
Fourth quarter positive or negative. Positive ten year above 5%. Stocks or treasuries.

Rebecca Walser:
And gun stocks.

Caroline Woods:
If you can only choose one rest of year stocks are hard assets.

Caroline Woods:
Stocks. I buy the leaders or find the next winners.

Rebecca Walser:
Buy the leaders.

Caroline Woods:
Micron or Nvidia is gone.

Rebecca Walser:
You’re so hard. Oh, God us micron.

Caroline Woods:
But a both you would say both both the for sure Oracle down 25% year to date opportunity or trap.

Rebecca Walser:
I don’t like our debt picture. So I stay away from Oracle.

Caroline Woods:
AMD AMD near all time highs. Attractive or expensive.

Rebecca Walser:
Attractive. Based on what she’s done she deserves all the credit.

Caroline Woods:
Attractive one non-tech stock you’d buy that you didn’t already mention.

Rebecca Walser:
Oh my gosh. I, I already mentioned geez, like McDonald’s. Come back. I just think, I.

Caroline Woods:
Think one area of the market, you would not put new money to work right now. Financials highest conviction investment for the rest of the year.

Rebecca Walser:
Nvidia.

Caroline Woods:
Bitcoin at 85,000. Opportunity or trap? Opportunity gold more than 20% off the highs. Bargain or wait for lower.

Rebecca Walser:
Absolutely. Bargain. Don’t wait.

Caroline Woods:
Have you thought of a stock that you haven’t already mentioned.

Rebecca Walser:
Tomorrow with me? Definitely not Nike. Nike not Nike. Okay.

Caroline Woods:
What else is on your don’t buy list?

Rebecca Walser:
I’m, I don’t really have a don’t buy list. I can think of lot right now, and I’m just doing bad on the stock.

Caroline Woods:
No, no. It’s okay. Finish these sentences. The market is underestimating.

Rebecca Walser:
So political risk.

Caroline Woods:
And investors make one move. Right now. It should be.

Rebecca Walser:
Stay in and leave it there.

Caroline Woods:
Rebecca Walzer, I always appreciate you joining us. Thank you for playing along and letting me put you on the spot. We appreciate your picks, too. That’s Rebecca Walzer, founder and CEO of Walzer Wealth Management. If you enjoyed this street talk, check out our interview with Rich Ross. He’s a bit more bullish and lays out the path to 8300 by year end.

Caroline Woods
Joining me now, Kevin Mahn, president and CEO of Hennion and Walsh Asset Management. Kevin, back by popular demand. Great to have you. Thanks so much for being here. Thank you for. Normally we don’t bring people back two weeks later, but you’re a fan favorite. And we actually got a lot of audience questions for you. So I will bring those in.

Caroline Woods
So stay tuned for those. But first we have the Nasdaq hitting another record. Tech is absolutely ripping this week. And that’s happening as we have oil still above 90. We have the ten year flirting with 5%. And we have the fed that’s potentially not done hiking rates. Is this market even stronger than you a bull you know we’re expecting.

Kevin Mahn
I would say yes because investors continue to climb that proverbial wall of worry, whether it’s escalating tensions between the U.S. and Iran. The hope that the Strait of Hormuz will open again, the hope that oil prices will start to come down and stay below, hopefully $90 a barrel below $80 a barrel. And of course, what is the Federal Reserve going to do next?

Kevin Mahn
I think we may look back, Caroline, two weeks, two months from now and realize that what the Federal Reserve did last week was a mistake. I recognize that was a credibility hike. 90% of the market thought they should raise interest rates. But I still question what’s a 25 basis point rate hike going to do to open the Strait of Hormuz?

Kevin Mahn
What is a 25 basis point rate hike going to do to lower oil prices? And if the fed is so concerned about energy induced inflation, why is there forecast for a core CPI, their preferred inflation gauge coming down to 2.5% next year, not because of more rate hikes, but perhaps they believe that inflationary pressures will continue to moderate.

Kevin Mahn
So why rate wiser is right now.

Caroline Woods
So in two weeks or two months if we decide that that was a mistake, what does pricing in that mistake look like for this market?

Kevin Mahn
I think in all likelihood, and remember that the fed did update their dot plot chart. Everyone thought that went away when Kevin Warsh took over. But they’re still issuing it. Kevin worships and supplying it that, but they’re still issuing it. As it stands right now, the fed is not forecasting any additional rate hikes next year and no cuts next year either.

Kevin Mahn
However, they are forecasting cuts in 2028 and 2029. So if in fact, after the midterms this trade opens, oil prices come down, inflation moderates. We may see one of those rate cuts pulled forward into the beginning stages of next year. The markets are not pricing that in yet, but once they do that’s another tailwind.

Caroline Woods
Okay. So you were actually calling for some short term volatility or that weakness heading into that rate hike mostly because of midterms. Not correct the actual hike to still expect. What should we be prepared for, especially now that we’ve run even further?

Kevin Mahn
Yeah, the fact that we’ve run further, the fact that in all likelihood, the fed may raise interest rates at the end of October and may raise interest rates again in December. I don’t believe that they should, but they may in certain areas of the markets are pricing that in. But it’s interesting when you look at the bond markets right now, they believe that the ten year Treasury is going to come back significantly by year end.

Kevin Mahn
So that tells me that that ten year Treasury is a buying opportunity right now because as yields come down, prices go up. So I think that’s a tremendous opportunity for investors to consider. We always talk about stocks when I’m on and rightly so. There’s tremendous growth opportunities that still exist in the stock market. But there’s also now opportunities in the bond market.

Kevin Mahn
But don’t think that those days of volatility behind us, they’re likely to come back and return again once escalation tensions come back again in Iran. And of course, not knowing what’s going to happen in the midterm elections.

Caroline Woods
So if we fast forward to this or that and I said stocks or bonds right now, you’d say.

Kevin Mahn
For growth or income opportunities. Both. Yeah, I would say I’d overweight stocks, but I still would have bonds in the portfolio. If you’re looking for income, of course, bonds if you’re looking for a blend of growth and income, bonds are very attractive.

Caroline Woods
Where are those opportunities within bonds? Sure.

Kevin Mahn
I would start with municipal bonds. We authored a piece to our investment team back at Indiana Walsh. And what we found is that over the last 25 years, the 20 year municipal bond index has only approached and broached 5% in just 6% of the months over the last 25 years. Here’s the interesting part. Once it hit that magical 5% level, it didn’t stay there for long.

Kevin Mahn
Measured in months as opposed to years. And what we found is that in those instances, one year out, yields came down by an average of 80 basis points. So if that is the fact and you were to buy those municipal bonds today at a yield of 5%, and yields come in 80 basis points by average a year later, well then you’re going to get a nice price appreciation plus the coupon income all along the way.

Kevin Mahn
That’s something you should really consider.

Caroline Woods
We’ll talk about your stock picks in just a second. But just in terms of the overall strategy, given the fact that you’ll say you can’t time the market, but given the fact that we haven’t seen this run higher, would you put new money to work in stocks today or would you wait a bit?

Kevin Mahn
I would put new money to work, certainly, because again, I can’t time the market. No one can efficiently. But if you continue to follow the money into all those areas in our economy where all the billions of dollars are being spent, you’re continuing to see growth opportunities. We always talk about AI infrastructure that’s going to continue. In fact, Goldman Sachs recently came out and said there’s going to be over $1 trillion spent by companies on AI and I infrastructure this year alone.

Kevin Mahn
Jensen Wong thinks it’s going to be between 3 and 4 trillion by the end of this decade. That’s a lot more spending coming down the road. But don’t forget about power. Don’t forget about water. Don’t forget about aerospace and defense and of course, health care innovations.

Caroline Woods
That’s where your RS7 comes in. But how do you know if you’re following the money or just chasing momentum?

Kevin Mahn
Yes, I would separate those two, because often what you’re going to find is if you follow the money where all the money is being spent, you’ll have the momentum trade come in behind that. That’s what happened with aerospace and defense and defense needs. We saw all of this planned expenditures across the globe to upgrade military and defense capabilities, and we saw opportunities in certain stocks rise dramatically.

Kevin Mahn
But we also saw valuations go up. And now it’s come back in and settle somewhat. And the money hasn’t been even spent yet. So to me as a portfolio manager that likes me like those areas even more. So use momentum as your friend. If in fact that momentum trade goes away and those stocks pull back.

Caroline Woods
I said I was going to incorporate some audience feedback. Yes, I’m starting with a negative comment. You got tons of love though guys. This guy just follows what’s hot. That is trader’s logic. Not for long term investors. Your response?

Kevin Mahn
Are utilities hot? Is aerospace and defense right now hot? Is health care hot? I would say none of those areas are hot right now, but if I follow the money in terms of all the planned expenditures in those areas, they may very well become hot again. So I don’t think it’s just looking at momentum and looking at what’s working.

Kevin Mahn
Now. The eye trade is working now. I concede that point to the viewer, but if you look at those other areas where the money really still hasn’t been spent yet, and all the additional M&A activity that we believe will take place in biotech over the upcoming years, that’s where you want to start giving some allocations into your portfolio as well.

Caroline Woods
So last time you were here, and we’ll link to it at the end of this video. You gave a lot of stock picks 15 according to my list Nvidia, alphabet, micron, Taiwan Semi Digital Realty, American Electric Power, CrowdStrike, Fortinet, Duke, NextEra, RTX, Moog, Dick’s, IBM, and Apple with an asterisk.

Kevin Mahn
Yes.

Caroline Woods
They’re all off the table. Give our viewers a new name that you’d buy today.

Kevin Mahn
I would suggest I’m going to give you two biotech names that I believe have a high potential of being acquired for two reasons. I’ll tell you the names in a second, but bear with me. As it stands right now, there are multiple headwinds facing large cap pharmaceutical companies. One, first and foremost, they continue to be pressured to lower their drug prices.

Kevin Mahn
Perhaps it’s the only thing that Republicans and Democrats agree upon these days. Two, they have several large revenue producing drugs that are scheduled to come off and now be subject to generic competition. In fact, over the upcoming years, 200 drugs are scheduled to lose their patent protection, with 69 of those deemed blockbuster drugs with over $1 billion in annual sales.

Kevin Mahn
So two names that I like and I think have an opportunity to be acquired by large cap Pharma, who’s going to need to replace all that lost revenue potential? Somewhere is a name like individual ticker symbol I, MTV. They have two drugs right now in the FDA approval pipeline to treat substance abuse, such as opioid disorder. Another name I like is aloe gene ticker symbol Aloe, another small cap biotech companies working on innovative treatments for bone cancers and other types of cancers.

Kevin Mahn
Exactly what large cap firm is looking to buy. So those would be two names that I would add to the other 15. And again, Apple with a question mark for me okay.

Caroline Woods
And or.

Kevin Mahn
Asterisk.

Caroline Woods
Asterisk. Yes. Given the run up that we’ve seen, especially this week in some of these tech names, would any of those names that we mentioned previously be just holds at this point, or would you still put new money to work in all of them?

Kevin Mahn
I would look to continue to diversify across the entire ecosystem, and I’m still favoring the receivers of the money as opposed to the spenders of the money. Now, you could argue that Nvidia is both a spender and a receiver because they have the data center business and the chip sale business and all their strategic partnerships and fundings. Clearly they have the Midas touch, right?

Kevin Mahn
Everything Aditya touches turns to gold. But if I look at other areas, the Taiwan semiconductors, the microns in the world, micron still trading at less than four times forward earnings. And they’re turning away business. There’s an insatiable demand for memory. Apple time is going to tell if that foldable phone actually sells. And if the new CEO can be as innovative as perhaps two CEOs ago were.

Kevin Mahn
But all those other names I really still like, especially on the cybersecurity time and I only through those names. And last time CrowdStrike and Fortinet because you asked for a software play as it relates to I could have said ServiceNow. I could have said.

Caroline Woods
Yeah, you tried to say Apple and Alphabet. I’m pretty.

Kevin Mahn
Right? Alphabet I still think it’s a software play to a large degree. But cybersecurity is of paramount importance because now I’d be using for nefarious purposes. And how do we combat that with I use for goods and that’s what CrowdStrike and that’s what Ford and that’s trying to build.

Caroline Woods
Albert said. Did he say CrowdStrike is undervalued?

Kevin Mahn
I think they’re underappreciated, not undervalued. Because if you think about the cybersecurity space right now, everyone’s trying to chase the hot dog, the software name that’s falling too far, the semiconductor chip that’s going to rival Nvidia. But we need cybersecurity. It’s the glue that holds the technology puzzle together. I put CrowdStrike above everyone else in terms of their capabilities the USA, I want to talk a high powered cyber attack, but for now, that’s not far behind.

Caroline Woods
What’s one stock that you think has the most upside between now and year end?

Kevin Mahn
Well, that’s a great question. Of the ones I’ve given already, I would say.

Caroline Woods
That 1718 stocks have already given.

Kevin Mahn
Yes, I would suggest of all of those names.

Kevin Mahn
Is Nvidia okay.

Caroline Woods
What’s a contrarian pick a stock or you know that investors you think might be overlooking right now that they’ll be chasing six months from now?

Kevin Mahn
I still go back to IBM and I’ve said it time and time again, people don’t appreciate that Big Blue is much more innovative than anyone believes. They were the first quantum computing. They’ve done multiple acquisition during the tenure of their most recent coach to try and expand their tentacles across AI. They have a very strong balance sheet, but another one that’s underappreciated.

Kevin Mahn
So I would not bet against IBM, but you have to be patient there, Joe says.

Caroline Woods
Next time, Caroline should ask him if he’s ever owned Palantir, and Tesla is just a perma bear on those stocks. Anyone who bought them at the many right times has significantly outperformed despite the drama.

Kevin Mahn
Yeah, so for some of our were index based strategies, you’ll see names like Palantir and Tesla come into them. For the other strategies where I supply an overlay or my selection criteria, the way that they burn through free cash flow, their lack of profitability, the fact that they don’t have positive trailing 12 month free cash flow, they don’t pay dividends.

Kevin Mahn
All those different areas, keep them off of my screens or get them knocked out. Now, I love what Palantir is doing. I love the area that they operate in, but they’re still trading too rich for my liking. Right now, Tesla is a whole different story.

Caroline Woods
What price would make you a buyer of Palantir, and is there a price that would make you a buyer of Tesla?

Kevin Mahn
Tesla I have to see. Same with SpaceX. I need to see profitability, sustainable profitability. I need to see focus on those areas. I think there’s better opportunities in the market than Tesla. And I can see that Elon Musk is the Willy Wonka for our times. And people believe in an Elon Musk. I think he’s brilliant. I think he’s innovative.

Kevin Mahn
I’m just talking about from investing in the stock side. Palantir, we need to get forward looking below 100 at least, perhaps under 50. And then or when he hit my selection criteria.

Caroline Woods
We saw huge moves in AMD, Intel and Qualcomm yesterday.

Kevin Mahn
Chips are back.

Caroline Woods
Which one of those is worth chasing AMD?

Kevin Mahn
I think AMD is going to be a very formidable competitor to in video, the way that they specialize in chip design, the way they’re trying to lower the cost of new chips. I think it’s going to not only add to their bottom lines, but also increase their sales, which are already off the charts.

Caroline Woods
We also saw meta up double digits. I don’t think that’s a favorite of yours though. Anything that’s changed your mind, they’re not necessarily.

Kevin Mahn
I mean, I like what they’re doing as it relates to ad sales and using AI effectively. But if I got to look within the old mag seven, not my AR seven, I would still put alphabet above metal.

Caroline Woods
And in terms of, another audience question, I was pulling up here. Object says, while I completely don’t agree with everything he says, that’s all right. It’s my money. I’ll sit on the sidelines a little bit, build up my egg, nest egg, I think buy on the dim. What’s wrong with that strategy?

Kevin Mahn
I never think it’s a bad idea to buy on that dip. If you find opportunities at trading at a more realistic price. I’ve just never been able to try to time the market effectively, and I’ll just give some stats to object to consider. I believe was object to who sent that in. We looked at the last 20 years worth of actual traded stock market data, and what we found over those 20 years.

Kevin Mahn
If you just missed out on the ten best days in the market, returns cut in, have missed out in the 30 best days. Returns cut by 84%. Furthermore, over the course of that 20 years, seven of the ten best days in the market came within two weeks of the ten worst days. Now, I don’t have a crystal ball.

Kevin Mahn
I don’t know have effectively time when they come in and come out. I don’t know when those ten worst days are going to be, but if you’re not in the market on those other seven days, you’re likely to miss out in the most significant returns the market has to offer. So stay invested, keep some dry powder, keep some cash on the side consistent with your risk tolerance.

Kevin Mahn
And then when you see attractive buying opportunities in the software space, in the chip space, when companies pull back too far like Nvidia did, in my opinion, that’s a good opportunity to actually put more in by the do.

Caroline Woods
Well, let’s talk about the pullback that you’re expecting. I know you don’t have a crystal ball I said that. How big of a pullback do you think we’ll see. Will it be between now and your end. And how would you know three part question here that it’s just a buying opportunity versus something that would change your mind about the market.

Kevin Mahn
Sure I think we’re going to see multiple pullbacks between now and the midterm elections. And those pullbacks could be anywhere between 1 to 5%. And each time we see a pullback you’ll see some money coming off the sidelines and buying that dip in different areas. What would make that pullback even more so if you’re going into correction territory.

Kevin Mahn
If you saw it more widespread, not just poking the eye bubble once again, looking for a different area of the ecosystem that’s vulnerable, I have in fact, this situation between the U.S. and Iran escalates even further. And now we have oil prices above 110, $120 a barrel for a sustained period of time. Now you’re not looking at just two more rate hikes.

Kevin Mahn
Maybe you’re looking for rate hikes into the following year. The markets are pricing that in right now. So then you could see a more serious pullback potentially getting into correction territory. Not my base case but that’s something I would pay close attention to.

Caroline Woods
I do want to ask you about Bitcoin trading around 86,000 right now. Do you have Bitcoin in your portfolio.

Kevin Mahn
I don’t I don’t understand cryptocurrencies wish I did I can’t explain other than supply demand why Bitcoin or any cryptocurrencies goes up or down on a given day. But I do like the underlying technology. And I think blockchain technologies. I think cyber security plays a role in that. I think all the infrastructure component, data centers, cooling solutions, power all play into cryptocurrencies as well.

Kevin Mahn
So to me, I’d rather invest in the digital asset ecosystem as opposed to the digital assets themselves.

Caroline Woods
Give us one name there.

Kevin Mahn
Right.

Caroline Woods
Okay. Old miner said, so are you saying by the gold and silver miners, I don’t remember you talking about commodities last time, but are you saying to buy the gold? Yeah.

Kevin Mahn
So I don’t invest in the commodities directly. I invest through the miners because I can look at the companies and tangible strength of their balance sheet, all the measures. I look for it for any stocks. So if I’m going to give allocations into a commodity area, I generally look for the companies associated with those. So not that I’m overweight or looking to add exposure to gold right now, but if I were to do so, I would do it through the gold miner.

Caroline Woods
And let’s go back to your utilities. I don’t want to end on a negative note because you get so much love if you really are the fan favorite here, but cool into that. What’s gray Suit doesn’t like for real? He’s recommending utilities in a rising yield regime. That’s like operating a lighthouse and cheering for the fog because it makes the lamp look brighter.

Caroline Woods
Yeah.

Kevin Mahn
Very clever, very clever. The only thing I would suggest is that utilities aren’t necessarily your father’s or my father’s utilities. Yes. They historically have held up well in the face of volatility. Yes, they’re generally known for paying good dividend yields. But now they’ve also become a backdoor play into the I revolution. And if in fact they’re such a critical source of power, whether it’s natural gas, nuclear or traditional forms of electricity to all these data centers across the country right now, regardless of the interest rate environment, that strikes me as an allocation I want to have within my portfolios and utilities would be great.

Kevin Mahn
Over the last two years, they’ve kind of been idling thus far this year. That presents an opportunity to me. But you want to find those utilities that are diversified. I mentioned Duke Energy. That was one of the 15 names that highlighted American Electric power. Duke energy owns and operates nuclear power plants. Today. Everyone always assumes nuclear is the future, right?

Kevin Mahn
Nuclear is actually 19% of the electricity production in the United States today, not as much overseas, but we continue to try and expand nuclear. It’s clean energy, it’s relatively low cost. And now you look at these small modular reactor planes. So don’t count on utilities.

Caroline Woods
All right. I think it’s great time to pivot to our rapid fire round of this or that. I’m focusing on current events and movers because we just did one with you. Let’s start with the Trump XI meeting this week. Market mover or more noise, more noise. This rally investor is looking past the risks or underestimating them. Underestimating ARM or Intel.

Kevin Mahn
Intel.

Caroline Woods
AMD at 1 trillion fairly valued or a stretch.

Kevin Mahn
A stretch. But I still like tech stock.

Caroline Woods
That’s the best value right now.

Kevin Mahn
I would say Nvidia trading at 24 times earnings.

Caroline Woods
Tech stock you wouldn’t chase. That’s not Tesla or SpaceX.

Kevin Mahn
Can I include Palantir.

Kevin Mahn
I know Palantir kind of crosses different categories. I’ll say can.

Caroline Woods
Costco buy before earnings or wait until after.

Kevin Mahn
If you like Costco buy before earnings.

Caroline Woods
Very good. Alibaba down double digits in 2026. Opportunity year trap.

Kevin Mahn
I don’t invest in many Chinese stocks, but I do like the e-commerce space. It shows the strength and resiliency of the U.S. consumer. If you like the e-commerce area, you can consider Alibaba. I prefer Amazon.

Caroline Woods
Dial up more than 300% year to date opportunity or trap.

Kevin Mahn
Potential trap.

Caroline Woods
Meta up double digits this week. Believer or avoid.

Kevin Mahn
Surprised.

Caroline Woods
So I or.

Kevin Mahn
I hold meta. I’m not a strong believer in them. I’m very surprised they’re up as much as they are.

Caroline Woods
This week on holding this sneaker company Nike competitor a big this week but down big this year. Get in or avoid.

Kevin Mahn
I avoid all this all those names right now I can’t find one, consistent competitor that has a wide enough moat to provide profitability, going forward. So I would stay away from that.

Caroline Woods
So consumer discretionary buy selectively or avoid altogether I.

Kevin Mahn
Would buy selectively.

Caroline Woods
Give us one name. You would buy a that’s not Dick’s because you gave us that last time.

Kevin Mahn
Well Amazon is consumer discretionary. I keep going back to that one. It is consumer discretionary. It is I know in the Mac seven.

Caroline Woods
But okay that’s.

Kevin Mahn
It.

Caroline Woods
You’ll work day or Salesforce.

Kevin Mahn
You you might argue Salesforce.

Caroline Woods
Going back to stocks or bonds for new money today.

Kevin Mahn
If you’re an income oriented investor. Bonds if you’re a growth oriented better Mr.. Stocks if you want a combination of both I still say bonds municipal bonds in particular.

Caroline Woods
So finish the sentence between now and your end. The best place for investors to put new money is.

Kevin Mahn
The capital markets.

Caroline Woods
More specifically.

Kevin Mahn
I kind of get away with that one. I would say again, it depends on what you’re looking for. If you’re looking for growth opportunities, stocks, if you’re looking for income opportunities, bonds a blend of both municipal bonds. But stocks still have a lot of potential upside, especially if you look at the period after the midterm elections. It’s hard to time that, but I think we’re going to have a strong close to this year.

Caroline Woods
So if I gave you $1,000 today and said you have to buy one of the stocks that you mentioned today, that’s not Nvidia, which one would it be?

Caroline Woods
Taiwan Semiconductor I I’ll leave it there. Kevin Mahon I always appreciate you joining us. It’s a back to back interviews here Kevin Mahn president and CEO of Hennion and Walsh Asset Management. And as promised, if you want to check out Kevin’s interview from earlier this month where he offers 15 stock picks that he still buy now, click here.

Caroline Woods:
Joining us to kick off the week. The last full week of the third quarter is Josh wine. He’s portfolio manager of the Hennessey Cornerstone Growth Fund. Josh, so good to have you.

Josh Wein:
Good to be here. Thanks, Caroline.

Caroline Woods:
So stocks are coming off a choppy week but we’re seeing green arrows across the board right now. Despite the fact that oil is still higher the ten year yield sitting just below 5%. And of course the fed just hiked interest rates last week. Tell us what’s driving markets higher today.

Josh Wein:
I think it’s I think it’s actually a continuation of what we saw with Q2 earnings reports. So I think that the market has moved away from focusing on the fed as much as they used to. And I think that what we saw in the second quarter was about 15% plus revenue growth for the S&P 500. So, I mean, in an economy that’s growing at, you know, low single digits, I think that that speaks volumes about what keeps investors engaged despite some challenging headlines around oil and interest rates.

Caroline Woods:
Should the market be focusing on earnings though, rather than the fed? And is there a level on the ten year yield that would change your mind about that?

Josh Wein:
Yeah, I think I think given this kind of new paradigm shift with AI and and, you know, even infrastructure spending, which we’ll talk about in a little, a little later perhaps, but I think it’s warranted. I think that, you know, the ten, ten years are about 5%, give or take. I think that, you know, if it went to five and a half, I don’t see the growth story getting unwound.

Josh Wein:
You know, maybe above that, you know, then who knows, anything could happen. But I don’t think the market’s really looking for that. You know, we’re looking for a rate hike this year. That’s what the market is pricing in. And then maybe 1 to 2 more next year. I don’t think that gets us into dangerous territory where people start to second guess.

Caroline Woods:
Does the Fed’s rate hike last week change what you want to own? And if the fed cuts again, how does that change things. Or I’m sorry if the fed hikes again how does that change things.

Josh Wein:
Yeah I mean I well certainly you know just you know fundamentally I don’t think it changes much at all. I think that, you know what what we like as investors at Hennessey, funds, you know, doesn’t change. You know, our process is very disciplined and doesn’t react to, you know, fed rate hikes or even rate cuts. So, no, that doesn’t change.

Josh Wein:
And I don’t think it really should change for investors at large. I don’t think that, you know, 25 basis points here or there is a meaningful way to, you know, make big decisions about a portfolio at all.

Caroline Woods:
So let’s talk about what you like.

Josh Wein:
Sure. Yeah. Well, in our Hennessey Cornerstone Growth Fund, you know, right now, our biggest weight and a meaningful overweight to the index is industrials. So almost a quarter of the fund is in industrial names and more specifically things like construction and engineering. So kind of taking advantage of of some of these big themes around the on shoring and manufacturing, the build out of infrastructure and the improvement of infrastructure as well as, you know, of course, the build out of AI data centers and the like.

Caroline Woods:
Can you give us some construction and engineering names that you actually like?

Josh Wein:
Yeah, sure. Yeah. So one thing that I think, you know, none of these names are household names that are kind of interesting, you know, Tudor Perini. So it’s your traditional infrastructure name they’re building, you know, mass transit and bridges and tunnels, things like hospitals and shopping malls. But, you know, I think it’s an attractive valuation. You know, in the Hennessey Cornerstone Growth Fund, we’re looking at, you know, three legs of the stool of we’re looking at valuation earnings growth and stock price momentum.

Josh Wein:
So what comes to us are 50 names. And one of them is Peter Perini. Another name that is certainly not a household name at all is Sentry Holdings. And I think what’s interesting about that is it’s kind of the convergence of infrastructure and also this energy transition and build out that, you know, in large part is because of AI.

Josh Wein:
So they are, you know, doing utility infrastructure services, retrofitting, to allow for natural gas transmission, which is increasingly powering these data centers. So I think that those two names, you have a long runway, you know, it doesn’t matter who’s the winner in AI, which large language model, in which company, you know, that is in the background? I think what matters is that these companies, you know, are have a long runway, a long, you know, a large backlog of business.

Josh Wein:
And, it will be going on for many years.

Caroline Woods:
Okay. So that’s TPC and Katari. Both are higher today. But let’s break it down a little bit more because if I take a look, TPC is up almost 30% year to date. So the opportunity isn’t already priced in at these levels.

Josh Wein:
I don’t think so. I think that when these stocks start to move, you know, it’s it’s easy to get fearful that, oh, I missed the bottom and I missed the opportunity. I think these opportunities they are not you know this is not a tactical type of a thing. This is very much strategic. You know, these are long live projects that take many years to build out.

Josh Wein:
And and I don’t think that, you know, 30% is a great move. I think, you know, there can certainly be more to that, you know, over the next several years.

Caroline Woods:
Okay. And then Centuria is the opposite set up. It’s down more than 20% year to date. So what’s the market getting wrong there and when will it get it right.

Josh Wein:
Yeah. Well yeah I mean you know when these names go into the portfolio we’re looking at at prior stock momentum. And then you know, who knows what happens subsequent to that. I think the market you know, there is more of an energy component to Santori. And so, you know, I would chalk that up to the volatility in the energy space and, and maybe rubbing off on a name like, like century.

Caroline Woods:
So you’re looking at mid caps here. And I was taking a look at your notes and you said the market might be expensive but stocks are not. So would you say that the headline valuation problem is really just a mega cap problem.

Josh Wein:
Yeah I think so. I mean certainly you know, the you know the S&P 500 trading at about 21 times earnings. And it’s you know a market cap weighted index. And you know the market is definitely paying for the liquidity that comes with these big names like Nvidia and Microsoft. But the average S&P stock is at about 17 times earnings.

Josh Wein:
So a lot more palatable to most investors that are maybe their gut check is looking at, you know, something below 20 times. But mid caps are a little bit below the average S&P stock at about 16 16.5 times earnings. So you know, given where we are with interest rates I think that you know it’s about a 6% earnings yield.

Josh Wein:
I think that’s a fair you know, return above what you know, you can earn on a on a ten year, and certainly not a dizzying, you know, valuation multiple.

Caroline Woods:
What’s the strategy though? Does that mean that you would take money out of some of the mega cap winners and put it into mid caps, or would you just put new money into mid caps.

Josh Wein:
Yeah. I mean we don’t you know we don’t look at things within that kind of framework. I would say that, you know, over time you know more and more people are indexed to the S&P 500. I think that it ends up becoming a momentum, you know, an inherent momentum bet. You know, you’re putting more and more into the larger and larger names.

Josh Wein:
And it kind of feeds on itself. And I do think things like mid caps make a lot of sense, especially here, just in terms of diversification. I think that people are likely under allocated to mid cap. So we look at it as a diverse fire and certainly an opportunity ultimately.

Caroline Woods:
What else do you like in the mid-cap space outside of industrials?

Josh Wein:
Well I mean I think that, you know, information technology you know, is certainly a component of the growth fund. You know, we are not looking at things like software and ships, but you know, names like Diebold Nixdorf, which does, you know, ATM, machines and point of sale software, things like that. But more kind of equipment based, you know, technology.

Josh Wein:
I think that’s interesting. You know, just largely, you know, you know, we have a meaningful allocation to, to energy, more on kind of the diversified, you know, side with, you know, refining and, you know, both, you know, upstream and downstream. But yeah, I think that, you know, industrials is ultimately the largest component. And I think that of that a lot of it is construction and engineering and neurologic, you know, great things that come from, you know, our, our work that we do, kind of the rules based methodology that we use.

Caroline Woods:
Are there areas outside of mid-cap that still look relatively fairly valued or cheap in the current market?

Josh Wein:
Well, yeah. I mean, I think that I will say that there, you know, their names that I constantly think, you know, ten, 15 years ago would certainly have a much higher multiple. So I think that I think it’s really to take that kind of to flip it around a little bit. I think it’s anything that’s not large cap tech deserves a second look.

Josh Wein:
You know, you know, consumer discretionary and staples that you know I think people are concerned about, you know, the economy in the sense that it’s, you know, a k shaped kind of not and evenly spread out opportunities that for the consumer. And you know, what does that mean for consumer. I think that that could be overdone to some degree.

Josh Wein:
I think the wealth effect from the market’s marching higher this year. It’s, you know, should outweigh some of those concerns. So I think just broadly, you know, things like consumer, anything consumer facing I think deserves a us.

Caroline Woods:
So you are are bullish on the consumer and on the economy right now I am.

Josh Wein:
Yes.

Caroline Woods:
Okay. Can you give us any particular opportunities within that space. Because we’ve seen some pretty big winners that are, you know, consumer names but also some pretty big losers right.

Josh Wein:
Oh no. Definitely. Yeah. And you know, you know, we own you know, peloton which is certainly, you know volatile. And it depending on the day will tell you whether it’s going to win or lose or but you know things like peloton I think are interesting and you know you know Macy’s and names like that that are in some ways controversial because they’ve, I think disappointed investors so many times.

Josh Wein:
And there’s always a turnaround coming. You know, we are not with our methodology. We’re not getting in the weeds on names. You know, we we impart our rules. And what comes to us are our 50 names ultimately. So, you know, I think that in the aggregate, some of these themes are interesting. To zero in on any one name is always a little tricky because we’re not, you know, necessarily making a judgment on that name.

Josh Wein:
It’s more of a, I guess you could call it a quantitative process.

Caroline Woods:
So, what would make you stay or maybe the algorithm stay away from mid caps? What would need to happen for mid caps to look less attractive.

Josh Wein:
Sure. Well yeah I mean it’s it’s largely a mid-cap focus. Fine. I mean it’s it’s technically an all cap fund, but I think that, you know, it really comes down to stock price momentum. You know, we’re looking at names in the growth fund that are above 100, 175 million in market cap. So you know there are some small cap.

Josh Wein:
There’s certainly some mega cap names on occasion. But you know, it really just comes down to, you know, earnings improvement. And and in stock price momentum I think there will always be some a good number of names that meet our valuation criteria. But I think it really comes down to you, you know, the market performance, you know, and, you know, on the earnings momentum side or on the earnings improvement side, we’re really looking at improving it.

Josh Wein:
So it’s not even growth. So I think that’s important. We’re looking at you know there could be a name that has lost money and then loses less money the following year. So you know we are kind of looking at names that ultimately are in turnaround mode to some degree. It’s not a, you know, 10 or 20% earnings growth story that we need.

Josh Wein:
We just need to see that the company is turning around and that the market is confirming that there’s something to that. And, you know, we.

Caroline Woods:
Are there at.

Josh Wein:
The moment.

Caroline Woods:
Are there any mega cap names in your portfolio right now?

Josh Wein:
We do in in the area of energy, I believe we, you know, name like Walmart, you know, is in the portfolio. So yeah, we do have, you know, you know, anywhere from, you know, a couple to a few names at any given time. It’s typically a name like Walmart, you know, large cap energy names like an ExxonMobil can appear in the portfolio, just given even the history of of how this source’s names.

Josh Wein:
So yeah.

Caroline Woods:
So overall this is a market that you think is heading higher from here I do.

Josh Wein:
Yeah I mean and we’ve had a great year and it it feels a little greedy to, to to wish or hope for more. But I think more is coming. I think that I do think that the fed is on the case. I think they can contain inflation. It’s certainly elevated.

Josh Wein:
From where they want it. It’s not saying, I think that this rate hike in probably 1 to 2 more will calm the market down as it relates to that. I think the wild card is certainly what’s going on in the Middle East with oil. It probably and we’ve seen hundred dollars barrel, I think we thought we’d see that a few months ago.

Josh Wein:
So it’s taken a while for that to really work its way through. But, you know, I don’t know if that’s good or bad news, but I think that that’s the only thing that’s so hard to predict. I don’t think anyone thought we’d still be here. You know, with the Strait of Hormuz and the price of oil. But, but other than that, in the markets dealing with that point.

Josh Wein:
Well, I think that I, you know, I think that the earnings growth and story with some of these themes that we’ve talked about are really compelling.

Caroline Woods:
So what would you say is the biggest risk to your bullish case. Is it oil. At what level?

Josh Wein:
Yeah I think it’s oil. You know, at probably any level above where we are for a long period of time. Yeah, I think that that just, you know, makes its way through the economy, you know, shipping and the price of components and, you know, you name it everything. So, yeah, I think, I think right now my sense is that the market is not terribly scared of where we are with oil.

Josh Wein:
But, you know, there have been signs of it. And certainly people think about what they pay for gas, whether or whether it’s, you know, adjusting for inflation, probably not as expensive as we would have thought it would be if we had, you know, 20 years ago, predicted where we might be. But in any event, I think that I think that that’s really what it comes down to is just, you know, confidence and sentiment.

Josh Wein:
And that comes down to things like energy prices.

Caroline Woods:
Okay. So how much higher do you think we’re going S&P 500 by the end of 13% year to date.

Josh Wein:
Yeah I think by the end of the year we could have another 5 to 10% add it on to the market.

Caroline Woods:
Wow. Thanks to it just industrials or thanks to. No I think I think.

Josh Wein:
It’s yeah I think it’s you know if we’re looking at you know I, I really do prefer to look at the, at the market kind of on an equal weight basis. That’s how investors invest is kind of looking at things relatively equal weight as opposed to market cap weight. So if we’re at 17 times earnings, you know, if if earnings are continuing to advance, you know, at a at a decent clip, which I think is reasonable to assume for at least the next quarter or so, you know, that 17 multiple becomes, you know, maybe 16 or 15.

Josh Wein:
And then all of the sudden we’re looking at kind of an earnings yield, if you will, that starts to approach 7%. And I think, you know, with rates kind of holding in here, you know, just below 5%, I think that that net spread at seven versus five, I think that’s incredibly compelling historically. I think that, you know, I think that that kind of will get people interested.

Josh Wein:
You know, I’d also point out that, you know, there’s a lot of competition for capital right now. And I think that speaks a lot to the quality of this rally. So there’s a lot of places that people can put their money now versus, you know, 4 or 5 years ago when rates were were near zero and there was really no alternative but to be in the market.

Josh Wein:
Now, there are some choices. And the fact that the market has held up so well, I think speaks volumes about, again, earnings growth and the economy and the resiliency of the job market. We always want it to be better, but it’s incredibly strong.

Caroline Woods:
So okay. So bottom line, Josh, if investors think the market thinks stocks are too expensive to buy right now, particularly the S&P 500, are they wrong?

Josh Wein:
I think they’re I think they’re wrong if they’re I mean I think it comes down to a time frame. So if if you’re looking to buy large cap stocks because you like the excitement around them and you like the exposure to tech, I think you’re wrong to get into that. If your time frame is less than a year, I think if it’s well beyond a year, then I think that makes some sense.

Josh Wein:
But I think throughout I think what makes a lot more sense is to diversify or start that exposure more on the midcap side. I think there’s okay, a lot less has to go right for that to work.

Caroline Woods:
All right. I think this is a great time to pivot for a rapid fire round of this or that your first time playing. So the rules are quick questions, quick answers. No hedging if you can help it. You ready?

Josh Wein:
Yes.

Caroline Woods:
Here we go. Seasonal weakness over or more pain ahead.

Caroline Woods:
Over portfolio allocation. Fully invested or keep some dry powder.

Josh Wein:
Will always fully does.

Caroline Woods:
Stock picking your index funds.

Josh Wein:
Stock picking.

Caroline Woods:
Tech into your end leads or lags?

Caroline Woods:
Leads Mega cap tech overpriced or still worth it?

Josh Wein:
Overpriced.

Caroline Woods:
Mega caps or mid caps if you can only pick one mid cap.

Caroline Woods:
Oil near 100. Real risk or just noise.

Josh Wein:
Real risk.

Caroline Woods:
What comes first? Oil back below 80 or above 100.

Josh Wein:
Above 100.

Caroline Woods:
Higher interest rates. Big threat to stocks are already priced in.

Josh Wein:
Already priced in.

Caroline Woods:
Bond yields at 5%. Buying opportunity or threat to equities.

Josh Wein:
See buying up okay.

Caroline Woods:
Next fed move, hike or hold.

Josh Wein:
Let’s say hold the good question.

Caroline Woods:
Economy from here accelerating or slowing.

Josh Wein:
I’m going to say slowing. That’s so tricky.

Caroline Woods:
But you would still bet on the consumer. Yes or no I.

Josh Wein:
Would I would I think the pricing so strong that when I think slowing it’s more I’m hedging but not oh.

Caroline Woods:
One sector you wouldn’t touch here.

Josh Wein:
Your technology.

Caroline Woods:
One stock you’d put fresh money into today.

Josh Wein:
I think Century Holdings.

Caroline Woods:
One tech stock you would buy today.

Josh Wein:
Diebold.

Caroline Woods:
Finish this sentence. I’d start raising cash if.

Josh Wein:
If the fed raised by 50 basis points at the next meeting.

Caroline Woods:
And finally finish the sentence, the one thing that would change my market outlook is.

Josh Wein:
In a meaningful expansion in in genetic warfare overseas in the Middle East.

Caroline Woods:
All right. Josh wine portfolio manager of the Hennessy Cornerstone Growth Fund, thank you so much for playing along and for giving us quick answers. We really appreciate your insights and picks as well.

Josh Wein:
Okay.

Caroline Woods:
Thank you. If you enjoyed this street talk, check out our full interview with David Wagner. He has some other ideas about where to invest fresh capital. Check it out.

Speaker 1:
Here with the stocks he likes now and a couple he’s taking profits in is Dale Smothers CEO of des. Well for Dale. Welcome. Great to have you.

Speaker 2:
Good to be with you, Caroline. Always.

Speaker 1:
So, Dale, let’s get right into it with your first pick. And that’s Marvell already has had a huge move, although well off the highs. You’re calling it a buy. Why aren’t investors too late to Marvell?

Speaker 2:
Yeah, I think Marvell, as Jenson has said many times, is the next trillion dollar stock. It’s the next trillion dollar company. And at $1 trillion evaluation, I think that this particular stock currently is significantly underpriced. We can consider it a value position for the long term buy and hold type of investor. You know, one of the things we do here at Des Wealth Carolina is we have every dollar.

Speaker 2:
It has its own job, right? So we assign a dollar a job. And the dollars that are out there hunting long term, we think Marvell is a fantastic opportunity to be in that AI build out phase that is still yet producing more and more profits across the broader market as well. Marvell is a winner in our book.

Speaker 1:
How high can it go? What’s your price target on Marvell?

Speaker 3:
You know, you know we’re sitting somewhere mid two hundreds now you’re looking.

Speaker 2:
At, I would say 400 easy. At $400 a share is possible. You know, we’ve even put some, some recent call options on it at 380. Feel like that’s going to happen sooner rather than later. And what? One of the things we saw with the earnings report that came out, it actually it I had a beat on its earnings report, but it didn’t beat as well as what some investors had hoped.

Speaker 2:
And so a lot of these investors are wanting a short term fix, if you will. And so we saw a short position that built up in this name. A lot of people started shorting that name. And we think that it has opportunity for a potential short squeeze even based off of numbers. And you know that that ebbs and flows from day to day.

Speaker 2:
But we believe long term, if you like this name, now is a perfect time.

Speaker 3:
To purchase this particular stock.

Speaker 1:
Why own Marvell over a name like Broadcom or even Nvidia?

Speaker 2:
Yeah. You know, I think I think there’s room for both of them. So if you think about Nvidia specifically we like invidious. We are actually long term buyers and holders have been video will probably be a staple in our in our long term growth portfolio for quite some time. Because we look at invidious maybe the the the toll booth of the road that AI travels on.

Speaker 2:
Whatever happens in AI in video probably profits. But if you use a different analogy, Carolina like thinking about Nvidia’s building engines for for AI infrastructure, right? So if it’s building the engine, Marvell is actually a place that maybe comes in not always as a competitor. Perhaps it’s the place that makes a an improved carburetor, or an improved manifold or an improved spark plug that it’s specialized for an operation of a business.

Speaker 2:
So I think there’s room to own both of those names in a portfolio for sure. I don’t think that it’s one or the other in our book. Marvell is likely a benefactor of anything in vedere continues to do and climbs higher. And we think that as Marvell rises, as as that, that tide rises, a name like Nvidia will certainly rise with it.

Speaker 1:
So if you can only add one here, Marvell, Nvidia or Broadcom.

Speaker 2:
Here at this price I think Marvell is the add.

Speaker 1:
Okay. So sticking with Nvidia you actually are long term bullish as you said. But you recently took some profits. It did have a good run this summer. Why is now the time because it didn’t go back to those highs. And what’s your next entry point for Nvidia trading.

Speaker 2:
Those profit or trading for the profit for us was a little bit of a trim position that we positioned actually in a little bit of money market just for seasonality in general. Just September being a harsh month on us, pretty much until we get to mid October, we like to be a little bit more prepared for a financial winter weather that winter is really cold or it’s just kind of mild, that that changes from year to year.

Speaker 2:
But, historically, September and October tend to be months where you might want to take some profit leading into that. We did that with the name like in video trimming is not selling, though we didn’t change our thesis that we are long term buyers and holders of Nvidia. We just believe that there’s probably a better place to enter into that we don’t have a price per se at a time is probably more like what we’re looking for is sometime closer to beginning to middle of October, probably starting to reenter and see what markets have done from that point in time.

Speaker 2:
Again, this is more of a seasonal timing position for us and our clients, more so than fundamentals by any means. And vedere stay strong in our books. We we like it. We see all the fundamentals continuing to climb higher. And in videos earnings were blowout. You know, double beat in our opinion, maybe even a triple beat beating even expectations of the most bullish investors.

Speaker 1:
You’re also trimming your core. We’ve position core. We’ve has had a nice run but it’s still 40% off the highs. Why take profits now.

Speaker 2:
Yeah. So when when we send in those notes about trimming we’re actually trimming from the position of taking a little bit of an ad at 60. So 60 to 100 was a pretty good climb. We’ve seen a little bit of a pullback. And our trim is more or less to again rotate that money that we like in core.

Speaker 2:
We’ve for more of a short term play trading volatility, which there’s a ton of it in core. We’ve I’ll tell you why in just a second from our book. But we’re moving that profit to a name like nibs. Again that will probably happen sometime beginning of October. For the time being. We took that money to the broader market, RSP as an ETF, giving us exposure to the broader market.

Speaker 2:
The reason we think that there’s so much volatility in call is there’s potential in that name. Without a doubt, we still see a backing from a company like well in vedere specifically Bax core, we we see a lot of these larger companies that are saying, hey, core weaves the company we’re rolling with, but they’re spending so much money, Caroline, they have so much debt, they have such little cash flow.

Speaker 2:
We think a name that’s a little bit more lean nibs would be the alternative there. So I wouldn’t call it a a trim at 40% of a loss. We actually took that position around 6065. And now trading it in the mid 90s 200 is kind of where we’re starting to take those profits and move them elsewhere.

Speaker 1:
Let’s get back to your picks for right now. Apple, are you more or less bullish now that the foldable phone is coming out? You just need what, $2,300 to spend on it?

Speaker 2:
Yeah, just 2300 bucks. And and you know, maybe maybe you’ll get that $5,000 dividend check to to buy two of them from the US government. We’ll see what happens there. But I’ll, I’ll leave that one alone. Yeah. I’ll tell.

Speaker 1:
You on the midterm elections. Right.

Speaker 2:
That depends on a lot of things, probably midterms, plus a lot of other factors that are out of anyone’s control. But when we look at Apple specifically, I think third quarter, fourth quarter is a great time to own a name like Apple. They tend to do well with seasonality of holidays in itself. Long term we’re bullish on Apple.

Speaker 2:
We actually took a little bit of profit, just a little bit of profit from that particular name with its run up and hitting all time highs weeks back. And again, we’re doing this more of a getting ready for a financial winter or a financial fall, at the very least in September October when we see things start to kind of cool off with Labor Day and, you know, at the end of a season, summer’s over seasonally.

Speaker 2:
September is not very strong for us. And then you put that on top of a midterm election. There really was no need for us to continue holding what we think will probably trade pretty flat in Apple for the next couple of weeks. But that being said, a lot of momentum in this name with the iPhone. I think that they will sell out of those without a doubt, and we’ll see that reflected in Q3 and Q4 earnings as a positive thing for us to continue.

Speaker 2:
Again, long term thesis there. That name is up and to the right for sure.

Speaker 1:
Caroline. So you’re making some kind of strategic trades with trimming profits and waiting to get in for the everyday. Retail investor is now a good entry point for Apple if they’re not already in.

Speaker 2:
Absolutely. You know, if it were me talking to a brand new client that came over one of our advisors sitting down with a brand new client with money that’s not yet invested, you’re probably going to have a little bit of a better price point come late September, early October. But again, we’re not in the business of trying to time the market.

Speaker 2:
It’s about time in the market, and if you’ve got the time to stay in the market, Apple here is a good bye for long term. Specifically Apple in itself. It’s got the household naming power. It’s got the branding recognition. It’s got a great deal of integration across all of its platforms and continued innovation. And I don’t think that we’ve seen much of a fall off with the new CEO.

Speaker 2:
Based off of what we’ve seen, he’s kind of opening up Tim Cook’s playbook and reading line by line, which is a great thing. In our opinion. Apple is a buy. If you don’t have money exposed to the market, you might have a better entry point. You already have money exposed to the market. You’re trying to find the next place to put it.

Speaker 2:
Apple, I think, is a great place no matter what time you buy it. But if you’ve got ten years, now’s a great time. Apple’s a buy for sure.

Speaker 1:
When do we finally see the AI opportunity come to light, though? Because I you know, I have a MacBook here, I have my iPhone, I have my AirPods, like I use Apple, but I can’t count on Siri.

Speaker 2:
Yeah, you’re exactly right. Then that is a problem that they need to try and innovate. I don’t think that they’ve been hindered though by waiting till, till till now to really get serious about it. There was talk with OpenAI kind of running a little bit of their AI platform, I think Gemini, I’ve got an Apple Systems all across our entire firm runs on Apple.

Speaker 2:
And, you know, Google’s integration with Gemini makes it a little bit more simple and easy for us. But, finding out exactly when and how they’re going to roll out AI that is dependable and that is cutting edge will only be a tailwind for a name like Apple. I don’t think that an investor should wait and see on that, because by the time we see, that name will probably have moved so much that it’s no longer the value we find today.

Speaker 1:
Okay, you also like Microsoft, one of the mag seven laggards so far this year. It looks like you have a $600 price target. So more than $100 higher than where it’s currently trading. What gets it there.

Speaker 2:
Yeah we’ve been saying 600 price target since $100 a go. So so we believe Microsoft’s been been, you know, undervalued for quite a while. Almost a value name in itself. Microsoft. You talk about integration across all platforms. There’s not many places that do it better than Microsoft in terms of AI and integrating that across all digital platforms. I’ve got two young boys on my own.

Speaker 2:
They love the gaming side of Microsoft. Microsoft in itself with just the PC, environment is is great. Our our entire operation here at Des wealth runs on the cloud system with Microsoft. So we believe that Microsoft is so integrated in its current, you know, build out an infrastructure that, that you want to be a buyer of this name specifically just for a long term blue chip company name.

Speaker 2:
You know, it’s it’s a store of value, but we think that it’s got a lot of room to run simply because of its earnings, that it continues to grow its cash flow that we like, and we continue to see it innovate and then again, adopt more clients, more customers, if you will. With its AI build out, Microsoft is a strong by for us, and it’s one of the ones that we’ve seen a run up in since we took strong positions in.

Speaker 2:
But we have not taken profit for that because we believe that when it moves, it will move fast and 600 to the point in which we think we start looking for profits.

Speaker 1:
Okay, so Apple, Microsoft and Nvidia were on your list. No mention of Amazon, alphabet, Tesla, meta. Which of those would you actually avoid?

Speaker 2:
Tesla and Meta for us have been and this is probably Caroline as much a again every dollar has a job right. So from from a thesis of retirement planning and establishing a strong income portfolio, I would avoid a lot of the AI names. But if we were looking for consistent up into the right type of names, Tesla and meta for me, meta specifically, the the firm’s kind of taking the thesis that there’s not a ton of intrinsic value.

Speaker 2:
Their advertisements will certainly change. AD spend may change with the intent of AI and how it incorporates that. We’ve seen meta spend way too much money on things like the metaverse and their build out of AI. We just haven’t yet bought into their to their vision of what AI will be for their company. And then when you look at Tesla, you know, this is one that we’ve not owned.

Speaker 2:
It may be one that gets on our watch list sooner rather than later, especially if we start to hear mergers of space X and Tesla together. I think that’s a powerhouse. Another one that’s not on our list is space. I know you’re mentioning the mag seven there, but but I’m a big fan of the founder. I’m a big fan of the vision.

Speaker 2:
I’m just not a huge fan of a lot of the volatility that we see in that name. It’s a lot of speculation buying, not a ton of fundamental buying. We like to refrain from that if at all possible.

Speaker 1:
Okay, let’s move on and switch gears. Your final pick is Royal Caribbean, which is actually down on the year. What’s the opportunity there? And is that a a bet on the overall consumer?

Speaker 2:
Yeah, it is certainly a bet on the overall consumer. We’ve been a buyer of Royal Caribbean for quite some time. We got very heavy in Royal Caribbean back during Covid and it has handsomely rewarded our our clients from that position clearly continues to be up. And it’s one of the only real cruise line recoveries, if you will, that are worth mentioning from Covid.

Speaker 2:
But I think that Royal Caribbean not only does that experience the best, which is why we like that name, but currently at its valuation, we’ve got Royal Caribbean as a price target somewhere 350 or higher. I think it gets back to all time highs relatively soon. We are really watching interest rates because interest rates higher probably don’t help Royal Caribbean because of their debt load.

Speaker 2:
They’re buying back their own shares. They’re trying to trim their their balance sheets by by paying off debt. I like that as a as a thesis for this company. It pays a strong dividend. It’s got good upside potential. And here is the biggest piece of why we like Royal Caribbean for a long term play. Not only do we have some short time short term movement in the price in our opinion, but you’ve got long term stability in a name like Royal Caribbean, because it’s going to be really challenging for AI to replace experience.

Speaker 2:
And when you think about experiences, you think about how a dollar spends on a cruise versus just about any other vacation. It goes longer, it goes farther, more memories. Royal does it the best. And so when we think about the short term, we like the price action. When we think about long term, we think that it’s going to be hard to replace in this AI centric world.

Speaker 1:
But why Royal Caribbean over Carnival or in Norwegian? Because they’re technically on steeper sail this year.

Speaker 2:
They certainly are. We just don’t necessarily. From our perspective, we think that Royal Caribbean has a more upside in its innovation in its boat or its offerings per se. The boats are if you’ve ever if you’ve ever experienced them, they’re just a different experience altogether. Norwegians a little bit more on the luxury side. Carnival is a little bit more on the party side, if you will, where the Caribbean finds that happy medium.

Speaker 2:
It’s a family experience, family atmosphere. We like the upside for a Royal Caribbean over those two names, although as you mentioned, both of those names are on a steeper sail. We don’t think that we’ve seen the rebound that we would have liked to have seen. And I don’t think that that is coming anytime soon either.

Speaker 1:
Okay. So those are your picks. I do want to go back to your financial winter comment, though, and some of the seasonal changes that you’re making for the everyday retail investor. What should they do to prepare for this financial winter?

Speaker 2:
Yeah. You know, I want to be careful. I’m not I’m not Jon Snow on the the the the whatever it is that that show.

Speaker 1:
Is coming.

Speaker 2:
Winter is coming. I’m not saying Game of Thrones, that’s what it is. I’m not necessarily saying it’s it’s some sort of detrimental winter, but it’s a seasonal change. And, and I don’t think that investors should be concerned or scared out of the market simply because we see a 5 or 10% pullback in a September or October season, especially with the mid-term.

Speaker 2:
So for the retail investor, that’s at home, maybe watching a one day it’s down 1%, the next day it’s down another half a percent. And then we get a little a little you know 1010 basis point move up. But then another 1% down. You can start to maybe feel this wearing on you if you’re checking it every day.

Speaker 2:
September historically is not a good time to check it every day. So what we’re doing for our clients is a little bit more, you know, tactful management. We’re moving money here and there. And again, it’s not about timing the market, but we believe that some of these names are going to have a better time to buy. We’re taking profits at highs and and buying lows 101 of investing.

Speaker 2:
But when you think about the seasonal change of October of September and October, there are oftentimes really good sales right before earnings cranks up in October. And that’s what we’re banking on with this October as well. Again, because of the uncertainty of interest rates, all inflation, the seasonal change itself, and then you’ve got midterms on top of that.

Speaker 2:
A lot of reasons why the market may find itself 5 or 10% lower before it gets to our price target of 8000 on the S&P 500, we’re still bullish on the market. We just think now’s the time to perhaps take some profits.

Speaker 1:
Okay. So tell us what’s on your pullback shopping list. If we do get that correction that you’re you’re potentially looking for. What are you going to buy.

Speaker 2:
Yeah we’re right back into leadership with AI. I think artificial intelligence itself will take us higher through 2027 into 2028. Before we start to see maybe a little bit more of a broadening out with names that are being bought. But right now, leadership, Microsoft is one clearly we think is going higher. We might add to that position. As a matter of fact, we believe Apple is a good position.

Speaker 2:
Amazon, you mentioned it’s not on our list right now. It could easily become on our by list if we see a dip in that particular name. We like Amazon for multiple reasons. We’re keeping a close eye on Amazon. If we see a major drip in a major dip in Nvidia, we’re buying Nvidia as well. We continue to hold Marvell.

Speaker 2:
And then I’ll tell you realistically, if the overall index itself goes on a steep sale, a steep discount, just putting options around the index might make sense for a lot of our clients. So looking to just put some of that money that would would have in a cash position or in a safer position right now, putting it into just a little bit more of a risky position, but not taking full risk on buying the index itself, just more or less an options play against the index.

Speaker 1:
All right. I think this is a great time to pivot to our rapid fire round. Are you ready? It’s quick questions quick answers. No hedging.

Speaker 4:
Got it.

Speaker 1:
All right. Of all the stock picks that you mentioned in this interview, if you could only own one for the next five years, which one is it.

Speaker 2:
In video.

Speaker 1:
Which name would you cut first from the list?

Speaker 4:
Core weep.

Speaker 1:
What’s the first stock you’d buy on a pullback?

Speaker 4:
The first stock I would buy is probably Apple.

Speaker 1:
Which stock on the list doubles first.

Speaker 4:
Oh, Marvell.

Speaker 1:
Most resilient name. If the economy slows.

Speaker 4:
Up, the economy slowing. Probably Apple.

Speaker 1:
Most resilient name if the fed hikes rates.

Speaker 4:
Oh, goodness.

Speaker 4:
I didn’t mention HDB, did I?

Speaker 2:
It’s on my list.

Speaker 4:
I don’t think we talked about it. That would be an ETF.

Speaker 1:
We didn’t hit that one okay.

Speaker 2:
If the fed hikes rates the most resilient probably is still in video. And I’ll tell you why. But that’s not for this section. Next question.

Speaker 1:
But give us the give us the other pick the ETF that you like.

Speaker 2:
Yeah HDB I think HDV in itself is going to be benefited. You know, during that period of time we can look to 2022 is a great example market down 20% because of rising interest rates. HDB held its own up about 3% for that same year. HDB ETF that’s buying in the S&P 500. Blue chip company names strong dividends.

Speaker 2:
That’s my answer.

Speaker 1:
All right we appreciate extra picks and playing by the rules. So thank you for that. Which name on your list has the biggest competitive advantage over its rivals?

Speaker 2:

Speaker 2:
I would say in video.

Speaker 1:
And what’s the biggest risk to your stock picks?

Speaker 1:
That.

Speaker 2:
That, the AI, the AI by falls out of favor, which very easily could happen. Especially with what we’re hearing from places like anthropic of AI is going to kill us all. So if the tides turn and artificial intelligence falls out of favor, the stock picks that I’ve just made are probably going to need to be changed.

Speaker 1:
Okay, we’ll be sure to check in with you if we see any developments on that front. Dale Smothers, CEO, RT as well. Thank you so much for your picks and your insights.

Speaker 2:
Absolutely. It’s great being with you, Caroline. Always.

Speaker 1:
If you liked this video, check out my recent interview with David Wagner. He has four more stock picks for you covering tech, autos and power.

Caroline Woods:
Joining me now is Justin Bergner, portfolio manager at Gabelli Funds. Justin, thanks so much for being here. Great to have you back.

Justin Bergner:
Thank you. Caroline, it’s a pleasure to be back. I know it’s a somber and emotional day for many, but glad to be on your show nonetheless.

Caroline Woods:
Yes, we appreciate you being here. Thanks for wrapping up the week with us. Let’s start by talking about CPI, the latest inflation report. Did anything change in the report or did the report change anything in terms of your view for stocks or for the fed?

Justin Bergner:
Well, I think for the fed it more or less cements that they will do a September rate hike next week with a bias for a second rate hike in December. The two year yield at 4.6% is certainly reflecting that. And, you know, the fed is sort of torn between this. You know, can we ignore consistently high ish inflation or do we need to tighten against consistently high ish inflation.

Justin Bergner:
And so when you get a PPI and a CPI that are slightly hotter than expected, even if it’s very slightly I think it pushes the fed towards you know, being in that we can’t let inflation continue at high levels for that much longer.

Caroline Woods:
So we have the market pricing in this rate hike that you you mentioned we have oil sitting pretty close to $100 a barrel. We have yields closing in on 5%. Which of those things worries you the most? Oh and the Iran war of course is in at seven months seventh month.

Justin Bergner:
Yeah. I mean, it’s all additive I guess, to some degree. You have the trade war with Cannes and to a lesser extent, other countries. You have the Iran war and higher oil prices. You have the higher yields, reflecting a variety of factors. And you have a challenge consumer. I would say the higher yields probably worry me the most, particularly on the long end of the curve.

Justin Bergner:
I think that it creates a tightening. Some of that is due to legitimate factors. We’re seeing, you know, the back, the long end of the curve. The yields are go up around the world. Obviously, the Iran war and the trade war don’t help there. And we’re seeing AI CapEx push yields higher as it competes for capital.

Justin Bergner:
But I do think that there was a modest mistake by Warsh in the July Fed meeting, where he complimented the long end of the curve on doing some of the tightening for the market. And that brought out concerns about fiscal deficits and bond vigilantes. And now the fed is potentially forced to tighten a little bit more than it would have had it not let the cat out of the bag in July.

Caroline Woods:
So the biggest risk to this market is what.

Justin Bergner:
I think the biggest risk is the long end of the curve, I think, because that, just creates government funding concerns. It challenges the consumer. It even makes, you know, AI related CapEx more expensive to fund. Right? Like not all AI CapEx is being funded on the short end of the curve. So I think it’s just a big headwind to the economy in the U.S. and other countries around the world that are also dealing with higher, rates on the long end of their curves.

Caroline Woods:
Yeah, we have the S&P 500 up about 1% today, still on pace for a lower week, but rebounding pretty significantly today. Do you think investors are getting too comfortable buying here.

Justin Bergner:
Well I think it’s somewhat of a bounce after the last couple of days. We’ll see what happens next week. Obviously there’s a lot going on with the fed meeting. And as you know, everyone fully returns from whatever holidays they might have been still on. I also think that maybe the market is taking comfort in a little bit more clarity about which direction the fed has to go in September.

Justin Bergner:
So now that the rate hike is mostly priced in, the market can look beyond that rate hike. And it’s unlikely we will get another rate hike in November. So, you know, perhaps the fed is on hold till December. And that creates a little bit more visibility.

Caroline Woods:
So is this a market that can move higher than from here.

Justin Bergner:
It’s going to be challenging but it’s not impossible. You know, on the one hand you have tremendous earnings growth greater than 25% this year with low double digit earnings growth forecast for next year. You have a consumer that’s still spending out of savings despite real incomes being flat. But each of those things, you know, has some headwinds of their own, right.

Justin Bergner:
Like a lot of the earnings growth is related to earnings from AI CapEx today. That will become depreciation expense for numerous hyperscalers tomorrow and work against earnings in the future. Consumer spending financed by savings can only go on so long. And the big beautiful bill stimulus is in the rearview mirror. So I certainly think that the strength in the market can persist.

Justin Bergner:
I remain modestly, defensively positioned, in the funds that I manage because I think there’s more that can go wrong than can go right in the market. It is fairly expensive, but I think as a whole, you know, one is better served by looking at idiosyncratic opportunities than trying to call the market or sectors on a day to day, week to week basis against all this volatility.

Caroline Woods:
Well, we’ll talk about how you’re defensively positioned. But let’s dig into that a little bit more. Because you were last on back in March and you sounded more cautious back then. I think your price target was around 7000 for the S&P 500. Have you changed that price target then.

Justin Bergner:
Yeah I mean with higher earnings growth, one should you know, lift up their view of the market. I still think that, you know, the market will be hard pressed to end the year higher from here, even if there is, some strength after the election. And, you know, I think that it’s just hard to calibrate what multiple to apply to S&P earnings that are probably being boosted by 10% or more by this mismatch between CapEx today, generating earnings today and the fact that that will lead to depreciation expense that’s materially higher tomorrow and work against earnings in the future.

Justin Bergner:
But you know, there’s clearly tremendous earnings strength even when you discount that. And so I do think that a market at current levels can persist for a while.

Caroline Woods:
Okay. All right. So let’s talk about what playing defense actually looks like. Tell us the strategy.

Justin Bergner:
Well I would continue to kind of argue for a modestly defensive orientation. Part of the challenge is being in being defensive, as you don’t exactly know, what makes for a defensive stock today with the long end of the curve higher that works against, you know, yield oriented stocks have traditionally been defensive like staples, health care and utilities.

Justin Bergner:
Moreover, those sectors at least staples and to a lesser extent, health care exposed to the consumer, which is certainly the more challenging part of the economy. So I would argue to modest, defensive, you know, what’s worked for us, you know, year to date in, the Dividend Growth Fund is our large position in Merck. Merck obviously a big winner with its partnership with Moderna in the cancer vaccine.

Justin Bergner:
And that just goes to highlight the strong R&D organization that they have in pharma, probably the best in large cap pharma. And the fact that that our R&D organization can meaningfully contribute not just to internal drug development, but to business development through partnerships and M&A. So the stock is run up a lot, but it’s our largest position, is not inexpensive, but the quality characteristics of the company in its R&D organization are certainly coming to the forefront.

Justin Bergner:
Other names that we’ve, been, adding to, and have conviction in the name Ferguson Enterprises in the construction arena.

Caroline Woods:
Justin, you mentioned that Merck has performing, has been performing well for you. It’s up, though, almost 40% year to date. Is that a hold here or would you still buy it at these levels?

Justin Bergner:
Yeah, I think it’s a hold, but I’m, not. I’ve reduced my position some just to not make it to large position against recent strength. But I’m holding, you know, the vast majority of the position as I think it will continue to perform at least in line, if not slightly better than the market.

Caroline Woods:
Okay. So it’d be a buy and a pullback kind of play for some of the retail investors listening.

Justin Bergner:
Yes. If it was to pull back, you know, 5 to 10%, you know, relative to the market. Yeah, I would certainly look to to add there, I think that, Merck is kind of regaining its status as the highest quality large Cat pharma name, you know, outside of the whole Lilly and GLP one dynamic.

Caroline Woods:
Okay. So what else do you like here? What would you add at these levels?

Justin Bergner:
Sure. So one name I like in the housing and construction oriented arena, despite having a very kind of sober view of those markets, is Ferguson Enterprises and Ferguson Enterprises has actually, you know, pulled back recently along with a lot of housing oriented stocks. So it is, the largest building products distributor in the country, with a market cap of about 44,000,000,033 billion in sales.

Justin Bergner:
And the company is 50% exposed to residential, but more importantly, 50% exposed to nonresidential. And in nonresidential. They’ve been benefiting, from large capital projects, you know, notably data centers. They probably generate, you know, close to 15% of their nonresidential sales, from the data center market today, where they’re supplying a variety of products, and they’ve really been showing outsized success in that market given their scale and scope.

Justin Bergner:
And they’ve had a number of attributes which have allowed them to outgrow their markets by 300 to 400 basis points. Mainly the exposure to large capital projects, but also their focus on the dual trade contractors, which is HVAC and plumbing contractors, contractors that do both of that, as well as just good execution in their Ferguson home business.

Justin Bergner:
They’ve recently seen our growth on the high end of that 300 to 400 basis points. They are operating well, deploying capital. Well, recently did a $1.6 billion acquisition of Flow Works to expand their presence in, pumps and valves, and that exposures increase our industrial exposure. And I think the stock can generate, $12 of earnings in the next 12 months and grow earnings at a 10% clip from there.

Justin Bergner:
Even if the back up in yields slows that earnings growth to something more like 7%, you know, you’re still looking at a stock that can trade, at 20 times earnings, just given their outgrowth capabilities. And be worth $208 18 months from now. So really like Ferguson and what they’re doing just winning in their markets, however tough those markets could, might be right now.

Caroline Woods:
Okay, I see you also like Smucker SJM. That one has actually outperformed the market this year. Should note that Ferguson is basically flat on the year whereas Smucker is at more than 20% year to date. So you still like it here even after that Twinkie acquisition?

Justin Bergner:
I mean, the Twinkie acquisition was almost three years ago. Caroline. So I like it. As the Twinkie acquisition becomes more rearview mirror for the company. Yeah. So Smucker’s has, you know, one of the better growth profiles in consumer staples. And it’s a good example of a defensive stock that one can find a little bit more motivating in this market.

Justin Bergner:
They have a tremendous set of brands across Pat coffee and spreads. Clearly, you know, they have Folgers, they have Cafe Pistola, they have Jif, they have their crust apples franchise. And they recently reported a quarter where they grew sales, you know, 5%, including 1% volume. They took up their sales guy by 200 basis points for the year.

Justin Bergner:
The volume growth forecast is now flat, which might not seem great, but it’s better than many consumer staples companies. And they just have a good, you know, set of growing products. Again, in a tough staples market. I think they can do, earnings of about 1050 looking out over the next 12 months, when you look beyond some of the benefit from tariff refunds in the last quarter, and they can grow sales low single digit, mid-single digit.

Justin Bergner:
From there, Elliott is involved with to, designated representatives on the board, and the company is deleveraging towards three times EBITDA. And once they get a little bit lower repurchases are not out of the picture. So capital allocation should be a source of strength. Any residual family discount. You know, Mark Smucker CEO, I think will go by the wayside.

Justin Bergner:
And the company can trade at 13 times earnings and beat, you know, $150 stock or close to $150 stock 18 months from now.

Caroline Woods:
Okay. So staples check. Utilities, check. Healthcare? Check. What about tech? Because I know back in March, at the time we have seen some beaten down I high fliers. You said it was too early to buy them. Then six months later. How are you feeling about tech? Yeah.

Justin Bergner:
I we have a value orientation. So we have certainly a more modest tech exposure. We own meaningful positions, in Amazon and Alphabet, which we think will be winners in the LLM world and the, the cloud world. Obviously they’re spending oodles and oodles of CapEx, which has its own concerns. We also, you know, have a position in the fund and Hewlett Hewlett-Packard enterprises, which is having an exceptional day today for reasons that aren’t entirely clear, but, is just a winner in networking.

Justin Bergner:
And the juniper acquisition there is going well. So we have some selective exposure in tech. Certainly. Not nothing like what a growth investor might, might have in their fund.

Caroline Woods:
Given your value orientation, what would you say is the best value in the market right now, either sector wise or stock wise?

Justin Bergner:
I think it’s very idiosyncratic. You know, I think it’s a market with a lot of uncertainties. And so, you know, it’s a market where you don’t take as big bets. You know, I think Ferguson Enterprises is certainly one of those stocks that I feel very confident about the long term value. I mean, if you’re outgrowing your market by 400 basis points, you know, you can still grow when the market’s not not growing or even shrinking.

Justin Bergner:
So that would be one example where I think there’s really good value. But I think it’s more idiosyncratic in stock specific than sector.

Caroline Woods:
Okay. So if you had to kind of sum up the that the biggest advice for retail investors, as they think about some of the seasonal September weakness that we’ve already seen as they think about heading into the fall into year end, what’s your best piece of advice?

Justin Bergner:
My best piece of advice would be to look for stocks that you want to own in the next 3 to 5 years, and if they pull back, even for reasons that might be somewhat deserve it. I mean, Ferguson’s pulling back because housing is weak and interest rates are up. You know, don’t hesitate to add to those positions. I mean, it’s hard to know what the business cycle will bring in the next couple months or the next couple of quarters, the next couple of years.

Justin Bergner:
And you want to own good quality companies that can grow revenue and grow earnings and aren’t too expensive. And, you know, manage those positions in your portfolio with an eye towards, you know, long term capital appreciation.

Caroline Woods:
And just clarify what a pullback actually looks like. Are you talking 1%, 5%, 10%. What sort of pullback would you be looking for? Obviously if stock specific. But you know kind of broadly speaking.

Justin Bergner:
I think broadly speaking you’re looking at a pullback 10% or close to 10%. You know relative to the market or whatever sector index might be relevant. I think that was that’s when you should start being more aggressive. So in the case of Smucker’s, the CEO of Smucker’s did a meaningful insider sale after the stock respond to earnings.

Justin Bergner:
And that’s created an opportunity to buy into the stock somewhat lower, or to add to its position somewhat lower, for example.

Caroline Woods:
So that works if you’re a stock picker. But as we think about even some of the weakness that we’ve seen this week, and you take a look at the S&P 500 and it’s only down 6/10 of a percent or 7/10 of a percent on the week, despite it feeling like a bad week because of obviously today’s bounce.

Caroline Woods:
So is it kind of the strategy just to sit tight then and wait for more weakness. Or is it deploy cash because the market might keep hitting higher and these levels might are good.

Justin Bergner:
I think it’s to sit tight. Caroline. I mean, you can certainly justify a much larger pullback in the market than we saw over the last week, given the back up in yields and what that could do to the discounted value of, stocks, future earnings and cash flows. I also think there’s just a lot of volatility ahead in the coming weeks.

Justin Bergner:
And, you know, I would just, encourage, you know, folks to be mindful of interest rates and what they mean for the value of all assets. You know, it was in 2000, in the fed funds rate got to 6.5% before the market crashed. So the market may be able to tolerate a number of interest rate hikes, but it just feels that any upside from here is going to be much more of a grind higher than, something more material from a broader market point of view.

Caroline Woods:
Okay. I think this is a great point to pivot to our rapid fire round of this or that you’ve played before. Quick questions, quick answers. No hedging. Are you ready, Justin?

Justin Bergner:
Sure. Let’s go.

Caroline Woods:
All right. Here we go CPI reassuring or concerning.

Justin Bergner:
Concerning the.

Caroline Woods:
Fed next week. Hike or hold. Hike one fed hike healthy reset or start of a bigger problem.

Justin Bergner:
There’s going to be two hikes. I think it’s a needed reset.

Caroline Woods:
Hundred dollar oil market killer or manageable headwinds.

Justin Bergner:
I think oil by itself is a manageable headwind.

Caroline Woods:
Ten year near 5% opportunity or danger zone?

Justin Bergner:
Danger zone. I don’t know if it’s next next month or next year, but definitely danger zone.

Caroline Woods:
Stocks or bonds at today’s yields.

Justin Bergner:
I would argue for bonds. I think that while we are in a long term rising interest rate cycle, the recent moves feel a little bit too far, too fast.

Caroline Woods:
Okay, but if you do buy stocks growth or value for the rest of 2026.

Justin Bergner:
The value personal always lean towards value. But, I don’t think it’s going to be a huge differential. But I would argue for for value because value is more defensive stocks. And I think defensive stocks will do a little better.

Caroline Woods:
I stocks buy now or hold off.

Justin Bergner:
Hold off higher interest rates. This levels aren’t great for them either.

Caroline Woods:
Mega cap tech keep riding it or diversify away.

Justin Bergner:
I would say keep riding. I think it’s a good place to have meaningful exposure in this market.

Caroline Woods:
Best name to play defense with.

Justin Bergner:
Oof!

Justin Bergner:
That’s a tough one. I guess I would just say, you know, something generic in health care brands like Merck. Yeah, Merck’s run a lot. So I wouldn’t say it’s the best generic, necessarily the best generic name in health care, but feels like just, you know, owning the health care sector as a whole wouldn’t be a bad place to be.

Caroline Woods:
Stock the market loves that you’d avoid.

Justin Bergner:
Stock. The market loves that I would avoid.

Justin Bergner:
That’s a that’s a tough one. Because I’m not sure what the market loves today. I would just probably say a memory area, because even if the AI cycle goes on longer, I think there will be new Chinese capacity and there’ll be limits on how quickly we can build.

Caroline Woods:
Market pullback, buy it or wait for more downside.

Justin Bergner:
Wait for more downside.

Caroline Woods:
S&P 7000 possible or off the table?

Justin Bergner:
Definitely possible in a pre-election pullback.

Caroline Woods:
But if you had to make a call market by your end higher or lower from here.

Justin Bergner:
Touch higher.

Caroline Woods:
Finish this sentence. If I had $10,000 to invest, I’d put it in.

Justin Bergner:
$10,000 to invest probably. I mean, today where everything stands today, I probably say money market is is fine, particularly if, rates go up a little more.

Caroline Woods:
And finally, the best sector to own if the fed hikes rates is.

Justin Bergner:

Justin Bergner:
That’s a tough one. But I would say, if the fed hikes rates, let’s just say twice, I would say industrial stocks, given the recent pullback, given a practical place, I there are a number of industrial names I own. I like Paccar just because I think the trucking cycle is finally, recovering. So that would be a name on the industrial side.

Justin Bergner:
But there, there are a number of names that one could own.

Caroline Woods:
All right. We’ll leave it there. Justin Bergner, a portfolio manager at Gabelli Funds, thank you so much for playing and for your insights and picks. We really appreciate it.

Justin Bergner:
Thanks so much, Caroline. Pleasure to be on.

Caroline Woods:
If you enjoyed this Street Talk, check out our full interview with Ross Gerber. He says he’s getting defensive as well, and reveals the tech stocks that he’d still scoop up at these levels.

Caroline Woods:
Joining me now, Ken Mahoney, CEO of Mahoney Asset Management. Ken, great to have you back. Thanks so much for being here.

Ken Mahoney:
I love being here. I’ve got lots of talk about.

Caroline Woods:
We certainly do, including the upcoming fed meeting. All eyes on that of course. And the market is getting more uncertain of a rate hike. Ken, does a rate hike kill the rally? Though?

Ken Mahoney:
It might not. You know, maybe hitting the brakes a little bit is a good thing. You know, you go back to 2021 and again, it sounds like ancient history, but in 2021 we kept on here transitory, transitory. And maybe in 22 we tap the brakes a little bit and did a quarter, a quarter. Maybe when you get into that mess where we had a raise, some five basis points for meetings in a row.

Ken Mahoney:
So maybe this is what the like the market. The yield curve looks like it’s expecting a quarter. The betting markets look like it. And for credibility purposes you know one of the first things that the new fed chair said is that 2% inflation target. That’s a real target. They have low you know, numbers that we saw on Friday don’t necessarily add up to that because we’re still going further away from that 2% target.

Ken Mahoney:
So I think for all those reasons we will see a rate hike. And I’m not sure the market’s going to sell off sharply. I think it’s starting to price this in.

Caroline Woods:
If we did see a reaction though would you be buying any pullback or would you be waiting to see what comes next.

Ken Mahoney:
That’s a really good question. I mean we’re just. Most of the time we’re buying tactically, you know, putting a bit below the market on an index or perhaps the stock. So again, if there’s a big push down. Yeah we’re set. We’ve been raising cash. We don’t have bonds. Most of our portfolios depends on the kind of course it’s about two thirds equities one third in cash.

Ken Mahoney:
So we do welcome with within its own framework that you know catastrophic drop. We would like that. But definitely by the dip we’re into that theory that we’re going to be getting gains really for remainder of the year through alpha so to speak. Through that of actually seeing, you know, those tactical ways, getting into a stock, you know, averaging into a little bit.

Ken Mahoney:
And I guess that would be a welcome event, post Wednesdays meeting.

Caroline Woods:
Explain this idea of buying below the market. How does the everyday retail investor buy below the market?

Ken Mahoney:
Right. So let’s say Apple is trading at about 330 or so. It’s kind of it’s one of our keepers. We’ll talk about that in a bit. But you could buy some at 320, maybe buy some 300. Some are 290. I think the investors get really messed up and have big draw downs is that, you know, they go in one, one price.

Ken Mahoney:
So it’s Microsoft all in at $5 a share and that leaving more room tactically to put some prices below the market. Go often. You know, golf, play mahjong play pickleball, enjoy your day and come back. You make it filled. And conversely, since we have volatility, we might as well make volatility your friend, right? We might as well.

Ken Mahoney:
Pulitzer Prize below the market on your favorite stocks. And once you get filled there’s nothing wrong. You know putting some offers out there. Well play golf mahjong do those type of things and find that you may get filled that way as well. So the choppiness at this point, we’re embracing it. Of course, we rather have a nice trend going higher.

Ken Mahoney:
Right? All of us would like that. But we’re in this chop chop, chop mode. The best way we feel to take advantage of it is that tactical approach.

Caroline Woods:
So you were bullish but cautious when we spoke in June. How are you feeling now given that we’ve been seeing some of that chop chop as you call it?

Ken Mahoney:
You know, look, we look at it so many different ways. Somebody different angle. I’m actually sitting here thinking pretty resilient. I mean considering we said beginning of the year this campaign and I ran, it’s not going to be weeks. It’s going to be running into the months with no end in sight. We’re going to the Federal Reserve again, push the how to raise rates because, you know, inherited more inflation than the target.

Ken Mahoney:
And the S&P 500, about two and a half, 3% from its all time high. Now underneath it, by the way, the the breadth have been pretty ugly. You know the events the long lines not been strong but the think the market’s been if you look at it this way, the market’s been pretty resilient considering everything that’s been thrown out.

Ken Mahoney:
So bullish cautious bullish. So yes. So the same definition of the bulls right. Yeah. Still bullish here.

Caroline Woods:
Okay. But back in early June I think it was what a third of your portfolio was sitting in cash. You had a lot of cash on hand. Did you put that cash to work over the summer. What does that number look like now.

Ken Mahoney:
Yeah we’re almost not there. We only put a few percent. Yeah. We we didn’t really get a bit worse down. You know, we had some challenging days, some challenging weeks, but we didn’t have, like, anything worse down. I mean, look, we’re in that we’re in this seasonality period September and October. You know, that’s why we’re still holding on to cash.

Ken Mahoney:
It seems like in market cycles, October turns out to be the lull in from midterm elections. The uncertainty about that or perhaps uncertainty about that, may come into play as well. So we really haven’t moved too much out of cash into stocks. It just hasn’t been this big reset, a big downturn. But we’re ready in October or sooner.

Ken Mahoney:
So that happened because we know the cycles typically fall the lows in October and hopefully we have better opportunities. Are fatter pensions they call it. No, it’s not that just the not.

Caroline Woods:
So what’s the signal though. What are you actually waiting for before you deploy more of that cash? What would make you say, okay, I want to buy here.

Ken Mahoney:
Right. I think the Federal Reserve raising rates and the market digesting it. I think that’s important. Test. Sometimes you just want to sit out a little bit. You know, we’re we’re we’re not fully invested. We’re still investments. The whole home team wins. You know album stocks do well. So I think one one would be the Wednesday’s meeting, it seems like a foregone conclusion.

Ken Mahoney:
They’re going to raise rates and see what the reaction is. Not that day. It’s usually a couple of days. Right. We’ve seen sometimes counter reactions on the day of the Federal Reserve announcement, and the next day unwind it the other way. So a couple days after that would get us think, well, you know, I think the market really has digested this storm.

Ken Mahoney:
Seeing oil come down a bit would be another factor, a major factor.

Ken Mahoney:
Happy with the earnings there. And now it’s about, you know, put the index maybe 3 or 4 or 5% below the market, maybe get filled in a couple of days. But, you know, I think also we have more confidence should we be able to get through this period of time. It’s a pretty volatile period of time between Iran, higher rates and the midterm elections all in the next six weeks or so.

Caroline Woods:
But there are the, the people that come on. And when I say do you buy here, do you wait for lower. They say well you can’t time the market. So you’re better to put the money in now and not risk missing any sort of more upside. But you would say it’s better to kind of sit in cash and wait for this to shake out.

Ken Mahoney:
Yeah. Like what you said about 30% of cash, nothing in bonds allocated and 70% stocks. And look, every has a different flavor on this and how to do it. Like we’re still long term bulls. You know we’re zero in stocks. If we really were that bearish with what’s happening again the plus side again we know that. We know the headwinds and headwinds are well documented.

Ken Mahoney:
I start feeling that sometimes, investors like when I trade, which was April May, that became a crowded trade. Right. Everybody’s on one side of the ship. I also think shorting this market is also akin to that, which is kind of overcrowded as well. So we recognize that, again, it’s nice that money, but we also know that this can take off very quickly.

Ken Mahoney:
So we’re mindful that. But I guess since we’re already invested, it gives us confidence that we can put more chips on the table when there’s a higher degree of confidence that we got over these big hurdles that the market’s been, dealing with.

Caroline Woods:
Okay. Certainly fair. Let’s talk about some of the names that you do like here. Apple is still one of your top picks. And it’s not too far from the highs right now. Why do you still like Apple.

Ken Mahoney:
Yeah I mean can you even double down on Apple in the way they’re doing. Things are 2.5 billion devices out there. That’s a lot. I think Planet Earth has 7 or 8 billion habitants. There’s just you know, you can really monetize that. Right. And also I think they’ve done a good job with this. I, you know, they kind of set out they weren’t the first movers like Amazon, Google, Microsoft, the hyperscalers spending $200 billion a year.

Ken Mahoney:
They’ve kept the balance sheet pretty clean. They haven’t been jumping. Again. Some people are frustrated that they haven’t not been enough innovation. But Tim Cook, I don’t think gets enough praise. I know, the how to change the leadership there. But the last 15 years is the average 20% per year under. Again, no one thought they could replace Steve Jobs.

Ken Mahoney:
But that’s that’s pretty good. So anyway, 2.5 billion, devices out there. And again, the new products that consumers want, I know that, the new product launch wasn’t huge and people are so excited becomes the holiday period. I think that’s that’s where you going to start seeing some some more demand and and so hey we’re going to learn a lot about elasticity.

Ken Mahoney:
How much can you raise prices without demand waning. What we’re going to watch study of the last definitely of demand.

Caroline Woods:
All right I know you also like Microsoft, but you say to buy that one on a pullback. So what level are you looking for to add new money to Microsoft.

Ken Mahoney:
Yeah. Nothing crazy. Maybe 20 points 25 points lower. The one thing you have to look at Microsoft. You know, for some time software companies are kind of galvanized and crushed on the market. And Microsoft did two took a trip below $4 a share. But all right, there was a software company there, an eye company. So you can’t count them out with but they have they also have Azure which is their cloud.

Ken Mahoney:
And you know, when you have 1.1 billion licenses out there like Apple with that wide moat, you can really monetize it. So I think Microsoft, you know, it’s got some time to make up. Do you again trading well since its last earnings but a couple earnings ago the stock has hit hard. Software stocks get hit hard and relative speaking for PE in the mid 20s not not again it’s not that expensive.

Caroline Woods:
And then Nvidia too. Would you buy Nvidia at today’s price.

Ken Mahoney:
Yes. We were yes we weren’t in any pullback. I guess people are bored and they’re trying to fund in next one. But there’s not a company out there that’s doing the doing. I mean they are forecasting through 2028. You’re looking at 80% growth rates. And it’s £0.04. Yeah. We don’t like these. That’s backwards looking rearview mirror.

Ken Mahoney:
But forward PE is 25. Historically it’s anywhere from 30 to 35 for Nvidia. So again we look at stocks whether cheap or not cheap. You know there’s a lot of debate about that. But the for PE right now. Well and a growth rate of 80% and a backlog and visibility to 2028. Yeah to us Nvidia Apple Microsoft the three strongest right now we believe the three strongest leaders most because of what they’ve done okay.

Caroline Woods:
So if you could only add money to one of those names Apple Microsoft or Nvidia which gets your money first.

Ken Mahoney:
I think I’ll go to Apple. Apple. So I think there’s a lot of modernization, through AI, more connectivity with these new products, along with the Mac and the ecosystem they have, I think I think Apple has a lot of upside.

Caroline Woods:
So all three of those topics that you brought to us are, of course, magic seven names. Does that mean that tech is still where you want to be in this market?

Ken Mahoney:
I think so, I think so because of these wide moats I mentioned. You know, you hear different stories when the second inning of AI, they’re in the fourth inning of AI. Who exactly knows? But these are your leaders. These are what they mean. Microsoft and other verticals they have. I mean, how they can go to a customer and quick add add ons, $25 for your copilot, $25 for this.

Ken Mahoney:
And and then multiply by building, you know, and Apple with 2.5 billion, you know, an extra $5 a month, $10 a month per user. You know, these are some, some, some huge points to be able to leverage. So, you know, we like these big companies, hey, they may not grow like a small cap start going up 50% given year.

Ken Mahoney:
We get it. But we can we buy right. We buy tactically the low the market, sell some into rallies, keep a core holding. I think investors I don’t think there’s any other place as compelling as those names.

Caroline Woods:
Where else are you finding opportunities outside of tech, though?

Ken Mahoney:
Yeah, we don’t have a long list and that could work. Wealth managers, one area that we have not invested in yet, and we’re really trying to sink her teeth into it was Merck, American Moderna. That was just an amazing announcement in the area of skin cancer. We had that with my and her family, and it was just awful to see her what she went through.

Ken Mahoney:
Well, and now there’s a phase three that got through. I also think the portfolio pipeline from Merck and some others now to be reevaluated to the upside, the I of crunching numbers and picking up designs, and picking out, how these, trials will be set up. You know, that could be the big win for AI.

Ken Mahoney:
Everything in data centers, robotics, cloud. But that announcement of now going back 2 or 3 weeks ago, it is really insane how many people that can help around the world getting money behind that. It’s been pretty volatile since the announcement. We hope it settles down a little bit. But again, we’re growth managers, but we also could see growth in pharmaceutical vs EV.

Ken Mahoney:
All the technology that goes into making these, making these drugs.

Caroline Woods:
Okay. So waiting to sink your teeth into it means you’re waiting for it to get cheaper before you actually take a bite.

Ken Mahoney:
Right? Right.

Caroline Woods:
Okay. So like, all right, I think this is a great time to pivot to our rapid fire game of this or that you’ve played before. We do quick questions, quick answers. No hedging if you can help it. Are you ready Ken okay.

Ken Mahoney:
I’m ready to hatch now. I’m ready. Yes I’m ready.

Caroline Woods:
All right. Here we go. Fall market choppy or trending higher.

Ken Mahoney:
Trending higher.

Caroline Woods:
Fed hike. Rally killer or buying opportunity?

Ken Mahoney:
Buying opportunity.

Caroline Woods:
One hike or multiple hikes. Multiple hikes $100 oil. Temporary problem or lasting headwind? Temporary ten year near 5%. Buy stocks or buy bonds.

Ken Mahoney:
Move stocks. No bonds.

Caroline Woods:
Cash. Right now. Offense or dead money.

Ken Mahoney:
Offense will be offense oil.

Caroline Woods:
Oil and rates. Risks or noise.

Ken Mahoney:
I’m sorry. Sad question.

Caroline Woods:
Oil and rates are those risks or noise risks?

Caroline Woods:
If we see a 3% pullback buy or wait.

Ken Mahoney:
Be nimble by a little bit. Yeah. Buy incrementally.

Caroline Woods:
So 5% pullback back up the truck or still be patient.

Ken Mahoney:
By incrementally be patient.

Caroline Woods:
When do you back up the truck.

Ken Mahoney:
You’re closer to a 10% decline. You know 10 to 12% decline.

Caroline Woods:
Okay Microsoft or Nvidia.

Ken Mahoney:
Oh my gosh love them both is like you know two sons and say who do you love more. Microsoft.

Caroline Woods:
Nvidia or the S&P 500.

Ken Mahoney:
Nvidia.

Caroline Woods:
Meg seven or everything else.

Ken Mahoney:
Nine seven.

Caroline Woods:
Okay. So playing off your Microsoft Call AI software or AI infrastructure.

Ken Mahoney:
Come on I infrastructure.

Caroline Woods:
Best non-tech play in the market right now.

Ken Mahoney:
Pharmaceuticals.

Caroline Woods:
One stock you’d avoid right now.

Ken Mahoney:
Macy’s, Nike, those type of companies.

Caroline Woods:
Because the consumer is resilient or cracking times cracking.

Ken Mahoney:
And again all the ways.

Caroline Woods:
One consumer stock you would buy right now that’s not Apple.

Ken Mahoney:
I was in Seattle. It’s not fair. So gosh. I don’t know. It’s just an apple minded, because that’s that’s the ultimate consumer product.

Caroline Woods:
Good stocks by year end, higher or lower.

Ken Mahoney:
They’re from higher.

Caroline Woods:
How much higher?

Ken Mahoney:
In the next 3 to 5%.

Caroline Woods:
And finish this sentence I’d get aggressive on a pullback when.

Ken Mahoney:
The rate hikes the rate, the first rate hike is behind us.

Caroline Woods:
Ken Mahoney CEO, Mahoney Asset Management thanks so much for joining us and for playing along. Really appreciate it. Great to see you.

Ken Mahoney:
All right.

Caroline Woods:
Thank you. If you enjoy this street talk check out our full interview with Justin Bergner. He says a larger market pullback may be justified and explains how he’s getting modestly defensive.

Here is the transcript with only the time codes removed. I kept the speaker names, colons, wording, punctuation, and paragraph breaks unchanged.

Caroline Woods:
Joining me now is Kevin Mahn, president and chief investment officer at Ian Walsh Asset Management. Kevin, always good to have you. Thanks for being back at the desk.

Kevin Mahn:
It’s great to be back. Thanks for having.

Caroline Woods:
I want to get a check in on your bullishness because we have oil near $100 a barrel. We have rates higher. We have the market pricing and a fed hike next week. Yeah the S&P 500 a bit lower right now but sitting very close to all time highs. Are you still bullish.

Kevin Mahn:
Am I still bullish. Yes. Am I still optimistic long term. Yes. Do I think there will be more short term bouts of volatility over the near to medium term? Yes. And I think what investors have to need to keep in perspective is that the conflict between the U.S. and Iran continues to escalate. Not going the other direction. The Strait of Hormuz is still not open.

Kevin Mahn:
We have oil back above $100 a barrel. We’re having two very important inflation reports come out this week, which will, in all likelihood, remind us that inflation stays above 3%. The Fed’s target is 2%. So it’s going to take them quite some time to get back to that 2% level. Oh, and let’s not forget about the midterm elections in November.

Kevin Mahn:
All of that is going to create more volatility. But that doesn’t mean investors should flee to the sidelines and try to time the market, because I still think there are growth opportunities. And each time there’s a pullback that creates attractive entry opportunities in certain areas of the market.

Caroline Woods:
So just clarify short term bouts of volatility means you think we’re going to see some weakness here.

Kevin Mahn:
We could definitely see some weakness what we saw on Tuesday. What we’re seeing today is likely what we’re going to see for the balance. I’d say if the next month and a half to two months, these days when the market is down 300 to 500 points, a little bit of bounce back because investors start nibbling at that dip, but then more pullback as the tensions escalate.

Kevin Mahn:
Again, oil prices remain high. The investors are confused about what the fed is going to do or not do. Then we’re going to learn that there’s going to be a balance of power in Washington, which is actually a good thing, but that always creates volatility. So I think there’s going to be more of these intermittent pullbacks but not a serious correction.

Caroline Woods:
But with the S&P 500 about 2% away from all time highs, is it properly pricing in all of these risks that it’s really up against.

Kevin Mahn:
No. But it’s also not properly pricing in the earnings growth that we’ve seen thus far this year and the earnings growth that we’re expecting for the bounce of this year and next year. So I think that earnings growth is what’s going to save this market. And these pullbacks from going into a more serious correction.

Caroline Woods:
You always say you already said it. It’s time in the market not timing the market. So it’s still safe to put cash to work at these levels.

Kevin Mahn:
I believe so. And I’ll go back to the statistics. Once again. We did this study. Hartford did a study as well. We looked at the last 20 years worth of data, and what we found was that if an investor missed out on just the ten best days in the market over those 20 years, the returns were cut in half.

Kevin Mahn:
If they missed out in the best 30 days, the returns were reduced by 84%. None of us here have a crystal ball. So you need to stay invested, but diversified in accordance with what your risk tolerance is, making adjustments along the way as appropriate.

Caroline Woods:
Can you make the case that it’s time to keep some dry powder on hand though?

Kevin Mahn:
It really depends on what your goals are and what your risk tolerance is. If, in fact, you want to keep an emergency fund, you should always have about six months worth your earnings sitting in cash to cover unique scenarios that you’re.

Caroline Woods:
Talking about, cash to potentially buy at lower levels.

Kevin Mahn:
But then again, that’s trying to time the market. And I don’t know when those lower levels are going to come. But if there is a big pullback, historically the best days happen after the worst days. So if you do have money sitting in cash, maybe that’s a good time to deploy it.

Caroline Woods:
What would make you tell investors don’t put fresh money to work here?

Kevin Mahn:
I think you’d really have to start thinking hard if oil gets above $120 a barrel, if ten year yield goes above 5%. Now all of a sudden the bond market is telling us that things are about to get a lot worse, and oil may stay at those levels for a much longer period of time. If oil stays above $120 for an extended period of time, then the U.S. consumer has the less money to invest because they have to spend more on gasoline as they spend less.

Kevin Mahn:
Given that the consumer accounts for 70% of our economic growth, the economy slows further. Then what’s the fed to do? They can’t jump in and cut interest rates if inflation is also still high as well. So they’re stuck in the middle. That would be the biggest concern to me.

Caroline Woods:
There is a 62% chance right now, according to the CME fed watch tool, that the fed will hike next week.

Kevin Mahn:
Yes.

Caroline Woods:
What could that do to this market?

Kevin Mahn:
Well, so at 38% chance they do nothing. But I think the fed should do nothing. But I do think the fed may now think they have to do something. But I would also argue that maybe the bond market has done their work for them already. You look at the ten year yield right now 42. That’s the highest it’s been since November of 2023.

Kevin Mahn:
And I would also ask chair, if in fact, they’re considering a rate hike of 25 basis points now because of their concerns with high oil prices. What will that rate hike do to open the Strait of Hormuz or to bring down oil prices? And if I’m also reading the bond market correctly, looking out to next year, they think that interest rates are going to come down next year between 25 to 50 basis points.

Kevin Mahn:
So perhaps this inflation is, I hate to say it but transitory. And they believe that this conflict will come to an end. And just as quickly as oil prices ran up, they could start to come back down.

Caroline Woods:
Can the stock market move higher if the fed hikes rates? If the ten year yield is near 5%?

Kevin Mahn:
Yes and yes. I don’t think the market will be caught off guard if the fed raises by 25 basis points. Now, if they follow through and raise again in October and December. That would certainly catch me off guard. If the ten year rises above 5% and now all of a sudden the 30 year is creeping up near five and three quarters 6%, that would catch me off guard.

Kevin Mahn:
But that’s not my base case right now. So the markets can absorb a 25 basis point rate hike. The markets are already absorbing where yields are right now. And if you just continue to follow the money Caroline you’ll continue to find those growth opportunities.

Caroline Woods:
Would a rate hike change your investment strategy at all though?

Kevin Mahn:
It would not in the slightest. Now if in fact now all of a sudden share Warsh comes out next week and says we’re raising interest rates by 25 basis points, and I’m going to give you some forward looking guidance. I would first fall off my chair and then I would listen to what that guidance is. If it sounds much more hawkish, then that might make me change some of the allocations going forward.

Kevin Mahn:
But he’s not going to. That’s not his M.O..

Caroline Woods:
All right. So talk to us about what we should be doing right now other than putting money to work. Where do we want to put it? Where are the best opportunities?

Kevin Mahn:
I still think it’s following the money I infrastructure. I just saw a stat the other day that we’ve already spent $1 trillion this year. Companies on I infrastructure investments $1 trillion. Johnson was forecasting 3 to $4 trillion by the end of this decade. Boy, we well ahead of that already. Well, that slow down perhaps, but it’s going to continue.

Kevin Mahn:
Power water solutions aerospace and defense. I just saw that the US Navy put in a contract for Raytheon or RTX for their Tomahawk missiles, to replenish what they’ve used already over in Iran. Money continues to be spent on defense and health care. I always talk about health care with you, but that M&A activity that’s taking place in biotech is only accelerating.

Caroline Woods:
Last time Nvidia was your number one stock for new money. Is it still.

Kevin Mahn:
It will always be one of my top stocks for new money, because they sit at the hub of the ecosystem and everything they touch turns to gold.

Caroline Woods:
What’s one I stock that maybe it’s gotten too expensive for you?

Kevin Mahn:
I wouldn’t say micron, that’s for sure. I know a lot of people think that micron has run up too high too fast. The stock’s up over 600% over the last year. Look at their Ford PE still trading at roughly six times forward earnings. But then you look at a company like Palantir I really like what Palantir does.

Kevin Mahn:
I think they’re in the right space. But it’s hard to chase after stock that’s trading at those types of multiples right here. Like the stock don’t like the price it’s trading at. But if it comes in a little bit more realistic than I like it even more.

Caroline Woods:
Give us some other names that you would buy today. Yes.

Kevin Mahn:
I’ll give you my er seven names if you don’t mind. So we have, Nvidia in there. Also have alphabet. I like micron. I like Taiwan Semiconductor because their importance only continues to grow 70% market share as it relates to what they do as a dedicated chip foundry company like Digital Realty. Perhaps that’s not my favorite in this space, but there are other reads as well that continue to build out data centers despite the Nimby movement, which I’m really interested to see if that continues after the midterm elections.

Kevin Mahn:
American Electric Power I know that’s a lot of, strategist favorite utility name right now, but it’s been mine for a while now. You can go back and look at previous shows I really like. What they do is supplying electricity to 5 million customers in 11 states, including the State of Virginia data center, Capital World, and they pay good dividend and for the cooling side of it.

Kevin Mahn:
So those are the names that I like and continue to like. And guess what? Through September the 4th, those names, those seven names equally weighted are up roughly 60% year to date.

Caroline Woods:
And you’d still get into all of them today.

Kevin Mahn:
On an equal weighted basis. Yes.

Caroline Woods:
So what about, you know, earnings season obviously has happened since we last spoke. Still technically going on. Are there any names that you feel differently about now that they’ve reported or maybe you’ve seen a run up or the opposite?

Kevin Mahn:
If anything, it reaffirmed my conviction in the state and the health of the air revolution. And certainly as it relates to Nvidia, I know we’re always going back to Nvidia, but look at what they’re doing to diversify their revenue base. Yes, the number one chip seller in the world. Yes. They’re now building their next advanced generation chip with the Reuben chip, which needs high bandwidth memory, which comes from Mike Brown.

Kevin Mahn:
But don’t let me digress, but look what they’re doing in their data center business. It’s now accounting for over 80% of their revenue. So they’re not as reliant upon the chip sales anymore, which have a political connotation in terms of what can be sold to China and not the data center business continues to grow for them.

Caroline Woods:
We’ve seen some big moves in software names after earnings as well. If you had to put new money into a software name post earnings, which one would it be? That’s not Microsoft.

Kevin Mahn:
I still like alphabet, right? If I think the.

Caroline Woods:
Alphabet doesn’t count as.

Kevin Mahn:
I.

Caroline Woods:
Cannot come on. They provide traditional software that’s not a hyper scalar.

Kevin Mahn:
I’m going to wait and see what Apple does under the direction of their new CEO.

Caroline Woods:
Okay, so Apple has software as a service business. I guess that it counts, you know, not a sales force, not a service. Now.

Kevin Mahn:
No. And no. I do like in terms of deployment, the cybersecurity of the I trade, there’s a little bit of a hardware element to that in software. CrowdStrike, Fortinet. I think what they’re doing to use AI to thwart eye attacks is incredibly important for our entire economy. But the stocks are still trading undervalued right now. And I think there’s a catch up week.

Caroline Woods:
We have the Apple event going on right now. Actually. You said you’re waiting and seeing on Apple. What do you need to hear? What would make you go in.

Kevin Mahn:
On how serious they are about AI? Tim Cook didn’t appear to be, and I know I’ve always said this for your Apple is really first to market, but they’re often that’s the market. So they take their time to analyze, let others succeed, others fail, learn from it, acquire and then deploy. But how much longer are they going to wait?

Kevin Mahn:
Are they going to buy or are they going to build, or are they going to acquire? What’s the mindset of this new CEO? I know he’s got a background in hardware engineering. He understands the science, he understands the technology. But does he understand how to grow the business?

Caroline Woods:
Last time you were on, you said if oil gets near $100 a barrel, you would start thinking about utilities. This is a list of that. Brant Brant hit $100. Now’s the time. Where do we go?

Kevin Mahn:
Yeah, I think utilities make sense for a number of reasons. High oil prices, high natural gas prices, high gas prices, more volatility ahead. It in my opinion, like we’re seeing thus far this week. And utilities historically have held up well in the face of volatility. They generally pay good dividends to combat these higher on yields right now. And they’ve also become a backdoor plan to the AI revolution.

Kevin Mahn:
So everything that you just mentioned and I just mentioned utilities check all the boxes. And they’re not trading as rich as they were now as they were last year. It’s actually one of the underperformers.

Caroline Woods:
Yeah. As a sector it’s basically flat.

Kevin Mahn:
Rate which everyone here’s the question why is it off so much. Well you have to look back. Why was it up so much last year. So now it’s trading at a much more attractive level.

Caroline Woods:
What’s the best way to play that?

Kevin Mahn:
I think you got to build a diversified pool of utilities, as I always do. You can invest in the ETF so you or you can build a portfolio of names like we have with American Electric Power, Duke Energy, NextEra energy. Look for the nuclear component as well. All those utilities that own nuclear power plants are going to be key to their revolution.

Caroline Woods:
So outside of utilities, health care tech, what other opportunities and defense you mentioned, what other opportunities are you seeing right now? What are their names?

Kevin Mahn:
I still like bonds. I mean, yeah, the dare I talk about bonds? I mean, if you look at what’s taking place with the rising yields, there’s an inverse relationship historically with yields and prices. So as yields have spike, prices have come down. And if you believe as I do that yields are eventually going to come back. Well now all of a sudden these prices here are trading at very attractive levels.

Kevin Mahn:
So you might get some good total return coming out of that plus the consistent coupon stream that gives you income.

Caroline Woods:
Okay. You know a day like today, you know we’re seeing red arrows but the S&P is only down 4/10 of a percent. It doesn’t feel scary. But if you do if we do see some of these short term bouts of volatility it might seem more serious. How do we separate. Oh this is just a healthy reset versus oh shoot this could be the beginning of something bigger.

Kevin Mahn:
I would say the point in time when you see 2 to 3 consecutive days of significant pullbacks of one and a half to 2% each, that means you’re not finding money coming off the sidelines to buy those dips. Then we could be in for a much more serious correction. Not a long term one, but a much more serious correction.

Kevin Mahn:
But I still think each time you see the market pullback 1 to 1.5%, even with the Nasdaq, the technology laden Nasdaq Composite Index, when that comes back in by 2%, the bottom feeders charge it.

Caroline Woods:
Because as they.

Kevin Mahn:
Us the longer term potential. Without a doubt.

Caroline Woods:
If you could only put money in one area today, what would it be?

Kevin Mahn:
I still like aerospace and defense, but it needs to be a blend of the space and the defense. A company like move, ticker symbol Mogu. They really diversified between space, space propulsion, space vehicles and the defense side of their portfolio. Raytheon, which has Collins Aerospace, Pratt and Whitney with the engines for the aircrafts and of course Raytheon’s for the Tomahawk missiles.

Kevin Mahn:
I think that’s a good way to play all the money that’s going to be thrown at that area over the upcoming years. So it’s not just a play for 2026, it’s a play for the next decade.

Caroline Woods:
U.S. or international. We’re not even at this or that yet.

Kevin Mahn:
But I still like over waiting U.S.. But, I have a quote, the International Development International emerging in my portfolio.

Caroline Woods:
And what about small caps? Because last time you were on, I checked, you put small caps over large caps, but it was a tough decision. If we see a rate hike with given how far the Russells run. Yeah. Would that still be the case?

Kevin Mahn:
Small caps are still significantly outperforming large caps year to date, but certain small caps are more susceptible to rate hikes than others. Regional banks, for one. But these biotechs still remain attractive, and the large cap pharmaceuticals don’t need to access the credit markets at higher rates to acquire those smaller cap biotech names. So it depends on where you are in small cap.

Kevin Mahn:
But I don’t know if large cap is going to make back where or how much they’re lagging. Small cap even if the fed does raise interest rates once okay.

Caroline Woods:
All right. I think this is a good time to pivot to our to officially pivot to our rapid fire game of this or that. You’ve played many times. Yes. Quick questions, quick answers. No hedging Kevin.

Kevin Mahn:
To go up the game. This is a fun game. It’s a.

Caroline Woods:
Game.

Kevin Mahn:
What do I win?

Caroline Woods:
Fed rate hike rally killer or healthy reset.

Kevin Mahn:
Neither I think the market’s going to take that fed rate hike. And we’ll see almost no significant movement up or down in the markets.

Caroline Woods:
If we do buy the dips or brace for more downside.

Kevin Mahn:
By the.

Caroline Woods:
Rest of 2026 rally continues or reality check.

Kevin Mahn:
Reality check until after the midterms. And then we’ll see a nice, strong Santa Clause rally.

Caroline Woods:
So S&P 8000 still on tracker off the table.

Kevin Mahn:
It’s still possible.

Caroline Woods:
Oil at 100 buying opportunity or warning sign.

Kevin Mahn:
For oil I’d say it’s a warning sign because just as quick as it went up it could come back down.

Caroline Woods:
Foldable iPhone Apple Catalyst or not event Apple Catalyst earnings winner you’d bet on Signet Jewelers or Jersey Mike’s jersey.

Kevin Mahn:
Mike’s I’m a Jersey.

Caroline Woods:
Boy consumer stock. You have the highest conviction and right now.

Kevin Mahn:
Dick’s Sporting Goods.

Caroline Woods:
Nvidia buy here or wait for a pullback.

Kevin Mahn:
Always Biden.

Caroline Woods:
Video IBM Opportunity or trap.

Kevin Mahn:
Opportunity.

Caroline Woods:
Space X attractive yet or still too expensive?

Kevin Mahn:
Still too expensive for me.

Caroline Woods:
Best place to hide if volatility spikes. Utility sector one stock you buy today with no hesitation. That’s not Nvidia or Micron.

Kevin Mahn:
American Electric power in the utility.

Caroline Woods:
Sector. One stock you’d sell today or avoid with no hesitation. Tesla best stock to own through year end. That’s not Microsoft. That’s not engineer micron.

Kevin Mahn:
I’ll say Taiwan Semiconductor.

Caroline Woods:
Finish this sentence. If the fed hikes. The biggest mistake investors can make is.

Kevin Mahn:
Becoming fearful, abandoning their longer term investment plans and going to the sidelines and try to time the market.

Caroline Woods:
Kevin Mahon, I always appreciate you joining us. Thanks so much. That’s Kevin Mahn of Hennigan and Walsh Asset Management.

Caroline Woods:
Joining me now Ross Gerber, CEO of Gerber Kawasaki. Ross welcome back. Great to have you.

Ross Gerber:
Thanks for having me again.

Caroline Woods:
So, Ross, it’s been a little while, but in late May you said this market was fun, but you also said when you’re having too much fun, that’s when you start getting cautious. So let’s get a vibe check to kick things off. Are you still having fun or are you getting nervous? Yeah.

Ross Gerber:
Not as much fun. Not as much fun. And much more nervous here. And taking a more defensive, position going into the new year. You know, there’s a lot of uncertainty to deal with over the next several months. And because of the election, a lot of the issues we have, I don’t see resolving until after the election.

Ross Gerber:
So I become much more cautious. And as I’ve been saying, if I can just take the returns I have now and say that’s the end of the year, I would be happy with that.

Caroline Woods:
Okay, so what’s making you most nervous? What’s the biggest risk to stocks heading into the fall?

Ross Gerber:
I think the biggest risk to stocks is inflation. And inflation is always the biggest risk to markets. Not only stocks but bonds as well. And it’s kind of like a a roller coaster. As inflation goes higher bond yields go higher and stock multiples go lower. And that means stock prices go down. And if we don’t address inflation at some point we’re going to have to accept much higher yields which then puts pressure on stocks multiple expansion.

Ross Gerber:
So fortunately earnings are very good. And that’s been you know supporting stocks for now. But if God forbid you know the I gold mine bonanza cracks we could see much lower markets. But I don’t see the the I gold mine bonanza stopping. So I think that supports markets. So I think it’s going to be a choppy period through the end of the year.

Caroline Woods:
Where we have rates and oil both moving higher. And we also have the market pricing in the chance of a fed rate hike next week. So what could a ten year yield. You know, it’s at 4.8% right now. Say hitting 5% or oil is at $96 a barrel hitting 100 at a fed hike. What could that all mean for this market?

Ross Gerber:
Yeah, those are all bad things, right? I mean, so you just named three really bad things happening. If the fed raises rates, you know, maybe the ten year bond likes that move. So it maybe doesn’t force the ten year higher. But if the fed raises rates that’s a bad signal for stocks because it does mean that the Fed’s capitulated that inflation is higher.

Ross Gerber:
And now they have to act to try to do something. But unfortunately the fed doesn’t have any ammunition. Raising rates will not change. What inflation is right now because inflation is being caused by the war and by Trump’s policies, not actually just economic activity that’s too hot. And so the fact that the real estate market has already rolled over and is in serious like decline, basically, you know, raising rates doesn’t do anything to help anybody.

Ross Gerber:
So the fed is kind of in a pickle because they need to be perceived as that. They’re going to fight inflation. But yet if they do anything to try to do that, they’re really actually just hurting the economy more and they won’t actually affect inflation at all. So I, I think higher rates for the fed movement or higher oil, these are all bad things for stocks.

Caroline Woods:
So how close are we to a breaking point for stocks and what will that look like.

Ross Gerber:
Well we have the offset of just one of the most profitable periods of time I’ve ever seen for corporate America. I mean, we’re seeing it here at my firm to record profits, record revenues. I mean, there’s so much money. I mean, if you look at how much off the analysts were for earnings for this year from what they actually will be, there is a lot of upside still in earnings for U.S. companies.

Ross Gerber:
So we’ve never seen such rapid growth in earnings, such high margins from S&P companies. And so if we actually had some decent policies markets could be substantially higher. So that’s really what I’m saying. Markets could be way higher if Trump wasn’t insane. You know like it’s just crazy how many self imposed or self-inflicted wounds we’ve been giving ourselves.

Caroline Woods:
But politics aside, I mean, we obviously will have President Trump for a few more years. So I guess you talk about being more defensive and kind of sitting tight ahead of the elections. What does that actually look like?

Ross Gerber:
What that really looks like is, is looking at your portfolio and your balance. And that’s what we do at my firm for our clients is it was what allocation makes the most sense for you. And moving into bonds is not a place of safety. So it’s really about building up your short term cash balances like, you know, 0 to 5 year treasuries or 0 to 5 year corporate bonds, which are more attractive to me.

Ross Gerber:
But really staying at the short end of the curve or even staying in cash and gold, instead of just rolling, you know, stock profits into bonds, which I think is a mistake. So if you look at, 2022 as an example, with higher inflation, higher rates and lower stock prices, you can get a double whammy of much lower bond prices, much lower stock prices, and nowhere to hide.

Ross Gerber:
So I think this is, you know, where you add to your cash balances. And that makes the most sense.

Caroline Woods:
So what areas of the market would you be taking profits from to add to your cash balances?

Ross Gerber:
Well, the way I do it is without emotion mostly. So I look at valuations of my positions and if my positions have extremely high p ratios like some of my positions, then I’m probably trimming those or eliminating them, you know? So I have a handful of stocks that have pretty high P’s, higher P’s than their growth rates. And and on the other side of the coin, the the companies like Nvidia, for example, with really high growth rates and really low PS, I’m going to hold on to those stocks or maybe even add to them if the market moves lower.

Ross Gerber:
So I want to have capital to put to work if the market moves lower, because that’s really how, you know, we make our money and and get outsized returns. So so I have capital on the side ready to put to work. And I want to put it to work in high growth, lower PE names. But we own some high PE names too.

Ross Gerber:
And so I think that’s where you want to look to trim.

Caroline Woods:
Okay. So I want to break all of that down. But first tell me what are some of those names that have high PE ratios that you might trim at these levels.

Ross Gerber:
Well like I own a stock like TKO, which is, you know, wrestling and UFC and it, it’s doing really well, but it trades at a 5060 times multiple. And and you know, I think a lot of the good stuff has been out there for them for some time. So I’ve trimmed that position. Position we own and defense which has been weak.

Ross Gerber:
Company Kaman that, you know, I’ve been trimming and selling because it just hasn’t performed well for us, you know, as well, you know, pretty good numbers and everything, but a very high PE. And so you see this compression on these stocks are acts on is another stock we own in the defense and and police area that has a very high PE and as well doing really well.

Ross Gerber:
But they’re just like those stocks have just not performed well compared to like an Nvidia or a micron which have incredible growth rates and actually very low PE. So so you know well you can see in our portfolios, you know, we’re much heavily weighted or weighted in lower PE stocks than we are in higher PE stocks. And I think that’s pretty.

Caroline Woods:
So Nvidia was a pick in late May. And it’s basically at the same levels as when you were last on. It went lower and has moved higher. What gets it to the next like higher though. And how high do you think it can go.

Ross Gerber:
Right. So the PE of of Nvidia has moved, you know, substantially lower in those months because we’ve had very high earnings. And so we’re now looking at less than a 30 PE on Nvidia. And so we’re still wildly bullish on this company is one of my top holdings. And and I’ve owned it for over a decade. And I love the company I love management I love the investments they’re making.

Ross Gerber:
It’s the king of AI. So this is an opportune time to invest in a stock like Nvidia or Micron. And I tweeted about this last few days. I it’s just insane to me that people are in denial or having a hard time to accepting how big of a thing this AI build out really is and and that it’s not going to end next year.

Ross Gerber:
You know, it’s going to keep going for some time. And we don’t know how long, but the amount of money being spent on AI is already paying off for everybody using AI. So, you know, there’s huge opportunities for investors because the market just doesn’t seem to want to, you know, give these companies the multiples they deserve.

Caroline Woods:
Micron was also a pick in late May. That one has actually moved quite a bit higher stock price since then. If someone missed that move would you tell them to buy micron today or would you wait for a pullback on that one.

Ross Gerber:
We are still active buyers on micron. I mean I like it under a thousand more than over a thousand. And it’s been under a thousand up until recently. But now we’ve broken through this thousand dollar you know and I value micron at 1500. And so that then gives you some considerable upside for a stock that’s trading at a ridiculously low multiple.

Ross Gerber:
Now they report earnings this month. And what I expect is some pretty big numbers again. And maybe the market will start to accept the reality that they’re looking at something like, you know, $80 a share this year and $150 a share next year. So, you know, assigning a ten times multiple to next year’s earnings seems a conservative valuation.

Ross Gerber:
And and so I think there’s still opportunity for investors. And we’re just talking on the short term here. We need a lot more memory to make AI work. I mean I’m building stuff on AI all the time now. And I just got to work and work and work. You know, the other day I built something, it took 20 minutes for AI to build it, and it built this amazing, you know, dashboard for me for monitoring stocks and news and things, you know, basically like a Bloomberg light.

Ross Gerber:
And and I’m just thinking how much compute am I just like use it, you know, like so I upgraded my plan. I’m paying $100 a month, you know, and when you think about paying $100 a month for something as valuable as AI, but yet I’m paying $100 a month for internet. I’m paying $100 a month for all these streamers.

Ross Gerber:
You know, like I everybody’s going to be paying $100 a month for AI soon.

Caroline Woods:
Yeah, you’re cautious on the market. And I really been what’s been leading this market to an extent you know, higher. So I guess how much of that is priced in at these levels and what other names still look attractive to you that maybe have already, you know, run somewhat.

Ross Gerber:
Tennis. Right. So like you have the macro really holding back the micro, which are the companies. Right. So you macro economics and politics holding back the opportunity for the US stock market. So whether people realize or not many of these companies could go substantially higher if we had better policy. So when you get through AI and you look at where are there other opportunities?

Ross Gerber:
One area that we’re extremely bullish on is health care. Okay? I mean, our aging population hasn’t changed. And we have this amazing breakthrough with GLP one drugs. And Lilly is one of our top picks. And Lilly is such a good company I can’t even tell you. And so it’s like when you look at the way they’re making a huge difference in people’s lives through, obesity, drugs that are changing people’s lives for the better, changing people’s health for the better.

Ross Gerber:
And then on top of it, where they’re reinvesting all these profits into new, businesses and new research and, and other therapies and cures for different diseases, Lilly is like a juggernaut. And then you add in a whole layer of, how is I going to shape health care, not only from an expense perspective and and cutting costs and testing and things like that, but also from an innovation perspective.

Ross Gerber:
And Lilly is investing heavily with Nvidia and an AI program as well. So I love Lilly. I think it’s a phenomenally well-run company. I like health care a lot.

Caroline Woods:
So I was taking a look at your notes. You also just added take Two ahead of the Grand Theft Auto six at launch. That’s a new one because that’s one you haven’t talked to us about before. Tell us why. You know, how much of the success from Grand Theft Auto six is already priced into the stock?

Ross Gerber:
Right? So, you know, I, I we one of our verticals in investment verticals is streaming sports and entertainment. So take two falls into that. I’ve been a video game investor. You know actually how I got into Nvidia like 15 years ago was from the gaming side of it. And, and you know, we owned stock in Activision. It was purchased by Microsoft.

Ross Gerber:
And then we owned Stockton. Yeah. And it was purchased by the Saudis. And take two is the last great American, you know, video game company. And so most of us who play video games like myself, you know, we play with these franchises and we play them for years. And we and we keep spending money on these franchises because the games are so great that you usually kind of just get obsessed with one game.

Ross Gerber:
And so most of us are playing like Call of Duty or Battlefield six. You know, a lot of people play Fortnite, for example, and then you have Grand Theft Auto, which has been sort of a part of the gaming world for a long time. And for, I don’t know, I think it’s 12 years. They haven’t come out with a new version of the game, but the new version of the game that’s coming out in two months is is just phenomenal.

Ross Gerber:
It looks incredible. And they’ve incorporated so much new technology and and it’s almost like this eye for the different characters in the game and, and the way everything interacts with each other. I mean, if you eat bad food, your character gets fatter, you know, like things like this. It’s like crazy how cool this is. But they’ve already sold, you know, let’s say 5 million games.

Ross Gerber:
And I think by the time they’re done, they’ll probably sell, you know, maybe up to 7 to 10 times that amount plus all the reoccurring revenue in game. So this is just the beginning of rebuilding this franchise into this massive revenue stream from take two. And I think it makes it very attractive to companies like Netflix that are looking to get into gaming, looking for new IP and, you know, $40 billion.

Ross Gerber:
Take-Two is not actually that expensive relative to the revenue it can produce the franchise and the IP it owns, and how few people can even do what they do. So these franchises have become extremely valuable to these companies and and produce billions in revenue over long amounts of time.

Caroline Woods:
And take two and Netflix are both down about 18% year to date. If you could only buy one, would it be Netflix or take two?

Ross Gerber:
Oh, it would be Netflix. I mean, no question. You know, Netflix is the king of entertainment and it’s one of our top holdings. We’ve been adding to it down here. I think it’s a huge opportunity to buy Netflix at 24 times earnings. They dominate the industry and we see them obviously that we have a big NFL game.

Ross Gerber:
We see them moving more into sports. We see them moving more into gaming and more into experiences and and continuing to build out their business. And they’re a wildly profitable, very quantifiable business because of their reoccurring revenue and, and a subscription model. And and I think it’s a must own for investors.

Caroline Woods:
Ross, give us a few names that you want to buy, but you’d wait for a pullback.

Ross Gerber:
Well, I like x x. What is it, sky high jinx or whatever the, Hynek Ryan index. That’s the Korean memory company, and it’s a very good company like micron. It’s very well run as well. It’s just in Korea. So it doesn’t have the same dynamics as being an American company, which I think is an advantage with the Trump administration.

Ross Gerber:
But that’s a very good company, right in the sweet spot of memory, which I don’t own right now. If it pulled back, I want to buy space X. You know, I own space personally because I got in, you know, through Twitter a long time ago. But I think space is a really interesting business long term. And and I would buy it if it went below 100.

Ross Gerber:
But I do think space is originally value company is all Elon things are and I so I just haven’t done anything with it for clients.

Caroline Woods:
You okay. Talk to me just about the strategy though as you think about potentially some volatility or weakness between now and year end, what would have to happen for you to go from sort of sitting tight and only adding to names like Nvidia and Micron to actually aggressively buying again? Is there a level on the ten year? Is it a level with oil or the S&P where you’d say, okay, now I’m I’m going all out.

Ross Gerber:
You know, I, I would say this the stair I’m about to describe has a low probability, but I would this is the scenario that would make stocks move much higher, which is that number one, we we have an election which changes the balance of power to being more equal and limits the damage that Trump can continue to do to our economy.

Ross Gerber:
Number one. Number two, the war in Iran has to have a conclusion. This game of blowing up, you know, tankers to try not to shoot our boats or whatever the hell they’re doing. It’s got to end. Oil at 100 is great if you’re selling electric vehicles and all that, but it’s not good if you don’t like inflation.

Ross Gerber:
And markets hate inflation. People hate inflation. Inflation is bad. It’s a destroyer of wealth. And so we need the war to end, because that’s the only key to getting oil back down to 60, $70 a barrel. And that would take all the pressure off this whole situation. So, so that the war ending, a switching government, which would limit bad policy decisions like tariffs on Canada, for example.

Ross Gerber:
And, and I think rates would then follow lower and that would create a backdrop, let’s say going into the stronger part of the market, part of the year, which is the, you know, November through, May. And then we get into the new year and then we have a pretty decent Christmas season. And I think, you know, the fed stays out of this.

Ross Gerber:
Then when you get markets higher, I think markets can go 10% higher in the next six months. If those scenarios happen, which would be very good for tech investors because they probably make more like 20%. But I just don’t see that happening. So I, you know, I’d love it to happen, but I have no control over these things.

Ross Gerber:
And and so as an investor, we just have to wait and see sort of how these, you know, things happen, you know, Iran’s economy and its economy.

Caroline Woods:
If it doesn’t, though, Ross, what happens if it doesn’t happen? Is it just that we won’t see more upside? I think.

Ross Gerber:
We tread.

Caroline Woods:
Water. We’ll see a lot more downside.

Ross Gerber:
I think we tread water because earnings are too good, you know. So like when are the bad earnings reports going to start. You know. So in a bad economy you get bad earnings reports. And so you know if you look out next quarter and you say okay in October we’re going to start getting earnings from Nvidia and all these people again are they bad numbers.

Ross Gerber:
Are they good numbers. They’re going to be good numbers. And so it supports the stock market the market. If they perceive that numbers are going to go bad then the market moves before the numbers get bad. But you know we’re really just kind of we have this great earnings environment which is record numbers. And then we have this like horrible macro environment that’s doing everything possible to destroy this rally.

Ross Gerber:
So we’re still in a bull market. We still have favorable, you know, things. And we just need, you know, the elephant to get out of his own way, you know?

Caroline Woods:
Okay, okay. I think this is a great time to pivot to a new game that I’d like to try out with you. It’s called risk rapid fire. I’m going to give you a scenario, a risk. You quickly tell me what your first move as an investor would be. You ready?

Ross Gerber:
Okay.

Caroline Woods:
All right. Here we go. Yeah. Oil stays around $100.

Ross Gerber:
Oh, I would be excited to be owner of an EV company. So maybe that’s a time you start looking at stocks like Tesla or Rivian.

Caroline Woods:
The ten year hits 5%.

Ross Gerber:
I’m a seller.

Caroline Woods:
Seller, stock seller of all stocks.

Ross Gerber:
You know like I don’t want a ten year over 5%. That’s bad news. So you know you got to sit tight. And then I probably be a buyer of those ten year bonds at 5%.

Caroline Woods:
The fed hikes.

Ross Gerber:
I’m a seller. That’s another seller scenario. The you know I’m going to lower my risk if the fed starts hiking. I have never ever not done poorly when the fed starts hiking. I know this, I’ve had it beaten into my head in 22. I got beat over the bat trying to play that wrong. And and so if the fed starts raising rates, I’m not playing that game.

Caroline Woods:
So you’re out completely of stock so you’re just taking profit.

Ross Gerber:
Oh I mean I’m never out completely of stocks because I’m a long term investor. That’s not the way I’m not making those wholesale moves. I’m saying from the speculative part of my book, it’s gone, you know, like it will be the purely most conservative allocation for each client that I would take, you know, depending on that.

Caroline Woods:
So just, just quickly give us one thing you wouldn’t sell if the fed hikes and one thing you definitely would sell.

Ross Gerber:
Well, I’m definitely not telling my stocks, you know, you have to take that Nvidia out of my dead hand. You know what I mean. So you know that I’m not selling. But I certainly would get rid of a lot of my sort of speculative positions that I have for sure. So that’s easy. Like like I have a speculative position, for example, in some cannabis companies, I think they’re going to legalize, you know, this great company called Glasshouse Farms.

Ross Gerber:
And, you know, it’s a small cap and speculative. It’s a personal investment of mine. I love the business and the operators. But, you know, it’s real hard with rates going higher when you’re a growth business, you know. And so, you know, and we think the reschedule isn’t going to happen any day. You know, like but with Trump we’re just sitting here on our hands.

Ross Gerber:
You know policy is a mess. So it’s been tough to make money on these guys okay.

Caroline Woods:
So first move if the consumer cracks.

Ross Gerber:
Well you give me all cell signs. You know if the consumer stops spending money in America, we got a real problem. I have not seen that from consumer behavior though in my checks even just recently, consumers even though inflation’s higher are still spending money.

Caroline Woods:
First move. If I spending starts to slow.

Ross Gerber:
Well then then you’ve got a whole nother set of problems there, right? So we are just discussing this. I don’t know when that happens, but at some point it does. Right. We’re not going to spend $1 trillion a year forever. And and I don’t think that that’s necessarily bad. I think it’s it’s just accepting that the Hypergrowth days are behind us.

Ross Gerber:
And then we’ve got to start looking at who will be the winners from I that aren’t the infrastructure builders. And that’s where companies like mine, in the financial service industry or health care, there will be another set of Amazons and Google’s created on this AI platform. Who are those companies going to be? So I think it actually gets interesting once there actually is real AI infrastructure that we can all use that works really great.

Ross Gerber:
Who wins from that? And that’s going to be a lot of potential companies and business. And so AI is a huge profit driver for entrepreneurs. And it will create a lot of new winners over the next decade.

Caroline Woods:
First move if the S&P 500 drops 10%.

Ross Gerber:
I’m a buyer. I’m a buyer. So that’s why I have cash.

Caroline Woods:
First thing you’d buy.

Ross Gerber:
Nvidia micron. You know I mean shock right now I don’t think you you I don’t think you’d do anything without an Nvidia micron going forward. So it’s kind of like when you’re when the market’s down and it’s hard to buy because you’re kind of a little bit like worried you’re going to lose money. You got to go with the ones that are just winners no matter what.

Ross Gerber:
And that’s your blue chip stock. So you know.

Caroline Woods:
That’s what I did. Which of those scenarios that I mentioned Ross worries you the most?

Ross Gerber:
Yeah, I think the scenario that worries me the most is another endless war with Iran. One where our troops might even become engaged in combat in a foreign country like Iran, I think is really bad for America and bad for the world, and bad for the economies of the world and bad for the stock market. I, I think that.

Ross Gerber:
It’s an extremely difficult thing to get policy to be the way you want it to do through violence. And unfortunately, countries like Russia and Iran only know violence as a way to get policy. But if you’re not willing to be as ruthless and violent as the people you’re trying to stop, it is very hard to stop them. And Trump is clearly not capable of being the person to be Putin and, you know, the Iranian Revolutionary Guard.

Ross Gerber:
And so it’s best off that we find a resolution to these conflicts that is beneficial for everybody. And I don’t know if there is one. So that’s this is sort of not good news.

Caroline Woods:
Okay. We’re going to bring it back to the rapid fire and we’re going to do this or that. You know how to play this one Ross quick questions quick answers. No hedging. Are you ready.

Ross Gerber:
Yeah. Let’s do it.

Caroline Woods:
Here we go. S&P valuations justified by earnings are too expensive.

Ross Gerber:
They’re totally reasonable.

Caroline Woods:
New money today. Put it to work or wait for a pullback.

Ross Gerber:
I mean we put money to work. You know you can’t time the market. So you just put it to work. Dollar cost average. Don’t put it all in at once.

Caroline Woods:
Stocks by year end higher or lower.

Ross Gerber:
I’m going to say higher.

Caroline Woods:
Next 10% move in the S&P up or down.

Ross Gerber:
I think it’s more likely down than up. But you know that’s just flipping coins.

Caroline Woods:
Election market catalyst or market risk.

Ross Gerber:
Oh I think it’s a market catalyst more than risk I think you know change is good. And we need that now in the government. And a divided government usually has the best markets.

Caroline Woods:
I trade early middle or late innings.

Ross Gerber:
I still think we’re early in the I trade. You know, I is still a brand new thing we’re all discovering and we’re all starting to use. But what it will be in five years is like, you can’t even imagine.

Caroline Woods:
Chips or software.

Ross Gerber:
Chips. I love chips.

Caroline Woods:
Mag seven.

Ross Gerber:
Do anything without what.

Caroline Woods:
Makes Meg seven still the place to be or look elsewhere.

Ross Gerber:
Well, it’s hard not to like the Mac seven. You know there there’s a reason why they are the Mac seven. They’re real good at all this stuff. And and it seems like our government is fine with monopolies. And so these companies have built, you know, bigger and bigger moats. There are more and more profitable. They control more and more of our economy ecosystem.

Ross Gerber:
And so you kind of just have to own them because, you know, they’re the best and biggest players in town.

Caroline Woods:
All right. Keeping it quick alphabet buy here or wait for a pullback.

Ross Gerber:
Oh I’m a bot I be a buyer here I think Alphabet’s very reasonably priced here for how great of a business it is and how well-run this company is also.

Caroline Woods:
Yeah or micron.

Ross Gerber:
Over the long term I would take Nvidia. You know I’ve owned it for 15 years. And and I know the company and Jensen very very well and their innovation and their investments. And micron is sort of just this lucky beneficiary. You know, they were making this boring memory stuff. And then all of a sudden we need like 100 times more of the same thing.

Ross Gerber:
So they’re just getting a benefit of being in the right place at the right time, making the right thing and having shortages of these things and nobody else to really make them. You know, there’s only like 3 or 4 companies that make memory in the first place. And so micron I like over the next five years, but I don’t know what they’re going to do with all this money and how that will look, let’s say in ten years, where Nvidia I think continues to just lead forever right now.

Caroline Woods:
Nvidia or Alphabet.

Ross Gerber:
Well, in my portfolio, I got them, I think, a equal weighting about 8% in the GCC ETF. And and so it’s Nvidia is a pure I play where alphabet has YouTube. So you have streaming and entertainment and they dominate that business. And they have Waymo which is transportation which they’re starting to dominate that business as well. So if you’re looking for a diversified investment I would argue Google is a better investment.

Ross Gerber:
But if you’re looking for a pure play, Nvidia is a better version. You know. So that’s a that’s a tough one. But I own both. And they’re equal weighted in their top. You know I think they’re two and three in my portfolio.

Caroline Woods:
With Oracle or Adobe ahead of earnings.

Ross Gerber:
Know I like Adobe more than Oracle. You know I think Adobe is adapting to AI decently. Oracle has to spend a ton of money to keep up with the hyperscalers and invest, invest, and fast. And the market isn’t that thrilled with the amount of money that Oracle has to spend to keep up. And I, and Oracle, I don’t know, it just I bet they’re just not executing as well as a company, let’s say like Dell, you know.

Ross Gerber Gerber:
And so so I don’t know I think Adobe’s doing okay. And and I think they’re adapting to the change in the world decently okay.

Caroline Woods:
So just quickly Dell opportunity or trap.

Ross Gerber:
Oh no I like tell you no I’m sad I sold my Dell. I had Dell and I kind of moved on from the hardware side with Oracle and Dell because I was just like, oh, these companies got to invest so much and, and, and I’d rather be the ones getting that money, you know, like Nvidia. And so, but Dell is executed beautifully, you know, over the last year.

Ross Gerber:
And Michael Dell is very close with the administration and, and he’s very good at his job and super engaged and been doing this for as long as I’ve been investing. You know, like I invested in Dell, like in the 90s in the 90s. So if you don’t believe in Michael Dell, you’re probably making a mistake. And probably one of my bigger mistakes was selling my Dell stock.

Ross Gerber:
I said.

Caroline Woods:
Yeah, Dell’s 2% away from the highs right now. Space at 146. Good entry point or wait for lower.

Ross Gerber:
Wait for lower way for lower. You know, as much as I love the business, you’re paying such a huge premium for what the business was worth just a year and a half ago, I think. I think that that’s a little excessive.

Caroline Woods:
Okay. And then just give me names here. One stock you’d buy today with no hesitation. That’s not Nvidia or Micron Lily. One stock you love but wouldn’t touch it.

Ross Gerber:
Today’s price that I love that I wouldn’t touch.

Ross Gerber:
I own all my loves I don’t know you know if if I love it that much, I own it. Right. You know, so like, we don’t have the kind of valuations that are so crazy that I wouldn’t buy something that I love. I think it’s harder to fall in love. I am having a hard time falling in love.

Ross Gerber:
But. But I can’t think of anything that’s too overvalued for me right now. Oh, I can just Cloudflare. Cloudflare. Okay, my guys have been pushing me on Cloudflare for a while. You know, we have a team here, and I got a bunch of smart guys on my team and gals and and, you know, they’ve been pushing me on Cloudflare.

Ross Gerber:
I say that like to 90. You know, I can’t touch this going into higher rates. You know and the stock is just crushing it, you know and I still haven’t touched.

Caroline Woods:
So there’s my all right. Yeah. Up almost 60% year to date. And finally finish this sentence. Yeah. You have.

Ross Gerber:
A pretty nice.

Caroline Woods:
Mistake. Finish this sentence. The biggest mistake investors can make right now is.

Ross Gerber:
Betting their money on sports. Okay. Don’t let Robinhood and predictive markets and calcium LeBron James and all the money that they’re throwing around the ad you’re going to see just playing on you every minute since the NFL starts today okay. Do not bet your money on sports. Save and invest your money for the long term. Think about how wealthy you’re going to be in ten years.

Ross Gerber:
If you take all this gambling money and just put it into the stock market and invest your money. I am so sick of these gambling apps now. I’ve been in the gambling business my entire career, and it was always a regulated industry for a reason. But letting all these kids lose their money when you have your whole future in front of you to compound and grow during the AI era is a crime.

Ross Gerber:
Do not bet your money.

Caroline Woods:
All right, we will leave it there with a PSA and clearly a hot button issue for you. Ross Gerber CEO, Gerber Kawasaki I always appreciate you joining us. Thanks so much for playing along.

Ross Gerber:
Thanks for having me.

Caroline Woods:
If you enjoyed this street talk, check out our full interview with Peter Schiff. He explains why he’s looking outside the US for opportunities. And yes, he’s still bullish on gold.

Caroline Woods:
Joining us now, Saverio Papagno portfolio manager for the North Square. Growth opportunities ETF ticker NSIG Saverio. Great to have you.

Saverio Papagno:
It’s a pleasure to be here Caroline.

Caroline Woods:
So let’s get right into it. Who is making the most money from the AI boom right now?

Saverio Papagno:
I would say right now it’s certainly the, semiconductors companies today too. So to produce intelligence, you need very, very expensive hardware. Very expensive logic and then widgets and, these products also, have a certain obsolescence. So they will need to be refreshed as a result. At the moment, the companies who are producing the most cash, but certainly, the semiconductors companies.

Caroline Woods:
But as we think about who will ultimately win and make the most money from AI. Do you think investors are actually giving big tech too much credit for simply spending this enormous amount of money on it?

Saverio Papagno:
No, I think it’s, I think the market is understanding these are necessary. And this is a strategic investment. In my view, they’re not discretionary. And, what the hyperscalers are trying to achieve, I believe, is becoming the layer through which enterprises will consume intelligence in the future. So it’s, it’s a very strategic goal that requires a lot of investment.

Saverio Papagno:
I believe in the in the AI area, you will want to own, the infrastructure. The infrastructure will be one of the elements around which, you can build a moat. So I think, the market rightly understands the importance of these investments.

Caroline Woods:
So your ETF, this is an ETF spotlight. Your fund is nig the North Square Growth Opportunities ETF. Two of your biggest holdings are Alphabet and Microsoft there. You know Alphabet’s your second largest holding Microsoft is also in your top five. What separates an alphabet or a Microsoft from the AI spenders that could ultimately struggle to earn an adequate return?

Saverio Papagno:
Well, as I said, I believe they are, you’re trying to to to be game and to become an integrated players where effectively they have the infrastructure layers in the application layer. And so and therefore becoming the platform for which, corporates in the future will consume intelligence. So this type of goal requires large investments. And, and I believe this is what differentiates property Alphabet and Microsoft from other companies where it’s not clear, let’s say, how they will profit from from this from this type of spending.

Caroline Woods:
Who are you worried about?

Saverio Papagno:
I’m worried about those companies which are simply, reselling intelligence, as I see. So they’re basically, repackaging intelligence that, the customers does not know yet how to access. I think these those companies are the ones who are more at risk, in the AI area, because effectively, effectively, they they will not have something around which to build the moat, a competitive moat.

Caroline Woods:
So do you have any names that would not appear in your growth opportunities ETF?

Saverio Papagno:
Well, I mean, you can certainly by looking at the holding list, you can, you can, you can easily spot the name which are not there. But again, I would not frame it to William and and I would not frame it as a sector, that, you know, semiconductors versus software. I think our view is much more nuanced.

Saverio Papagno:
And again, we are we are much more cautious on those names were effectively their secret reselling intelligence as I said. So, and, and to work through a software interface simply and we like, those need particularly those software needs that have, something around, which they can build a moat. So whether it’s an infrastructure, whether it’s proprietary data, whether it’s a system or records, companies like Deere, for example, like Cloudflare, which are, in our ETF, those are company which, we see as better positioned to weather, this kind of environment.

Caroline Woods:
Let’s dig into software a little bit. Do you think that ultimately I will make companies, software companies more or less valuable? And how do you tell the difference between a software company that I make stronger and one that I could eventually replace?

Saverio Papagno:
So as I said before, I think it’s a it’s a great question because I believe, yeah, I will increase dispersion within within many sectors, but particularly within software. And as I said before, we want our own software name, which have one of these, one of these features. So infrastructure, critical infrastructure, the proprietary data system of records.

Saverio Papagno:
So something that cannot be replaced, easily, by the customer. Conversely, we are much more cautious on those companies which are simply repackaging intelligence that the customer maybe doesn’t know how to access now. But in the future, with the new tools available, which would be much more easily, accessible. So I believe the software is, we’re going to see a lot of dispersion in software.

Saverio Papagno:
I mean, arguably, as already happened to some extent, for example, you see the relative performance, inside the sector, the dispersion has been huge. But I think this is something which is which is due to continue, as the market will slowly realize the difference between these two types of software companies.

Caroline Woods:
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Caroline Woods:
Is it chips, memory, networking, or somewhere else?

Saverio Papagno:
I like, I like cheap chip stocks, a lot. And let me explain why. Because obviously, there’s been a quite significant correction in the summer, but during the month of July, where, the market was questioning the sustainability of this level of spending, I mean, I don’t want to necessarily own the peak, because I think it could be to some extent could be a filter exercise.

Saverio Papagno:
But what I think the market is probably underestimating is the fact that we’re not building this huge infrastructure. The spend was close to 1 trillion, this year from the hyperscalers will surpass one tree the next year. If you just said probably $1.3 trillion will be spent, next year. But once, once we will build this huge, infrastructure, these infrastructure will need to be be refreshed periodically because logic becomes obsolete.

Saverio Papagno:
High bandwidth memory becomes obsolete. And so the refreshment cycle, the replacement cycle will, will trigger a demand, which I think the market is underestimating at the moment. I believe the market is too much focused on, finding the peak of the spending, but I believe the spending would be much more durable that the market, is appreciating right now.

Caroline Woods:
Okay. Shouldn’t be a surprise if you look at your holdings that you like chips because Nvidia is more than 14% of the fund. You also own Broadcom, micron and AMD. If I could own just one of those for the next few years, which name would you choose?

Saverio Papagno:
Look, I would be here, against consensus. Consensus is very, very strong on memory chips, but I quite like them here because, to be honest with you, when I see micron at six times earnings for basically I think seven three, four times earnings. So the market is pricing a return to loss making which I do not see and I do not see a path.

Saverio Papagno:
And I do not see a scenario where these companies, are gaming loss making, in the near future. In fact, I would argue, to go back to the argument about the replacement, the about the refreshment infrastructure when you replace the accelerator, you also have to replace the HDMI bandwidth memory, that goes with it. And so this project become obsolete, way before they physically mount for the usage.

Saverio Papagno:
And so, and so I believe whatever scenario I can, I can draw, I struggled to see one where these companies become lost, making I believe eventually, eventually the multiple will be replaced. It will be reprised, and we will see something similar to what we have seen in the past. For example, with the foundries. I mean, look at TSMC five years ago.

Saverio Papagno:
Was taking a very different multiples. So I believe we could see a similar, rerating also in memory stocks. And I know this is very, very much against consensus at the moment, but I’m pretty convinced about.

Caroline Woods:
A lot of your holdings are stocks that investors already own through the S&P 500 or the Nasdaq. What am I getting from G that I don’t already have an a broad index fund.

Saverio Papagno:
So, we think, again, we think in this environment probably, you know, when they have a broad, indiscriminate exposure. So, you want to really boost up being inside the sector. So what they’re getting is, is effectively stock being product where, inside each sector, we, we pick what we believe, will be the winners, of these, of these eight, and again, that doesn’t mean that we are excluding large corporates just because they are in the index.

Saverio Papagno:
You know, we like them. Well, we’re not shy to, we need to, to weigh them in a significant way. It means that we’re really trying to, to isolate the stock picking element and of course, while being investing. So we don’t want to have a negative drift because the market in the long run, in the long term keeps going up.

Saverio Papagno:
But we’re really trying to, to focus on the stock picking inside the sectors. Yes. And so therefore I would say that that’s what they’re getting. They’re getting them. PM.

Caroline Woods:
So,

Saverio Papagno:
Of the stocks.

Caroline Woods:
So just quickly, what gets a company into the growth Opportunities ETF? Because I see names like Tesla and Eli Lilly also in there.

Saverio Papagno:
Right. So in general we like to to buy companies that have the defendable, competitive moat, and we believe if you’re disciplined enough, if you’re patient enough to buy them at the right moment, at the right price, that’s, that’s already, quite good. But, we believe this is not enough. And what we are also trying to do with this product is effectively, trying to find the competitive inflection point for some needs before it’s fully recognized by the market.

Saverio Papagno:
We believe, because I is introducing a significant element of disruption in the market. The, valuation framework of many stocks can become obsolete very, very quickly. Again, memory stock is a clear example of that. And so we believe if you can spot the inflection point, the competitive inflection point before it is fully priced by the market, I believe you can achieve very results.

Saverio Papagno:
And that’s what we’re trying to do. With these products.

Caroline Woods:
Okay. What’s the most misunderstood holding in your fund?

Saverio Papagno:
I would say probably micro, as I said before. And if you look at the, the multiple. So certainly the one of the most misunderstood, it’s probably the one that comes to my mind at the moment.

Caroline Woods:
Which holding would you least want to sell today?

Saverio Papagno:
I certainly I would say in media, I wouldn’t want to sell it. Absolutely not. There’s so much going on. I mean, also developing an open and open source model, which I believe need to be very important in the future, because at some point, I believe the large organizations, whether it’s corporates or governments alike, we want to control we want to own more and more.

Saverio Papagno:
Okay. Yeah. In fact, I believe I’m trolling, strongly convinced that I it’s a, it’s a means of production. It’s going to be a medium production, very important work in the future. And so large organization will have a strong incentive to own it rather than renting. And in this context, I believe open source model will play a very crucial role.

Saverio Papagno:
So and the idea is one American company who’s developing this model. And so I believe it’s one more reason to not not to service.

Caroline Woods:
Okay. But not just I in here because I see I mean, I guess everything has some tie to AI, but not just tech stocks in here because I see caterpillar, TJX, Starbucks, you know, Mastercard, Marriott. I, we have to wrap. But I do want to get in a quick rapid fire this or that. These are quick questions.

Caroline Woods:
Quick answers. No hedging if you can help it. Are you ready. Scenario.

Saverio Papagno:
Yeah.

Caroline Woods:
All right. Building on your last answer, if you could only own one for the next five years, Nvidia or Alphabet.

Saverio Papagno:
Yes.

Caroline Woods:
Nvidia, Tesla or Eli Lilly.

Saverio Papagno:
Nestle.

Caroline Woods:
Tesla. SpaceX.

Saverio Papagno:
All these X.

Caroline Woods:
That’s I guess Netflix or Spotify.

Saverio Papagno:
You or Netflix.

Caroline Woods:
You booking or Airbnb.

Saverio Papagno:
Exactly.

Caroline Woods:
Booking CrowdStrike or Palo Alto Networks.

Saverio Papagno:
CrowdStrike.

Caroline Woods:
Better growth stock from here. Apple or Microsoft.

Saverio Papagno:
You know, some. Yeah.

Saverio Papagno:
Well, okay. That’s it. It’s difficult, but I would say, growth stock, probably Microsoft. But Apple integrates look.

Caroline Woods:
Even with Tim Cook out now still an opportunity and Apple.

Saverio Papagno:
Yeah. Because eventually you will need the hardware and you will need the very capable hardware. And that to my point where you want to, you want to own your metal production. If you look at consumer, I believe with the with the proper hardware, with a very powerful blender, that there’s going to be a lot of things that be able to do in the future, coupled with the open source, more powerful hardware.

Saverio Papagno:
And Apple plays right in there. So I wouldn’t discount that.

Caroline Woods:
A few more quick rapid fires for you Mega-cap tech or the next generation of AI winners.

Saverio Papagno:
I would say large competition.

Caroline Woods:
So if you had $1,000 to spend today, AI infrastructure or software.

Saverio Papagno:
Infrastructure.

Caroline Woods:
Which stock and ncai would you be most comfortable buying after a 20% rally?

Saverio Papagno:
After a 20% rally, I would say many. Not just one of these. Many of them, Nvidia.

Caroline Woods:
Which needs to be bought on, which needs to be bought on the dip. At this point.

Saverio Papagno:
I, I would say semiconductor chip, I would buy them if they test the rules.

Caroline Woods:
Okay. And just quickly because I’m sure someone will have the question why SpaceX over Tesla.

Saverio Papagno:
Because again, I believe it’s, It’s a more integrated player. Again, it’s building this huge infrastructure. It’s trying to build an application layer, also with curso, and so I think, I think is more integrating player. Although Tesla is a very interesting stories because believe me, robotics would be would be very important would become arguably an ubiquitous product.

Saverio Papagno:
But you know, with Elon’s companies, you never know what what can happen. Right? We have seen X being acquired by, by SpaceX, Exxon, who knows what can happen in the future. Right. So I would treat them as, as sisters companies.

Caroline Woods:
Yeah. A lot of calls for them to that. They’ll be combined by next year. Have to leave it there. Saverio Papagno thank you so much for your for playing long for your picks and for shedding some light on your fund. I really appreciate it.

Saverio Papagno:
It was a pleasure.

Caroline Woods:
If you enjoyed this ETF spotlight, check out our interview with Mark Zeitoun on how investors can generate income while staying invested in the market.

Caroline Woods:
Joining us now is Kristina Hooper, chief market strategist at Man Group. Kristina, great to have you back at the desk. Great to be.

Kristina Hooper:
Back.

Caroline Woods:
All right. So you were last on in May, and at that time you were calling for a 10 to 20% pullback in the market. We saw that in some stocks but not in the overall market. Is it still coming out.

Kristina Hooper:
I think it is absolutely still coming. And I think there’s a greater chance that it comes in the next few months just because we have so much going on, so many headwinds really for stocks.

Caroline Woods:
So talk to us about what you’re more concerned about now than you were a few months ago.

Kristina Hooper:
So first of all, yields on the rise. This has been a long term theme, right. This fear about fiscal unsustainability. But it seems as though our chickens are coming home to roost. And of course, there are other factors pushing up the yields on the long end. It’s not just about fiscal unsustainability. It’s about the war in Iran and the potential for inflation to get worse, not better.

Kristina Hooper:
So for a variety of reasons, we’re seeing yields go up. And I think they’ll continue to go up. And of course, they’ve historically depressed or had the tendency to depress equity prices, especially what are called the long duration equities. Those those stocks with higher valuations that tend to take longer to see the profits. So think about tech especially I think of some of the eye names where we’re waiting for a payoff.

Kristina Hooper:
But we don’t know how long it’s going to take.

Caroline Woods:
So those tech names would be most vulnerable in a sell off.

Kristina Hooper:
I would anticipate that just because again valuations are high, their price for perfection. And we don’t know when we’re going to see all the great revenues coming in, all the profits coming in as a result of the big spans that are going on now.

Caroline Woods:
But here’s the thing. The ten year yields at 4.7% today in the market is higher. The war with Iran is nothing new. The market has sort of shrugged it off all year. Higher oil hasn’t really seemed to spook this market. What is it that finally breaks and sends things lower?

Kristina Hooper:
Sometimes it’s just time. Keep in mind that a sense that especially at the start of the war, what we saw was markets looking past it. Well, as each month passes and we’re not out of it, and also we’re actually seeing diesel prices go up, gas prices go up. We might be getting to the point where it actually does have an impact, where markets can’t look through it.

Caroline Woods:
As you look at current valuations, do they look stretched to you right now?

Kristina Hooper:
They absolutely do. If we were to look at the Shiller cyclically adjusted PE ratios, we are not at the highest level we’ve been, but we’re at the second highest level after the tech bubble. So very, very stretched well above what’s considered expensive. And if we were to look at the Buffett Indicator, which Warren Buffett has been known to use, he thinks it’s the most accurate indicator of of a potential selloff in the stock market.

Kristina Hooper:
That looks at the total market capitalization of the Wilshire 5000 relative to U.S. GDP. And what we see there is that it’s at the highest level it’s been since 1980. So there are reasons to suggest that valuations are quite stretched. Now, of course, valuations are rarely predictive in the short term, which is why I was wrong when we spoke in May.

Kristina Hooper:
But I do think we’re getting closer. And there are more headwinds that are likely to tip, stocks over and cause them to fall, including the midterm elections.

Caroline Woods:
I wouldn’t say you were wrong yet, because we were talking between then and your end. So we still have a couple more. Fair enough. Not that we necessarily, although some might actually be waiting for that, that pullback for a better entry point. Is that what you would look at it as like is a 10 to 20% pullback the entry point to get back in.

Caroline Woods:
And what do you do while you wait for it.

Kristina Hooper:
So I wouldn’t advise being out of the stock market. I certainly think we’ve seen something of a rotation. And there are opportunities and lower valuation stocks, especially those that are paying dividends. You’re getting paid to wait. But I do believe there is the potential for, attract more attractive entry points for higher valuation stocks like technology. If we were to see that pullback.

Caroline Woods:
So if I have cash on the sidelines right now, am I putting any of it to work right now if I’m already invested but I have extra cash, would I be putting any of it to work right now or am I just waiting for those better prices?

Kristina Hooper:
So I think there are certainly opportunities and places you could put it to work now, including European equities. Okay. I think they often get overlooked. Lower valuations, higher yields, than than U.S. stocks and less exposure to technology, less exposure to I. So a nice complement to one’s U.S. portfolio. I also think there’s opportunities and it makes sense to have adequate exposure to alternatives.

Kristina Hooper:
So that would include hedging strategies and gold. We need to be prepared for a variety of different scenarios, because we really are at a crossroads, where markets could go in a variety of different directions.

Caroline Woods:
What’s the best way to get exposure to Europe? Hedging strategies and gold. Is that all through ETFs.

Kristina Hooper:
I think, actively managed ETFs in particular. Makes sense. Yeah, I think that’s certainly one, one, very attractive way to do it.

Caroline Woods:
With risks this elevated, what areas of the market would you avoid?

Kristina Hooper:
So I am very concerned about U.S. tech, especially the hyperscalers. They’re taking on more debt to fund this CapEx buildup. Now, that doesn’t mean that, all have, you know, cloudy futures. But I do think they’re starting to increasingly resemble the telecom companies of the late 90s and early 2000, in that they’re taking one for the team.

Kristina Hooper:
They’re the ones spending, to build out this infrastructure, these data centers, just like the telecom companies, built out the fiber optic network. They took on debt to do it, and they benefited there. What they did, benefited so many different industries in the overall economy. I think what we’re seeing now is something similar where the hyperscalers are doing an awful lot.

Kristina Hooper:
They’re taking on debt. They’re spending their free cash flow, most of it, or in some cases, all of it. And they’re building an infrastructure, but it they might not be the greatest beneficiaries of it, just like the telecom companies weren’t.

Caroline Woods:
So what does that mean for investors who have a lot of exposure to the S&P 500? Because we know that those big tech companies doing on the spending make up a large portion of the S&P.

Kristina Hooper:
Well, I think that’s that’s a call to be well diversified. So perhaps pare back a little exposure to the S&P 500 or just add to exposure elsewhere to European equities. Add to exposure to alternatives, hedging strategies so that you can participate. But in some ways, find the potential for downside protection.

Caroline Woods:
And just dig into the hedging strategies or, I’m sorry, the alternatives, because the second time you mentioned it, if somebody says, what do you mean by alternatives? What do you mean?

Kristina Hooper:
Well, there are a variety of different strategies out there that can be accessed, for example, through ETFs, managed accounts, that enable one to for example, utilize options, to have some exposure to the stock market. But have, you know, have what’s considered to be some potential downside protection. So, you know, one needs to, you know, do a lot of research and find something that they’re comfortable with.

Kristina Hooper:
But there are a lot of options out there.

Caroline Woods:
As you think about, you know, the fact that you think, basically I capital spending is unsustainable and that could make I stocks vulnerable. Does that mean you avoid it altogether or you just have to be more selective and stock pick within the tech stocks.

Kristina Hooper:
So what I would qualify I would first just say that I don’t think I spending is unsustainable. I think the level could be unsustainable. I think certainly this is a technological innovation that is transformative. So I’m sure that we’ll see continued funding of it. But it may slow. Right. We have so many different reasons why that opposition to data centers in different communities, electricity usage, water usage, scarcity of some materials, like for example, the very sophisticated chips, that prices have gone up so much so it could easily slow, but I certainly don’t think it comes to an end.

Kristina Hooper:
And I think it is transformative, but it does mean for investors they need to be selective and discerning, look for the areas of opportunity, because there always tend to be some areas of opportunities. They might not be the ones that are obvious, for example, right now. And what we could see is that those industries that benefit the most from this build out are in places like manufacturing, industrials.

Kristina Hooper:
Certainly, that’s what China’s focus has been with EI is to, help benefit the manufacturing industry in its country. Also, just looking for where the problems are, where the the pitfalls are in the AI data center build out, and the companies that are addressing in the industries that are addressing those issues. For example, now hyperscalers are looking to build their own power sources.

Kristina Hooper:
Those companies that are involved in that infrastructure, could be great beneficiaries of this continued, CapEx spend on AI data centers.

Caroline Woods:
If we do get that 10 to 20% pullback, is that when you would start scooping up tech again? And what specifically within tech would look most attractive? If we start to see valuations shrink a bit?

Kristina Hooper:
And and I should also say that if we could see a 10 to 20% pullback in tech, let’s say we don’t see it in the overall stock market. But we see that, I think that’s a enough of a trigger, to go in and look for opportunities. Number one on my list is actually cybersecurity. You know, survey after survey of CEOs shows that is one of their biggest concerns.

Kristina Hooper:
And it’s consistently, a major concern for them over time. There’s a lot of headline risk with it. And what we tend to see is that companies do not cut back on their cybersecurity budgets, whereas I think there’s more flexibility in cutting back or increasing one’s AI related budget. So that would be number one on my list, but also, of course, out the AI food chain and looking for the opportunities there.

Kristina Hooper:
Also, I don’t think the epitaph has yet been written on software stocks. So being discerning and thoughtful about that space, I don’t think I is going to replace it entirely. But we need to be very thoughtful about an approach there.

Caroline Woods:
Okay, but waiting for a pullback for any of those at this point. Absolutely no mention of health care, financials, energy stocks, utilities. When does any of that look more attractive to you?

Kristina Hooper:
Well, I think that’s part of the rotation. We’ve seen to a certain extent already. And I think there’s certainly a lot of opportunity there. That’s where the lower valuations are. So particular health care pharma where we’re seeing nice chunky dividend yields for the most part and relatively low valuations. That’s an area of very significant potential.

Caroline Woods:
And you’d put fresh money to work there.

Kristina Hooper:
Now I think I would I certainly again would be discerning. I wouldn’t I wouldn’t throw it in blindfolded. But I would certainly, look to add exposure there.

Caroline Woods:
So just to kind of some things up, what is the strategy for the everyday retail investor who sees the S&P 500 is still pretty close to all time highs, despite the fact that we have all of these risks, and despite the fact that September is a, you know, seasonably a weaker month, although not necessarily if it’s a, you know, strong month heading into it.

Caroline Woods:
What is the strategy?

Kristina Hooper:
So I think, first of all, retail investors need to recognize the critical role that behavioral finance plays in a lot of the emotions they have and also the decisions they make. And sometimes just knowing the role that behavioral finance plays, that psychology plays, can help us moderate our reactions. So, I say that because, we tend to be greedy when the stock market is at or close to highs.

Kristina Hooper:
But that tends to be when stocks are most vulnerable. We tend to be most fearful when stocks are very low after a big selloff. I’m old enough to have lived through the global financial crisis, and I remember what it was like in early March of 2009. No one wanted to touch stocks. And yet that was a far more attractive time to get in them, than, for example, the peak, before, that, selloff that began really in 2007 and accelerated in 2008.

Kristina Hooper:
So I say all this to say, just be careful. Recognize that stocks, at least some stocks in the U.S., are close to being priced for perfection, that we could see a sell off. And that the most prudent approach, is typically one in which investors focus on being well diversified both across and within asset classes. So there’s exposure outside the U.S. so there’s not, overexposure to one particular scene, like for example, I and of course, alternatives, can help smooth out returns, by actually producing lower returns when stocks are moving higher and and also holding more of their value typically when we see stocks falling off.

Kristina Hooper:
But again, we don’t know exactly how all these different asset classes will react given a different, you know, macro scenario. We could be headed for a stagflation environment, for example. So I think it’s really important to again, be well diversified and have, a variety of different asset classes in one’s portfolio.

Caroline Woods:
And just finally, what would make you more bullish the next time we chat? What would turn Christina Hooper more positive on this market?

Kristina Hooper:
Well, certainly, a real end to the war in Iran, as well as a real end to the Russia-Ukraine war. I think that often gets overlooked. But what we’re seeing is refinery is being damaged and or destroyed at a pretty fast clip that’s impacting that crack spread. That’s why we’re seeing, for example, diesel prices so much higher than crude oil prices.

Kristina Hooper:
So that’s a problem. And it’s going to be a bigger problem. The longer the these two wars last. So, so the end of one or both, the real end to one or both would make me a lot more positive in oil.

Caroline Woods:
At what level would make you more bullish?

Kristina Hooper:
Well, I just have to give the caveat that sometimes we do see a mispricing in oil. The paper prices of oil may not reflect the real issues. And of course what people pay at the pump, can be quite different. So when consumers are paying over $4 a gallon for gas, that can be problematic and add to the pressures on them.

Kristina Hooper:
Okay.

Caroline Woods:
All right. I think this is a great time to pivot to our rapid fire round of this year that you’ve played before. Quick questions, quick answers. No hedging if you can help it. Are you ready, Christina. Yep. Current market greedy or fearful?

Kristina Hooper:
What I think it is or where I am.

Caroline Woods:
What you think it is. Greeting September rally or reset?

Kristina Hooper:
The start of a reset.

Caroline Woods:
Valuations fair or stretched? Stretched stocks by year end. Higher or lower? Lower. How much lower?

Kristina Hooper:
I think around 10%. Maybe more.

Caroline Woods:
Bigger risk. Geopolitics or inflation?

Kristina Hooper:
Well, let me say geopolitics doesn’t matter to markets until it’s all that matters to markets. So I think right now it doesn’t matter that much. Inflation is the bigger issue. But they are interrelated.

Caroline Woods:
Bigger risk inflation or recession.

Kristina Hooper:
Inflation.

Caroline Woods:
Best defense defensive stocks or the S&P 500.

Kristina Hooper:
Defensive stocks.

Caroline Woods:
Consumer staples or health care? Health care I boom or bubble.

Kristina Hooper:
We take very what we can a little of both.

Caroline Woods:
What when does I spending become a problem 2026 2027 or later?

Kristina Hooper:
It’s already a problem in terms of impacting inflation. It’s one of the forces driving up prices.

Caroline Woods:
The biggest risk in oh, finish this sentence quickly. The biggest risk in September is.

Kristina Hooper:
Is, that we see a perfect storm where yields continue to rise. Oil prices go higher, diesel prices go higher. And and earnings, and earnings start to be downwardly revised.

Caroline Woods:
The ten year yield breaks this market at.

Kristina Hooper:
I think when it gets above 5% it adds a lot more pressure to markets.

Caroline Woods:
The smartest move to make on a pullback is.

Kristina Hooper:
To not sell but to, stay diversified and look to add in areas of opportunity.

Caroline Woods:
Stocks are priced for perfection and perfection breaks when.

Kristina Hooper:
When one of a few different things happens, like, the ten year yield gets to 5% plus.

Caroline Woods:
The part of the market I’d avoid is.

Kristina Hooper:
Areas, with very high valuations.

Caroline Woods:
The part of the market with the highest valuation is.

Kristina Hooper:
Mostly technology.

Caroline Woods:
The I trade cracks when.

Kristina Hooper:
When we start to see, budgets for I Spence downwardly revised.

Caroline Woods:
And finally, one word to describe how your feeling about the market for the next one year.

Kristina Hooper:
Cautious.

Caroline Woods:
Kristina Hooper, always a pleasure. Thanks so much for flying along and for your insights. Really appreciate it.

Kristina Hooper:
Thank you.

Caroline Woods:
That’s Kristina Hooper, chief market strategist at man Group. So you hear the other side of the coin. Tune into my interview with Sylvia Jablonsky. She’s still bullish on tech and explains where she’d put money to work right now.

Caroline Woods:
Joining us now is Sylvia Jablonski, chief investment officer at Defiance ETF. Sylvia, great to have you back.

Sylvia Jablonski:
Thanks for having me. Great to see you, Caroline.

Caroline Woods:
Great to see you as well. So September is off to a bit of a shaky start for tech stocks even before seeing these red arrows today though, Sylvia, you called the September setup for stocks more complicated. So tell us what you mean by that. And what the biggest risk investors might be underestimating heading into this month is.

Sylvia Jablonski:
Yeah I you know I guess was a great month for stocks right. You had the S&P up 3% Nasdaq was up 4%. But I think September begins with a little bit more of a complication to good word use there. I think part of that is because geopolitics have fired up again. You know, literally, literally, and you have fed Chair Warsh, who gave a Jackson Hole speech and he was far less dovish that I think the market had hoped for.

Sylvia Jablonski:
You know, he went as far as, just to say that the inflation level of 2% is we’re just not there, and that they were going to be looking at a series of pieces of information to determine whether or not, you know, rate hikes have to happen and things like this. So I think the market felt a little more uncertain, you know, and, and leaning hawkish with his speech.

Sylvia Jablonski:
And so now, you know wake up today and we have you know, we have bond yields at all time highs here. And that’s I think because of geopolitics because of these inflation fears and Fed chair war. So I do think we’ll have some volatility and uncertainty in the month of September. September is often a down month for stocks when it’s when the market’s up going into the year, it tends to be up, but it also tends to be a volatile month for stocks too.

Sylvia Jablonski:
So it’s kind of par for the course of what we’re expecting here.

Caroline Woods:
Can tech stocks keep climbing if inflation stays high or maybe goes higher? And if the fed decides to hike rates to try to combat that?

Sylvia Jablonski:
It depends. If you look at the trajectory of tech earnings, I would say that the answer is is yes. But the unknowns are, you know, how where you know, how much higher does inflation go or does it kind of stay still. And I’d move towards, you know, the Fed’s preferred trend of 2%. Or you know, does something change meaningfully there.

Sylvia Jablonski:
And how many hikes. I think if we get to 25 basis point hikes I don’t think that that’s going to move the market very much or impact earnings very much. But if it’s if it’s a path right where where we’re looking for rate hikes, every meeting that that changes the picture for a long term duration.

Caroline Woods:
And that’s so do you look at pullbacks like today too as buying opportunities. Would you be buying the dip. Just for perspective the Nasdaq is down about 1% today. As you said it was up 4% in August alone and is up 15% year to date. So 1% is pretty small you know, and in comparison to those things. But would you be buying the dip?

Sylvia Jablonski:
Well, you know, we’re at the very beginning of the eye trade. And for all of those investors that feel like they didn’t have a chance to get in dollar cost averaging, you know, if you have that longer holding period when you get these opportunities like today to to lag into some of those trades, it could be something that’s really worth looking at.

Sylvia Jablonski:
And I think that, you know, if you look at I specifically had where the puck is going and Nvidia was very much the clearing event for AI. Right. You know that the eye hyperscalers are continuing to spend. The proof is, you know, starting to show up in the pudding. They have revenue growth there. They’re, you know, doing great 100% year over year growth at some of these companies in the video in particular.

Sylvia Jablonski:
And if you look at, you know, that that next gen trait of I this is where the opportunity lies. So things like, you know, like a P around a photonics and a memory together, that’s been a huge topic in the markets this year. And I think that these are opportunities for investors to get into those types of trades.

Caroline Woods:
Let’s dig into that a little bit more, because you say it’s still early in the eye trade, but we’ve spent years talking about the the eye winners. So talk us to talk to us about what’s next. What’s the big the next big eye trade.

Sylvia Jablonski:
So I think the next eye trade, you know, so far the market has figured out that you have I and I could just mean as a major it could mean, you know, a semiconductor ETF or it could mean, Nvidia or one of the, you know, other other chip stocks or things like this. But now investors know that there’s there are bottlenecks and there are picks.

Sylvia Jablonski:
It shuffles. And so they’ve expanded, right? They’ve gone into AI and power. But now what we’ve learned from Jensen Wong in the last Nvidia clearing event is that, you know chips. So so I chips are like race car engines right. And they’re these incredible engines. But they need fuel to run. And that fuel is basically memory. And so memory is the fuel.

Sylvia Jablonski:
But without the highway they don’t go anywhere. And so you need photonics. You know copper is not able to move data from point A to point B efficiently. Any worse you need you know, kind of lasers and optics in the photonics. So I think that the real next trade, you know, half of it was Dram, but there’s another half that’s the photonics.

Sylvia Jablonski:
And so you want to look at the p ram, the photonics and the memory as the next leg of I.

Caroline Woods:
Okay. So talk to us a bit more about how to get exposure to photonics and then what memory plays you like here. Because we saw those really run and some have pulled back pretty substantially.

Sylvia Jablonski:
Yes, exactly. And going back to the conversation about, you know, if you’re looking to leg into this, do you buy on dips. And to your point, they have pulled back so you could look at single stocks. You could look at names like lumen Tam for example. You could look at micron. You could look at, you know, kind of try to pick individual winners.

Sylvia Jablonski:
But I think that it’s actually a whole ecosystem. And so you want all of the memory providers and, and you know, the high bandwidth memory providers and you want all of the photonics companies. And so, we have an ETF for that. It’s called pe ram the, the defiance for Photonics and Memory to have everything there in, in one basket.

Sylvia Jablonski:
So you could do it through the ETF or you could do it through those single themes and really get exposure to this. And then there are a lot of other ETFs out there too that are representing different parts of the I trade. You have, you know I on power, you have quantum computing. You have space connectivity, tele connectivity.

Sylvia Jablonski:
There are a lot of options for investors to get exposure here.

Caroline Woods:
How should we be thinking about some of the the old winners like Nvidia is this that they’re they’re passing the ball to these new winners or can they still run as well. And which names there look attractive.

Sylvia Jablonski:
Well so they can run as well. And I think that this just goes to the idea that AI is is not, you know, kind of finished in 2027 even though these stocks have have run up a ton. You know, they they have decades to go. It’s probably one of the biggest, transformative tech phases in our lifetimes, right.

Sylvia Jablonski:
The sports industrial revolution. And so I think that a lot of investors that we talked to tend to hold on. They probably already have an exposure and, AMD exposure and some of these names, whether it’s through a broad based index fund or, you know, just I it’s been a hot topic now for a few years. So they probably have looked into that.

Sylvia Jablonski:
And I think a lot of them will just hold those, in perpetuity. Right. But the question is, where can you get those stellar returns that you’ve seen so far? And I think that will go to the bottlenecks that will go to the memory and photonics, that will go to the capacitors, that will go to AI and friends.

Sylvia Jablonski:
This next leg of I.

Caroline Woods:
Is there an area where retail investors might be a little bit too excited about when it comes to tech?

Sylvia Jablonski:
I mean, I think that the excitement is justified. And again, just talking about the Nvidia earnings call, I think that was just a massive clearing of that. And if you see what these hyperscalers, AI hyperscalers are spending on, and you see that, you know, even the love of their financing that they’re talking about doing now to keep building out infrastructure just tells you that, you know, kind of the smartest guys in the room.

Sylvia Jablonski:
These these eye hyperscalers are spending on this. And it’s something to be excited about. Right. But, what I would say is that we can’t get we can’t just think that everything will return, you know, 100 to 200% per year. Sure. Some of these, you know, some of these names will mature and could have healthy returns as AI grows.

Sylvia Jablonski:
And again, you want to look to some of the, newer found niche plays. And I for, for those, you know, triple back or opportunities.

Caroline Woods:
How are you thinking about software. Because we haven’t talked about that yet. And if you, you know, take a look. Everything for the most part is lower today. Aside from actually Adobe is higher today. Apple’s higher today as well. But you know, if you take a look Salesforce was up 40% in August. ServiceNow was up about 30%. Workday was up more than 20%.

Caroline Woods:
You know, they had been really beaten down. But the narrative around software seems to be shifting a bit. Do you like software stocks here?

Sylvia Jablonski:
You know, we, we actually put out a fund called the GV, which is basically taking the the software names out of the, the Nasdaq. And you know, the reason why is just we just think that, you know, the IE beneficiaries are really the ones that are going to participate in the broadening out trade that, that we call it.

Sylvia Jablonski:
And the companies that are not, you know, purely AI native or haven’t really caught up are, in the near term at least, perhaps not going to experience that same level of growth. So, you know, that being said, for for a lot of these, you know, companies that you you hear them coming on media and talking about their outlooks and things like this, you know, once they become AI native and fully integrate that into their, ecosystem, perhaps they could be interesting trades.

Sylvia Jablonski:
But, we’ve actually heard investors looking for more of the AI pure play types of trades that Ziggy’s.

Caroline Woods:
Is there a software name that you think will be immune to that, the AI disruption that you would still bet on? Not in that you have various if they’re all taken out. Yeah.

Sylvia Jablonski:
Right. Right now. No not in that ETF. But I think that, I, I don’t think that any stock or company is, is really immune to, to AI, right. I mean, you can make an argument, of course, that, there are commodities and, and, you know, consumer staples and things like this, which are necessities and, and, you know, will be around.

Sylvia Jablonski:
But but I think even those areas and industries are going to change because of AI. So, I do think that everyone has to kind of adapt.

Caroline Woods:
At some point, though, there will be the clear winners and the clear losers. Obviously, software has been the clear loser this year. But you know, for every Google there was a Yahoo or an AOL. So at what point will we start to, you know, figure out the winners from the losers and you know, who will the winners actually be?

Sylvia Jablonski:
Yeah, and I can’t predict that. And I think that’s why, you know, I’m kind of in a good see in the ETF world. Because what we do is we pick a basket of of all of the, you know, top names within the themes of you have AI power. We’re looking at the large caps, mid-cap small caps, all of the companies that generate, you know, half of their revenue from AI powered infrastructure.

Sylvia Jablonski:
And we create a basket. So the names that fall out fall out of the basket, right. Or else perhaps they’re M&A targets and they, you know, but people who hold the funds participate. But whether it’s a defense fund or one of our competitor funds, I think that thematic ETFs give investors a really great tool to diversify their exposure to a theme, but also, you know, to diversify and mitigate risk when one name doesn’t perform versus the other.

Sylvia Jablonski:
But it’s a great point because I do think that that’s going to happen. And I do think that that’s why you’re seeing this massive increase in, thematic ETFs.

Caroline Woods:
So for those investors who likely have exposure to the S&P 500, meaning they have exposure to a lot of the big tech names still, but maybe they were skeptical of the rally and they didn’t necessarily get in. Is it too late to get into the AI trade, or is there still a lot of time here?

Sylvia Jablonski:
I think we’re in the infancy of AI. I think that there’s a lot of time, and I would argue that, you know, given that we’ve had this strong market and there’s just so much cash on the sidelines, you know, the returns that investors are able to get in the market are there. They exist. And if anything, I think that we’re going to start seeing that cash coming off of the sidelines and, and, and into the market into this.

Sylvia Jablonski:
So there’s always opportunity to hold for the long term and get into the great.

Caroline Woods:
So if a retail investor has $1,000 to put to work today, what part of tech should they put it in?

Sylvia Jablonski:
You know, there are so many good places to allocate the funds, and I wouldn’t want to give direct advice without understanding the person’s portfolio. But I would just say that one of the one of the hottest trades that we’re seeing is, is definitely a p ram of of tonics and memory. I think I parent infrastructure ETFs are another massive opportunity.

Sylvia Jablonski:
And you know I mean there’s so many right. There’s quantum computing. There’s space there, so many places that I think would be appropriate.

Caroline Woods:
Okay. I think this is a great time to pivot to our rapid fire round of this or that. Quick questions, quick answers. No hedging. You’ve played before. Are you ready Sylvia.

Sylvia Jablonski:
Yes.

Caroline Woods:
All right. Here we go. Hyperscalers or the companies supplying them.

Sylvia Jablonski:
Oh.

Sylvia Jablonski:
Let’s say the companies supplying them.

Caroline Woods:
Only I leader at a premium or the challenger at a discount.

Sylvia Jablonski:
Challenger at a discount.

Caroline Woods:
Micron or Broadcom?

Sylvia Jablonski:
Micron.

Caroline Woods:
Micron or Nvidia.

Sylvia Jablonski:
For now. Micron forever. Nvidia based on.

Caroline Woods:
Space stocks or quantum stocks.

Sylvia Jablonski:
Quantum of stocks.

Caroline Woods:
Space buy now or wait.

Sylvia Jablonski:
I know.

Caroline Woods:
SpaceX or Tesla. Space x Apple without cook opportunity or risk.

Sylvia Jablonski:
I think Apple is is always going to be fine opportunity.

Caroline Woods:
A stock Wall Street loves or a stock retail investors love retail investors.

Sylvia Jablonski:
They’re the smart money of Wall Street.

Caroline Woods:
Robinhood or Coinbase. Robinhood $1,000 today. Put it all into your highest conviction stock or spread it across five I name.

Sylvia Jablonski:
Five by names like.

Caroline Woods:
A tech stock you’d avoid here.

Sylvia Jablonski:
I don’t I don’t have one. I don’t have one right now. The most.

Caroline Woods:
Overlooked I.

Sylvia Jablonski:
Stock.

Caroline Woods:
Any software. Okay, finish this sentence. The most. The most overlooked I stock right now is.

Sylvia Jablonski:
Venice.

Sylvia Jablonski:
Any pick any Chinese robotics or capacitor company.

Caroline Woods:
And finally, the stock retail investors understand better than Wall Street right now is.

Sylvia Jablonski:
Heavily in video retail investors have always been good. Good to Nvidia.

Caroline Woods:
All right Sylvia Jablonski Chief investment Officer Defiance ETFs. Always a pleasure. Thank you so much for flying along and for your insights.

Sylvia Jablonski:
Thank you so much. Have a great day.

Caroline Woods:
If you enjoyed this street talk check out our full interview with Joe Tigay. He reveals what he buy on a September pullback like today.

CAROLINE WOODS:
Joining us now to kick off the week is Joe Tigay, Portfolio Manager, Rational Equity Armor Fund. Joe welcome back. Thanks for being here.

JOE TIGAY:
Thank you for having me.

CAROLINE WOODS:
So we’re wrapping up the month of August with some red arrows across the board. But overall it’s been an upbeat month, especially for the Nasdaq. We’re heading into September. Historically the worst month of the year for stocks. So get us ready for it. Should investors be bracing for a pullback here?

JOE TIGAY:
I should always be aware of the potential. We should also also be wary. September is a tricky month. Seasonally. It’s a tricky month in a midterm year, and there’s other things going on as well. I think the key focus has been on inflation and interest rates lately. So that’s going to be critical to a lot of important stuff happening this week.

JOE TIGAY:
We have oil back over 90. Of course that’s very inflationary. And obviously at the end of the week we have the jobs report that’s going to tell us a lot about the economy and how the inflation is, adding up, altogether, in the jobs market and economic growth.

CAROLINE WOODS:
Okay. We’ll dig into both the jobs report and on Friday and oil in just a second. But if we do get a September pullback, what would tell you that it’s a buying opportunity rather than the start of something worse?

JOE TIGAY:
Yeah, that’s a great great point. Great question. Just think thinking about the big picture. Something would have to fundamentally change for it to, be the end of this AI rally. So for me, just the short term pullback will be a buying opportunity. Would be an opportunity to look at which sectors are lower, which sectors are, being valued a little more harshly than others?

JOE TIGAY:
Given the current climate, and I would probably look at it as a buying opportunity, something that would fundamentally change for me would be, you know, announcements from anthropic or OpenAI talking about their future potential profitability, that their future growth. I think that’s really the story right now. There’s a lot of pressure on these hyperscalers, a lot of pressure on the largest companies in the world because they’re expanding.

JOE TIGAY:
They’re thinking about the next few years. They’re taking on debt. They’re building a lot of projects. And, the base case right now is that, the compute is not going to be needed. We’re going to be overbuilding. These companies like anthropic and OpenAI are not going to be profitable. So all of these projects are going to go to dust.

JOE TIGAY:
I think that’s the case. And I haven’t really seen that in the reality so far. I’ve just only seen companies saying that we need more compute. We need more and more of this. So yeah. So for me, if something changes with anthropic or OpenAI, something changes where, the profitability won’t be for them. I think that’s an area where I think I think twice about buying on a debt.

JOE TIGAY:
But other than that, I’d be happy to load up.

CAROLINE WOODS:
Well, we’re technically getting a dip today if you count the S&P 500 down about a half percent, an actual dip. So if I have cash on the sidelines today, am I putting it to work now, or am I waiting for a better entry point in September?

JOE TIGAY:
Yeah. Just today, I would maybe pick my spots, carefully. Just in general, I would pick my spots carefully, thinking about investing for the long term. It’s not great to just throw it all in on day one. So, yes, if I had cash, I would consider putting it to work, but not necessarily all of it.

JOE TIGAY:
And I would be targeting a few stocks. I would be watching them closely. I’d be watching, where good entry spots would be to get into and kind of just waiting patiently for that. I think, over time, it definitely pays to stay invested and in the market. But also if you look over time also, it also pays to pick your spots, be patient and be tactical, when, deploying that capital.

CAROLINE WOODS:
So, Joe, last time you were here, it was March and the VIX was actually above 30. Now I’m taking a look and it’s trading around 15. Are you concerned at all that investors are getting too comfortable.

JOE TIGAY:
That’s a really important point to make out. We have very similar concerns today as we did back in March. The market has done quite well since then. And yet, yeah, you’re seeing volatility very low. The contrarian in me, yes, I am definitely a contrarian. It’s just in my blood. Says when everything whenever VIX is too low, it’s usually a time to be looking to add some protection and add some, add some downside, you know, insurance, so to speak.

JOE TIGAY:
So yes, I do I do think that could be, a sign right here that, we are too complacent or too confident in the short term future. Given all the risks out there, very similar risks were there in, in March, and we decided that, you know, the risk premiums were double, what they are right now.

JOE TIGAY:
So, yeah, for me, this is this is a sign that, you know, we’re maybe a little bit overconfident in the short term.

CAROLINE WOODS:
You talk about the risks. What’s the risk investors aren’t properly prepared for right now, but.

JOE TIGAY:
Oh, goodness. Well, yeah, if we, coil being back above 100 would be a very big, inflationary, inflationary shock. We have the jobs report coming out, of course, at the end of the week. Just an economic cooldown with high, inflation is kind of, a hard spot right here for the fed. So we definitely don’t want to see that inflationary environment.

JOE TIGAY:
So that’s certainly the risk. But and then of course, the bear case on these big stocks is that the compute is not going to be needed or anthropic or OpenAI are going to flop. So, I, I’m maybe more concerned about the inflationary, and, inflationary shock in the short term right now.

CAROLINE WOODS:
So oil’s currently trading around $85 a barrel. How inflationary is that. How is that the danger zone or is really just 100 or higher. The danger zone.

JOE TIGAY:
I would well it it depends on the time frame. So we had a little below 60. We had around 70. That was obviously of course very good. It’s definitely higher than that now. So that is adding to the cost of everything, that we do. But it could be higher. It could be worse, obviously. So, the lower the better.

JOE TIGAY:
I mean, needless to say, but, it was much more of a risk to me to, to cause a lot more economic damage above 100. We saw at 120, very briefly, there were fears that would be even higher. So that was certainly a big risk. And then having on the flip side of that, though, was that, when we saw cooldowns in the lower cooldowns, and geopolitically we saw oil drop very rapidly.

JOE TIGAY:
So, it’s still can go both ways here. We need to remember that while we’re being very cognizant that, things could go south or north, you’re in oil, and that could that could lead to some economic pain. Could could very easily go back down, below 70. So just be very, very, very aware of that as we’re just really treading this, razor’s edge here.

JOE TIGAY:
It’s very well might have a lot of things going on in the market where there’s a lot of these risks out there, but we still continue to, just, ride the volatility higher and continue higher, even though, the risks continue to be there on the side.

CAROLINE WOODS:
So as you mentioned, we have the jobs report coming on Friday. What does the market actually want a strong number or weak one.

JOE TIGAY:
Yeah, that’s a great question. You know, I always like to see strong economic data. I always like to see growth here. But, I think the risk right now is these interest rates. So I think the market’s going to be a little bit happier. Maybe not with, terrible disastrous number or we’re losing a lot of jobs, this month, but something cool, maybe in line with expectations or slightly cooler.

JOE TIGAY:
I think the market would be happy to see that, just to maybe kind of put a lid on the number of rate hikes the fed will do or maybe limit maybe, maybe not even any rate hikes the fed will do. Just but just to limit the short term hiking that the federal do because that will slow down, economic activity.

JOE TIGAY:
Now, there’s a lot of money being spent, by, some of the biggest companies in the world out there, some of the biggest company, those overall, they’re spending upwards of trillions of dollars in these investments, really eye spending, that is going to boost economic growth. That is going to make, things more expensive. They have a lot of people competing for fewer resources.

JOE TIGAY:
That’s just naturally what happens with inflation. So it does make sense. The economy is running hot. It does make sense that we will need to have higher interest rates. So this jobs report is going to tell us exactly how hot, how how how high these interest rates need to go. So that’s what’s really important to me.

JOE TIGAY:
And I think if we can put a lid on these interest rates, I think that, stock markets specifically like that a lot.

CAROLINE WOODS:
Yeah. If someone was listening to me saying, why would the market once a week jobs number, it’s just because that would mean maybe the fed won’t actually hike rate hike interest rates in September or later on this year if the jobs report does come in hot though, and yields jump, stocks fall, would you buy that weakness? And what would be the first thing that you would buy?

JOE TIGAY:
I would be yeah be watching policy. I don’t I don’t like making major preemptions on and there’s not been watching over the course of a couple of weeks and looking to put that money into work. I have a couple of big, big infrastructure plays that I do really like, though, my, some of my favorites, which of course, I own in my fund, the rest of our fund, our, Alphabet and Amazon, they are two of the biggest, infrastructure plays that are building out this infrastructure.

JOE TIGAY:
They’re also two of the biggest, cloud plays. I, I, I’m a strong believer that there is this question whether we’re going to need all this, which is being laid out in the marketplace. People are betting against these companies that they’re not going to need this. But I’m a strong believer that we are going to use it.

JOE TIGAY:
I think some of the smartest people in the world are spending their own money, putting their own capital at risk to build this out. We’re seeing, valuations for space in the trillions of dollars because they think that data centers will be needed in space. Well, I, I’m maybe I’m not quite there on space, but if people think that data centers will be needed in space and they think that space is worth that lofty with elevation, that I surely think that data centers will be needed on Earth.

JOE TIGAY:
And I surely think those data centers will be profitable that are being built on Earth. So I’m, firmly in, a believer, that regardless even of what happens without anthropic, an open eye, that Amazon and Google are going to be their, winners in this, in this, eye game. So, yeah, I’m, I’m looking at them on pullbacks.

JOE TIGAY:
I’m looking at them on strength. I’m just watching them closely because I think they’re going to be, companies are going to be around 50 years from now. And companies there that are going to thrive in the short term too.

CAROLINE WOODS:
So last time you were here in March, alphabet was still one of your top picks then. But also Palantir was on there. Are you still a buyer of Palantir here?

JOE TIGAY:
A lot bigger buyer, before trading around one 2100 wherever. I don’t remember exactly where it was. I think there was a narrative that for some reason, it got looped into the software as a service. For some reason, software names were being hammered because people were saying, hey, I can do all of these applications on my own without the need, for paying for an expensive subscription.

JOE TIGAY:
A lot of people can do that, but some people might find it just easier to use, use their software provider. A big deal that happened last week, maybe underreported. I think CRM teaming up with and for to do I think it’s called Claude force is a kind of a new model. They’re burning out, which is kind of like an easy way to get into it, an easy way to use this compute and use their software.

JOE TIGAY:
Yeah. For Palantir. I thought it was kind of a no brainer. I don’t know why it was so low then. The valuations, were just much better than when it was, where it is right now. And I, I want to lessen some of right now than it was. And then I was a few months ago for sure.

CAROLINE WOODS:
What’s a popular stock or part of the market that you wouldn’t touch at these levels aside from space? It doesn’t sound like you’re interested in space theory either.

JOE TIGAY:
I think I could be I could be sold on space six. I just need more time to kind of understand the technology and, and the future. But yeah, I think right now I’m, I love a lot of the, I love the inflation play, but I’m a little cautious on energy right now. Just because oil is so volatile, it can go up and down.

JOE TIGAY:
But I am, I am, short term and medium term believer that inflation is going to run a little bit higher than expected. Maybe while economic growth is also higher than expected, I think that’s going to be a trade off. The fed is going to allow us to have. So yeah, I am, but I am said that there’s just a lot of volatility in the energy, space.

JOE TIGAY:
I would think I would just avoid that and look for maybe some other metals, to to play the inflation game.

CAROLINE WOODS:
What would you buy today that has nothing to do with I.

JOE TIGAY:
It’s interesting you say that. I think that everything is just and is is touch with everything. Everything is included. You think about banks. Maybe that has nothing to do with AI, but it does. Are you there? Of course. Using it and becoming more productive, I think about, I, you know, traditional, transports. You would think that has nothing to do with that, but of, you know.

CAROLINE WOODS:
All right. And maybe let me rephrase it. Okay. What would you buy today that isn’t a tech stock?

JOE TIGAY:
Isn’t a tech, so. Yeah, so I do I do like, a lot of value stocks. I do have, you know, I, I’m allocating a lot, in my portfolio, for them, I, I have a large, a large allocation to very traditional, techs, like the famous one with the very famous investor, which will be passing on, in very shortly, a very big, Berkshire position and I.

JOE TIGAY:
Yeah, I, I’m a big fan of his stock selection, big fan of, his process. And yeah, I think, there’s a very, very valid place, in portfolios for that in that. Yes. That has a lot less to do with technology than, some of the other spots in my portfolio. But I do think it’s, a core component which should be held by, by retail.

CAROLINE WOODS:
And you also talked about adding downside protection to portfolios to prepare for what could be, seasonally weak September. How can the everyday retail investor do that?

JOE TIGAY:
Yeah. So I think, very simply the way that I invest is, I have a long term view, that I think the stock market is going to be higher over long term, maybe a ten year horizon. I’m very confident stocks will be higher. But I also know that within that horizon there’s going to be some volatility.

JOE TIGAY:
We’re going to have ups and downs. And that’s kind of measured with volatility index. And the VIX. People may get confused. They think of the VIX and say hey this is something that I can just buy and all that. I can own plots or I can buy mixed futures. And that’s just another staple investment. I I think that’s the wrong approach to it.

JOE TIGAY:
The way that I do volatility is that as opposed to stocks that have a long term expected value, the expected value for volatility for me is that it will return to the average. And that simply means when it’s too high, it probably should sell it, get out of it, but it’s too low. It’s probably time to buy some of it.

JOE TIGAY:
So it’ll go back to the average. Right now I think it’s on the low end. I think it’s time to be, putting on some protection, and anticipating, returning to the average.

CAROLINE WOODS:
So some near-term weakness. But by your end, do you think this is a market the higher.

JOE TIGAY:
Yeah, absolutely. Do I mean, someone’s going to happen, you know, even on a timeframe of four months now, you know, I can’t really predict it, but I do think base case, I do think, the the push will be higher, and it’s just coming from the enormous amount of capital being spent by, the largest companies in the world.

JOE TIGAY:
And this this is in government spending. This isn’t, you know, this isn’t just a stimulus bill. This is like real capital being put to work by the largest companies in the world that have, a handle on what’s profitable out there. So, yeah, this money is going back into the economy, and I think that will push everything higher.

CAROLINE WOODS:
Would a rate hike in September change your bullishness at all time?

JOE TIGAY:
It would dampen my bullishness. I think it would make things harder. It would make valuations a little bit tougher. But it would I would still be bullish. I think it would just mean and it would just slow down the rate of growth instead of eliminating the growth.

CAROLINE WOODS:
Okay. All right. I think this is a great time to pivot to our rapid fire round of this or that. Quick questions, quick answers. No hedging. You’ve played before. Are you ready, Joe I’m ready. Here we go September buying opportunity or trouble ahead. Buying opportunity VIX at 15. Calm or complacent.

JOE TIGAY:
Complacent.

CAROLINE WOODS:
Hold cash or deploy it. Deploy by strength or by weakness. By weakness tech or the rest of the market.

JOE TIGAY:
Really depends I’m going to lean tech, but it’s it’s 5050.

CAROLINE WOODS:
Big tech or small caps.

JOE TIGAY:
Big tech.

CAROLINE WOODS:
Alphabet or Amazon.

JOE TIGAY:
Alphabet.

CAROLINE WOODS:
The biggest risk to the market. Inflation or slowing growth.

JOE TIGAY:
Slowing growth. But inflation can do it. That’s just the push pull. But yeah.

CAROLINE WOODS:
Six six months from now higher or lower market.

JOE TIGAY:
Higher.

CAROLINE WOODS:
Finish this sentence quickly. The next buying opportunity will come when?

JOE TIGAY:

JOE TIGAY:
And the next time any any dip any, any overreaction to, off. See, Chinese news about a new model, overreaction to, valuations being too high or. Yeah, an overreaction to tech stocks. And is is the simple answer.

CAROLINE WOODS:
The first thing I should do when volatility surges is.

JOE TIGAY:
Look for stocks that are oversold. Look for stocks that are, unfairly beaten down, that are sold just because the rest of the market went down. But their financials and fundamentals remain strong and had no business being a part of the selloff.

CAROLINE WOODS:
The most crowded trade in the market is

JOE TIGAY:
It was it was the memory stocks. That was that was the crowded. Too crowded I mean maybe chips are still very crowded. I will also say.

CAROLINE WOODS:
The most underrated part of the market is.

JOE TIGAY:
Still software. Software got ahead of itself. I think the recovery here, I think software names, look very good to me.

CAROLINE WOODS:
One software, a name that look good. One software name that looks good to you is Palantir.

JOE TIGAY:
That’s that’s one of my best.

CAROLINE WOODS:
The biggest weak spot in the market is.

JOE TIGAY:
The. Yeah. The there’s a push pull on debt. Whether or not this, this we’re overspending on the on the short term, I think, I think the weak spot will be, the need for anthropic and OpenAI have successful IPOs.

CAROLINE WOODS:
The I stock investors are overlooking is.

JOE TIGAY:
Yeah. Are we overbuilding? Are there too much debt? Is there too much compute? Are we going too fast? Too soon? You can look back. Sorry, this is going to be a long answer. Can I give it?

CAROLINE WOODS:
Yeah. No. You know, the I stock investors are overlooking is.

JOE TIGAY:
Yeah. Is it, Or are are these companies overbuilding? Are we investing more than we need?

CAROLINE WOODS:
Is there one name, though, that you think that Wall Street isn’t paying enough attention to?

JOE TIGAY:
Yeah, I don’t have. I don’t have a good name. I, I, I know that Wall Street’s paying a lot of attention to it, but I’m very curious about Oracle. I’m watching it closely. I know it’s it’s very closely analyzed. I know that they maybe they’re paying too much attention to it, but I, I’m, I’m just scratching my head with right now with why it doesn’t react the same way as some of the other companies.

CAROLINE WOODS:
So curious on Oracle means that you’re interested in it or you aren’t.

JOE TIGAY:
I’m interested in it, but I yeah, I, I’m not currently in it. I’m just just watching it, like, software names had a big bounce. They didn’t really respond. They, I’m curious. There’s there’s something going on there where there’s a bigger there’s a bigger emphasis on their balance sheet. Bigger, bigger concern for them than some of the other companies.

CAROLINE WOODS:
Okay. We’ll leave it there. Joe Tigay, portfolio manager. Rationale Equity Armor refund. Always a pleasure. Thanks so much for joining us.

JOE TIGAY:
Thank you for having me.

CAROLINE WOODS:
If you enjoyed this street talk check out our full interview with Ben Emons. He says a rate hike is likely in September and explains how to position for it.

Caroline Woods:
My next guest says the odds of a fed rate hike are substantially higher than markets are pricing. Joining me now is Ben Emons, founder and CIO of Fed Watch Advisors. Ben, great to have you here.

Ben Emons:
Good to be here Caroline.

Caroline Woods:
Especially big day with Kevin Warsh just finishing up his speech at Jackson Hole. We’ll get to the market implications. But first markets pricing in roughly a 45% chance of another hike come September. Your models are pointing to a more than 70% chance. So tell us what is your model picking up that the market is missing?

Ben Emons:
So most of the fed members currently are very about inflation. And they’re trying to say we need to get inflation under control. At a speech with Kevin Warsh focus on that as well. So before the speech the probability is around 70%. It’s likely after the speech even higher, which indicates that within the fence there there’s a clear consensus now that they need to take a step of action, which likely means they will raise rates if it isn’t in September and it’s in October.

Ben Emons:
But in some near-term, rates are going to likely go a bit higher to try to push down inflation because it’s just not going in the right direction.

Caroline Woods:
Well, we’ve actually seen the market reaction is kind of muted. First we saw stocks a little bit lower. Now I’m actually looking at the S&P that’s a little bit higher. Is a rate hike bad for stocks.

Ben Emons:
I’d say no. And here’s why. In this environment where the economy is growing really well and has a lot of investment. If you put a rate hike in the system, it starts to like slow down inflation. As that happens, the economy actually gets breathing room and can actually grow a little more. But this inflation is holding spending back is holding incomes to extend back.

Ben Emons:
So I think particularly consumers retail would benefit from a rate hike simply because a rate hike puts a bit more restriction as it calls into the financial system. And that’s that sort of filters through the economy. Price starts to moderate a bit. And that’s actually a bullish backdrop for stocks even though inflation is still there. And they may have to hike again at some point.

Ben Emons:
We don’t know that. I think it’s a bullish outcome.

Caroline Woods:
So if your model is right and the fed does hike in September, what’s one area of the market you’d want to own. And what’s one area of the market for you to avoid.

Ben Emons:
So I definitely want to own consumer discretionary because those are the sectors that should benefit. You know people’s incomes are lower than their normally is really because inflation is higher than normal. So they should benefit I think. And then you see that you would like to see more spending from consumers following maybe the areas where that is not.

Ben Emons:
So let’s say then CDSs would be say staples or materials and or some of the health care sectors. But other than that, it’s actually quite broad. In fact on the economy inflation moderates. So overall it’s actually a good, good opportunity to rotate and not stay only in tech. But look at other other sectors like consumer discretionary and retail.

Caroline Woods:
Would there be a delay though, because I would think that higher interest rates would mean the consumer would be facing even higher prices if they’re looking for things like mortgages, say that type of thing. But if the ultimate goal is to bring down inflation and then prices come down, eventually they’d pay lower prices. But wouldn’t higher interest rates actually hurt the consumer unless we’re talking about savings accounts?

Ben Emons:
It could be. But the way this mechanically works in the bond market is that if the Santa Fe series about bringing inflation down and by putting rate hikes in the system that are quite predictable, long term interest rates actually decline. You know, 30 years ago, 1996, that was the case to Jackson Hole speech from Greenspan focused on price stability.

Ben Emons:
And he was very strong about that. And the ten year yield was a 7% at that time and went down to 6%. So today we’re at over 5% in the ten year. It may start to decline, though, because Gavin Warsh today two had a sort of similar tone. We cannot let inflation continue this way and a focus on bringing it down if you’re doing it in a predictable moderate rates, and if slamming the brakes with raising interest rates really quickly, then yields are likely to decline.

Ben Emons:
And that itself will be good for housing too. So eventually the housing market housing sector, I think it will be an out of play to think of. I was again, consumers are probably be going to benefit because consumer prices may start tomorrow for me.

Caroline Woods:
If investors are, the market isn’t if they’re not adequately pricing in this rate hike yet though, what happens when they do? Does that mean we’ll see the market dip to price it in beforehand.

Ben Emons:
Is mechanically maybe a little bit possible, but technically what happens is that money is also very fluctuating. No, they change day to day, including in my model. So it’s a bit more like a projection or a model idea. People are looking and saying, okay, there’s a decent chance there’s if it’s more than 50%, that’s a decent chance that the fed will move.

Ben Emons:
If there’s no surprise in their language ahead of the meeting or at the meeting, then the market will not react negatively. It will. It will actually be digested easily, so to speak, and likely will see the market getting relief rally. This is what happened in 1996 actually. And it’s I think this time the same case.

Caroline Woods:
A relief rally. But the S&P 500 is already only 1% away from all time highs. So as you think about where the market goes from here, are you bullish and how much higher can it go.

Ben Emons:
I’m definitely bullish. You know just take the earnings and investment in the economy for the fundamental reasons. There’s nothing to be really negative about. If we also deal with the Federal Reserve. That’s not going to derail that fundamental backdrop by just aggressively raising rates. But they’re doing it moderately. Then it only becomes a more bullish outcome because you’re getting growth investments good earnings with inflation moderating.

Ben Emons:
You know and I think that’s the case overall. So the S&P could easily reach 8000 or more. And I’ll be in a camp of others with gold for this video. Because of projectiles. How the economy can behave under a banner will moderate inflation. That’s a pretty good outcome.

Caroline Woods:
So if I have cash on the sidelines, am I putting it to work right now or am I waiting?

Ben Emons:
I would already put investments in the market. Currently, I would not sit on the sidelines with so much cash. There’s not any type of like major calamity happening currently. The conflict with Iran has really moderated, although they have to figure out the Strait of Hormuz and that sort of thing. It’s not really going to deter the market any longer.

Ben Emons:
The only thing that I could think of as an uncertainty, Haniff is the midterm elections, but that’s still about nine weeks away. We get the fed meeting in between. So I would be more focused on that and thinking if I don’t described it’s just scenario and the fact that’s going to morally maybe raise interest rates once or twice in the future.

Ben Emons:
It’s all very predictable. You want to put money into work today.

Caroline Woods:
And let’s talk about the areas that you’re most bullish on. Obviously you said consumer discretionary would benefit from a fed rate hike as long as are moderate rates and not anything really aggressive. What other areas of the market do you like here?

Ben Emons:
Well, I feel like much the same in technology. I think that the software sector now making a recovery, it makes a lot of sense because there was someone in this place AI is actually enhancing software. So I think that’s an opportunity still there as a lot of stocks are much more low values, particularly in price. And those in, say, the parabolic seven and I dove, you know, that have really high stock prices.

Ben Emons:
And it was a particular semiconductor companies. And then I think the financials are in a really good place. You know they got added the capital that has continued to be regulatory relief. And if an economy picks up it’s more credit is more lending. So I think that’s a good sector. Obviously consumer discretionary. And I would play on energy.

Ben Emons:
You know energy is ultimately, you know, they have benefited from the higher oil prices. These oil prices are going to decline so easily. If anything the economy grows better, oil demand and demand for energy. But the conflict itself keeps oil prices elevated. Given a lot of your profit margin to oil companies. So I’d be bullish there.

Caroline Woods:
Can you give us any specific names that you would definitely have in your portfolio in a fed hiking environment?

Ben Emons:
Well, my my top three that I also work with clients on is I like Citigroup. That’s a great bank. It’s really major recovery now finally. And I like IBM because it’s a very diversified play. And I.

Caroline Woods:
Even after earnings.

Ben Emons:
Even have earnings. So it’s a really diversified play. And I like micron as into its taking a much more better lead and really captures now more and more market share in the semi space as much as that stock as original loss. That’s an attractive opportunity. Cost is low. Multiple is like a low, low valuation stock. And I could think of Goldman Sachs as a final one, which I always like because it’s capital markets.

Ben Emons:
This is the environment. Capital markets are thriving especially I think even with a rate hike from the feds, it’s not going to derail the capital markets. You know optimism. So Goldman me out to be.

Caroline Woods:
In you’d buy all four.

Ben Emons:
Right now I have all four investors.

Caroline Woods:
But if you didn’t own them now there’s an attractive entry point.

Ben Emons:
Still an attractive entry point here. And all of these stocks.

Caroline Woods:
What happens if the fed doesn’t raise rates and inflation does tick higher or stay high.

Ben Emons:
Yeah that would that would be a little different scenario. Because then you get the feelings in the bond market is the fed is doing enough that they feel that the traders sick, but they go behind the curve. And I guess that means that the fed is just not enough. Ahead of this problem of the what is inflation could become, then?

Ben Emons:
I don’t believe that just will happen. But to your point, if the fed gets too cautious, then I do think long term interest rates will go back higher. That would then put some dampening pressure on the on the overall market. And that’s likely the case.

Caroline Woods:
And what’s the takeaway for bond investors right now. Because we have a ten year yield sitting right around 4.7%. The two year old as you said, is above 5%. I think it was 5.2 last I checked. How should those retail investors who are sitting in fixed income or contemplating, you know, adding some bond exposure? What should they be thinking about and where are the opportunities or what do they avoid?

Ben Emons:
So it’s interesting from the bond markets and the stock market, I understand the bond market is like a supermarket. There’s a lot of different things you can buy. They’re very different stocks right. So you can buy securities that are floating rates. You can buy securities that are issued by banks. You can buy treasuries. Emerging markets international. There’s all kinds of ideas I’ve been and then I run this fixed income strategy for my clients.

Ben Emons:
I keep a very diversified strategy where I have these different types of securities in there, floating rates, security preferred, which is like a bank issued security, some emerging markets and an international diversification. Corporate bonds, high quality corporate bonds, as well as some higher yielding bonds. So you take that sort of mix and you keep your interest rate sensitivity a bit lower than normal.

Ben Emons:
You can outperform indices, you can have a decent yields. And I would have had to know said municipal bonds are attractive because that’s the tax exempt opportunity just but the yields are something like around 4% tax exempt yields. That’s to me attractive a story.

Caroline Woods:
So for the everyday retail investor who still wants growth in their portfolio but also wants and diversified exposure, how much of the portfolio should be in stocks and how much should be in fixed income?

Ben Emons:
I think it’s still sort of like take all of an 80% stocks, 20% bond environment. Why? Wow, I should just ask me before this. Uncertainty about interest rates is still higher than normal. So there’s some volatility and that should be expensive. The last bit of interest did go up again. We also have to keep in mind that although the fed may be successful with future action to bring inflation down, until we actually see that that’s important for bond investors.

Ben Emons:
Secondly, the economy continues to grow. One thing that people should know is that if GDP gross domestic product goes up, so do long term interest rates. It’s a close relationship historically always been there. Conversely, if GDP declines, interest rates go down. So in a strong growth environment. So I’ve been advising my clients. You could do 8020 on the allocation.

Ben Emons:
If you like bonds you should be more assured of maturity bonds between anywhere between T-bills and say up to five years and pick the ones I mentioned just to diversify the exposure. Then I guess you could have maybe up to 40% in bonds and do the 60% in stocks.

Caroline Woods:
I do know that 8020 equals 164 equals 100. But what about cash? Any cash in the portfolio? Because the one thing with an interest rate hike is I might actually get an email from my online savings account saying your rate has been increased versus the decreases that I’ve been getting.

Ben Emons:
Well, think of cash as an asset that brings the volatility portfolio really down. Because if you put things in cash it doesn’t move in any way. Right. So that’s the can at times be as anti-Jewish if you are in certain periods. But it’s an opportunity cost much. That means, you know, sitting in cash, you get some interest on it.

Ben Emons:
But if you had invested cash in stocks, you could have had significantly more return. So you have to make a bit trade off there. Look at it more like tactical. You keep cash at times on the sidelines too. Laid out outrun.

Caroline Woods:
But now is not one of those times.

Ben Emons:
I don’t think this is the time to be in high cash allocation. And I’m thinking there like 1,020% of folio in cash. That would be high, something I always like 3 to 5%. I sort of like a buffer for whatever you need it for, or to eventually put it to work in the market, but not 20%, because this is not environment that is.

Ben Emons:
So let’s say uncertain and disastrous if you will do the whole damage. Okay.

Caroline Woods:
Okay. So just to wrap it up, what is the biggest risk to this market? What would need to happen for you to want to be in more cash? Because it doesn’t sound like it’s inflation or fed rate hike or Iran. So what’s the biggest risk?

Ben Emons:
Well, there’s one iceberg speed bump ahead of us. It’s called the midterm elections. And if you follow the prediction markets on Kelsey or bull market, there’s a there’s a decent chance that the Congress may go. But they call blue like a Democrat. What does that mean. That means that’s potentially the data center growth that we’ve had. That has been such a boost to our economy.

Ben Emons:
We slowed down quite a bit, but this has been such a political backlash building, you know, around data centers. Secondly, it could change some of the, let’s say, ideas that security demonstration has on any other taxes that they want to lower investment, foreign investment, and that will change. So that would create some uncertainty. But historically, though, even though the Congress will become Democrats, you may get some pullback in markets.

Ben Emons:
But then eventually it goes higher again because on a Democratic Congress this continues to be robust government spending, which is really important to the economy. And that will eventually drive GDP again higher. So it’s like it’s a speed bump I think ahead of us. We’ll see how it plays out. Right? I don’t know that, but I think it’s sort of like it’s a bit of the political environment.

Ben Emons:
I mean, we the only caveat that we do have a future debt ceiling is an issue which somewhere in 2027, we’ll see how that plays out.

Caroline Woods:
So we’ll have to get you back on as we get closer to that to see how the playbook change changes. All right. Or maybe not. I think it’s a great time to pivot to a rapid fire game of this so that you know how to play. Quick questions, quick answers. No hedging. Are you ready, Ben?

Ben Emons:
Yeah. I’m ready.

Caroline Woods:
All right. Here we go. Stocks are ten year treasuries.

Ben Emons:
I’m in stocks.

Caroline Woods:
U.S. stocks are international. U.S. stocks large cap or small cap?

Ben Emons:
Both can say.

Caroline Woods:
Well, I’ll give you one. Both. But if you could only choose one.

Ben Emons:
I would still go large caps. Yeah.

Caroline Woods:
High quality growth stocks. Are value stocks tied to the economy.

Ben Emons:
Value stocks tied to the economy.

Caroline Woods:
Mega cap tech or financials.

Ben Emons:
I would think financials.

Caroline Woods:
Nvidia or an equal weight S&P 500 funds.

Ben Emons:
I think a video best growth.

Caroline Woods:
Company short term or long term bonds.

Ben Emons:
Short term bonds.

Caroline Woods:
Cash or short term bonds.

Ben Emons:
Short term bonds.

Caroline Woods:
Gold or bitcoin.

Ben Emons:
I was big goes.

Caroline Woods:
By dips in stocks or take profits.

Ben Emons:
Buying a dip in stocks. Just do it. Don’t don’t get out of the market.

Caroline Woods:
Bigger threat to stocks, a fed rate hike or the ten year Treasury hitting 5%.

Ben Emons:
Daily, Treasury hitting 5%. That would derail the stock market.

Caroline Woods:
September Fed decision hike or hold.

Ben Emons:
Hike.

Caroline Woods:
By your end one rate hike or more than one.

Ben Emons:
One rate hike.

Caroline Woods:
One year from now. Inflation closer to 2% or 4%.

Ben Emons:
Likely closer to 2%.

Caroline Woods:
One year from now. Bull market or bear market.

Ben Emons:
Still bull market.

Caroline Woods:
One word to describe how you’re feeling about the market for the rest of this year.

Ben Emons:
Bullish.

Caroline Woods:
Ben Evans you played by the rules. Our viewers are going to love that. Thank you so much. Really appreciate your insights, your picks and everything else. That’s Ben Emmons, founder and CIO of Fed Watch Advisors. If you enjoyed this street talk, check out our full interview with Andrew Graham. He reveals the stocks he thinks have the most upside from here and how to know when to buy them.