The Investment Committee’s Q4 strategy

ARE ON RIGHT NOW 5.247%. WE HAVE BEEN UP TO AS HIGH AS 5.3%, ROUGHLY THE HIGHEST LEVELS WE'VE SEEN SINCE OH TWO OR SO. SO I GUESS WHEN WE LOOK AT THIS MARCH HIGHER ON YIELDS, IS THIS GOING TO BE THE NEW NORMAL? I THINK IS A BIG QUESTION FOR MARKETS BECAUSE WE SEEM TO BE DIGESTING IT PRETTY WELL AT THIS POINT. ALL RIGHT. WHAT DO YOU THINK. >> 100%. I MEAN WE'RE IN THAT QUIET PERIOD WITH THAT EARNINGS RIGHT NOW. SO YOU'VE GOT MACRO WHICH IS GEOPOLITICAL WHICH IS KIND OF EVERYDAY WHAT'S HAPPENING. BUT THEN THE RATES BECAUSE THAT'S WHAT THE MARKET'S REALLY FOCUSED ON. THAT'S WHERE VALUATIONS REALLY ARE ANCHORED. WHAT'S THE CREDIT MARKET GOING TO DO ON THIS AS WELL. RIGHT SPREADS WHETHER THEY'RE GOING TO KEEP ON WIDENING. AND I THINK ALL THOSE ISSUES THEN DOVETAIL INTO THE EQUITY MARKET. BECAUSE WHERE DO YOU GET ANY LIQUIDITY FROM IS THE EQUITY MARKET. SO I THINK THAT'S WHAT WE'RE WATCHING. AND WHEN YOU SEE THE TEN YEAR, I MEAN IT'S AMAZING WHAT THE CORRELATION AS TO HOW IT IS. SO I THINK WE'RE WATCHING THAT WE'RE TRYING TO SEE. AND THEN EVEN WITHIN THE EQUITY MARKET, IF YOU SEE, YOU KNOW, THE RATES GO UP, THE DEFENSIVE SECTORS THAT WERE NORMALLY DEFENSIVE ALSO GET SOLD OFF BECAUSE THEN YOU GET DIVIDEND SUBSTITUTION. SO A LOT GOING ON UNTIL WE REALLY GET INTO I THINK EARNINGS, WHICH WILL THEN SATISFY, YOU KNOW, AT LEAST WHERE WE THINK THE MARKET'S GOING TO GO. >> YEAH. MALCOLM WHAT'S YOUR TAKE HERE. >> I'M HOPEFUL TO YOUR POINT THAT EARNINGS ARE GOING TO ACTUALLY SATISFY INVESTOR APPETITE AT THIS MOMENT. BUT I'M NOT AS SURE LIKE YOU WOULD IMAGINE THAT BECAUSE EARNINGS GROWTH IS EXPECTED TO BE AS STRONG AS IT IS THAT WE'RE GOING TO GET THE POSITIVE RESULTS THAT WE WANT. BUT WHEN YOU LOOK AT SOMETHING LIKE ANTHROPIC IPO BEING PUSHED OUT TILL NOVEMBER, YOU LOOK AT AURORA SHELVING THEIR IPO. WE WERE GOING GANGBUSTERS IN THE FIRST HALF OF THIS YEAR IN TERMS OF INVESTOR ENTHUSIASM. AND NOW YOU SEE THE SEMICONDUCTOR TRADE THAT CARRIED IT UNWIND. EVERYBODY'S MOVING BACK INTO THE MAG. SEVEN. THE EXPECTATIONS FOR THE MAG-7 STOCKS IS SPECIFICALLY THE HYPERSCALERS WHO ARE SPENDING ALL THIS MONEY TO BUILD OUT THEIR DATA CENTERS AND SUCH. THEY REALLY HAVE TO SHOW UP IN A BIG WAY. I KNOW WE'RE GOING TO TALK ABOUT MICRON EARNINGS AT SOME POINT TODAY. IF YOU JUST LOOK AT THE MOVEMENT IN MICRON, I THINK THAT COULD BE APROPOS OF WHAT Q3 EARNINGS COULD BE. >> THE SEMI CAP OR THE SEMI MEMORIES ARE DOING KIND OF WHAT THE SEMI STOCKS DID WHEN ALL OF THEM BLEW OUT THEIR EARNINGS LIKE NVIDIA RIGHT. THEY'RE NOT GOING ANYWHERE. >> SO THAT'S MY WHOLE POINT. >> WHAT IS TO YOUR POINT. AND THEN IF THE HYPERSCALERS ACTUALLY DON'T SHOW THAT THEY'RE ACTUALLY HAVE THE FREE CASH FLOW FOR IT, I THINK YOU COULD GET THAT NEGATIVE. HOWEVER THE OTHER SIDE COULD BE, HEY, WE'RE GROWING FREE CASH FLOW AND WE'RE SPENDING. SO WE ARE GOING TO HAVE TO SEE WHERE THE MARKET RUNS WITH THAT. >> TOUCHING BACK ON THE ON THE TREASURIES. I THINK IT'S SOMETHING THAT'S REALLY IMPORTANT RIGHT NOW. AND I'M GOING A LITTLE BIT OF A LIMB HERE. I THINK WE'RE GETTING A LOW IN THE BONDS THIS WEEK. AND BARRING A BLOWOUT NON-FARM PAYROLL NUMBER I THINK WHAT WE SAW YESTERDAY WITH PCE. YES THERE WAS ADJUSTMENTS MECHANICALLY AND HOW THAT IS MEASURED. BUT THEY'RE MOVING FROM INVESTMENT ADVISOR FEES I THINK IS A GOOD WAY TO START SMOOTHING SOME OF THAT. THAT'S RISING WITH THE MARKET. BUT THE TECH SPENDING AND IT WAS REALLY GOING UNDER THE CONSUMER CATEGORY. IT'S MOVED TO PPI. SO THE MARKET REALLY SWEPT THIS THIS NUMBER AWAY AND FORGOT ABOUT IT. I MEAN WE HAD AN EARLY REACTION. AND THEN THE TREASURY SOLD OFF. AND BY THE END OF THE DAY THE EQUITIES HAD HAD BASICALLY GONE UNCHANGED OR EVEN LOWER BARRING A HOT NONFARM PAYROLL TOMORROW. I DO THINK WE'RE BUILDING OUT A BOTTOM. I THINK THERE'S DEFINITELY SOME WINDOW DRESSING SELLING IN TREASURIES. AS A WEALTH ADVISOR, WE MAY NOT BE LIQUIDATING CLIENTS TREASURIES HERE OR CLIENTS BOND HOLDINGS HERE, BUT INSTITUTIONALLY, I THINK THERE'S DEFINITELY SOME WINDOW DRESSING TAKING PLACE. I THINK THE CARRY TRADE IS ALSO A FACTOR HERE IN THE BOND SELL OFF. WE'RE SEEING YOU KNOW JAPAN LOOKING THEY'RE HIKING RATES. BUT I THINK RIGHT NOW WE'RE NOT SEEING THE YEN CURRENCY RISE AS WELL. I THINK THAT'S SOMETHING THAT'S ALSO IMPORTANT BECAUSE THEY'RE THEY'RE FORECASTING MAYBE THE U.S. TO BE AT A FASTER PACE THAN JAPAN. >> YOU JUST GAVE ME A REASON TO BELIEVE THAT THE BONDS HAVE NOT PUT IN A BOTTOM. >> OKAY. >> IN TERMS OF YEN AND IN TERMS OF OIL, TOO. DON'T WE NEED TO BELIEVE THAT WE'VE ALSO SEEN ATOP A PEAK IN OIL IN ORDER TO BELIEVE THAT WE'VE SEEN THE CAP ON YIELDS. JOSH, WHAT'S YOUR TAKE? THERE SEEM TO BE A LOT OF OTHER FACTORS HERE INVOLVED IN TERMS OF YIELDS AND WHERE THEY'RE GOING AT THIS POINT THAT ARE OUT OF OUR CONTROL, THAT ARE BEYOND EARNINGS SEASON. >> MELISSA, I ALWAYS KNEW WE'D BE ON THE AIR AGAIN. I DIDN'T KNOW WHEN I WAS WAITING FOR THE DAY. >> AND TODAY IS THE DAY, OCTOBER 1ST. >> I'VE MISSED YOU. ALL RIGHT. TO ANSWER YOUR QUESTION, I THINK IT'S FAIRLY SIMPLE. OIL PRICES ARE UP WREAKING HAVOC WITH INFLATION EXPECTATIONS. I WOULDN'T SAY INFLATION EXPECTATIONS ARE GETTING OUT OF CONTROL. I THINK THEY'RE LIKE FAIRLY WELL ANCHORED. BUT THE LONGER THIS DRAGS ON FOR US, THE THE, THE MORE DIFFICULT IT BECOMES TO THINK THAT WE'RE GOING TO SEE A RESUMPTION OF THAT BROADENING TRADE THAT WE ALL HAD SO MUCH FUN WITH THIS SUMMER. I MEAN, BANK OF AMERICA IS IN AN 18% DRAWDOWN RIGHT NOW. NOBODY'S EVEN TALKING ABOUT IT. THAT'S A PRETTY SUBSTANTIAL CORRECTION IN A BLUE CHIP DOW STOCK LIKE SIX MONTHS AGO. IT LOOKED INCREDIBLE. AND THERE WERE A LOT OF OTHER EXAMPLES OF THAT. AND I JUST I THINK THE RATES THING IS KIND OF ACCOUNTABLE FOR LARGE SWATHS OF THE MARKET. THE GOOD NEWS IS IT DOESN'T MATTER BECAUSE THE MAG-7 IS BACK TO MAG-7. AND I THINK THE THING THAT PEOPLE GET WRONG ABOUT THESE STOCKS, THEY THINK OF THEM LIKE GROWTH STOCKS. AND YES, THESE ARE COMPANIES THAT ARE GROWING, BUT THEY'RE REALLY DEFENSIVE. AND THIS IS WHAT INVESTORS ROTATE TO WHEN THEY GET NERVOUS. AND THAT'S I MEAN, WE'VE SEEN IT LIKE TEN TIMES. I DON'T KNOW WHY I HAVE TO KEEP EXPLAINING THIS. THE MAG-7 ON A YEAR TO DATE BASIS IS NOW BACK TO BEATING THE S&P 500. IT'S UP 12.8% YEAR TO DATE. ESP IS PLUS 11.8%. MEANWHILE, THE. IF YOU EQUAL WEIGHT, THEN LOOK AT THE MAG ETF, MAGS. YOU'VE GOT BASICALLY A GROUP OF STOCKS THAT ARE TRADING COLLECTIVELY AT 24 TIMES EARNINGS FORWARD. THE EQUAL WEIGHTED VERSION IS EXPECTING 21% EARNINGS GROWTH. SO THAT'S LUMPY. OBVIOUSLY THEY'RE NOT ALL EQUAL. TESLA IS NOT ALPHABET. BUT THAT'S WHY PEOPLE USE THESE AS A SAFETY TRADE. THEY MAY NOT FEEL GOOD ABOUT OIL RATES. THE LATEST INFLATION READING. WHAT'S THE NEXT LABOR REPORT. WHAT'S WARSH GOING TO SAY. BUT THEY DO KNOW THESE COMPANIES ARE GOING TO DO THE NUMBER. AND I THINK YOU SEE ASSET MANAGERS ROTATE THERE. LAST THING VERY QUICKLY APPLE META AND MICROSOFT RIGHT NOW ARE ALL WITHIN SINGLE DIGITS OF A NEW 52 WEEK HIGH. AND IN MOST CASES, AN ALL TIME HIGH. NVIDIA IS LESS THAN 5% AWAY AND LOOKS LIKE IT WANTS TO BREAK OUT LIKE LITERALLY ANY SECOND. YOU MAY NOT GET A RESUMPTION IN THAT BROADENING TRADE, BUT WE MAY END UP WITH A GOOD FINISH TO THE YEAR. AND THESE STOCKS WILL BE THE ONES THAT HELP US GET IT DONE. IF IN FACT THAT'S WHAT ENDS UP ENDS UP HAPPENING, YOU GET A MEANINGFUL DROP IN RATES OR EVEN A CESSATION IN THIS RELENTLESS MARCH. HIGHER. YOU'LL GET THE REST OF THE MARKET BACK TO MAYBE NOT ALL OF IT. >> JOSH'S POINT FINANCIALS, MATERIALS, DISCRETIONARY REAL ESTATE UTILITIES ALL DOWN 6% OR MORE IN SEPTEMBER ALONE. >> THE THE SECTORS THAT REALLY ARE TIED TO THE BROADER ECONOMY ARE ALL DOWN. AND JOSH SAYS A LOT OF PROVOCATIVE THINGS EVERY TIME HE APPEARS ON ON THE HALFTIME REPORT, I'LL GRANT YOU THAT. BUT I THINK ONE OF ONE OF THE THINGS. THERE YOU GO. JOSH. ONE OF THE THINGS THAT HE SAID IS, IS BASICALLY THAT AS YOU SEE THE MARKETS GO HIGHER FUELED BY THE TECH TRADE, WHAT WE'RE ACTUALLY WITNESSING IS PERHAPS A DEFENSIVE TILT TO THE MARKET, BECAUSE THAT IS WHERE THE DEFENSE IS. THE REST OF THE MARKET HAS JUST BEEN WALLOPED AND. >> IT'S WEIGHT SENSITIVE. >> IT'S RATE. THE REST OF IT IS RATE SENSITIVE. I MEAN, FINANCIALS FOR THE PAST MONTH DOWN 7% BROADLY AS A. >> UTILITIES BUT STAPLES. BUT IF BILL. >> IS RIGHT THAT THE BOND MARKET IS NOW REACHED ITS BOTTOM, IS THIS NOT THE MOMENT WHERE YOU WANT TO BE. >> ROTATE BACK. >> WHEN THIS WHEN THIS CARRY TRADE AND WHEN BONDS IN THE HEADLINES THE WAY THEY ARE. IT'S REALLY THE MOVE IS HAPPENING BEFORE WE ALL REALLY REALIZE IT. I MEAN, THE SELLING IS ALREADY TAKING PLACE. I THINK THE WORST OF THE SELLING HAS ALREADY HAPPENED. I THINK WE'RE DIGGING OUT A BOTTOM HERE. AND REALLY, WHEN YOU LOOK AT WHEN THE WHEN THE FED HIKES RATES OR ENTERS A HIKING CYCLE, BONDS BOTTOM WHEN THEY GO THROUGH A CUTTING CYCLE, BONDS SELL OFF. >> SO ARE YOU ROTATING INTO THOSE BOMBED OUT SECTORS? >> WE'RE YOU KNOW WHAT? WE'RE A LITTLE BIT I MEAN, WE'VE WE'VE DONE WE WE TRIMMED INDUSTRIALS SIGNIFICANTLY IN JULY AND WE'RE STARTING TO. I THINK WE COULD TOUCH ON SOME OF THESE MOVES. WE CAN JUMP RIGHT INTO IT. BUT WE'RE STARTING TO ROTATE A LITTLE BIT. AND LOOKING AT INDUSTRIALS. >> I HOPE YOU'RE RIGHT. THE BOND MARKET JUST TAKES SO LONG TO FINALLY TELL US ANYTHING RIGHT. IT'S KIND OF LIKE ASKING YOUR GRANDDAD TO TELL YOU A STORY. LIKE, I KNOW THERE'S SOME WISDOM IN THERE SOMEWHERE. I JUST REALLY WANT YOU TO HURRY UP AND GET TO THE IMPORTANT PART. AND THAT'S. >> HOW THE BOND MARKET. >> WELL, GROWING UP. >> I MEAN. >> CUTTING MY TEETH ON A TRADING DESK, THE OLD SAYING WAS THE BOND GUYS ARE ALWAYS RIGHT AND YOU WANT TO SEE WHAT THEY'RE DOING. >> SURE. >> YEAH. THE BOND MARKET IS GOING TO LEAD IT. BUT TO YOUR POINT, YES. WHEN YOU LOOK AT, YOU KNOW, BANK OF AMERICA, BUT LOOK AT MORGAN STANLEY, JP MORGAN, MORGAN STANLEY WAS $220. IT'S 182. YOU KNOW, AND IF YOU THINK KIND OF THAT'S THE BUSINESS YOU WANT TO BE IN, THIS IS THE TIME TO WE WERE CUTTING IT BACK AT THOSE LEVELS. NOW WE'RE GOING TO START ADDING BACK TO THESE LEVELS. WE'RE ESPECIALLY CLIENTS THAT ARE UNDERWEIGHT. IF IT'S FINANCIALS OR COMMODITIES WHERE IT'S COPPER AND ALL THESE THINGS HAVE BEEN SOLD OFF TECHNICALLY, NOT REALLY FUNDAMENTALLY. SO I THINK THAT'S KIND OF THE OPPORTUNITY THERE. >> DOES IT MATTER THE NATURE OF OF THAT BOTTOM FOR BONDS BILL? I MEAN, IF WE IF WE SAY, OKAY, THIS IS THE WORST OF THE SELL OFF AND WE'RE HERE, BUT WE STICK AT FIVE POINT, YOU KNOW, IN A QUARTER PERCENT ON THE TEN YEAR YIELD, WE DON'T GIVE THAT UP. DOES THAT SPELL RELIEF FOR THOSE OTHER SECTORS THAT HAVE BEEN HIT ALREADY? >> I THINK IT'D BE DIFFICULT TO SEE THEM GET BACK TO WHERE THEY WERE THIS SUMMER. BUT YOU GOT NAMES LIKE CITI, YOU GOT THE XLF ALL BREAKING THE 200 DAY MOVING AVERAGE, WHICH I DON'T THINK IS A SELL SIGNAL. I THINK IT'S TALKING ABOUT WHERE YOU CAN LOOK TO BE BUYING SOME OF THOSE NAMES. WE'RE NOT BUYING THEM JUST YET. BUT ABOUT THE BOND MOVE ITSELF, IT'S ABOUT THE VELOCITY IN WHICH IT'S HAPPENING. AND IT WAS A QUICK MOVE OVER THE PAST TWO WEEKS. THAT'S WHAT'S REALLY WHAT'S REALLY STARTED TO DETERIORATE THAT BREATH EVEN FURTHER. IF YOU LOOK AT THE BULLISH PERCENTAGE INDEX, WHICH TALKS ABOUT WHICH HAS THE THE NUMBER OF STOCKS IN THE S&P 500 THAT ARE THAT ARE IN BULLISH POINT FIGURE PATTERNS, IT'S AT 34 RIGHT NOW. GIVEN THE MARCH LOW THIS HIT ABOUT 31. SO WE'RE AT SUCH LEVELS WHERE WHEN THE MARKET WAS THE FEAR WAS REALLY THERE. THE ONLY DIFFERENCE HERE IS THE VIX IS IN THE MID-TEENS COMPARED TO THEN THE VIX WAS IN THE MID 20S. SO THAT'S THE ONLY THING. BUT TYPICALLY WHEN YOU START TO SEE THIS BULLISH