Diton: Fed’s New Rate Hiking Cycle “Not 2022,” Beware Waning Market Breadth

for a better window to goblic. g Movers. I'm Alex Coffey. I'm in for Diane King Hall. Let's welcome in our n guest. And that is Eric D the president and managing directo of the Wealth Alliance. And he'sto discuss some macro withs. Good morning to you Eric. Happy Tuesday. Let's start with, I think like the the very clear story of financialarkets and in many ways sort of the world right now. And it's the the p which and the levels to which interest rates are rising here.t of big picture on what that means. Yeah. Thanks for having mex. This is, I think what people need to realize is this is not 2022. We're not coming off a ten year, half a percent treasury. We're c off low And inflation is not seven, eight, 9%. Inflation's in the t So yes, there's a 72% chance the Fed's going to hike in October. There's almost a 100% chance the fed will hike one more time before year end. But a lot of this is being driven right now by the Iran war. And let's be clear Iran wants to end the war. So does the Uniteds. Donald Trump wants to end this war. He didn't want it to go this long. r there will be some kind of compromise and what you're going toeft with after that is the efficiency of AI inflation still remaining in check. It's not at 2% target, it's not seven 8% either. And so maybe the fed hikes two more times, maybe three. It's not hiking 11 times. n something, Alex you go back to 1991. You compare stocks performance at a 4.5 yield. Ten year Treasury versus five stocks have done better when the yield is five ay over 12%ual versus nine and at the four and a half. Treasury is not the death of equities I so appreciate this sentiment because there's t feeling, I guess, in the post GFC era that low rates is positive for stocks. But historically that correlation is not necessarily the case as typically higher rates are there because there's higher growth. And yes, sometimes with growth there's higher inflation. it safe to say in your estimation then as you make the comparison, even just to 2022, which was very much inflation or the cost off input costs, r driving ds, whered almost point this toominal GDP and say, hey, the ten year yield needed to go higher. 100%. It made perfect sense. Look, this AI build o let's be clear. This is is taxing the resources, the global resou We've never anything like this. And the hyperscalers who were cash flow positive, they're borrowing. But make no mistake those com look at the Max seven. They've compounded earnings 35% a year last decade. They're very smart For them to make this kind of bet on I would not against those companies. And I truly believe we're already starting to see it. There are going to be major cost efficiencies for many companies, from emb AI, and the adoption of AI is happening faster than the adoption of other major technological breakthrough in the history of mankind. I mean, going back tot, the adoption is at a way faster pa It's very exciting. investor sentiment. You point out that it's, you know, not necessarily in line with what the actual reaction and and performance of the market is. I'm curious how you approach that. If you're looking at it as a contrarian indicator that there's more opportunities still, or if perhaps that's a warning sign? Well, let's just be clear on something. When we look at the market, t market, the S&P, and we say, wow, it's, yo know, one 2% from its high. In some ways, this is very 1999 ish. And what I mean is we know that the top ten stocks in the S&P are roughly 40% of the value. And there are a small amount of concentrated stocks right now who are moving the markets. One of the things that worries me is bad breath, and that is that we are near a highg more new lows than new highs. And so that's something you got to be careful Last Monday the S&P was up 1.5% right near the high in the market and more new lows. last time we saw th was near the end of 1999. And we all know that near the top of the tech bubble. I'm not calling a calamity here. Wh I am telling investors is you've got to stay diversified. You've got to be careful. Even the S&P Value Index is loaded with tech that never happened in there. You've got Microsoft in there. So be careful. diversified, be globally diversified. It's really important right now. Yeah. Well that wng to be my final question for you. I guess we can kind of build on that how do you position if you're looking at t and you're saying, hey, these q companies, these value companies are even the same ones that are the growth companies. In some cases, it's the big tech firms. And you look elsewhere, yields are rising. So treasuries are under pressure. Gold has been under pres Like where do you hide now or where where do you feel comfortable dfying into. I'm actually really ted not let's just again, let's just talk about bonds. Years and first time I'mg these kind of yields since 2007. In some cases 2002, we have been hedging. We've been using alternative investments for part of our quote unquote bond allocation. And look, Alex, I'm seeing 5% municipal bond yields. Haven't seen that in forever. You're in New York, California. You're in theop marginal bracket. You're in an over 50% bracket, 5% 10% pretax. So bonds are starting to look veryt stock pickers. We're asset allocators, but we're all different ETFs. But we're getting deep inside. We're using an X-rayhine. What is in there. I wan have tech exposure. I want to have a exposure. I don't want to be loaded up. And the great news is there's a lot of cheaper stocks not in that circle. There's some great values out there right now. Eric, I really appreciate you taking the tim and sharing your insights with our viewers here this morning, and we look forward to continuing that conversation into the future. Eri