00:00Joining me now is Ahmed Riesgo, Chief Investment Officer at Insignio.
00:04Ahmed, great to have you here with us.
00:07Great to be here.
00:10Ahmed, let's start with big tech because Meta and Microsoft are both powering higher after earnings.
00:15You look at those reports, you look at those growth rates, and you think what?
00:20I think you definitely want to own them.
00:23Now, I think in the future, despite the moves we're having today,
00:27I think in the future, they're going to look a lot more like utilities and defensive positions in your portfolio.
00:33So I don't think you're going to get the growth going forward from these names,
00:37but you definitely want to own them.
00:38They're fine companies, they're growing earnings way above the median stock in the S&P 500.
00:44So you definitely want to have a good, healthy position of many of these big tech names.
00:51Do you want to buy them at these levels, though?
00:53I should note that Microsoft just crossed $4 trillion in valuation.
00:58Are you a believer in the AI rally at this point and that there's still room to run,
01:03even if the growth rates aren't as impressive?
01:07Yeah, so I don't think, you know, you're starting to hear like bubble territory talk.
01:11I don't think we're anywhere near there yet.
01:13And like I said, you definitely want to own these names.
01:16Now, do you want to chase them for growth?
01:18I think that's the difference here.
01:19I think you want to have them as ballast in your portfolio to hold them more as defensive positions.
01:26But I don't think the growth in the future is going to come from these names.
01:30These that, remember at this point, these are high capex companies.
01:34They're going to look a lot more like airline companies in the future than right now.
01:40And what I mean by that is that they're largely indistinguishable from one another, right?
01:45Anthropic, although that's not a public name, but Meta, Gemini models, it's sort of United and Delta, right?
01:50It's sort of a preference.
01:52But you're going to have to have them.
01:53They're indispensable.
01:54That's why I'm saying you definitely want them in your portfolios, but you don't want them for growth.
01:58You want them for defensive posturing.
01:59Are there any MAG-7 names that you wouldn't want to own, Ahmed?
02:07Well, I don't want to get into specific ones right now, but I would say away from the hyperscalers.
02:12So let's leave it at that.
02:13So away from the hyperscalers, I would tend to sort of stick away because there you could potentially be looking at more sort of binary outcomes, right?
02:20And we all can probably guess which stocks I'm talking about.
02:23All right.
02:26We also have Figma debuting on the New York Stock Exchange today.
02:29It was a highly anticipated IPO.
02:32What does that tell you about investor appetite right now?
02:35Do you think markets are ready to take on more risk again?
02:40I actually do.
02:41I think we're actually set up for a perfectly sort of classic paradigm pain trade to the upside.
02:49And what do I mean by that?
02:50I mean, this is a very unloved rally.
02:52Everyone is very skeptical about it.
02:55Everyone is saying it's too quick, right?
02:57Too quick of a rally.
02:58Everyone's talking about the sort of economic impacts from the tariffs.
03:02They haven't been felt.
03:03The inflationary impacts, they haven't been felt.
03:06There's $7.5 trillion sitting in money markets.
03:10So you literally have the perfect ingredients for a pain trade to the upside for that FOMO trade to really kind of kick in.
03:18How much upside is there to this so-called pain trade?
03:23So look, I think a lot of this is going to depend on what the Fed does.
03:26I think if the Fed does what it should do, which is, you know, cut rates, I still expect the Fed to cut at least, you know, two or three times this year, despite what Powell said yesterday.
03:38Because I do think there is weakness in the labor market.
03:40And we can talk about that in a second.
03:41But I think if the Fed starts to cut soon and cuts at every meeting for the next several meetings, I think you could see the S&P 500, you know, grind up all the way to 7,000.
03:52And I think if they don't, which is what's likely to happen, which is that they're probably going to be too late, right?
03:58This is what the Fed does.
03:59They sort of overstay their welcome.
04:02Then you could see a much more muted rally, but still somewhere between 65 to 6,700 on the S&P.
04:08Okay, because I was taking a look at the CME FedWatch tool, and it looks like 60% chance that the Fed could stay on hold once again in September now.
04:18Obviously, that could change.
04:20We know that the president isn't very happy with Powell, given some of his choice words about the decision to stay on hold.
04:27But at the same time, we did see PCE come in slightly hotter than expected.
04:31So you think that the data justifies cuts on the inflation side?
04:37Yeah.
04:37So in our view, the Fed should probably have been cutting back in June.
04:43But let me explain to you why.
04:45The broader disinflationary trend is in place.
04:49Housing, wages, they're all going down.
04:52Are we going to see a temporary spike?
04:54And I know that's a very loaded word in this, you know, given recent history with the Fed.
04:58But are we going to see a temporary spike in inflation due to the tariffs?
05:03Absolutely.
05:04It'll probably peak six months from now.
05:07And by 12 months, you won't even see it in the inflation data anymore.
05:11But those are classic.
05:12That's a classic transitory spike that the Fed would normally completely ignore as far as setting their monetary policy.
05:21However, because the president has been putting so much public pressure on the central bank governor, sorry, on the chairman to cut rates, he's actually working against himself.
05:33Because I think it's make it less likely that Powell actually cuts rate.
05:37And I think what you're seeing is a sort of institutional leaning into the fact like, hey, we are independent.
05:43We're not going to bend to your will.
05:45We're going to do what we think is right.
05:46But unfortunately, actually, I think that's a mistake because they should have already started to cut rates.
05:52And how much could even a one-time shock in terms of higher prices spook the market, given the fact that it's near all-time highs right now?
06:01It doesn't seem too phased by that tariff deadline that's fast approaching.
06:05It's tomorrow.
06:07Do you think that it could be setting itself up for a fall, though, if we do see those price shocks?
06:13Yeah, look, obviously, there's not a lot of room for error if we were to get a price shock.
06:19But again, a price shock is different than inflation, right?
06:23And this is what everyone has to come to terms with.
06:26You know, tariffs don't increase inflation.
06:30They will cause an increase in the inflation data temporarily as a mathematical function.
06:36But inflation is the systemic, consistent rise of prices and increase in the money supply.
06:42Tariffs do not cause inflation in the longer term.
06:46So even if the Fed doesn't cut rates two to three times like you were calling for, it still seems like you think that this is a market that's moving higher, maybe just not as much.
06:56So talk to me about the areas of the market that have the most room to run from this point.
07:03Yeah, so, you know, we like we still like a lot quite a bit the defense sector.
07:08We like utilities.
07:10We think health care has has sort of underperformed the market.
07:14We think as soon as the tariff overhang over the health care center gets lifted, we think that's going to be a sector that's really going to rally.
07:22Because I think there's two sectors really that are going to be the primary beneficiaries of all this capex spending that the hyperscalers are doing on AI.
07:31And it's the financial sector and the health care sector.
07:35The financials have benefited already.
07:38They have outperformed.
07:39The health care sector, in my view, has not because of the pharma tariff threat overhang.
07:44I think as soon as that gets lifted, I think the sector will gravitate higher.
07:48So what's your best advice for investors right now?
07:55No, our constant advice is that try not to time the market.
08:00Timing the market is a foolish game.
08:02It's impossible to say near-term peaks and valleys.
08:06It's impossible to call them out.
08:07Usually when people get them right, it's just happened by chance.
08:10They think they're good at it and then they get burned down the line.
08:13Just, you know, find good companies, solid companies, solid sectors that you want to invest in and stay invested.
08:20We'll leave it there.
08:21Ahmed Riesko, Chief Investment Officer at Insignia.
