00:00Let's talk about the short term for a second here. I know there are some longer term stories here that probably do suggest there are more gains potentially in store for this market.
00:07What's actually happening this week. What do you make of it. Well so here's the thing that we shouldn't forget. AI is really the fourth industrial revolution.
00:15And what we're seeing now is an assessment of OK given some of the potential disruption that we could see.
00:22Let's take some money off the table before we figure out who the real winners are because think about what's happened over the last call it 20 years or so.
00:32You've seen disruption with dot com. You've seen disruption with streaming for media companies and the companies that don't make it.
00:39They fall off really really quickly. And I think that's what you're starting to see some of that almost more of a healthy skepticism creeping in.
00:46And there is some disruption afoot here. I mean earlier this week we were talking a lot about some of the software companies sort of taking a leg down largely because of the preceded advancement in AI that may actually sort of crimp into some of their dealings if you will.
01:02And then earlier today we actually heard that Anthropic had come out with some financial research tool and that sent a lot of those stocks down as well.
01:07Is this kind of normal when you have these type of inflections in the economy where you are making these big transitions that you do have to have these kind of shakeouts.
01:16I think that's true right because it is not a rising tide that lifts every boat.
01:20The thing that we're really starting to see are which are the companies that are really embedding AI in their day to day activities and are going to benefit because the ones that do are really going to soar ahead.
01:31Now that does not mean that every tool is going to replace a company that does that in a more analog way today. Analog probably not quite the right word but in a less AI forward way today.
01:44But the key is how do you use it? How do you leverage it? How do you become more efficient?
01:50But even so I mean you take a look at some of the reaction the drawdown on some of these software stocks is breathtaking at this point.
01:57Do you think this could be an overreaction because the threat of AI has been around for years at this point in its current evolution.
02:05And it just feels like this week is the week that we just woke up to that risk.
02:09I know that Anthropic had some specific releases there some specific catalysts but even still this isn't a new risk necessarily.
02:17That's absolutely correct. I mean think back to when DeepSeek was launched right.
02:21We saw a very similar type of market reaction and if you really start to look under the hood not all of these tech names are created equal right.
02:31You start to think about the fact that we're potentially in a memory super cycle because of the increased demand for memory from AI servers.
02:39We already know that capacity is pretty much completely depleted for 2026.
02:46So really should all of those names be selling off in the same way? Probably not.
02:54And what you're going to find and this is what we talk to our clients about the smart money takes opportunities in times like this to look at.
03:00OK. So who are really the long term beneficiaries?
03:03Yeah it's going to be fascinating to see who steps in to catch some of the knives that are falling in the software space right now.
03:09I do want to talk a little bit about Bitcoin because what a wipeout that has been.
03:14It looks like we're getting close to cracking sixty five thousand dollars a coin.
03:18Is there anything you can extrapolate on what is going on in the crypto market over into traditional risk assets or is that just in a world of its own right now?
03:26Here's how we think about it right. We think about Bitcoin as really being almost a supercharged tech investment.
03:32And so to see this kind of correlation when you've been experiencing large movements in the tech sector not hugely surprising.
03:39The other thing that we tend to forget about is that the realized vol of Bitcoin sits at around 50 60 percent over the last three years on an annualized basis.
03:51And so to see these kinds of moves is not unusual for an asset with that level of volatility.
03:56And I think Katie just jinxed it a little bit too as she was speaking of Bitcoin actually dropping below that sixty five thousand dollar a level.
04:05And it gets to this idea about you know a lot of people talked about that basically rotation is kind of the new momentum that what we're seeing isn't a sell off.
04:12It is truly indeed a rotation. But when you see sort of almost abandoning of what had been one of the riskier most speculative assets out there.
04:20Does that sort of presage potentially that we could see a further unwind across other asset classes?
04:25Well look I mean you said at the beginning we're looking very short term. So over the next couple of days of course.
04:30However this is where you look for opportunity. We remain very constructive on the U.S. economy on U.S. markets.
04:37We think this represents a broader opportunity. Now the rotation is important though because as we look out for 2026.
04:45We expect you're going to see earnings of about 311 over over the course of the year.
04:52That gives us a year end target for the S&P of around 7500. That means two things.
04:56One we're seeing more of a lift come from that earnings growth of around 13 14 percent which is what we're expecting.
05:03But also you're seeing broadening and some of the sectors that we like include industrials.
05:09We also still like financials because we're expecting a few more rate cuts.
05:12Is there anywhere that you would stay away from right now? You just walked through you know some of your preferred sectors right now.
05:18But especially in this environment is there any specific type of stock or industry that you would just steer clear of at this point?
05:25Look I think health care still remains challenging. There are some great companies within the sector but they are significantly exposed to some broader political risk.
05:35That is hard to quantify. Again some potentially great developments but look we see patents expiring in some of the GLP-1 drugs which have been doing so well.
05:46We expect that market to continue to grow but that doesn't necessarily mean all margins are going to continue to expire.
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