00:00There's a lot coming at investors. The war in Iran, we keep trying to figure out when this might
00:06wrap up. That is the big question. How are you like kind of factoring that in? Are you not yet
00:14the energy market disruption? It feels like things are cooled down, yet we are still way up from the
00:20start of the year when you look at the prices of oil. So how do you assess all of this
00:24when you
00:24think about investment management? So thanks for having me. And you are spot on. I think right
00:30now, one of the taglines I go by when I talk to our clients is, in the short term, markets
00:35follow
00:35headlines. But in the long term, markets follow corporate earnings. And you have to separate the
00:41two. So in the short term, we're going to continue to see this volatility as we've talked about.
00:44And that is just a reality of what you're seeing from an S&P, NASDAQ standpoint that you're saying
00:49like today was down, it was up. But in the long term, the reason why I still feel bullish and
00:54confident on equity markets and the US as a whole, is corporate earnings is still predicting 13 to 15
01:00percent overall earnings next this year, right in 26. And so what you want to anchor yourselves to
01:06from a long term standpoint with our clients is really focusing on that. Now, you've talked about
01:11it, there is going to be a more focused on value over growth. And so you're seeing that in the
01:16tech
01:16sector that you're talking about right now. So the MAG-7, I consider that a repricing opportunity.
01:21And you are calling or thinking about 2026 as kind of the year of value, right?
01:25Year of value, year of value, right? Because you're right. The market is repricing some things
01:29right now. So that's why you're saying it's the year of value. So when you take a look at,
01:32I use tech as example, we talked about the MAG-7, that's getting repriced a little bit as we're
01:37going to see this year. But it's the forgotten 493, right? The widening out of that sector,
01:41that's going to be where the value opportunity lies, right? If you think about that,
01:46if you take a look at the, I say 493 outside of the MAG-7, last year, their earnings were
01:51something
01:51like 6%. And they're predicting this year in 26, closer to 15%. So if you take a look,
01:56the MAG-7 will come down slightly to the 14, 15% range. And the widening of that sector really
02:03says
02:03there's value within there that we should be tapping into.
02:06So let's talk a little bit about the consumer and the idea that the consumer powers this economy.
02:11I mean, if a consumer is paying more for gas, that might cause the consumer to pay less for
02:17other things. Since January 14th, gas prices are up more than a dollar, or exactly a dollar,
02:25roughly 277 back on January 14th, 371, so 33% higher right now. How does that affect earnings if
02:33consumers are feeling strapped?
02:36Corporate earnings are slightly different from how the individual is feeling, right?
02:39Yeah, but I mean, if the, okay, I mean, there's a, and bear with me here, but there's, there is
02:45this connection where if, you know, a company has to pull back from advertising as a result of
02:49earning less revenue, then that affects, you know, a MAG-7 company because their top line is
02:54dependent on advertising.
02:55Yeah, I think over time. So I'd say for the, I always tell us the tale of two cities. The
02:59story of
02:59the individual is slightly quite different from a corporate standpoint. And you're absolutely right.
03:04Gas prices are higher. We still have not resolved tariffs as we think about it, right? We're also
03:10looking for what will the Fed do as it relates to rate cuts that are coming up. And AI, like
03:15we can't
03:16forget that and what that means to the labor market. So these are real things that impact the individual.
03:20And so when you think about that, the importance of that is the alliance around what sectors to focus
03:27on and where the rebalancing comes in, right? Because there are going to be sectors that are very much
03:31more impacted by oil or AI or specifically tariffs. And that's why active management is where we're really
03:38leaning into and figuring out what sectors you need to pivot to in this volatile market that we're
03:45experiencing in the short term. But again, I try to anchor us back on the corporate earnings piece and the
03:50importance of equity markets right now and what that means.
03:52I get what you're saying. And I get what you're saying when it comes to earnings growth. I think about
03:56top line
03:57growth. And I also think about pressure on margins, especially amid higher energy prices. And so how does that
04:03play out if companies potentially are feeling pressured? We still don't know. Again, tariffs are once again, an unknown.
04:11I do think about pressure on margins. And then how do they make it up? And if they're able to
04:15use AI to do
04:16something, do they let go of workers or do they not hire as workers leaves? And then that plays out
04:20into the
04:21economy. And that ultimately, does the economy become the market?
04:24Yeah, no, you're spot on. So I think what I'd say to that, that takes a longer time to show
04:28up in the
04:29economy overall. But what you just pointed to the AI, the labor markets, like that's what we're saying,
04:35the unemployment rate, like in the last unemployment report that we saw, while we were higher than
04:40estimate, it was concentrated in healthcare. It was very concentrated, right? So it wasn't a widening of
04:45a labor market. And that makes you dangerously nervous, because that really means it's only healthcare that
04:49really tipped over, you know, the job report, the last one that we received. So labor markets
04:55absolutely would be impacted by AI. And let's say this inflationary thing called what's happening
05:00with oil prices, and then also potential to unresolve of tariffs at this point. So the small
05:06business owner and the individual are absolutely feeling differently right now.
05:09Raquel, is there any, any conversation within your world and with your team, uh, over HSBC,
05:15where there is a thinking that even if we ended this U.S. war in Iran tomorrow, that there's still
05:23a region that has been impacted severely and a country that has not liked the U.S. for decades,
05:30and that that somehow lingers and create some volatility potentially for us going forward,
05:36whether it's in the energy markets or just our life.
05:39Yeah. So I think as we all look at this, there's always the geopolitical piece of this that
05:43would impact lots of decisions, right? And so we always have to have an eye on what's happening
05:49outside of the country and specifically from a geopolitical standpoint. And we would say what
05:53keeps people up at night, it's that unknown, right? And so whether you say it ends tomorrow
05:57or it may not, right? I mean, that's also a very big unknown. So for that reason, you have to
06:02figure
06:02out how do you get oil prices back under control, right? So you have to like assume if it doesn't
06:06end
06:06tomorrow, what does that really mean? And what does that mean for the price at the, at the,
06:10the gas tank, uh, as we think about individuals and what you're seeing in that price increase,
06:14it's, it happened in such a short period of time too. It's the shocker, right? That you weren't
06:19planning for it. And it went up within a week, you know, up 20%, 30%. And so that's a lot
06:23for an
06:24individual consumer to take on. And maybe we'll, we'll find out more on Wednesday, hopefully,
06:27but it's a shock that the, the fed maybe didn't necessarily see company.
06:31And then you've got to watch inflation. That's the important thing. The fed's going to come in and
06:33make a decision. And it's our decision right now, as you're taking a look at what's happening from a
06:37market standpoint, as you just said, pretty resilient, the markets, but at the same time,
06:41individuals are feeling pain, right? So the question is, does the fed make cuts? Uh, I think,
06:46you know, right now, um, it will be important to see what happens on Wednesday.
06:51I can't imagine the fed cutting rates. I don't think anybody at this point,
06:54I don't think anybody's anticipating that, but I think people are hopeful for that. But, um,
06:57I think for us at HSBC, we're, we're actually saying no cuts this year, quite honestly,
07:02we taking a very extreme view on this one. Um, or Anna Wong has talked about what four
07:07rate cuts this year. Yeah. So a hundred basis points. Maybe it's somewhere in the middle.
07:11It's a wide range, right? As of last week, traders were priced, not even pricing in one,
07:14they were pricing in 24 basis points. So not even one. Yeah. Right. Yeah. It's just,
07:19but you also have a new fed chair too. So there's a lot of differences. Not yet. Maybe.
07:22Well, very soon. Very soon. I have learned. I don't know if you were around on Friday and you saw
07:28that
07:28press conference. So all those factors then says I, you know, we can't always predict what's going
07:35to take place here, but the fed plays an important role, right? To answer that. Yeah. Yeah.
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