00:00Now a cautious rebound in Asian stocks is fading as losses in Bellwether, Chipmaker, TSMC weigh on the market.
00:07This comes amid renewed concerns that the AI-driven equities rally may have run too far.
00:13Joining us now to discuss further is Dan Farley, State Street Investment Management Executive Vice President and CIO of the
00:22Investment Solutions Group.
00:24Dan, good to have you on.
00:26Good morning.
00:26Thank you for making the time for us.
00:27Let's talk about the latest from yesterday, the drop that we've been seeing across global equities.
00:33Are we starting to see signs of a bubble bursting?
00:37I don't think so.
00:38I think that's probably a bit premature in terms of where we are right now.
00:42You said it a few minutes ago in terms of talking about Micron.
00:45It was down 8% after being up 250.
00:48So I think it's important for us to recognize that these things don't go in a straight line,
00:53that in general this trend is one that we think is going to be continuing.
00:57We're broadly supportive of equities here.
01:00But I think that the call for a bubble at this point is probably a bit too early.
01:04Earnings continue to follow through on this.
01:06And so we think this is a step along the way.
01:10Obviously, we'll see what the numbers come out to with today and as we start to move things forward.
01:14But for the most part, we think this rally still has room to go.
01:18Room to go.
01:19So you think that the valuations still make sense when it comes to those numbers that we're seeing across the
01:23S&P?
01:24Well, I think valuations are not cheap by any measure.
01:27But when you start to look at that in the context of how earnings have continued to be able to
01:31grow,
01:32it starts to say, yeah, they can be supported here.
01:34I think it's interesting if you look at the returns that we've seen out of the S&P 500, for
01:39example,
01:40and across multiple markets for that matter, most of it has been earnings led.
01:44You know, the fact that we have seen markets and companies' ability to continue to deliver on their earnings component.
01:50We saw strong Q1 numbers.
01:53We've seen strong upgrades for the rest of the year.
01:57And there's actually been price multiple contraction in many markets.
02:00I think that's actually a healthy environment.
02:02If we had seen the inverse, where earnings were going down but multiples were expanding,
02:06that might get me a bit more concerned about your bubble question.
02:09So we're talking about semiconductors.
02:12The Sox index is gaining as much as 100% this year.
02:15It saw some declines yesterday.
02:17And you say there's more room to grow when it comes to this AI rally.
02:20So where are the risks coming from?
02:22What are the risks for you?
02:24Yeah, I think that the, I mean, obviously it's the earnings pieces that we're all talked about.
02:27That's what we're all worried about in terms of where we're seeing this volatility that's coming through.
02:31So to the extent that these companies are not delivering on that, I think that's one big one.
02:36I think the other outside of the industry is going to be around things like rates.
02:40To the extent, and this is true in semis, but I think this is true in the market, broadly speaking.
02:46You know, we're not priced for a 5% U.S. 10-year.
02:48And I'm not suggesting we're going there anytime soon.
02:50But if it were we to see a big move up in rates, I think that that would cause a
02:55bit of a repricing across the board.
02:56And obviously, given the movements that we've seen in AI, they're probably more vulnerable than most.
03:02But if it were to see a big move up in rates, then we're going to see a big move
03:02up in rates, then we're going to see a big move up in rates.
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