00:00You said, I don't think they're going to be able to. What do you mean by being able to?
00:04Well, $70 oil this morning, right? Inflation is going to come down, right? I don't think
00:10they're going to get to the 2, 2.5% number that everybody else wants to. It's ironic that you
00:15watched oil come all the way down, which should put downward pressure on inflation, and yet yields
00:20have just stayed right where they are, right? They haven't budged a bit, right? Let's call the 10-year
00:254.5% and 4.21% on the 2-year, right? All else equal, those things should have been
00:30coming down
00:31as you'd reprice inflation expectations down, and they're simply not, right? Which is why the long
00:36end, we think it's going to stay higher. But eventually, look, I mean, can the Fed increase
00:43rates one time later this year or maybe two? One time is just symbolic. It doesn't do anything
00:49really for monetary policy. Well, do you think the communication of the last week is just symbolic?
00:53Yes. I think it's part of Chair Walsh establishing his independence, new sheriff in town, right,
01:01and wanted that message to come through. Obviously, it's been well discussed all about price stability.
01:07Didn't hardly utter a word about the labor market, right, or anything associated with it. I do think
01:13the interesting thing, though, as we get into the second half of this year is this kind of
01:16juxtaposition between economic growth, which has been really pretty soft, right? I mean, remember,
01:21fourth quarter was half of 1% for the U.S., 1.6% in Q1. And then you got
01:26this earnings growth that's
01:2820%, 25%, 30% parabolic, right? You usually don't have that environment. It's a really unique
01:33environment. How predicated is your 7,900 target on the S&P on the idea that the Fed will not
01:40be able
01:40to hike rates? It's priced in there, yeah. I mean, I think we have zero hikes for this year. So,
01:47we have Fed funds saying exactly where it is. And part of that, part of getting to 7,900,
01:52in fairness, is that zero hike. So, if they hike the 40 basis points that's priced into the Fed
01:57funds futures curve this morning, then I think that number has to probably be lower for 1231.
02:02Do you think right now the equity market is saying, we don't believe that the Fed is going
02:05to hike rates and the bond market is saying, oh, no, they're going to hike twice?
02:09Yes. But that's always the case, right? I mean, and look.
02:12So, that's the smart money.
02:14Everybody is so wound up, you know, this week, this morning, yesterday, about this tech sell-off. And,
02:20you know, it's not a sell-off, right? I mean, if it was a true sell-off, banks wouldn't be
02:25breaking
02:25out. REITs wouldn't be breaking out. Small caps wouldn't still be doing well. Credit spreads
02:29would be more.
02:29You think it's a rotation within equities?
02:31It's a rotation within equities. And that's all it is, right? And you shouldn't play it for more
02:35than that.
02:35Is it a buy-the-dip moment for these names?
02:38Yes, but we think there's probably more weakness coming through the summer months,
02:43right? I mean, I do think when you get into Q2 earnings season, the bar is so incredibly high,
02:49particularly in the tech sector, that I think there's some disappointment there in price.
02:52You get into some seasonal period of time. So, I think you'll get a cheaper moment to put that
02:58next marginal dollar to work in the tech sector than today, as we're sitting here. But we still like
03:03that sector overall as part of a... What we don't like is small cap. And what's interesting
03:09is like, so Friday, we're going to rebalance the Russell indices. The top 10 names in the
03:14Russell 2000 small cap all don't justify being there anymore. They're all above the high water
03:19mark for what they should be, right? So, they should all graduate to mid cap or large cap or
03:24whatever. And that's 47% of your small cap return, right? So, if you let that go, and they won't
03:29do that
03:29all at once, but if you let that go, you're just continuing to dilute the integrity and the
03:34quality of that index. Well, let's finish with what you do like. I know what you like. It's
03:37financials. Yes. It's one of your core calls for this year. At times this year, it hasn't really
03:41worked. It hasn't worked. Why do you think it's going to start working? All the fundamentals are
03:46there. Part of it is predicated exactly on what we were just talking about, the steepening of the
03:49yield curve, right? Because financials do very well on the steep yield curve. Obviously, when you look
03:54at the big banks that benefit from sales and trading and investment banking activity, that's
03:59hitting on all cylinders. We know what M&A is doing. We know the IPO environment. Well, the Stanley
04:03Goldman, those names doing great. They're doing great. I think what's not doing great, it's ironic
04:07as you start unpacking the financial sector at the lower levels. What's not doing weight are the
04:13payment processors like Visa, MasterCard. What's not doing great is Berkshire Hathaway. What's obviously
04:18not doing great is some of the alternative asset managers. So, it's a very bifurcated world. If I look
04:24at the large and regional banks right now, they're actually sitting close to highs and breaking out
04:32from here, right? But in fairness, it's still one of the few GIC sectors, you know, as we came into
04:38this morning, there's four GIC sectors that are now negative year-to-date so far, right? Most people
04:43wouldn't realize that when the market's been as strong as it has been.
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