00:00It's amazing to think about it, but 20% earnings growth looks like it's in the bag. I mean,
00:07the amount of quarters in our investing lifetimes where you can say that, particularly not those
00:15coming out of recessions, it's really kind of unprecedented. I know. So we come into earnings
00:21here, as Tom is mentioning there, Julian, what are you looking for this earnings cycle coming up?
00:26I think a lot of what we saw last quarter, we know that AI is driving the trade. We know
00:36that AI is
00:37driving the earnings strength. Look, we saw it in Korea last night. The difference being, again,
00:43is that the stock reactions are likely to be varied. But what we've seen over the last number
00:51of quarters is that within the context of a bull market that has fits and peaks, and we're in sort
00:59of a fit right now, sideways, a big churn in technology, is that basically it's not so much
01:08about the moment-to-moment reaction, particularly to earnings. It's the fact that the trend continues
01:13to go towards the upper right. What's the AI call from your shop right now? I mean, we started out
01:21just buying the chips, which I guess is still a good way to play it. How else should we be
01:26thinking
01:26about it? Well, and it is incredible how you get the turn of the half year, you get a little
01:34bit of
01:35turn in psychology, and you get, frankly, a turn in sentiment. To us, the sentiment around technology
01:43broadly is as cautious as it was in the first quarter, which, if you'll recall, earnings season
01:50was a catalyst for an extraordinary two-month rally off of the March 30th low. And we think we're going
01:58to see the same thing, only more concentrated in the stocks that have underperformed this year.
02:05On a blended basis, is this a nominal GDP revenue pop? We get down the income statement to whatever
02:12form of Julian Emanuel earnings line we want to look at, because we're starting so sprightly at the top
02:18loan. Yeah, and that is really how the market is looking at it. Again, the bogey is that expectations
02:30are very elevated. They will beat as they normally do. You know, last quarter, the surprise was 17%.
02:40I mean, completely unheard of. It won't be anywhere near that robust. But we do think that, again,
02:47the message is the earnings trajectory and the economy continue to be very strong.
02:56Concentration. It's back on the concern, I think, category again here, the concern ledger here.
03:03How do you think about concentration of performance, concentration, I guess, of earnings and free cash
03:07flow and all that stuff? Well, look, if you think about the concept of portfolio diversification,
03:15we should be concerned about that. And from our strategy point of view, when we stop being concerned
03:22about that is when the market is likely to peak. But fortunately, what we've seen is sort of a reach
03:29for what we call negative beta stocks, stocks that are broadly uncorrelated the S&P on a day-to-day
03:37basis, yet I've still performed well, as a way to relieve the discomfort of the fact that now 40%
03:46of the S&P 500 is in 10 names.
03:49What sector is your AI alternative?
03:55There really isn't a stock answer to that, simply because if you look at it, both communication
04:08services and infotech are the only sectors actually industrials has nudged up to outperform since the
04:17bull market began in October of 2022. You know, my answer to that, Tom, would be that if you're
04:25looking for diversification or if you're looking for a substitute for AI, you know, either you tilt
04:32towards industrials or again, you go in a different direction and look for diversification in the
04:40portfolio.
04:40I love this data you have here, the negative beta stocks and sectors. So last Thursday, when the NASDAQ
04:49100 was down 1.6%, insurance stocks are up 3%, healthcare up 2.7%, staples up 2.4%. That's how
04:58you
04:59play it, I guess. If you want some, I guess, some hedging a little bit of that concentration risk,
05:05that's how you play it, I guess.
05:06And we saw the opposite of that trade yesterday. And looking at the tape this morning, it's
05:13reasonable to believe with the Dow Jones futures up and the NASDAQ down, that you're going to see
05:18the opposite of yesterday's trade.
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