00:00Katrina, has something changed for you around the fundamentals?
00:03Is this something different with China threat and more spending,
00:06or is this just a momentum crash and it's as simple as that?
00:09Look, let's have a look at what happened in the last week.
00:12And if we look at a bullish indicator, and about 45% of investors were bullish,
00:17that number's come down to 29.
00:19Where it really is, that buy indicator, so we look at the tariffs, actually,
00:24if we go back, and that number kind of gets down to 20,
00:27so 20% of the market is bullish or investors are bullish,
00:30that's a really strong buy signal.
00:32So we're kind of a little bit in that no man's land,
00:34so it's hard to kind of say, hey, do this.
00:37But let's take a look at what's happening and what's driving markets.
00:40We've been talking for so long about this broadening trade,
00:45and we've really seen a broadening of the market.
00:48And number two, we have seen earnings growth.
00:51I appreciate all of these negative headlines that are coming up about AI,
00:55the circular trade, but you just talked about it.
00:57UPS, good numbers, CSX last week, Norfolk Southern last week.
01:03These are companies that are real industrial companies that are drivers of our economy,
01:08and they're saying that things are actually doing well.
01:12They're beating estimates and raising.
01:13If I look at 2026, we've got 17% earnings growth.
01:182027 is 16.
01:20So the earnings growth is there to support the market.
01:23Valuations are reasonable.
01:24So I really just don't see that we're in for a crash.
01:27We're looking at a chart here that I wanted to bring up because we have seen Apple's market cap surpass
01:32that of NVIDIA
01:33to become the world's largest stock again for the first time since around May of last year.
01:38And before it was, the earnings that were really propelling us were AI.
01:41It was the chip makers.
01:43And Apple, notably, is a company that has not been spending.
01:46It's not a picks and shovel.
01:47It hasn't had huge numbers in capital expenditures.
01:49Has what's important for this market changed?
01:51I think that what is important for the market is, number one, the consumer.
01:55We are still a consumer-driven economy.
01:57And I know we've been talking so much about AI.
02:00But realistically, it is the consumer that drives the U.S. market.
02:04And Apple is tethered to that consumer.
02:06You think about Amazon, you know, the services that we consume there.
02:09We look at the iPhone sales and everything.
02:11So they are a play on the consumer.
02:14And I think that that's what's been reflecting, is this strength of the consumer is something that is really standing
02:20out to us.
02:21We've got a resilient consumer.
02:22We've got a strong economy.
02:24You've got reasonable valuations.
02:26And you've got earnings growth.
02:27I don't think there's much else you could ask for in this market.
02:30And so many people I know that are focusing on this AI circular trade.
02:34We think that if I have a look at one of the data points that we've been focusing on is
02:39the revenue that is coming out of these companies.
02:41And we're looking at that relative to depreciation spending.
02:44And that's actually in positive territory.
02:46It's a good sign.
02:47Well, I know Mike Wilson and Morgan Stanley had a piece out yesterday saying that finally AI is going to
02:52start paying off for companies that are using it.
02:54And margins are going to expand.
02:55Are you expecting that, too?
02:57Because it's something we've been watching out for.
02:58And we haven't quite heard it in earnings.
03:00You do hear someone like Avisa saying they can let go of people because they're increasing AI efficiency.
03:04But is that starting to show up?
03:06Are you trying to pick out the AI winners at this point?
03:08In terms of the ROI, there's two places we're talking about ROI.
03:12We're talking about ROI in terms of the CapEx spending.
03:15And you're right.
03:16We're also talking about ROI at enterprise customers.
03:19And I think that that's something which we've always expected to be longer.
03:23Because it's not suddenly that, you know, we're in a regulated business where I work.
03:27And so we can't just suddenly change all of our processes.
03:30We've got to go through there.
03:32We've got to test and do all of that.
03:33But we're seeing efficiencies from introducing AI.
03:36We introduced it to our sales force.
03:38They've got a 10% uplift in their efficiency.
03:41So we're starting to see these pockets of efficiency come through.
03:45The spending numbers are still there.
03:46So I'm not sure that you're seeing significant positive ROI.
03:50But you're not seeing a huge negative amount of spend without at least some offside on the cost side.
03:57I happen to know that you use AI a lot.
03:58And you experiment with it a lot, too.
04:01We do.
04:01And that's what we've been encouraging all of our investment teams to do.
04:05And I think people are at different points on their journey.
04:07And we want to be respectful of that.
04:09But we're really starting to bring all of our investment teams along.
04:13And, you know, what we're seeing is that it creates efficiencies.
04:16It means you can, you know, the simple cases where you can digest an earnings call faster.
04:21But now we've actually seen some really innovative use cases within our investment groups.
04:26And that's where we're going to start to see these efficiency gains come through.
04:29And that's really positive because it drives, you know, the opportunity for more alpha from alpha, so better performance.
04:35It also drives, you know, more asset growth for our investment teams.
04:39And we're an asset manager.
04:40But it also drives that efficiency.
04:42Well, if the threat isn't going to be coming from earnings and those look robust, could it come from higher
04:48rates?
04:48This market pricing in a one in three odds the Fed hikes.
04:51Citadel Security is coming out saying that they expect worse to hike.
04:53Could that be something that also hampers this rally?
04:56Yeah, that is actually the one concern.
04:58It's rates.
04:59It's really that 5% level that we've been focused on.
05:02Because at that 5% level on the 10-year, we do expect some degree of rotation.
05:07Because you've had such strong performance of the equity markets and then that kind of attractive yield on the, you
05:12know, in the fixed income.
05:14In terms of going into the FOMC meeting, I would put it as, I hate to say a coin toss
05:20because that's really not helpful.
05:21You're looking at one in three.
05:23I think that's about what the market's telling you.
05:25We're trying to balance out, you know, his comments about price stability and wanting to restore price stability.
05:31You've seen the move in oil prices up 40% in the last two weeks.
05:35So, you know, those inflation concerns are starting to come back into the market.
05:39And that's what we think is the concern going into the meeting that you could see a small rate hike
05:44as he kind of stamps and says, you know, I'm really focused on price stability.
