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  • More than the Magnificent Seven

More than the Magnificent Seven

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Bloomberg Aug 19 04:00 · 11.3k Views

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  • 00:00 So give us your sense about what happened.
  • 00:02 We've been through a wild ride over the last two weeks
  • 00:04 and take us inside City.
  • 00:05 How did your shop react when all of us were running around saying, oh, emergency rate cut?
  • 00:09 Sure, of course.
  • 00:10 I think what's interesting is at City Wealth, we've actually been pretty resolute
  • 00:14 in terms of our views this year.
  • 00:15 We started out this year thinking that we would get 3 interest rate cuts of about 25 basis points
  • 00:21 and that those cuts would not begin until the second-half of the year.
  • 00:24 And so even though we've seen this wild repracing of rates throughout the course of the past couple of months and we could even even say year to date, we just thought that the Fed would not get the data that they needed to confidently start cutting rates.
  • 00:36 And So what happened last week was pretty wild because I think the market once again got ahead of itself in terms of is there going to be an emergency cut?
  • 00:43 Are we locking in A50 basis point cut?
  • 00:46 I think we're still at 25 basis points because of this economic data that we're seeing.
  • 00:51 We'll get a good piece of economic data and then we'll get one that maybe is a little concerning.
  • 00:55 Take today for example, we have the consumer sentiment data that came out better than expected.
  • 01:01 And then we had the data around construction that was worse than expected.
  • 01:05 So I think we're going to see this volatility in the data.
  • 01:08 But the good news is that inflation is on the trajectory that the Fed needs
  • 01:13 and that the labor, when you look at the labor market, it's cooling, not contracting.
  • 01:18 And I think that's a sweet spot in terms of the Fed's position to be able to start cutting.
  • 01:22 Where are we in earnings because that drives an awful lot of stock prices.
  • 01:25 And that was another reason why last week.
  • 01:27 So just take like August 3rd for example, that really horrible day in the market
  • 01:32 where you know if you got out on that date, you would have actually missed out on a pretty substantial rally of about 7% in the S&P 500 since then.
  • 01:39 But the reason for it is earnings have actually been really resilient.
  • 01:43 If we go back to last year, last year we had about seven out of the 11 sectors in the S&P 500 that we're experiencing in earnings recession.
  • 01:51 This year, we actually expect 10 out of those 11 sectors at City to turn to earnings profitability.
  • 01:58 So earnings have actually surprise and what we're seeing is really a broadening out of that story.
  • 02:04 It is no longer uniquely a magnificent 7 story.
  • 02:07 We're starting to see a come through in earnings across various sectors, which is actually a reason to stay invested.
  • 02:13 Well, that's so we're going to ask exactly
  • 02:15 how many people are fully invested still at this point because as you point out, if on August 3rd you'd gone to cash, you'd be sad right now.
  • 02:22 To what extent is there still cash on the sidelines?
  • 02:24 I think there's still significant cash on the sidelines.
  • 02:26 You could look to money market funds and the flows that have come into money market funds
  • 02:30 as an example of that.
  • 02:32 So the latest numbers that I saw were about $6.3 trillion in money market funds and that doesn't include cash held in
  • 02:39 deposit accounts and other types of bank products.
  • 02:41 So when we think of other catalyst for the market, just think about this.
  • 02:45 If we do start to experience interest rate cuts, what's going to happen is all of that cash that is no longer receiving a 5 percent, 5% plus interest rate is going to look for places to reinvest
  • 02:57 and it's going to be a balance across equity markets and fixed income.
  • 03:00 So overall, it sounds like you're pretty constructive on the markets.
  • 03:02 Pick some spots for us.
  • 03:03 Where does it make sense to have more of investment rather than less?
  • 03:06 So I would say there's kind of three key spots where we've been spending a lot of time.
  • 03:09 The 1st, and this is really over the past couple of months,
  • 03:12 the 1st is looking at the S&P 500 equal weighted
  • 03:16 exposure as opposed to the market capitalization weighted exposure.
  • 03:19 That's again playing this broadening out theme, but having diversification across various sectors and also with an acknowledgement that many people already have exposure in passive investments to the market capitalization weighted index.
  • 03:32 The second area would be looking at
  • 03:34 just kind of size, looking at midcap and small cap, not going into the Russell 2000 necessarily, but looking at profit profitable areas of those segments of the market.
  • 03:44 And if you take a look at midcap, for example, 20% of that index is really represented by industrials, which are a really good proxy play for the broader Gen.
  • 03:54 AI play that everyone wants to be invested in.
  • 03:57 But it's doing so through infrastructure.
  • 03:59 It's doing doing so through investing in in the energy grid in terms of that energy consumption.
  • 04:05 And the last piece that I will say is it always makes sense to play the long game.
  • 04:08 So via what we call our long term unstoppable trends, one of them is investing in longevity.
  • 04:14 And that is something that regardless of the market cycle that we're in, we think it makes sense to have capital invested longevity, including healthcare.
  • 04:21 Absolutely.
  • 04:22 Absolutely.
  • 04:22 And it's really two different sides of that coin because
  • 04:25 longevity is playing really the fact that we're living longer.
  • 04:28 So I think you have to analyze that how is My Portfolio working for me
  • 04:32 and how do I think about investing capital for what now is a longer lifespan.
  • 04:36 But then on the flip side, when we look at what really is dominated, which was GLP one, drugs
  • 04:42 and then life sciences, medical equipment have been left behind
  • 04:47 and these areas that really blend technology with that underlying development, I think it's going to continue to attract capital.
  • 04:53 Chris, I don't want to let you go about before we talk about your new position since we've seen you last, you have a new position.
  • 04:58 Congratulations, I thank you so much.
  • 05:00 It is how is it different?
  • 05:00 Yeah, so I'm running our wealth at work business globally for city.
  • 05:03 And what that is, is it's really workplace wealth solutions.
  • 05:07 This started with
  • 05:08 an area of our business that we've actually been dominating and and had for over 5 decades, which is our law firm group.
  • 05:15 So where we bank entry level associates through to senior partners and institutional capital.
  • 05:21 And what's unique about it is it really brings the perspective of not only knowing you personally in terms of your wealth journey, but also looking through how is your industry impacted by various trends.
  • 05:32 So it's knowing your business and how to advise you professionally, but also personally.
  • 05:37 And we've expanded that on a global basis, but also looking at other segments like asset managers, professional services and just other segments of and sectors
  • 05:46 of of different types of companies.
  • 05:48 So really exciting, but thanks for asking about it.
  • 05:50 Reaching the choir.
  • 05:51 We like lawyers here at Wall Street.