Emerging Markets Outperform U.S. Stocks as Investors Seek Broader Diversification Opportunities

US markets open mix, but we are looking at the major averages currently turning lower.

This does come after the Dow closed at a new record high yesterday, and while the S&P 500 straddles 7500, the S&P 500 has been on an impressive upward grind and slated by recent upgrades to 2026 corporate earnings growth.

Terms of earnings, Snowflake erasing all losses for the year due to AI investments with Amazon Web Services and semiconductor name that Marvel Tech easily topping estimates.

We did get a revised first quarter GDP figures along with the Fed's preferred inflation gates, the PC price index coinciding with recent hawkish FOMC minutes as well as a record low.

City of Michigan consumer sentiment.

Well joining me to weigh in on the latest of economic data is Lisa Schreiber, Associate Portfolio Manager at Gradient Investments.

Lisa, good morning.

Thank you so much for joining us.

So we are looking at the market reaction following a slew of economic data figures.

So what does the data tell you and what does this mean for the Federal Reserve?

Well, it's certainly a very interesting day today, right?

We just got PC as you said, uh, a federal review.

Reserve's preferred inflation report and I mean uh the pendulum of worry has swung back dramatically from the labor market to inflation since the Iran conflict broke out end of February, right?

And it's another report that shows while it came in, um, uh, with estimates, um, it still shows very much higher inflation, the highest since since uh 2023 on a PC, um, and it's.

Still shows upward pressure from higher energy prices, which makes it tough for the Federal Reserve to make an interest rate cut a narrative here, right?

And I think coming into the year markets were expecting 2 to 3 rate cuts.

I think that has shifted completely now while the market is getting maybe a little bit more comfortable for even a hike, right, depending on how long the situation in the Middle East is still as it is today.

Yes, and Lisa, this morning we continue to monitor the geopolitical headlines coming through regarding the Middle East, and we are yet again looking at WTI and Brent prices up above that $90 a barrel level.

So given the impact of sustained higher energy prices, how do you see this affecting the consumer as well as global markets moving forward?

Well, we, as you said before, we have a lot of optimism in the markets lately, right?

Markets are roaring.

We just came out of a fantastic earnings season, so there's a lot of reason for optimism, but especially the conflict in the Middle East and higher oil prices, that and energy prices.

This is still, um, I think more the wild card um at the moment.

Right?

And it's, um, certainly straining, uh, consumers' pocketbooks, right?

We all have a K-shaped economy where the higher end of the K, the higher-income consumers are still, uh, spending very strong, uh, but the lower-income consumers certainly, um, struggling, right?

Higher, um, uh, gas prices are putting more strain to lower-income consumers, higher.

Some food prices as well, right?

Higher energy prices also feeds into that and not only what we are feeling at the gas pump.

So certainly that can put a dam on consumer spending and that influences obviously economic growth down the road.

So that is certainly something that we are looking very closely of how the development around energy and the Middle East is going forward.

Yes, and while I have you here, Lisa, I do want to get your take on emerging markets.

So this is something that we're paying attention to, especially given the gains, the double digit gains that we've seen in some markets.

So what does this tell you in comparison to what we're seeing, say, stateside with US markets?

Well, yeah, it's certainly very interesting.

I mean, we saw that international developed and emerging markets coming roaring back last year, outperforming both the US this year, same story.

So we see a broadening out of the market, which is certainly very healthy for our investments going forward because returns are set more on a broader footing and not only one area or region or area of the market is working great, right?

So we think Still think there can be a broadening of the markets going forward.

Emerging markets, international development market looking very much more attractive, but also on on the US side, right, when we think of small caps, for example, also an area of the market that has not performed really well, same with international, but coming back this year as well.

So there is certainly some interesting broadening out happening here.

And very quickly before I let you go, all of us are paying attention to artificial intelligence as well as the entire ecosystem in terms of sectors.

So I understand that you're paying close attention to Palo Alto Networks.

So give us your take on what's happening there and what your outlook is.

Yeah, well, certainly, I mean, the markets are roaring, right, and some areas of the market have gotten maybe a little bit ahead of themselves, specifically semiconductors, right?

So that area of AI has really, yeah, worked really well lately.

We are looking still in the AI game but a little bit maybe on more unassuming names, which Palo Alto is one of them, right?

They sold off earlier this year with the whole AI comes for for.

A for software selloff and Anthropic was releasing its Mythos AI, which still it's a little bit of a mystery what capabilities are actually are, but it should be very good in cybersecurity.

So the thing here is though that we think AI is not a business threat to cybersecurity names like Palo Alto specifically, but more a tailwind as well, right?

With the rise of AI, the threats are getting more sophisticated.

That are getting more by quantity, and companies really need to be prepared to weather that storm.

So I think AI is really a tailwind for cybersecurity names, and Palo Alto is the largest one of them as the one-stop shop offering everything companies might need on the cybersecurity front.

We still think this is a fantastic name to still play AI but also have some security basically in there.

Lisa, we will have to leave it there, but a lot to keep our eyes on.

So thank you so much for weighing in today and thank you so much for sharing your perspective.

Thank you for having me.