Montis Financial CIO Dennis Follmer joins Remy Blaire to discuss widening market breadth, sector rotation, and why recent AI volatility does not derail the broader equity outlook.
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Remy: Welcome back to Market Movers the Opening Bell. Technology stocks leading the gains as investors return to software makers and AI giants but were hit hard in last week's sell off. Now last year the AI trade repeatedly pushed higher following dips from underlying concerns over sky high valuations. But sector rotation has been a theme to start the year, small-caps benefiting from this rotation in January and also investors moving into the energy sector. Market breadth has hit its highest level since late 2024, with over 65% of S&P 500 companies outperforming the index over the last three months. While joining me this morning to weigh in is Dennis Follmer, CIO of Montis Financial. Dennis, good morning. Thank you so much for joining us. Well there's a lot going on. So what is your market outlook as breadth widens and the AI trade sees uncertainty?
Dennis: Well I still think we have a lot of tailwinds for this market heading into New Year. I mean, from the highest level we're still in a fed rate cutting mode. The economy is strong. We're going to see a ton of stimulus from the OBB Bill. So you know, the underpinnings are strong. You know, we saw the software scare last week. It kind of reminds me of the DeepSeek scare a year ago where Nvidia dropped 17% in a day. It was fairly indiscriminate. Everything related to software got sold off. But, you know, if you remember last year with DeepSeek, there were some initial panic. More information came out. What the product actually can and can't do. And I think we're starting to see that stage now. There's a lot of material out there to read. You know, it's you know, the new features that Anthropic came out with can do what are fairly, I'll call them straight forward jobs, you know, kind of to the top of the tech stack: processing papers, writing documents, doing some analysis., you know, as you go deeper and deeper down into a tech stack, which is much more foundational software to running a company where there's much higher switching costs.
You know, those things at the top can be replaced pretty easily, but once you're down below, you get a lot of institutional knowledge in there You've got a lot of customized features. You know, that's what we describe as having moats around your business. I think they're much more secure, and they're actually the kind of applications that would be more likely to incorporate AI into their features, as opposed to being replaced by AI. So I definitely think it's overdone, and it'll probably go the way of the DeepSeek. scare, that was just about a year ago.
Remy: Yeah. And another area that we're paying attention to this week is economic data. So CPI inflation data will be coming out on Friday. And of course we get that delayed jobs report for the latest month coming out tomorrow morning. So give us your expectation when it comes to inflation of course but also the labor market.
Dennis: Yeah. So I think, so starting with the labor market, you know, any big surprises there, I think would. Well, they would surprise me. Right. The last commissioner of the BLS got let go because they reported really ugly numbers. So I suspect that's not going to happen again. I don't think super strong numbers are in the cards, simply because to have that, we need a base of workers from immigration. That's not happening. So I'd be kind of surprised if we vary too much from the expectations. I think we're looking for, for and at about 4.4-4.5% unemployment, you know, still long term or fairly healthy place to be. So I'm not really looking for big fireworks there. I think the CPI, we need to keep a little closer eye on, because, you know, the world's been in many ways kind of told to ignore it. We've got it under control. We've got tariffs coming here. But we've been trudging right along about 3% there. Well, it's really hard to tell how much of this is from tariffs and how much isn't, because the president's influenced people to not show these price increases right away. They don't want to see price increases. So what they're doing is they're getting spread out. waiting for new seasons, they're waiting for new model years.
They're spreading them out over time. And the danger of that is your one time step up for a tariff starts to look like continual price increases when they're spread out. And that's actually the Fed's real enemy. The fed is less concerned with one time price increases than this perception and expectation of continued price increases, because the expectations of inflation are the ones that are really hard to get back in the bottle.
Remy: Yeah. And Dennis, we are fast approaching the opening bell. So one last question for you. I do want to get your take on crypto, especially following the selloff we saw last week. Now did Bitcoin's seven day plunge from $50k to $60k stem from macro pressures before leverage hedge fund ETF trades finally broke? What do you think was behind that crash we saw last week?
Dennis: Well I think I think crypto, silver, gold I mean we saw a consistent trend. It also carried over to AI stocks. The last few months of last year were very speculative based. I don't think they were based on fundamentals. You saw those rapid climbs late in the year. And, you know, I defined speculation as somebody buying something simply because they think they can sell it for more later. They don't have an economic reason. They don't have any financial analysis behind it. And I think that's, you know, been very much the history of crypto. And when you look at the swings in Bitcoin from $120,000s to, you know, the $60,000s, I think it's really hard to say it's a store of value. So I think it's a speculative asset is the best description. And you know we're coming out of a period where we had a long time with 0% interest rates. We are still seeing just starting to kind of unwind the yen carry trade, which provided cheap financing. You know, when you have cheap financing, cheap money encourages speculation. So I think, you know, as us and Japanese rates get closer, if we do see some higher rates later in the year, you know, I think a lot of the, the fuel for a lot of speculation that could subside. And I think there's a reasonable chance that when people start really looking at fundamentally, what do they own, and what purpose is it supposed to serve for Bitcoin? I think they can find that they might have some other more economical solutions to that problem.
Remy: Well, Dennis, we will have to leave it there. But thank you so much for joining us this morning. And thank you so much for sharing all of your insights.
Dennis: Thank you for having me.