The markets will be mixed for the first Monday of May, and despite midterm election years being historically negative for the markets, we're looking at the S&P 500 up over 5% year to date and the Nasdaq up 8%.
Now the U.S.Iran war entering its third month, but investors were able to push past conflicts, concerns about the conflict in April.
Now President Trump is saying that the US will soon take over Cuba, and he also announced Project.
Beginning today, the navy is escorting ships through the Strait of Hormuz.
So will the markets face more geopolitical headwinds?
Joining me today is Gary Shields, Chairman & Managing Partner of Nassau Street Partners.
Now Gary, thank you so much for joining us today.
How are you today?
Very good, thank you, Johnny.
So a couple of questions to start off.
Let's start with your outlook on the economy.
The first quarter showed about 2% growth.
So let's talk about your overview.
I think the my base case is for about 2% growth to continue.
We're sort of midterm in terms of the cycle, and you know inflation is still not totally under control, so that I think limits what the Fed can do in terms of dropping rates.
It wouldn't surprise me if we didn't see any additional drop in rates toward the end of the year.
So I think I think we'll continue to see moderate growth through the year, but I'm not looking for any major moves barring any major geopolitical events or that type of thing.
So Gary, let's talk about mergers and acquisitions.
Tell us how AI is dominating that specific space.
AI is dominating everything.
It's If you look at the economy, in my opinion, and I'm not an economist, but if you look at it, a lot of the growth in the economy is coming from AI.
Either it's not only the technology, but it's what's making the AI work.
I was mentioning to someone earlier I covered storage early in my career and for kicks I was looking at.
What storage sold for when I covered disk drives, storage was $10 a megabyte.
We all wondered if it would ever drop below $10 a megabyte.
Today it's 0400 cents per megabyte.
You've got massive data, massive electric.
So those companies that are Supporting and industries that are supporting AI are the ones that are going to grow.
So let's talk about companies.
What are they doing when it comes to raising capital?
Well, you know, it's tough.
What you're seeing is a move by the institutional investors to invest in companies that are generating real revenue and profitability, actually sort of relating that to AI.
A lot of the AI companies are actually doing that compared with, for example, 2000 when we had.
The dot com bubble.
But today companies are making money.
But raising capital is tough.
My firm.
Helps companies raise capital and we do M&A work and it's really tough in the market, especially the small companies.
If you're pre-revenue, very, very difficult.
If you're a large company, your revenues are growing 50 to 100% a year.
It's a lot easier.
So in this market specifically, what industries would you say are currently in a strong position right now?
Going back to the thesis that AI is driving a lot of industries, I see companies doing infrastructure that are interesting, and I'll talk about sectors, infrastructure, onshoring, reshoring companies are interesting in my opinion, services companies that are servicing the AI industry.
And I would say even healthcare to a certain extent.
So let's talk about your reaction to last week's Fed meeting.
We know that Powell will stay on board and it looks like the cut of rates probably is unlikely this year.
So let's get your reaction regarding that.
Yes, it doesn't surprise me because, you know, the consumer spending is slowing down.
Inflation is not under control and so that unless unless the Fed is forced to move rates, I don't think they will.
And when it comes to your focus on data, key job reports will be coming out later this week.
Let's talk a little bit about that.
I look at three sets of data.
I look at inflation.
I look at the consumer and I look at employment data, and the employment data looks relatively strong, which is yet another reason why I think the Fed probably would have a hard time cutting rates.
But we do have a slowdown in the consumer.
A lot of the economy, as I said, is being driven by capital expenditures and AI.
You know, I think if we can continue to move along here moderately toward the end of the year, I think the economy will be in pretty good shape, and I think the stock market can continue to continue to do pretty well again, barring geopolitical or energy events, things like that.
All right, Gary Shios, thank you so much for joining us today.
Thank you, Johnny.
My pleasure.
Bye.
