In New York Morning Trade, we are looking at the Dow Nasdaq and S&P 500 pulling back by well over minus one percent.
And this does come after a violent recovery in stocks over the last 48 hours.
And this does come ahead of the holiday weekend and on the heels of President Trump's national address.
In a nationwide address Wednesday night that lasted just under 20 minutes, Trump told the country the military is on track to complete its objectives very shortly.
Now, investors are unimpressed with the president's latest comments, warning there could be even more downside for the global markets.
Well, joining me on this Thursday morning is Andrew Rocco, a stock strategist at Zacks Investment Research.
Good morning, Andrew.
Thank you so much for joining us.
So we are looking at stocks pulling back after that two-day rally.
And of course, we're seeing oil rally this morning with WTI up by well over 10%.
So what did you make of those comments and what do you make of the potential timeline here?
So the comments were a little bit unexpected.
I think a lot of investors on Wall Street were expecting Trump to wind down the war.
As we all know, Trump likes to look at the market.
He's paying attention to oil prices.
He's paying attention to how this is affecting Americans' pocketbooks.
But in that speech, he really showed investors that he's willing to go to the end to ensure that Iran does not have the uranium needed to make these nuclear weapons.
That was a little bit of a surprise last night.
That said, I think it all needs to be taken into context for investors.
If you look at the Dow Jones Industrial Average, for example, it was up 10 months in a row coming into 2026.
I think that was a record.
And seasonality, as you mentioned earlier in the show, in midterm election years tends to be weak.
So either way, investors should have been anticipating some sort of pullback into 2026, just from a gravity perspective. from a seasonality perspective.
Obviously, no one could have predicted the conflict in Iran, but these sort of pullbacks are the norm, not the exception.
In a typical year, we will see a correction peak to trough of around 14%.
Right now, in the S&P 500, we are at around 9%. since the year started.
So although the headlines are a bit scary, this pullback is a bit expected here, and it's all within this longer term uptrend on Wall Street.
Yeah and Andrew I do have to ask you about energy because we are looking at the price of an average gallon of regular gas here in the U.S. above four dollars and today we saw Brent as well as WTI that gap between those two contracts narrow and also even reverse so what I mean by that is we're looking at WTI higher than Brent this morning but The Trump administration did draw a clear line in the sand and said no ceasefire unless the Strait of Hormuz reopens.
So what's the reality when the globe's biggest choke point is still shut down?
What does that mean for everyday Americans?
It's going to lead to some short-term pain at the gas pump.
The key thing to watch is, does this get resolved within the next two to three weeks, as Trump has flagged that he's looking to do, or does it last even longer than that?
The timelines have been continue to get pushed back a little bit.
That's what investors need to be watching.
If this gets resolved in the next month or two, yes, it will have an impact on inflation, but as I mentioned last time I was on the show, the inflation number coming into the war was lower than what the government is telling you based on the trueflation number.
That's a little bit more of a real-time number than the government number that we're seeing.
I see that if this gets resolved in the next month or two, it will be a short term impact to inflation.
Obviously, if this is a long dragged out war, if it escalates with other countries coming in, then that's not predictable, and that will lead to some longer term inflation.
My base case is this is going to be a short term price shock.
As soon as there's any sign that the Strait of Hormuz is opened up, that oil price will start to come down.
And as I said, it will be a intermediate to short-term impact on inflation.
Yeah, and as you mentioned, if we do actually get a de-escalation over the next few weeks, I do want to get your take on how that could potentially change the math for the bond markets.
You mentioned short-term.
In the next 24 hours, we will be getting that nonfarm payrolls report as well as unemployment rate.
And U.S. equity markets will be closed, but we'll be watching for reactions in other asset classes tomorrow morning.
Given the fact that the 10-year yield is edging higher this morning yet once again, what are your expectations in the short term?
Yeah, I think it's like equities.
It's a wait and see based on how the conflict goes in Iran.
I don't have much more to say on that.
That's really the main thing I'm watching on the bonds is it's going to be based on how this conflict is resolved in the next couple of weeks or so, and that will dictate the move there.
And Andrew, I do want to ask you about sectors since we are kicking off the second quarter of this year.
So when we compare the Q1 leaders as well as laggards and even the individual names, we all know that energy has outperformed while big tech names tumbled.
And there's a reason why they say that hindsight is 20-20.
So tell me about AI fundamentals and how you can actually diversify going into the rest of this year.
So the AI fundamentals remain incredibly strong.
We just saw Anthropic, their raise, increased their valuation 50% to $600 billion.
Obviously, Anthropic is private.
OpenAI's valuation has soared to $852 billion.
NVIDIA sees revenues of $1 trillion next year.
So the AI fundamentals are spectacular.
There's no slowing of growth.
In fact, I see the growth picking up as we enter this agentic AI phase where there's these agentic AI platforms that are doing work 24 seven without human intervention.
That's really the next thing that we're seeing.
As you see on the screen here, company like SanDisk that provides the memory and also I would point out that the valuations in these tech stocks have gotten super attractive for example in videos. price forward PE, as you can see right there, seven-year lows.
So we're seeing this increase in growth, and we're seeing the valuations shrink down.
That's a cocktail for growth at a reasonable price.
So I'm starting to get very bullish on the AI industry.
I already was, but now with these shrinking valuations.
That said, you want to make sure that you're entering methodically your position size properly because we need to still deal with the short-term volatility that's coming from the geopolitical conflict in Iran.
But overall, once that's resolved, I expect these AI stocks to continue their uptrends.
And Andrew, we have about 60 seconds here, so I do want to ask you about opportunities.
Where are you finding opportunities right now?
As I mentioned, the AI space, so memory, I'm looking at SanDisk, Omnisp, Pullback, Micron, they're growing at a triple digit clip.
Yes, they've pulled back, but pullbacks and uptrends, as I mentioned with the overall market, those are typically buying opportunities as the trend continues to resolve higher.
One of the strongest companies I mentioned last time is Fastly.
They have to do with the agentic AI boom.
Yes, the stock is stretched, so I wouldn't chase it here, but that's one to watch on pullbacks, ticker symbol FSLY.
And then Arm Holdings, they're making their own in-house chip.
Usually they license out their chip technology, but Arm Holdings just came out with their own chip.
They already have a customer in MetaPlatform.
So again, they'll have that revenue visibility, and that should add a lot of revenue in the next two to three years.
So that is a stock that I'm watching.
And of course, can't go wrong with the chip leader, Nvidia.
Again, that valuation has shrunk a ton.
They're expecting $1 trillion in revenue.
These numbers were just unheard of. up until they projected that.
So I'm sticking with the AI trend.
Yes, I think there'll be some short-term volatility.
So position size, methodically enter these stocks, don't plunge into them.
But six to 12 months, I think there'll be a good trade from here.
Well, Andrew, we will have to leave it there.
Thank you so much for joining us.
And as always, thank you so much for sharing your perspective.
