Let's get to the big story.
Breakdown in New York morning trade.
We are digesting the latest inflation figures with both PPI as well as core CPI coming in hotter than expected.
And this morning we are seeing tech back on the rise as investors buy the debt.
They are banking on the potential of AI-driven earnings rising above the surge in.
Gas prices and Nvidia shares also higher in pre-market trade as Trump brings CEO Jensen Huang for his visit to China.
Both oil topping $102 a barrel and copper hitting all-time highs.
Wall Street is worried that the Federal Reserve could actually raise rates again.
Well joining us to discuss how to navigate this is Matt Orton, Chief Market Strategist at Raymond James Investment Management Well, good morning.
Thank you so much for joining us.
So first and foremost, I do want to get your take on the latest read of inflation both at the consumer as well as wholesale inflation.
What are the implications here, especially as we keep an eye on those yield prices in New York morning trade.
Hey, good morning, Remy, and I would say the direction of inflation is certainly not constructive from a market perspective.
I think we all assumed that inflation was going to re-accelerate a little bit given the conflict in the Middle East, but these PPI numbers that came in this morning are incredibly strong.
You're seeing that being reflected in, I'd say some of the early.
Price action you're seeing that reflected in the moving yields, and I think that that's one of the biggest risks to the market right now is if if the 10 year yield pushes above 450 and starts to make a run closer to 5, I think that really can be a challenge for risk assets.
I think that could be a challenge for maybe the sentiment around some of this tech.
But I think at the end of the day, the fundamentals still support leaning into where that momentum is.
And when you get days like yesterday where you have, I'd say, a healthy sell-off in the AI trade, those are great opportunities for investors to put more money to work in names where they may want to add a little bit more exposure in their portfolios.
Yes, and I'm glad you mentioned that, Matt, because in New York morning trade we are looking at Nasdaq futures higher, and this does come on the heels of that decline we saw in the tech sector yesterday.
But I understand you're in the camp that believes the AI boom is not a bubble.
So for the everyday investors out there who's watching, would you say yesterday's decline was an opportunity?
Absolutely, it was an opportunity.
I was taking advantage of that.
I'm encouraging clients to do the same because when you look at the fundamentals that are underpinning this rally, despite what might seem like mind-bogglingly high price action over the past 3 months, 6 months, 1 year where you have some stocks at 300% all the way to 4,000+%.
When you look at the forward PE multiples of these companies, many of them are still trading in single digits because their earnings have accelerated so much in line with the price action.
There are very real bottlenecks that exist around the buildout for AI, and the key is to lean into the highest quality companies that are the key beneficiaries. fi ci ar ies of those bottlenecks, and if you do so and not indiscriminately buy on the way up but wait for days like yesterday, that's the best way for investors to get and build exposure into these themes that I do think are going to be durable over the longer term.
Will they be volatile?
Yes, but those are great opportunities to reload.
Yes, and Matt, it'll be interesting to see the outcome of the Trump Xi Jinping summit taking place in China, especially as it does appear as though Jensen Huang has also made his way on over to China.
But for all of us here stateside, we are keeping a close eye on the grocery store prices as well.
As the gas pump and we are looking at Fed futures pricing in a higher chance that the Fed actually raises rates moving forward into next year.
So we are looking at the shift rippling across the entire yield curve.
So what does this all mean for the investor out there and also for the equity markets.
You know, Rami, it's interesting.
I've gotten a lot of questions from clients about the potential for interest rate hikes coming into this year, especially after the dissents that we got at the last meeting.
But what I usually say is we still haven't even moved back to a balanced statement.
So I think the first step. is that the Fed has to signal through its statement that the risks are truly equal to both the upside and the downside, but with Wars coming in, who we know certainly I would say wants to retool the balance sheet more than perhaps raising interest rates, I think that actually calls for a lowering of interest rates.
Even if the direction of inflation is hotter like we're seeing come in, I do think the bar for raising interest rates is incredibly high because rates are already rising on their own.
Some of that work for the Fed with tighter financial conditions is being done.
The dollar has been strengthening relative to other currencies as well, so you're seeing some of those looser financial conditions undo themselves already.
And so I don't know if you need to raise interest rates.
I think the way the market is pricing it is certainly fair, but I do think the bar for a rise or a hike in rates is very, very high, and that still allows me to be a little bit more risk on in portfolios.
We need to monitor that side of the risk equation, but I think it's one to potentially fade right now as opposed to really worry about.
And a lot of moving parts here, especially when it comes to the fundamental side.
But you have mentioned that you're advising investors to get selective and also focus on the companies that are actually building the AI infrastructure and of course earnings season is winding down, but we still have Nvidia earnings at the end of this month.
And while we're talking about commodities, we just saw copper prices hit a record $6.50 a pound high, and this does come on the heels of massive demand for new data centers.
So what specific types of companies would you say everyday investors should target during this historic construction boom?
Yeah, I'm glad you set it up that way, Remy, because I think materials are one area that do benefit from this massive construction boom.
Whether it's copper or nickel or steel, there's, there's a lot of components that are going to be needed.
So when I look at breaking down the space, I, I think you want to lean into the bottleneck beneficiaries across a few different industries.
Number one, it's the actual physical construction of data centers, so companies that are on the cutting edge of early site development for data centers that gets you a great read onward.
The industry is going, but also these companies are exposed to new projects, not so much completion or regulation or other issues, um, outside of the miners as well that gets you that metal sort of exposure.
Also look at power companies because power is a huge, huge bottleneck, and part of power also means clean power.
Despite where regulation has been going, I remind clients that that clean power, solar energy, a lot of.
Stocks Rey have been doing really well this year, and it's because it's cheaper for data centers to build their own power, so build solar panels, find alternative energy sources.
I think there's going to be long legs to that cycle.
And interestingly, we had earnings from Nevius this morning that were incredibly strong, but also look at the neo clouds, because when you look at the earnings of some of these hyperscalers and the CSP or cloud service providers, Their backlogs continue to grow.
I think Alphabet has like a 400% growth in its backlog.
That means people cannot get the access to data centers that they need.
I think neoclouds can benefit from that, and you're starting to see that reflected in the earnings that these companies are printing.
So there's plenty of ways for investors to, in a diversified manner, really play this AI Capex and bottleneck theme.
And that finally before I let you go this time tomorrow we'll be digesting US retail sales and that will show us exactly how much Americans are still buying.
So what exactly are you looking for in that report to actually prove that the US consumer is still keeping this economy afloat?
Yeah, you know, Rami, we've got to segregate gas sales from literally everything else.
And so what I want to see is, are we getting confirmation from some of the more, I'd say worrisome reports you've had from some of the consumer discretionary and staple companies?
Are consumers cutting back on how much they're going out to eat?
Is there pressure, I'd say, on leisure discretionary type spending?
I think this report will give us a little bit more clout. with respect to where that money is being spent and how much gas might be eating into that, and I think that'll give us guidance going forward if if gas prices stay where they are, what we can expect trends to look like over the next 3 to 6 months or so.
But overall, I don't really like leaning into the consumer part of the market because again you have question marks of where that discretionary spending can actually go.
Well, Matt, we will have to leave it there for today, but always great talking to you.
Thank you so much for joining us this morning and thank you so much for sharing all of your insights.
Thanks.
