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The rally broadens | UBS Trending · UBS Trending

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  The market rally isn't slowing down,
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  but the story may be changing a bit as more sectors begin
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  to participate
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  and leadership expands beyond a select group of stocks.
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  Where should investors be looking now?
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  We're going to explore that and a whole lot more right now.
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  On UBS Trending.
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  Hi, everyone, and thank you for joining me.
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  I'm Anthony Pastore
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  and this is UBS Trending. In the studio with me today
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  is Sean O'Hara, President of Pacer ETF Distributors.
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  Sean, nice to have you.
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  Good to good to have you in the studio with me.
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  It's great to be here. I love your new studio.
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  Thank you very much. Spectacular.
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  Thank you so much I appreciate that. Yeah.
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  The team really did a great job putting it all together.
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  Let's get into it.
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  Because, you know, there's
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  this is a really interesting time in the markets.
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  We only had a few minutes to talk beforehand,
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  but we're still kind of in the middle of the geopolitical risk.
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  Israel-Iran conflict with the U.S..
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  It's on again off again.
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  Markets are sort of digesting it on a daily basis.
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  But we are seeing strong fundamentals, especially in large cap
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  led by technology and, artificial intelligence.
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  You know,
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  the Fed is holding steady, doing watchful thinking and all this.
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  Where do you stand right now
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  when you're looking at the markets broadly,
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  what do you see out there?
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  Well, you know, the last couple of years
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  we've sort of been spoiled, if you will.
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  Like,
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  It's been seven stocks
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  that have driven all the returns in
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  what are supposed to be these broad indexes,
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  which are supposed to be highly diversified, but they're not,
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  you know,
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  I think the Mag seven takes up
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  like 35 to 40% of these broad indexes.
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  And so essentially they're become proxies for those seven names.
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  And what we're seeing is that, you know,
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  they're not the Mag seven anymore,
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  that actually some of them are the Lag seven.
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  And so
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  but in spite of that,
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  the broader markets have continued to climb.
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  It's like, you know, prior to this year it'd be like,
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  you know, if we had a big Thanksgiving dinner, right?
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  And we were the adults, me and all the kids out there.
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  And then we just ate all the food,
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  and the kids would starve to death.
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  That's what the broad market's the Nasdaq 100 or the S&P 500.
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  The Russell became all those big stocks
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  because of their market cap, and because those indexes are market
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  cap weighted, took up all of the money and the inflows.
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  Now we're starting to see some breakouts
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  amongst some of the other areas in the market like industrials
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  is a kind of a boring sector.
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  But if you think about what it means to AI
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  you know, you're talking about power generation.
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  You're talking about the cooling systems that keep those big data
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  center, those servers cool.
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  And, you know, we've seen this backlog that everybody recognizes
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  amongst chips.
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  There's a there's chips
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  in between them that make them talk to each other.
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  So there's a lot of opportunity out there.
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  The thing I think that's scaring most people today is how much
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  the big hyperscalers are saying
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  they're going to spend on this build out,
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  and I believe they're going to spend it.
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  So you have an opportunity today to say, well,
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  do I want to be investing with the spenders
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  and hope that it works out?
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  Or do I want to be an investor?
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  And with the savers,
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  those people are going to get, let's say, $5 trillion
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  worth of investment in CapEx
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  and then build out this AI story, right?
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  I mean, even like
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  when we look at some things
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  that are coming out of our chief investment office
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  here, we look at some of the earnings reports,
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  and a lot of these hyperscalers
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  are still talking about how cloud revenue,
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  they're showing cloud revenue.
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  It's accelerating further on top of what you were talking about
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  with CapEx spending.
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  I mean, it's it's an unbelievable story.
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  And like you said, there's
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  so many different industries that are AI almost adjacent,
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  especially industrials.
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  We have one of our transformational innovation opportunities.
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  That power and energy is one of the most important aspects of the
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  AI revolution, because without it,
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  I mean we don't have enough electricity as it is.
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  So the demand is just going to explode.
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  It's not going to come from the grid, right?
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  It can't because we would explode electricity prices
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  almost immediately.
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  It's almost number two is that we don't have the excess capacity.
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  But the most important reason
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  can't come from the grid is that every once in a while,
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  we have a storm and the grid goes down.
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  They can't have that happen.
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  So I think what we see
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  is that it's going to
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  be coming from what we would call behind the meter on site owned,
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  power generation.
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  And I think the phases of that are going to start
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  with natural gas and generators and,
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  and eventually,
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  hopefully there'll be small nukes down the road that will work
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  because otherwise,
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  you know,
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  the communities are going to continue to push back on it
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  because nobody wants to see their electricity prices skyrocket.
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  Exactly.
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  And have constant brownouts, especially when you get a heat wave.
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  We both live in the northeast.
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  It happens a couple times every summer
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  where, you know, they have to reduce the capacity only to prevent
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  the fact
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  that we might have a brownout or a blackout, which we have seen,
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  you know, in past years.
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  The grid is completely overextended and will only get worse
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  if we switch to the Federal Reserve for a second,
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  because obviously, when you're looking at the
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  the broader economic picture,
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  consumer spending is still pretty resilient.
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  But we have seen GDP
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  come down a little bit in the most recent reading.
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  Probably a lot of that.
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  And according to
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  even what
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  we read in the Fed statement,
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  was the impact of the Iran-US conflict.
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  And Kevin Warsh, in his new role
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  as the chair, is talking about this
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  watchful thinking, holding rates steady.
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  Do you think the Fed is on the right path here?
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  And I mean,
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  even we had three dissenters
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  who wanted to raise rates this last meeting.
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  Interesting to see those numbers 9 to 3. Yeah.
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  Well it was it was eight the previous meeting.
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  So it's coming down.
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  And about 2 or 3 months ago
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  the odds of a Fed increase were like 70% plus.
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  Now I think it's probably under 25 or 20% based on the last one.
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  So, I don't think that they're going to raise this year.
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  I think that,
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  you know, he's
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  sort of, in my view, he's sort of plowing the ground,
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  if you will.
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  You created this blue
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  ribbon commission
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  to study how the Fed operates outside of just the governors.
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  And I think, you know, it's possible that they could sort of vary
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  a little bit from the quote unquote, hard 2% inflation mandate.
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  And, so I don't think they're going to raise it.
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  If I was a betting man,
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  I probably will see a one cut before the end of the year.
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  One cut. Yeah, yeah.
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  Right.
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  Now the view here in CIO is two cuts, but starting in January.
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  So it's probably not that far off from what you're thinking.
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  And obviously we're looking at seeing what is coming
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  out of the fed statement.
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  This time with Warsh in charge,
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  was a lot shorter and smaller than what Powell has done.
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  Yeah.
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  So that's the new regime.
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  And he's even talking about cutting out some of the meetings.
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  So he's trying to put his own footprint on
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  you know what these meetings look like and how they're conducted.
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  Yeah.
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  Well we've been
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  you know, we've been sort of,
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  you know, held hostage, if you will, by certain narratives.
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  Right.
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  It was the Fed, you know, what's the dot plot say.
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  That's right.
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  And then we went through this next phase,
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  which is, you know, oil
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  because of what's
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  going on in Iran, in the strait
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  that became the dominant story of oil was up,
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  the market was down.
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  If oil's down, the market was up.
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  And that seems to be,
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  sort of lessening a little bit.
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  I think it's still going to be a little bit of a story.
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  And now we have the CapEx is the big driver.
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  And can they continue to spend all this money,
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  and ultimately turn a profit or make a profit on it?
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  But at the end of the day, what really drives markets
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  more than anything besides sentiment is earnings.
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  And the earnings growth story is a phenomenal story.
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  I was 26 last quarter
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  that people are saying it could be up 46, 45% this quarter.
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  And I think what's driving
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  that is the early adoption of some of these AI,
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  agents and using AI in businesses.
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  We are, I think, beginning, a productivity boom.
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  Right.
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  And so I think that will help the markets overall.
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  So earnings
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  growth and productivity growth combined
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  with a relatively stable economy.
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  And you know, let's say an uncommitted Fed
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  just leave things where they are right.
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  You know I think that's a pretty good backdrop,
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  which is a perfect way
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  for me to ask you the next and final question of the episode,
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  which is talking about opportunities.
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  And so,
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  you know, if you are somebody
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  who's kind of overextended on the large cap side,
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  do you want to continue to put money into there,
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  you know, without going into specific names or funds,
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  where do you think the best?
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  Because, you know, here we think, yes, it's a nice diversified
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  growth equities,
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  quality fixed income, some commodities exposure.
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  What are your thoughts telling you I think perhaps small caps
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  a little bit.
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  You know, waiting in the wings if you will.
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  If you like, I'd like to, you know,
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  just pick any small cap fund that
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  it's like 35% the last 12 months.
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  And I don't think people really notice that.
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  But we're entering in one of these cycles
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  that perhaps that could be a winner.
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  We've seen flows into international and global.
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  You know, it's so, you know, that's like, you know, every,
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  every time you three putt
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  or every time you invest internationally, 1 in 2 things happen.
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  You're usually embarrassed about it,
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  but you're pretty sure you're going to do it again.
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  And so we keep pushing money International, but perhaps this time
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  it's not going to be losing the football
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  where we get ready to kick it and they swipe the football.
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  So we've seen some flows there just based on valuations.
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  And so I think what
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  what has been
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  the healthiest thing has been the discussion about
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  what do I do about my overconcentration.
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  I can't have a diversified portfolio with seven
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  names, owning 40% of the weight.
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  And when like the Lord giveth and the Lord taketh away.
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  So that's been great, right?
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  Until earlier this year when we started to see some of the cracks
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  and some of the questions
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  about whether that CapEx will actually materialize into earnings
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  down the road, it's sort of forced us to go back and think about,
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  okay, now I really do need to create a diversified portfolio,
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  and you can't get it by by owning the Nasdaq and the S&P
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  because it's basically pretty much the same thing. Right.
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  So where do I go if I'm going to diversify.
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  And so different cap weighting schemes we think makes sense.
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  Or down the cap stock into small cap.
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  And then go back to what our traditional value
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  allocations would be to international and global.
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  Excellent, Sean. Thank you very much. Please come back.
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  Great conversation.
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  There's always enough going on that
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  we can talk about pretty much anything at any time. We sure can.
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  Great.
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  Sean O'Hara from Pacer ETF Distributors.
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  Thank you Sean. Thank you.
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  And thank you for joining us, everyone.
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  There's a lot more information
• 9:37
  from Pacer and best partners that we have at UBS.
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  At our website ubs.com/views.
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  Plus you can follow us on social media.
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  We're on LinkedIn and Facebook.
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  Plus the studio has its own
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  dedicated Instagram
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  channel at @UBStrending
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  lots of content there that you won't find anywhere else.
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  And as always,
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  if you have any questions
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  about what Sean
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  and I spoke about today, please continue this conversation
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  with your financial advisor.
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  Until next time, I'm Anthony Pastore.
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  We wish you a great rest of your day,
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  and remember to keep your eyes on what's trending.
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  We'll see you soon, everybody. Thanks.