00:00 Speaker A
you heard uh Inez talk a little bit how the Mag 7 reacted after uh prior rate cuts. Uh, what, you know, what is your thinking on this key space? You know, we get that one rate cut, get a couple more. Historically, these stocks have done pretty darn well uh after rate cuts.
00:16 Speaker B
Yeah, I I I think that they’ve not only done well over rate cuts, they also have done well over the last couple of years and they’ve really been the only source of positive earnings revisions, you know, ever since the Fed started to hike in 2022. But if you’re looking at a change in potential leadership, I would look outside of the Mag 7 uh because, you know, the a lower interest rate environment should allow kind of more cyclical parts of the economy, things like housing that we talked about or manufacturing to start to grow again, to start to demonstrate some positive earnings revision. That’s a catalyst in my mind that’s been absent in markets last couple of years. And if you’re looking just at at a valuation differential between those areas of the market and the Mag 7, that is is quite wide. Uh and so there’s a potential there I think for a catch-up trade outside of just continued strength from the Mag 7 potentially, but also uh maybe uh maybe some other opportunities that investors really haven’t favored the last couple of years.
01:05 Speaker A
You mentioned small cast. Small cast have been rallying. What’s the what’s the case for for that? You know, I would just counter, we’ve seen a weakening labor market, inflation is still high, a lot of these smaller businesses in the US, in some respects are really struggling.
01:17 Speaker B
They are and and it really has been a, um, a result of, you know, the Fed hiking rates in 2022 aggressively, but now we’re on the other side of that. And what we’ve seen, especially if you, if you look at kind of prior periods of history when we start to see an easing in policy, um, you know, the smaller companies tend to borrow at at at a prime rate or a variable rate, and when the cost of financing comes down, they are in a unique position to benefit because they were the ones that have been hurt by it. Um, the Mac 7 hasn’t been hurt by this. And so, you know, while they’re not going to have any difference in terms of their operating environment, the small businesses are. Uh and so we would just look to that as more of a unique callyst for that specific part of the market even though it struggled the last couple of years.