00:00 Speaker A
Now, stocks haven’t just been rallying because of the expectation of Fed rate cuts, it’s also been about big tech. And we’ve seen mega cap tech really lead markets higher. There have been signs of rotation, though, small caps rallying, home builders seeing a lot of intense growth here. Can this market sustain its highs without big tech being the leader? Because I know market rotation is healthy, but sometimes if that comes at the cost of tech, we don’t necessarily see that play out in equities.
00:43 Speaker B
That’s a great, that’s a great point and a great question. I think you have to look at those forward earnings outlooks, because right now tech is about 80, 82% of the total S&P profits based on what’s reported thus far year to date. But moving forward on those outlooks going into the balance of the year into next year, you actually see a little bit of a, of a significant decline in contributions coming from tech, and uplift coming from other areas in that value sector. So if you think about the renewed focus on utilities, power generation, deregulation for financials, as well as a steepening yield curve, those are good news items. Healthcare needs to participate a little bit, but the other major leader that’s helped outside of tech has been industrials. So if you think about the flow through from the tax and fiscal spending and some of these other areas, I think the market is looking for a balance, but at the end of the day, the AI story is not dead. We’ll hear what Nvidia says of course on Wednesday, but moving forward, I think it’s that renewed investment in AI, as well as other areas of the economy, and that’s what investors I think are hopeful for for 2026.
02:32 Speaker A
And speaking of tech, Max, you flagged Microsoft, Alphabet, Broadcom as big AI winners. What sets them apart from the pack, and how much exposure should you have to these names that are not Nvidia?
02:52 Max
Sure. I mean, we’re dividend growth investors. So, you know, we have more of a barbell strategy. So we like those companies, they do pay dividends, and I think you have to have a sprinkle of them. I mean, our portfolios have about 20% in tech, and our biggest investments are in Microsoft, you know, Broadcom and Google. So we like them. But I think you have to be outside of that area, because I think you’re going to max out this valuation expansion. And I think the Fed cutting interest rates will keep that valuation high, but I don’t know if you can continue to go 50, 60 times earnings or 40 times earnings with a slowing economy. So we like the other parts of the market. So we do think other areas that look good and have not participated, healthcare has not participated because of all the political issues that are going on and the new drug, uh, generic, um, drugs coming out. So that’s an issue, but we like it and industrials. Keep in mind the market’s going to forward price, right, six months out. So if you start getting an easy policy, you may not see it in the earnings this year, but you’ll see it in the beginning of the first quarter, especially if the Fed were to become aggressive interest rate cutters. That’s the key. You have to look forward six months because that’s what the market’s going to take. As soon as he cuts a quarter, or even 50 if he did it, the market’s going to be looking for another thing. So they’re going to be looking for those areas in the market that will expand their earnings based on lower interest rates. But it’s a double-edged sword, because you cut the interest rates, right? You’re going to lower the value of the dollar, right? Which is what the current administration wants. So that’s going to have effects. We think energy could catch a bid because a lower dollar does well for oil stocks, just for the fact that it’s denominated in dollars.
