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Speaker 1: We beginning that top story stock's moving lower after a

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Speaker 1: tech fueled rally. Soa Vita Subramanium, head of US equity

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Speaker 1: strategy at b of A Global Research, saying this, the

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Speaker 1: idiosyncratic versus macro risk is high, and the Magnificent seven

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Speaker 1: is not a monolith. In fact, this reductive moniker obscures

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Speaker 1: the companies are behaving very differently from one another. Euphoria

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Speaker 1: is evident for the Magnificent seven, but nothing else. Savita

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Speaker 1: On places Saint Jode just around the table, smita good morning,

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Speaker 1: good morning, we go to that monolith and thanks for

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Speaker 1: being with us. How different is the performance now in

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Speaker 1: those seven stocks.

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Speaker 2: So it's interesting because I feel like, even though we

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Speaker 2: all think of the market as being just this one direction,

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Speaker 2: seven companies leading the charge, the stocks themselves are acting

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Speaker 2: very differently.

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Speaker 3: And if you just.

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Speaker 2: Measure idiosyncratic risk as like kind of non market specific risk,

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Speaker 2: we've actually seen a surprising increase in stock specific risk.

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Speaker 2: So what this means in English is that you can

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Speaker 2: actually make more money picking stocks than just buying the

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Speaker 2: index outright, And that's been our call for a while.

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Speaker 2: I mean, I think what it's been a little bit

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Speaker 2: unerving about this year in the last few months is

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Speaker 2: that we haven't necessarily seen a broadening pattern emerge in

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Speaker 2: the market. We're still seeing leadership pretty decisively in this cohort.

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Speaker 2: But look at what happened after earnings for some of

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Speaker 2: these companies.

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Speaker 3: I mean, these.

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Speaker 2: Stocks are priced for perfection. Everybody owns them. They're pretty expensive,

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Speaker 2: maybe not you know, as expensive as prior tech bubble levels,

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Speaker 2: but they're relatively healthy in terms of valuations. And I

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Speaker 2: think that what happens from here is a broadening to

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Speaker 2: other areas of the market that aren't necessarily as risky.

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Speaker 3: As we think.

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Speaker 1: We say the price to perfection, then they running another

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Speaker 1: twenty percent.

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Speaker 3: At a single Dita especial.

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Speaker 1: In my head, you just wonder what the takeaway from

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Speaker 1: Friday's price section is.

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Speaker 2: So you know, what I think was interesting is that

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Speaker 2: one of the drivers for that big bump was initiating

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Speaker 2: a dividend, A big growth company initiating a dividend.

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Speaker 3: And I think that's a.

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Speaker 2: Really important signal because you know, our call is that

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Speaker 2: we're at a point where the next leg higher inequities

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Speaker 2: is likely to be retirees maybe moving out of cash

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Speaker 2: back into riskier sources of yield. Of course, this was

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Speaker 2: predicated on the idea that the FED was going to

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Speaker 2: start cutting interest rates, which obviously is a bigger question

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Speaker 2: today When that happens, you know kind of how much,

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Speaker 2: how soon?

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Speaker 3: But I do think that the idea of this wall

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Speaker 3: of cash.

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Speaker 2: Sitting there in money market and short duration bonds that's

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Speaker 2: earning five percent, if that starts to come down, or

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Speaker 2: if you start to see equity yields come up like

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Speaker 2: we are in certain parts of the market, I think

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Speaker 2: that could be the value proposition for equities. Again, it's

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Speaker 2: kind of like Tina two point zero.

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Speaker 4: Tina two point zero happens when rates start getting cut, Yeah,

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Speaker 4: and the economy keeps chugging along.

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Speaker 3: Exactly how much.

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Speaker 4: Does it shift your thesis if the rate cuts don't

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Speaker 4: happen as soon, as as deeply as the market's currently expecting.

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Speaker 3: Yeah.

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Speaker 2: So, I mean, I think this is a slow evolution.

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Speaker 2: But I mean, I guess I don't think you have

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Speaker 2: to wait for the Fed to actually cut interest rates

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Speaker 2: to think about equity.

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Speaker 3: Yield, because think about what's happening right now.

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Speaker 2: The reason that the Fed might not HI might not

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Speaker 2: cut is because of an inflation. Surprise, how do you

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Speaker 2: want to protect against inflation? And I've said this before

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Speaker 2: a couple of years ago. I think equity income is

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Speaker 2: the best way to protect a retirees assets from inflation

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Speaker 2: as well as offering income, so that I think it

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Speaker 2: becomes the name.

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Speaker 3: Of the game again.

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Speaker 2: And if you think about, you know, a couple of

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Speaker 2: years ago, when we had rampanto inflation, the FED was

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Speaker 2: hiking rates, equity income.

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Speaker 3: Actually did really well.

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Speaker 2: The high dividend yielding stocks were one of the best

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Speaker 2: places to be in twenty twenty three's bear market.

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Speaker 3: So why is it not working yet? Or twenty twenty

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Speaker 3: two spare marketing? I'm sorry, no, I'm just wondering why

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Speaker 3: is it work?

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Speaker 4: Because I'm thinking, you know, I'm looking at the Magnificent

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Speaker 4: seven or Magnificent eight, whatever you want to call it, right,

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Speaker 4: it is diversification now away from the magnificent seven to

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Speaker 4: the magnificent two in Meta, in Nvidia.

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Speaker 3: Basically this year.

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Speaker 4: I mean, how much do you start to question the

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Speaker 4: thesis if it's not being born out now?

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Speaker 2: Well, I mean I think that the reaction to typically

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Speaker 2: if you think about a big growth company initiating a

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Speaker 2: dividend a tech company initiating a dividend, that would be anathema.

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Speaker 3: But I think investors want that.

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Speaker 2: They want to see companies have capital discipline, They want

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Speaker 2: to see companies returning cash.

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Speaker 3: They want to see these big growth.

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Speaker 2: Vmuths actually give us back a little bit of money.

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Speaker 1: Financials you wear over white financials, you still have a white.

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Speaker 3: The bank still overweight the banks. Yes, what I like.

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Speaker 1: About that sect.

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Speaker 2: I think that there's still this underappreciated aspect with large

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Speaker 2: cap banks that has yet to be recognized by the market.

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Speaker 3: And that's the idea that when.

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Speaker 2: You look at the underlying earnings trends of large regulated companies,

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Speaker 2: they're actually relatively healthy. These are well capitalized companies. Dividend

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Speaker 2: preservation is not necessarily at risk like it is for

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Speaker 2: some of the regionals. I think we're at a point

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Speaker 2: where the regulatory environment is likely to flatline from here

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Speaker 2: and not get any worse for at least the big guys,

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Speaker 2: and I think that that's a positive. I mean, if

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Speaker 2: you think about inflation protected yield again, I think of

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Speaker 2: financials as a good source of it.

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Speaker 1: The emphasis was on the big guys. Yeah, I think

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Speaker 1: we'll notice that small what's gone on with the smaller guys.

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Speaker 3: So I think it's.

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Speaker 2: Too soon, especially if we're not in and all clear.

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Speaker 2: You know, Fed's going to cut rates a bunch of

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Speaker 2: times this year. I think that you want to stick

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Speaker 2: with larger, well capitalized financial companies, and that's been our call.

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Speaker 3: I personally worry a little bit.

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Speaker 2: About small caps, and you know, we're bullets on small

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Speaker 2: caps with a very big caveat that. There are still

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Speaker 2: a lot of smaller companies that are.

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Speaker 3: Like banks, like real estate. There's a lot more risk around,

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Speaker 3: you know.

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Speaker 2: Just the fact that the FED moved from zero to

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Speaker 2: five a lot of that attrition, and that that sort

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Speaker 2: of pain is happening in the smaller benchmark rather than

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Speaker 2: the larger benchmark.

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Speaker 4: Energy we heard from Lori Cavacino as a hedge against inflation.

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Speaker 4: Is it still a hedge against inflation or does it

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Speaker 4: just hold a whole host of other risks.

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Speaker 2: I think energy is an interesting sector, and from the

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Speaker 2: risk perspective, my sense is that a lot of those

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Speaker 2: risks are priced.

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Speaker 3: In at this point.

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Speaker 2: If you think about it, these companies are no longer

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Speaker 2: just extracting oil from the ground. You know, at the

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Speaker 2: least provocation of a price hike in oil prices.

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Speaker 3: They've got discipline around production.

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Speaker 2: Which means that supply is going to be constrained, which

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Speaker 2: means earnings are going.

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Speaker 3: To be less volatile.

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Speaker 2: I think this is a sector that plays a role

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Speaker 2: in getting to net zero if we ever do. And

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Speaker 2: it also is a source of really healthy yield. And

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Speaker 2: the companies have told us they are laser focused on

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Speaker 2: preserving cash return rather than you know, production targets. I

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Speaker 2: think that's the big sea change in the energy sector

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Speaker 2: is that these companies now have discipline. It's very different

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Speaker 2: from you know, prior to twenty seventeen, what.

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Speaker 4: Do you pay attention to that's actually market moving versus

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Speaker 4: just what we always get, which is the reason why

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Speaker 4: everyone who sends.

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Speaker 3: It out right the narrative.

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Speaker 2: So, I mean, I think what's interesting is if you

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Speaker 2: look at the data, there is one unequivocal statement I

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Speaker 2: can make with total confidence. Nobody is betting on a

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Speaker 2: cyclical recovery. When it comes to professional investors, and when

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Speaker 2: you look at the average hedge fund, mutual fund, even

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Speaker 2: the average individual investor, what do we owned. We don't

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Speaker 2: own energy or financials or high beta the beta exposure

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Speaker 2: of the average mutual fund today is almost the lowest

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Speaker 2: level we've seen since the financial crisis. I mean, I

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Speaker 2: think that's what's interesting is that despite the fact that

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Speaker 2: the economy seems to be running maybe too hot, there

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Speaker 2: is no bid on that on that theory.

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Speaker 1: I remember all of our conversations, and I remember the

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Speaker 1: one coming out of twenty two and twenty three, and

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Speaker 1: you said the biggest risk was upside.

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Speaker 3: Risk to pocrties.

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Speaker 1: Yeah, let's put price targets to one side. Let's talk

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Speaker 1: about risk right now. What is the biggest risk then

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Speaker 1: twenty four?

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Speaker 2: So I think the biggest risk to the S and

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Speaker 2: P five hundred in the near term is upside. I

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Speaker 2: think that even you know, our target.

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Speaker 3: Five thousand is probably too low in the near term.

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Speaker 2: But I do think that the reason we're not as

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Speaker 2: optimistic on stalks today is that we have seen this percolated,

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Speaker 2: percolating positive sentiment, especially around the magnificent seven, which is

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Speaker 2: the area of you know, abject you know, euphoria. So

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Speaker 2: I think that that area of the market is at risk.

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Speaker 2: But I do see this lack of real conviction in

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Speaker 2: stocks outperforming bonds.

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Speaker 3: I still think that stocks then cash than bonds. That's

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Speaker 3: the lineup you want to have.

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Speaker 1: That's the hierarchy. Interesting. Saveta go to see you as

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Speaker 1: a way to see it. Great to say you hear

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Speaker 1: it in the studio Savita Si Romanium there Bank for

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Speaker 1: America