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Speaker 1: Mark heyfully joined US now CIO UPS Global Math Management. Mark,

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Speaker 1: good to see you looking at your forecast your outlook

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Speaker 1: for twenty twenty four at forty five hundred. Right now

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Speaker 1: in the SMP, you've got softish landing for the economy,

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Speaker 1: but very limited upside in the equity market forty seven hundred, Mark,

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Speaker 1: can you help us understand that?

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Speaker 2: Yeah, I think that's there's a couple of things. First,

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Speaker 2: we do prefer bonds to stocks because we think that

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Speaker 2: interest rates are going to move lower and that'll that'll

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Speaker 2: help the bonds.

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Speaker 3: On the stock side.

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Speaker 2: You know, we're in a new world, and I'm not

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Speaker 2: sure you'd necessarily want to focus just on the S

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Speaker 2: and P five hundred. I think in both bonds and

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Speaker 2: stocks for next year, we're looking for quality. We're looking

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Speaker 2: for those companies that get that high return on invested capital.

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Speaker 3: And so you know this.

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Speaker 2: You were talking about the tech and we recently about

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Speaker 2: two weeks ago, upgraded the US tech sector again in

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Speaker 2: part because that's where we're finding quality, and there certainly

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Speaker 2: is over the longer term. This kind of big is

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Speaker 2: going to do better theme that we want to play on.

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Speaker 3: This is really important.

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Speaker 4: Mark. When you look at the income statement or the

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Speaker 4: dynamics to cash flow in the balance sheet.

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Speaker 3: What is it about tech?

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Speaker 4: Where on the income statement will we see that reaffirmation

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Speaker 4: of quality. Is it sales off nominal GDP or off

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Speaker 4: their plan? Is it down the income statement gross margin?

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Speaker 4: Or is it used to cash at the bottom.

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Speaker 2: Yeah, well, I mean I think it starts at sales.

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Speaker 2: Even though a lot of these firms are becoming more

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Speaker 2: consumer facing. One of the things that's changed so much

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Speaker 2: about tech is you have more of these recurring revenue

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Speaker 2: models in tech, which speaks to stabler earnings and earnings

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Speaker 2: that can maybe grow as we get that slowing overall

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Speaker 2: GDP growth, and then of course it flows from there

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Speaker 2: down the income state meant to produce more free cash flow.

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Speaker 5: I just think about this article talking about automated capitalism

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Speaker 5: over the weekend, which is essentially the revenue streams that

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Speaker 5: you're talking about for some of these tech names like

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Speaker 5: for example, Apple and the Apple Store. You talk about

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Speaker 5: how big is going to be better going forward? Mark,

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Speaker 5: does that mean that the Russell two thousand you can

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Speaker 5: just basically leave for dead after one of the worst

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Speaker 5: underperformances going back decades this year.

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Speaker 2: Well, look, we think that, you know, we're going to

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Speaker 2: have a soft dish landing, and then I think in

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Speaker 2: that scenario some of the more dire predictions for what

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Speaker 2: happens with the small caps and that they can't refinance and.

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Speaker 3: Things that goes away.

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Speaker 2: So I'm not making a super dire prediction on small caps.

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Speaker 2: I think the point is, you know where in the

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Speaker 2: past you would think, oh, these large tech companies in

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Speaker 2: AI can't keep growing. But what's so interesting, you know,

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Speaker 2: is that actually these firms that own such a large

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Speaker 2: portion of the value chain now and get those insights

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Speaker 2: that can train these AI models may have an enduring

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Speaker 2: advantage despite the fact that they've been up so much

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Speaker 2: this year. And so that's one of the reasons that

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Speaker 2: we upgraded the US TECH a few weeks ago.

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Speaker 5: And are you leaning more into the AI names, right?

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Speaker 5: I mean, tech is not all the same in terms

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Speaker 5: of whether it's Apple or whether it's Microsoft. Are you

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Speaker 5: bifurcating some of these bets. Are you just saying all

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Speaker 5: of them are going to be winners regardless of their niche.

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Speaker 2: Well, you know, I think there's a couple of slices

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Speaker 2: that this depending on your time horizon I think, you know,

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Speaker 2: over the longer term, one of the most exciting things

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Speaker 2: is that the AI will broaden out, you know, beyond

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Speaker 2: the tech names and and could potentially lead to certain

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Speaker 2: disruptive companies having stronger margins, and so we're we're on

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Speaker 2: the look for that.

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Speaker 3: In the very short term.

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Speaker 2: I think one of the things we're looking at is

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Speaker 2: that actually, you know, chips can do better here as well,

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Speaker 2: so we're looking, say, beyond just software, but also at

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Speaker 2: hardware at this time.

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Speaker 1: Mark, does this remind you of the Internet boom? And

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Speaker 1: do you see it planning out the same way in

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Speaker 1: equity markets that you get this sort of frenzy and

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Speaker 1: then only if you win.

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Speaker 3: You know, I think about that a lot.

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Speaker 2: I think that was somewhat different in the sense that,

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Speaker 2: you know, what we're specifically talking about now is quality

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Speaker 2: and we're talking about free cash flow, and free cash

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Speaker 2: flow was not what we were talking about in the

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Speaker 2: Internet boom, you know, that was about eyeballs. I'm old

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Speaker 2: enough to have lived through it and make this comparison

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Speaker 2: and forced the team to look at this a lot.

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Speaker 3: But I think we are finding some real differences.

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Speaker 4: I want to know what we're going to do with

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Speaker 4: this walle of cash. Lawrence MacDonald talks about it one

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Speaker 4: of my essays of twenty twenty three, and Mark, we

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Speaker 4: all know there's a ton of money out there, but

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Speaker 4: does it just like a lead brick or does it

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Speaker 4: actually finally get put to work.

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Speaker 2: Well, you know, we're urging our clients, and I think

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Speaker 2: they're starting to understand that. Right now you can get

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Speaker 2: these tremendous yields on cash, and so it's hard to

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Speaker 2: move that cash. But as these rates start to come down,

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Speaker 2: I think that that will start to move.

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Speaker 3: This wall of money.

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Speaker 2: And some of it can go into supporting the equity markets,

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Speaker 2: and some of it can go into supporting the bond markets,

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Speaker 2: and some of it can go into private investments and

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Speaker 2: alternative investments as well. And that's why we think this

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Speaker 2: is a great time to get your portfolio and balance

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Speaker 2: back to what your asset allocation is, you know, and

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Speaker 2: maybe forget about rates going negative again and really think

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Speaker 2: about what does a proper asset allocation look like.

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Speaker 1: I think we all hope we don't go back there

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Speaker 1: anytime soon. Matt, thank you, sir, make Hayphuy there if

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Speaker 1: ubs glovel Worth Management with their outloat for twenty twenty

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Speaker 1: four