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00:00 Speaker A
Big picture, Adam, you’re uh, you’re neutral on equities and you’re underweight US versus international. Maybe start there. Help me just understand that. You’re your positioning here, Adam.
00:10 Adam
Absolutely. Well, we’ve been overweight international for about a year now and we we still like that play. You know, last year we were talking about how there was kind of this peak US exceptionalism. People were starting to wonder why you still own international in the first place and we were talking about valuations being attractive overseas and we just needed a catalyst and last year we started to see it uh with more spending. We saw a lot of rate cuts from overseas uh central banks.
00:46 Adam
And now, as we’re starting to see this uh this uh fragile state within the AI trade, we’re looking at international where in the S&P 500, you have 34% of the index is tied to technology, it’s less than half that overseas. And so I think that’s just one more catalyst in support of looking overseas and so we we are maintaining that overweight position.
01:18 Speaker A
I take your point Adam, that the AI trade looking a bit more fragile here, tech under pressure clearly. But what’s interesting Adam, it looks like folks are, you know, they’re not ducking and running for cover. They’re kind of, are they’re ducking out of tech but then it feels like they’re kind of they’re rotating, right? They’re finding new trades, new ideas, new opportunities, a broadening. Is that how you see it or no?
01:42 Adam
Absolutely. and look, I never like to see red on the screen, but what I do like about the current market is you look at the intraday lows today. We did recover into the close a little bit, but the intraday lows, 70% of the S&P 500 was trading up. And so this is not a case where we’re seeing this indiscriminate selling. This is really targeted. This is something that is really confined to technology primarily. We saw semis really sell off today. it was software yesterday. And so this is more targeted selling where people are selling first, they’re going to ask questions later, but in the meantime, they’re focusing on quality and those other areas that maybe aren’t as exciting as AI and that’s okay because boring can still be good in this environment.
02:27 Speaker A
It was interesting Adam, I had uh Morgan Stanley’s Adam Parker on the show earlier today and we were having discussion about valuation and just how he thinks about valuation, how he would characterize valuation. and he told me he thinks valuation can actually stay supported around around current levels. He told me uh, you know, valuation actually tends to expand when earnings growth is strong. So above the historical median and the Fed’s accommodative. I’m just wondering what do you make of that those comments? Do you agree, disagree? What do you think?
03:08 Adam
Yeah, look, I generally I would agree that that valuations can remain at these levels. Whether they have much more room to expand, I think that’s a question mark. I think that instead, we need for earnings to grow into valuations. I think to sustain and justify the current valuations where we are, call it 22, 23 times on a forward PE basis for the S&P 500, we need to deliver on expectations for 14% or so earnings growth in 2026. So I think that’s going to be really critical. You know, we’ve been talking a lot about what could go wrong and and what can go right. That’s what’s going to drive the market here. and so that’s really explains why we are neutral. We think that we can certainly point to uh upside catalysts for the S&P 500 and for the broader markets, but we can also point to a number of risks as well.