Market Momentum and Potential Risks in Global Economy

Market momentum could slow due to rising yields, uncertainty in interest rates, political risks, and potential opportunities in unloved sectors.

### Factors Influencing the Market and Investment Strategies for the Future
* 📉 " Yields are backing up. That can take some of this momentum out of this rally because people will start looking at **valuations**.
* 💸  Due to a significant amount of issuance, long-term yields in the Treasury market are expected to **rise**.
* 📉 " We might see **higher rates for a little bit longer**. We might get something in December, but we need **a lot more information before we can say the Fed can do that**.
* 🌍  Global geopolitical risks, such as **elections and political risks globally**, can keep the markets on edge.
* 📈 " I see a lot more **downside risks** from here than I do **upside catalysts**.
* 💰  As the Chief Investment Officer of Capital Advisors, it is recommended to keep a **good amount of dry powder** to take advantage of opportunities.
* 📊  Small and mid-cap stocks, which are currently unloved, could present opportunities when the **economy starts to recover**.
* 🤖  It's essential to look at companies and sectors outside of technology that will benefit from implementing AI in their earnings, such as **industrials and some consumer stocks**.
* 🏗️  Energy and the infrastructure needed to support the new paradigm shift are areas to consider for investment, as the current infrastructure is **not yet enough to support future developments**.

This has been a runaway trade, the momentum trade. What could stop it? So, you know, you mentioned it's a it's a momentum trade. So to be able to figure out exactly what will stop it, it's basically impossible. But we think that there's a couple of things to keep in mind. The interest rates right now, we did get that flight to quality last week, so yields went down, markets like that. But then take a look at what's happening today. Yields are backing up. That can take some of this momentum out of this rally because what's going to happen is people will just start looking at valuations. And with the uncertainty around where interest rates are going, we obviously know that eventually the Fed will cut rates. We just don't know when. And when you're looking at long-term yields, when you're looking at the Treasury market, the dynamics in the Treasury market are just for higher

yields because we have so much issuance
that's out there. And this is something we think could
take some wind out of this sale here. It's just that can be a value valuation
correction. Really interesting that you're looking
at what's happening in terms of supply side with treasuries.
Well, what about the inflation picture? What have you been taking from the PPE,
the CPI, and whether or not we are cooling or whether actually we're still
just too high for too long? It is calling the data we got last week
was good, was good news. But let's keep in mind it was one
month's data and we still are far way away from where the Fed wants to be.
And when you actually dig into some of those reports, this is a good deflation
story. This isn't a service deflation story.
In fact, we're still looking at service prices that are quite sticky.
And housing as well is another thing

that's sticky.
These are things that the Fed is going to be taking into consideration.
And this is why we think, and we kind of lean in the camp higher for a little bit
longer. We might get something in December, but
we need a lot more information before we can say that the Fed can do that and
just add in, as you say, that flight to quality, that volatility that we see
because of political risk over in France, of all places.
I mean, how much making do you have to take in the global geopolitical risks
right now? Yeah, I think it's something we have to
consider when you're coming into this year.
We knew we had a lot of elections and political risks globally.
And let's keep in mind, we haven't gotten to November.
We are in here in the U.S. So there's a lot from a political
standpoint through this summer that can keep the markets on edge.
And it just tends to be when there's so

much risk out there.
But there's so the markets are so high, you know, what's the upside risk from
here? That's what I don't see.
I see a lot more downside risks from here than I do upside catalysts.
So what to do as a chief investment officer of Capital Advisors, I mean,
where do you see is it protecting your downside or is it so is it hedging or is
it more sort of reallocating in some way?
So at this point, there's, you know, a whole cache, keep a good amount of dry
powder that you can take advantage of opportunities.
That's what we've been doing. Cash isn't hurting you right now.
You're getting 5% or more. Eventually, that won't be the case.
But for now, you have the cash to be able to look for opportunities and there
will be opportunities. Right now, if you look at the market,
parts of the market that are really

unloved.
Look at small and mid-cap stocks. Now the economy starts to roll over.
They're going to struggle a bit, but that's the time to take advantage
because that's where you see the best upside as we get out of this, you know,
an economic slowdown and they're priced. So on a relative basis versus large cap,
the cheapest we've ever seen. When you're thinking of a technology
show such as ours and many want to understand the realities, you need to be
diversified, but they also want to understand where the opportunities are
outside of MAG seven in technology, like is there a play for tech or indeed AI in
small and medium sized companies? So, you know, the guy is is here with
us. It's been here, but it's just only going
to evolve going forward. The one thing when you think about A.I.
is it's not just technology, and I know it's a technology show, so I apologize.
But let's look at other areas of the

market that will benefit from A.I..
So what are the companies and sectors that are going to benefit from
implementing A.I. that that we can see that in their
earnings? Those are some of the things we're
looking at. Industrials, this is an idea, you know,
some consumer stocks, I think it's right now a little bit cautious because the
economy is weakened and consumers are definitely stretched.
But think of where the companies that are going to benefit from the use of AI
going forward. What about energy?
I mean, that's a great story. Very well read all about the focus of
Bill Gates at the moment, perhaps on nuclear energy.
And I'm wondering whether you're seeing energy and some of the infrastructure
needed for this new paradigm shift as a place to bet.
Yeah, absolutely. That is an area we look at what
utilities have been doing as well because of the use for it.
But the infrastructure side, we don't

have yet to be able to support what this
is going to look like in the next decade.
So we do need from an infrastructure standpoint. That's those are some areas
that we'll look at, as well as we see some broader weakness in this market.

Verdence's Horneman: Cash Isn't Hurting Right Now

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Bloomberg Technology

The momentum trade is currently strong, but there are factors that could slow it down, such as increasing interest rates and the uncertainty surrounding future rate cuts by the Fed.

The high Treasury market issuance is expected to lead to higher yields, potentially causing a valuation correction.

The inflation picture, including the PCE and CPI data, shows a good deflation story, especially in the service sector, with housing prices remaining high.

The Fed's Consideration of Global Geopolitical Risks

The Fed is leaning towards a later rate hike, possibly in December, due to the need for more information and the current global geopolitical risks.

The high levels of political risk, including the upcoming elections and events in France, are contributing to market volatility.

Capital Advisors is currently focused on holding cash to take advantage of future investment opportunities in the high-risk market.

Opportunities for Investment in Small and Mid-Cap Stocks and AI Implementation

Small and mid-cap stocks are expected to struggle initially but offer great upside potential as the economy rebounds, especially in the technology and AI sectors.

Investors should consider the potential benefits of AI implementation in various sectors, including industrials, consumer stocks, and energy, as these industries are likely to see growth and improved earnings.

There is a growing focus on the use of AI in energy and the infrastructure needed for this paradigm shift, making it a promising area for investment.

Uncertainty in Future Infrastructure and Market Weakness

There are concerns about the future look of infrastructure and support in the next decade.

The focus is on areas of infrastructure and broader weaknesses in the market.