Isherwood: Upside Potential in the Current Economy

0:00Welcome back to opening bell want to get you ready for the trading day. Ryan Isherwood is with us founder CIO of significance capital. I'm so glad you are with us and you've been feeling more positive on AI infrastructure, energy, industrials and less so on the tech side of things from what I read in your notes. What did you think about yesterday's relief rally and today's slight pullback? Well we think the relief rally was certainly warranted on the good news that we saw out of Iran and the way we're thinking about this you know crisis if you will is that if oil is in the 90s we have a slight positive bias to markets. If oil gets below 90 that would be bullish. Oil in the hundreds the low hundreds is going to be a slight negative bias and if we get up over 110 we think that's that's bearish. So the market retraced in this correction to areas we thought were consistent with where prior lows had formed. CTA positioning got extreme pull call ratios got extreme a lot of

1:04investor sentiment in general got extremely negative which is often a contrarian signal in a bull market. In addition a lot of the areas that we look at held major support levels we we look at longer term view ups from the last April's low and the market did find support in that area so you know we remain constructive here though you know we are cognizant we've looked at other you know past oil crises and acknowledge if we get further spikes in oil the market could correct much further than the 9% it has thus far. Understood I mean we think about the big picture so since you feel like it was oversold you know sort of too much to the downside and you were feeling a little contrarian how do you feel between now and the end of the year a lot of folks coming in have price targets for the S&P 500 higher than where we are now. Would you be comfortable with that kind of summation or no because it's a lot of tech in there in Mac 7. Yeah I do I do think that the AI theme is still power in the

2:08market higher so even though the hyper scalers the make 7 you know are pulling back and we're seeing capital I think deployed more broadly in markets I think the AI theme is still alive and well and you can see that you know in the momentum that we've seen in optical stocks and memory stocks which which are you know a part of that AI theme and we think as long as that leadership is intact the bias is going to be the upset to the upside even if the make 7 are laggards from here you know we've seen a broadening out of the market it when surprises to see things down caps start to do a little bit better there's just so much capsize in that make 7 that if that money is deployed elsewhere it could be quite bullish in other areas of the market. I understand okay so at this point now I know you're underweight in video and you know out on some of these mega cap techs which I'll get to in a moment when you say you like

3:11energy and AI infrastructure what kind of names or things that would drive that that you like. So I would say on the energy side we've liked that it's been a large overweight for us all year obviously with this you know crisis in Iran we've gotten paid on on that bet we would look if that crisis is resolved probably we would become less bullish on energy I would say you know the case for energy prices or oil to remain in the 70s and 80s I think is is very good and those stocks can do quite well but we just won't keep as large of an overweight and then you know I would say on the AI theme it's been the predominant theme that has you know driven the market since chat GPT was rolled out in late 22 by our work momentum there has not broken in in any way while we've seen momentum break in areas like software it's because of fears of AI

4:11incursion and so as long as those fundamentals remain bullish as long as we see upside to earnings estimates which we do see we still like being exposed to that theme overall so right now we're a little bit barbelled in terms of from a risk perspective and we think that is the judicious way to handle things when there is a crisis but certainly tactically we've been adding more to our our favorite areas within AI on this pullback and we would look to add more if the market can show more strength we think yesterday was an important event I do think things will be choppy in this ceasefire but we're hopeful that we can get some resolution which will allow you know some of the the fundamental strength in these areas to be even more rewarded in markets let's talk about some of the names that you do like we only have a few seconds left a few minutes left but you had free port mac brand you had southern copper you'd southwest airlines

5:12you did like apple and brought come you had some select names in tech that you liked you had a vivabi also you had applied optoelectrics tell me about one or two of those names and the real upside potential that you see sure so I'll go with the copper names because I'm free port and southern copper we think copper is a secular trend it takes forever to bring on a copper mine about 17 years and copper is an important thing in the electrification of you know the economy as well as the AI data center build out and the prospect for copper shortages coming in future years is is real we also think you know the economy has been in a cyclical slowdown which is now we're seeing reaccelerate and so historically copper does very well in those environments so we like both of those names for you know a numerous ways we see numerous ways to win in

6:16that in that theme why is that West Airlines out of all the airlines we bought Southwest as as a hedge honestly but we have a large overweight and energy and we thought that was something that if the crisis is resolved we have like the fundamentals there with their changing you know other strategy not doing the cattle call anymore if you will and having a signed seating there's other revenue drivers so we like a lot of the company specific fundamentals it had pulled back to areas we thought would be supportive of the stock we had owned it earlier this year but sold it when the Iran crisis hit and so it's a name we like fundamentally longer term that we thought was a good entry point and also a hedge of sorts on oil prices and the current crisis we're in yeah understood how do you feel about the economy I know we just got in some prints three percent year over year on core PC a little higher than expected we had

7:21jobless claims a little higher than expected just a quick thought on big picture big picture we think the economy's in in pretty good shape we think we hope that the oil spike is is transitory I will say if oil gets up in that 110 120 and spends any length of time there we do worry about demand destruction so as of now we are constructive on the economy the lagged impact of rate cuts by the fat we do think this oil spike does put the fat in a box a little bit where maybe we won't see the rate cuts that people had expected coming into the year but overall we think you know we're seeing positive action in some of our transport names particularly L. T. L. trucking and we think that's a great lead indicator of where the economy is likely having inventories have been drawn down and so we're pretty constructive on the economy overall assuming that the the Iran issue can be resolved in you

8:23know the coming weeks or month yeah and I know that you also had Apple and Broadcom selective mega cap exposure Apple holding support with you know the least deterioration among those large caps and right now apples at 258 90 or so about six months it's up about less than one percent Ryan thank you so much I appreciate it Ryan Isherwood significance capital