The ‘Hurricane’ Lurking Beneath the Markets & Tech Opportunities

0:00Now, let's get some broader insight on the markets. Today, take a closer look at gold and some of the moves that we've seen amid the geopolitical tensions in the Middle East. Let's welcome in Edison, Bazika, the Chief Investment Officer at Creedent Wealth Management. Edison, great to have you back on the show. Yesterday, we saw some recovery. We saw some leveling out in the oil prices. Today, we're seeing oil tick considerably higher. I think it was up about 5% at the top of the show here. And we've got red across the board. What are some of your thoughts on the price action that we've seen so far this week? Yeah, great to be with you. Price action has been quite interesting because I think that the market in general is still trying to decipher the extent of what's happening geopolitically, the extent of what's happening with the shipping lanes, the extent of what's going to happen with attacks on refineries, attacks on even ships. See the price action in oil, especially over the past couple of days, since that first kind of conflict with the arose in the media, I think it's a slight overreaction to the upside in the interim

1:00because we don't really know the true impact that's going to happen in the energy sector. There's been a lot of discussion. There's been a lot of different rhetoric. For me, to say, from portfolio management standpoint, is that we're going to make a very active bet in oil to whatever degree that may transpire kind of over the next three, four or five months. It's a little early to make that call, Marley, because again, we don't know the specifics of how it's going to transpire. And certainly at the individual equity level, which segment that away from say commodity the discussion to the individual companies, really not seeing the flows and the momentum in those names quite yet. So Ed, is that I want to get your thoughts on this broad shift that we're kind of seeing and positioning in the markets right now from your viewpoint as a portfolio manager? Was it prompted by these geopolitical conflicts and the potential for the outbreak that we did eventually get? Or did it all start before that? And what was driving it if so? Yeah, I think for investors, the past three to four months have actually been really, really exciting if you look under the surface.

2:01And from my perspective, there's been this almost hurricane happening underneath a calm ocean structure. What transpired probably from November time frame through here definitely through the end of February, the value sector, broadly speaking, if you're looking at just healthcare, if you're looking at industrials, consumer staples, this notable shift away from technology has been so paramount and has been so decisive that the hurricane that I'm mentioning has caused this dichotomy of an average stock being a plus or minus 20% at the widest ranges we've seen over the past three, four years. And part of that has been this belief, this continuation of that rhetoric that these CAPEX expenditures on the AI front, although they have fantastic forward-looking guidance on earnings, they no longer have exuberant forward-looking guidance and earnings. Meaning, even though earnings have been good in video, it was a great example with our latest earnings call. And they had fantastic forward guidance, but it wasn't exuberant. And I think the lack of exuberance,

3:01I think is starting to maybe come into question as a function of that CAPEX spending and how that actually may materialize in supporting these multiples over the long term. And as a result of that, that shift has occurred, we're seeing value continue not only strong in a relative basis, but also on an absolute basis, seeing those gains with a materialized Māori. And this is a conversation I've had a lot of, I like how you phrase it, that this lack of exuberance here. They're still spending, they're still planning to see returns. It's just not as big a return as investors want to see with this level of spending here. What are your thoughts on this pullback that we've seen in tech and the concerns around the level of CAPEX spend? We're very much in this show-me era, but realistically, Edison, how quickly can any of these companies actually show investors when we're still in very early innings here? Yeah, I couldn't agree more. A couple of things to note on that. I think this sell-off, particularly if you look at the software space for as one example, if you look at the names that are presumably going to be taken over by AI or those industries may be derailed

4:04for a lack of better term along over the long term, there's some tremendous buying opportunities in that space to note, seeing stocks like Oracle or Intuit, or all these other names that have just been really beat up to the downside, being down nearly 50% from their recent peaks. That's an exuberance of an assumption of what may happen with AI over the long term. I think that there's some fantastic buying opportunities in those segments, great active stock pickers market, be careful in that structure, but definitely opportunities in there. But as we look ahead, I think the narrative of how our other companies monetizing AI and how our companies like Nvidia or Meadow or anything like all those names going to help those companies, that's really going to be the driving factor that's going to determine how these AI names in and of themselves are going to be treated in the marketplace. If that link, that connection that, because Nvidia is doing X, a company like Chevron given the energy structure here is that as an example, is going to generate better efficiencies, better productivity, or whatever that may be,

5:05that connection is going to be scrutinized so much more, I think, over the next 12 to 18 months, nothing that will be a driving factor for returns on both sides of the equation. I don't think the market has that fully figured out quite yet, but it is going to be opportunistic, and I do think the opportunities are still there in the AI space. Maybe probably got to go down the market cap scale a little bit and look at maybe even some of those more upcoming AI names, not necessarily the behemoths that are in the space right now. All right, so as you see that there's opportunity still here, but obviously there's still a lot of fear. There's a lot of concerns. We're still continuing to see this pullback and this rotation away from tech. From your viewpoint, do you view this as a temporary reset, or is this actually the beginning of a longer rotation away from that part of the market? Yeah, great question. First, I would just go back to the basics that we're looking at. We are in a midterm election year, and the cyclicality and seasonality of midterm election years is actually playing out fairly nicely so far.

6:07So yes, there's this rotation more into value and away from that tech piece. However, that has been a similar occurrence in most midterm election years going back to the 1950s and tends to reverse around that June, July timeframe. Without in mind, as I am seeing this recent pullback and some of these names that are notably just really beat up unfairly in some of these instances, I do think the rotation back into the names is going to pick up in the second half of the year. There's only so much time that a company like Nvidia or Meta or Microsoft, right? Can we re-initiate those flows back into that sector, back into that sentiment of the stocks? And I do think that is going to happen. And I think you may be exacerbated by the fact that the conflict is going to be hopefully more clear, less uncertainty here with Iran over the next three, four months. But also because cyclically speaking, in that midterm election cycle year, which is again, it's playing out exactly as it should so far a year to date, that tends to shift during that timeframe. And by then, I think we'll have more clarity

7:08on both the Fed's actions, which I think there are hold for the time being. In addition to a few more GDP prints, right? I mean, I assume is looking great, both manufacturing and services. And I think by that second half of the year that July timeframe, that'll be significantly more data points for that pivoting back to the upside. I think it's structuring that way. And I think it's the momentum is going to take us that way. All right, and Edison, last question here. You just highlighted some of the data signaling a strong economic backdrop from your viewpoint. But we obviously have this uncertainty and the rising geopolitical risk. So how should investors balance those two forces right now? Yeah, it's hard to fight the data at this point. Even today, the labor market data continues to show a significantly resilient labor market, which has defied all odds, right? I mean, these cracks in the labor market have failed to truly materialize. As we look at that relative to stronger ISM services that we had in the past three years, a continuation of growth in the manufacturing backdrop with those ISM numbers.

8:09And then seeing, most importantly, those mid cap and small cap stocks year to date actually pan out and outperform in five, six, 700 basis points above the S&P 500. Don't fight that momentum and that approach, right? The S&P 500 may very well finish flat or negative in 2026, but that will mean nothing for how most portfolios should finish given this rotation, given the strong economic backdrop. And the fact that that recessionary pressure I think has diminished substantially relative to just six months ago. Echoing one of George Tillis' favorite sentiments there. Don't fight the trend. So Edison, thanks for being with us. We covered a lot. They're really appreciate the insight. Edison, Bazika, Chief Investment Officer at Cretant Wealth Management.