U.S./Iran Conflict Pushing Inflation Higher, Creating Big Tech Opportunities

0:00Jake Johnson is with us, Deputy CIO Advisors Asset Management. We did get an RCPI print and it pretty much was in line. I mean, you still see some up arrows for certain things. What did you make of it? Yeah, hi, Nicole. Thank you. Good afternoon. Yeah, the CPI print was right in line with expectations. I think that, you know, when it comes to these geopolitical events, what's really important is the prevailing economic conditions and the duration of the conflict. And there's really been no signs of de-escalation so far. But I do think we're starting from a relatively decent position when it comes to economic growth. I think GDP should be somewhere around 2% this year. And when you look at the CPI print at 2.4%, sort of benign in right in line with expectations. So when we think about this wild card of what's going on with Iran, I also just let Red Howe Chubb will be the leading insurer for the Persian Gulf Insurance Program watching for that government-led program to provide insurance to ships.

1:01What do you think about what goes on with all things Iran? How quickly or not so quickly, does this wrap up? Yeah, good question. And obviously, I think that's going to have a huge impact on the severity of the market condition. And, you know, what's, you know, obviously the longer the war goes on, the potential for some weaker economic data comes into play. And I think that that's causing a pretty significant repricing and reversal in some of the key trends that we've seen really underpin the market so far in 2026. So now we have to price in higher oil prices, higher inflation expectations, higher interest rates, and a stronger dollar. And coming into the year, the market was essentially positioned for the exact opposite of that. And what about some of the other opportunities? So, you know, we had a complete reversal, it was one day this week, we were down and then we moved up on the down, it was 1100 points away. Where do you go when the markets pull back?

2:02Yeah, good question. And so we're seeing significant rotation under the hood. I'd say, at the index level, the market's been in a pretty tight range, only about 3% off of the all-time highs, but under the hood, there's been a lot of reversals and a lot of rotations. All those trades that were predicated on lower inflation, lower rates, and a weaker dollar, these are things like international stocks, the value stock style, small mid cap stocks, you're starting to see those deteriorate. And you're seeing relative strength into areas of the economy and of the market that are a little bit more durable and a little less sensitive to the commodity cycle. So these would be domestic stocks, large caps, and sectors like tech and communication services. Large cap tech and communication services. So you are unafraid of the hot ticket often, it's growth, or it can be volatile. What kind of tech are we talking about? Well, there's a lot to like in tech. And I think, you know, the opportunity there is that, look, we follow the earnings.

3:03And earnings are going to grow double digits this year. And tech are going to be, by far, the largest contributor to that strong earnings growth that we're expecting to see in the domestic equity markets. And what's nice now is that they're growing earnings, double digits, and you can get them at valuations that we haven't been able to see in years. So we do think that there are some opportunities in the tech sector. And then what about areas like aerospace and defense? We were talking earlier about European defense stocks. What about here at home? Yeah, good question. And so these thematic solutions have been very popular, and I like them for two reasons. But obviously, we've got sort of the headline news and a lot of information and headlines on aerospace and defense. Secular tailwinds, long-term tailwinds from all the money that's pouring into this space. Another area would be energy infrastructure, and that's another area that has long-term secular trends. But I like them more so for the role that they can play in your portfolio. They're great diversifiers because what we're seeing over the last couple of weeks is that

4:04they're positively correlated to some of these geopolitical events. And when the market's getting boppy things like aerospace and defense and energy infrastructure, our good ways to diversify your portfolio. You also mentioned infrastructure, Jake. What kind of names are we? I know you can't name maybe specific names, so when you say infrastructure, what does that mean? Yeah, so we're looking at, look, oil pipelines or oil storage facilities. Just look at the need for that stuff right now. It's very safe and effective way to move oil. The U.S. is now a net oil exporter, and there's an huge increase in demand, not only for oil itself, but the electricity that natural gas can generate. So again, long-term secular tailwinds for that energy infrastructure space. And we thank you, Jake, Johnston, Deputy CIO, Advisors, asset management. Good to see you. Thanks.