Skip stock picking: how investors should play AI now
Transcript: Caroline Woods:Joining us now is Frances Newton Stacy, economic strategist and CEO of Tuttle Wealth Partners. Frances, thanks so much for being here. Frances Newton Stacy:Yes. Thank you for having me. Caroline Woods:So, Frances, when you take a step back and look at everything happening ...
Overview
Transcript:
Caroline Woods:
Joining us now is Frances Newton Stacy, economic strategist and CEO of Tuttle Wealth Partners. Frances, thanks so much for being here.
Frances Newton Stacy:
Yes. Thank you for having me.
Caroline Woods:
So, Frances, when you take a step back and look at everything happening right now, a stronger dollar, lower oil prices, falling commodity prices, sort of shifting bond yields. What's the market trying to tell investors?
Frances Newton Stacy:
Well, the yields are remaining elevated because there is some risk in the system with the inflationary impacts from basically having a supply chain shock from the Strait of Hormuz. That hasn't completely been resolved yet. And I think that's where the market is a little bit becoming complacent, because oil prices have gone back to pre-war levels, but bond yields have not returned to where they were pre-war.
Frances Newton Stacy:
And that is a little bit anticipation that the previous rise in commodity prices could potentially still put some inflationary pressure into the system. If the 60 day cease fire doesn't end up in a final agreement, that could still really change some of the supply shocks with the Strait of Hormuz. So there's still some risk in the system, and it's still a little bit dependent on the fed, where we have a new fed chair and a new regime.
Frances Newton Stacy:
So I think that's what the bond market is telling us right now.
Caroline Woods:
So if you're a long term investor who doesn't watch the bond market every day, what does this mean in terms of its impact on the stock market?
Frances Newton Stacy:
So basically what it does is it increases volatility in the stock market. And so it depends if you're a super long term investor and you feel like you have a well-diversified portfolio, you're probably not day trading the volatility. Even though many people are. And so it's kind of holding patterns in general. There is a ton of liquidity in the system.
Frances Newton Stacy:
So we look at like the overall money stock is there's just tons of liquidity in the system. Any time there's tons of liquidity in the system, that money is always going to try to find a home. The stock market is a great place to be. And then once you get through that layer, you're you sort of start looking at the relative strength.
Frances Newton Stacy:
And really what we're seeing now is the fact that the eye trade, which I is now responsible for a huge percentage of the Catholic in America, what does that mean? They are contributing to the GDP growth. And so that eye trade has a bottleneck scenario where you have shortages in memory. You have Apple, you know, increased its prices on its devices because of that.
Frances Newton Stacy:
And you're going to see more of that. And so then you have this liquidity in the system. And it's going to continue to pour itself in these areas where there are deficiencies around the rapid expansion of IE.
Caroline Woods:
Okay. I want to dig into all of that a bit more kind of starving.
Frances Newton Stacy:
It's a lot to be broad.
Caroline Woods:
You talk about the stock market being a great place to be as you think about the second half of the year. Is the stock market still the best place to be, or should investors be considering things like bonds. And then we'll dig into the bottleneck trade.
Frances Newton Stacy:
Well bonds are now they can be correlated with the stock market. So that's the issue that we're having as bonds are no longer the quintessential hedge that they once were. And I mean that's definitely some of the work that we do at Tuttle Capital Management and also Tuttle Wealth Partners, where we kind of look into replacing those mechanics because bonds aren't a hedge.
Frances Newton Stacy:
They tend to, you know, go up and down with the stock market. And so it's not an either or necessarily, you know, in the last several years since Covid, you've had, in some instances, more volatility in the bond market than in the stock market. So going forward this year, I still think that the stock market is going to remain elevated unless there is something where the market is being mispriced because the it is extended in the valuations, but there's so much liquidity in the system still chasing these bottleneck trades that probably that's not going to be disrupted unless you have some kind of credit event, some kind of inflation or deflationary shock, some
Frances Newton Stacy:
kind of credit spread scenario. And so you kind of want to watch in the credit markets for those early signals for where the market is getting it wrong. Other than that the market despite volatility is probably going to, you know, continue higher while we have a lot of liquidity in the system.
Caroline Woods:
So what areas of the market stand to benefit from this continuation higher. And if someone still believes in I specifically where should they be looking.
Frances Newton Stacy:
Yeah. So I has a bottleneck. And right now the focus is on memory and the Dram trade. And the thing is is now companies are trying to kind of find detours around that instead of trying to manage the shortage. So it's it's a very hard thing to watch day in and day out. Generally speaking, if you are, you know, just connected to the AI companies, you're probably going to do well.
Frances Newton Stacy:
We. Right. And when I say we Matt Tuttle writes a newsletter every day that is hugely long and goes into all the nuances of all of these various companies and the liquidity flows between the companies. The easiest way to do it is to access an ETF that kind of encompasses these companies, so that you have somebody internally kind of trading these different things, and you're not trying to actively manage that.
Frances Newton Stacy:
You know, we always have a stock that we watch every day. Recently we've been watching Bloom Energy. They did a deal with Brookfield, where they're increasing their, you know, spend from 5 billion to 25 billion. And so there you go. That's a five bucks and spend. You got to watch the chart, watch the technicals. If you're looking at individual stocks.
Frances Newton Stacy:
We have TTM that's that's basically going from a diagnostics company into a data acquisition company. It's been revealed that they have 45 million patient records and they have like 4.5 million samples. And so this is data that they're collecting. Data is becoming a currency in this environment especially, you know, around being able to access and and compile and calculate data at a record rate with the eye trade.
Frances Newton Stacy:
And so for stocks or watching those I'm not going to sell you our ETFs particularly. But the way that we think about this as a company, you know, we came out with an ETF that differentiates assets from what's going on in sort of bubble land around the eye. And the thing is, is when, you know, electricity is not going away, infrastructure is not going away.
Frances Newton Stacy:
And so then you kind of dig into those companies and you find out who has heavy assets, because those heavy assets are going to reduce the volatility. And when you look at the traditional metrics of measuring the performance and stocks, price to earnings, price to book an asset and asset heavy companies that's usually priced a book. You look at undervalued stocks.
Frances Newton Stacy:
That's a little dangerous because going forward, sometimes things are undervalued because they're going to become obsolete by AI. So you're looking for things that have assets that can't be replaced by I can only be enhanced by AI. And so we do that. You know, there are a lot of ETFs that do that. We do that at Total Capital.
Frances Newton Stacy:
What we're trying to find the markets haven't changed mechanically because mechanically you have a liquidity driven cycle that pours into assets. It's just the performance attribution is changing around some of these AI dynamics. And we really try to be on the forefront of that.
Caroline Woods:
Okay. So that ETF is the heavy Assets low Obsolescence ETF. I think bottom line, when you put all of this together, as you think about the second half of the year, should investors be taking more risk at this point, less risk or simply staying the course?
Frances Newton Stacy:
Well, it just it depends on their personal circumstances. So it's hard to give a recommendation without understanding that I what I would do if I were an investor is I would get as educated as humanly possible about what's changing about our economy. And, you know, at Tuttle cap.com, we do offer Matt offers a free newsletter every day.
Frances Newton Stacy:
It's called the heat newsletter. You know, we look at hedges, edges, asymmetry, asymmetry, meaning a lot of upside and low potential downside and themes, where we follow everything that's going on with the administration, we follow everything that's going on with all of the individual companies within the AI trade. And that's a free newsletter. And it's it's long and you can pick bits and pieces of it, but you start to get educated.
Frances Newton Stacy:
And then as an investor, when you start to read this information and start to assimilate it on a slow basis, then you can start to compare it to headlines, market news, volatility. And you know, you'll see the early warning signs of things that are breaking down or performance attribution that's changing. But generally speaking, I think ETFs that are super well-diversified in particular, you know, we don't think that the average investor is going to day trade some of Trump's truth social announcements or something like that.
Frances Newton Stacy:
But we do that internally with the ETFs. And so you get the advantage of active management from somebody who's paying attention to that, has access to a trading desk. And you can hold those positions in ETFs. I think ETFs offer the best and cheapest diversification, as opposed to trying to do research and keep up with the day to day to day to day changes of all of this eye stuff in individual stocks, if you don't have the knowledge base or capacity to do that.
Caroline Woods:
Okay. All right. Let's transition to our rapid fire round of this or that. Quick questions quick answers. No hedging. Are you ready, Francis?
Details
Frances Newton Stacy:
Sure, sure. Yes.
Caroline Woods:
All right, here we go. Second half by any dip or raise, cash.
Frances Newton Stacy:
Right now, by any dip.
Caroline Woods:
Market higher or lower by your end.
Frances Newton Stacy:
Probably higher.
Caroline Woods:
How much higher?
Frances Newton Stacy:
Hard to say, but I I'm going to I'm going to put that in there. We have the midterm elections. We have a lot of liquidity. And unless we have any surprises, this CapEx train is is is going to continue rolling.
Caroline Woods:
Is more likely to come first all time highs or a correction.
Frances Newton Stacy:
Probably all time highs around increased volatility.
Caroline Woods:
Momentum or rotation.
Frances Newton Stacy:
I would say the momentum trade. I think rotation is not going to last very long, because I think the money is really chasing the momentum trade off.
Caroline Woods:
One sector you definitely want to be in given the momentum trade.
Frances Newton Stacy:
I mean, I really think the memory story, I think it's going to get more selective. But right now it's just an overall shortage.
Caroline Woods:
One year to avoid.
Frances Newton Stacy:
I think I would I would avoid the rotation trade. I think it's relatively weak. I think the biggest risks in the system are any surprises around credit? But yeah, I would just keep an eye on that number, but.
Caroline Woods:
Just be a bit more specific about the the rotation trade. Like what would you weighed within the rotation trade?
Frances Newton Stacy:
Well, the problem is, is that when you have this liquidity chasing the buy the dips in the momentum trade, you're not going to probably get a meaningful allocation that's going to go and stay into the rotation. The rotation might be sort of a short term thing, but what this market is chasing, what all the CapEx is chasing, and the biggest risk to what's happening in CapEx is that it's going from cash on the balance sheets to debt, but it's still liquidity moving into this CapEx trade.
Frances Newton Stacy:
It. You know, people are going to chase that more than they're going to go revalue those companies. And I think when they revalue the companies, the small and mid-sized cap companies, you have that obsolescence risk kind of based in to trying to get into underpriced stocks. And so I think that trade is going to be unstable. And then I think it's going to return to the momentum trade.
Caroline Woods:
U.S. or international, US international or small caps.
Frances Newton Stacy:
Hard to say.
Frances Newton Stacy:
I would I would probably stick with the U.S. right now.
Caroline Woods:
Energy infrastructure or I infrastructure.
Frances Newton Stacy:
I think there's more upside opportunity in the energy infrastructure because the energy infrastructure is going to fuel I. But I would watch these partnerships and mergers and debt deals, which we cover in our newsletter, in order to know where the liquidity is, are flowing inside of that, so that you can kind of make sure that you're following the right companies.
Caroline Woods:
Fed hikes, cuts are holds by December.
Frances Newton Stacy:
I think they're going to end up having to cut.
Caroline Woods:
Oil higher or lower by year end.
Frances Newton Stacy:
Higher I think right now oil by year end, I think the dollar's probably going to have a sell off because it's been, you know, going much higher. Oil is is assuming we're back to pre-war. And I think that that's an erroneous assumption.
Caroline Woods:
No gold or Bitcoin gold. One word to describe this market.
Frances Newton Stacy:
Is ever changing.
Caroline Woods:
Francis Noonan Stacey, economic strategist, CIO of Tuttle Wealth Management, thanks so much for playing along. Really appreciate your insights as well.
Frances Newton Stacy:
Thank you. Have a great one.
Caroline Woods:
If you enjoyed this street talk, check out our full interview with Brian Levitt. He explains why we're entering a new phase of the bull market and what to do about it.
Source
Originally published at www.thestreet.com.
