Sizing Up Stocks and the Oil Market
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Visit us at pgm.com forward slash ETFs. This is Barron's Live. Each week, we bring you live conversations from our newsrooms about what's moving the market right now. On this podcast, we take you inside those conversations, the stories, the ideas, and the stocks to watch so you can invest smarter. Now, let's dial in.

Hello everyone and welcome to Barron's Live, our weekly webcast and podcast. I'm Lauren Rublin, Senior Managing Editor at Barron's. Thanks for joining us today for a market update after a momentous weekend. Trading is common stocks and also in oil after the U.S. bombed Iran's nuclear sites over the weekend. But will the market's complacency last? That's the question of the hour.

And now let's check in with our guests, Barron's Deputy Editor, Ben Levison, and Keith Lerner, Co-Chief Investment Officer at Truist Advisory Services. It is great to have both of you on today's call. Thanks, Lauren. Hey, thanks, Lauren. Great to be here.

A pleasure. So, Keith, we have followed your market calls closely this year at Barron's, and they've been pretty much right on target. About a week ago, Truist upgraded its equity outlook to neutral from less attractive. So two questions for you. Tell us what neutral means in your parlance and whether and how the weekend attack might alter your assessment of neutral.

Yeah, certainly. And it's a good question. Neutral to us means for investors to be more aligned with their long-term targets. So another way to discuss this is we're at a point of the cycle where we think it makes sense not to be overly bullish or overly defensive. So that means still have exposure to the markets, but again, not at an aggressive stance. You know, we will likely have some opportunities later this year to adjust that either more defensively or on offense.

But for the time being, we think this overall market is somewhat in a trading range. Interest rates are somewhat in a trading range. And we're also in a wait and see period with the Fed and other factors, especially with what happened over the weekend.

So you sound a lot like the Fed chair Jerome Powell, who keeps referring to a wait-and-see mode. So we waited to see what President Trump would do, and then we saw. What do you think the implications are for let's tackle the stock market, the economy, and the energy market to the extent that we can make any conclusions at this point? Certainly. And the way, whenever we have geopolitical tensions,

The first thing is we look at a historical lens and say, what does that tend to mean to markets as a starting point? Each event is somewhat different. But from a starting point, historically, it typically has a short-term market reaction, typically negative. We're seeing less of a negative today so far.

And then after the market starts to digest some of the geopolitical uncertainty, the market tends to rebound or go back to its prior trend. But what we also tend to look at during these periods of Middle East tension is oil prices, right? That's the main way as far as the transmission mechanism that we see the rising geopolitical tensions.

And the reason why we look at oil prices is because a spike in oil prices could also cause or historically could cause a recession. So the question we ask ourselves is what we saw over the weekend, does that suggest a spike in oil prices? And two, is recession more likely? So for the first part of that question,

You know, we have had a 30 percent rise off the lows in oil. But the big picture is we've been in a trading range for oil for about five years. We're actually at the two year average today and we're well below or well below the highs back in January. So.

So far, even though we've had a big move off the lows, it's still relatively contained. And then as we think about the economic outlook, our base case is more of a muddle through. And what happened over the weekend has not changed that yet. It does complicate some things for the Fed. It does complicate some things for inflation. But we also have to remember the U.S. is also now a big investor.

net export of energy prices as well. So it's not the same impact that we may have seen back in the 70s, for example. That's a fair point. Ben, I wanted to get your views on the broader implications for energy and throw in the markets too.

Yeah, I mean, right now it's I mean, I just find it fascinating that, you know, someone had said that the U.S. was going to attack Iran. You know, I would have suspected the market would be down a lot and that oil would be up far more than it is. And we just haven't seen it happen. But I do think that that's the market assessing sort of where things are.

are based on what we know, and it's that there is a weakened Iran that doesn't get it, isn't getting it right now, at least a ton of support from China or Russia or others, which as long as the fighting remains really just between Israel and Iran, then it's not really a market event so much right now. So we have some risk premium put into oil. It did go up a lot from its bottom.

But, you know, for right now, it's all calm. And, you know, I guess we'll see if it can stay that way. Pretty phenomenal. I wanted to ask you, Keith, what would get you more excited about the outlook for stocks? Well, you know, one could be just a better entry point as far as lower prices.

And then I think the other key theme of this bull market that really remains intact is the AI theme. And earlier this year, the big T discussion was on terrorists and people kind of forgot about the other T

That's technology and AI, which has been the dominant theme of this bull market. What we've seen is that AI theme has come back to the forefront, and that's really helped earnings start to rebound after showing some weakness back in April and May. I think maybe lower prices would be positive, and that often comes with bad news, but it would maybe provide a better entry point. I think

Markets can correct in time, meaning they can trade sideways, or they can correct in price, meaning they pull back or a combination of both. I think just as we go through the summer months and just –

allowing stocks to kind of catch up to fundamentals, earnings continue to move higher and get to the next earnings season, I think could be helpful. There are some things, you know, there is a, I mean, there is a bullish scenario out there. It's, you know, that the Fed does start to cut rates later this year, that we are seeing inflationary trends moderate outside of the uncertainty around the tariffs, which I know is a big if.

And, you know, we are likely at some point to get to the other side of this tax bill. Now, that's more of a continuation as far as a big stimulus. But just getting some clarity from business owners will go a long way. So I just think that we may see some more of the I don't know if I want to call it the summer doldrums because you're probably going to see some volatility spikes. But some some boring churn over the summer, I think, would be healthy. Could set us up for a better year end.

I remember last August, we had an incredible volatility spike. So let's hope we avoid that this year. Yeah, I think we would all be happy with some boring trade after, you know, it seems like in the first six months, seems like what we see over years, we've seen compressed. So having something that's a little bit less volatile, I think would be, would be,

It would be celebrated, though, as to your point, it's hard to count on that given how many outstanding issues we have, not only on the geopolitical front, but we still have to get this tax bill as well. And the Fed at this point is in wait and see mode. So a lot of different competing forces and narratives in the market today.

We'll get back to the Fed later. But I wanted to ask another thing based on some of your recent calls. We discussed your upgrade of stocks to neutral. You also downgraded cash to neutral for more attractive. So does that relate to your equity upgrade or is there something more behind it? Yeah.

It relates to the equity upgrade. And maybe just for your listeners, just to provide a little context, we came into the year somewhat optimistic, but expected more moderate returns. In February, when we were close to the highs, we sensed in our work a lot of complacency. So we downgraded stocks in February. We were around the all-time highs.

And as the market sold off, we saw the price in recession. So we got more excited as prices came down because you were effectively pricing in a recession when you were down 19%. As the market rebounded initially, we took a little bit off the table prematurely because we thought the recession risk was still relatively high. As China and the US walked back on de-escalation, we went more to this neutral posture, which

Doesn't mean we don't have an opinion. It just says it's not, you know, the risk reward is more balanced today and therefore have a more balanced portfolio. And going to your question specifically, again, having more of a target benchmark, target equity allocation. And with,

And to fund that is through cash. Well, also, if you want to go into this, you know, we talk about the equity market, you know, there's, you know, large caps international and so forth and different sectors. So it also matters if you're in a bit of a churn market, you know, where are the relative opportunities?

Okay. Give us an idea or two about where we're going. Sure. And I would just say, going back to what I mentioned before, the dominant theme of this bull market still is technology and AI. And one of the things we saw on this last earnings season is, again, the earnings for these companies continue to move higher because even if the economy slows down, companies need to invest in tech or otherwise risk being left behind. So

We are still positive on the technology sector at large. We are positive on the communication services sector. And outside of the growth side, I mean, we are finding some opportunity in places like industrials where even during this uncertainty, the defense portion of industrials is a relatively large segment, which is a secular uptrend in our view. You know, I was reading the story today in the journal about Mark Zuckerberg at Meta,

recruiting people with tremendous pay packages in AI. And that speaks to your bullish sense about tech. Sure. I mean, you could look at that glass half full or half empty because one of the things why tech and large caps have outperformed is because the margins for these tech companies remain really high. There's thought to be more of these bidding wars on labor

then one thing we'll be watching closely is what does that mean to the margins, the free cash flow? Because remember in 2022, Zuckerberg also talked about the year of efficiency, which the market liked. So the huge capex spend is something to watch. So far, what we're seeing in our work is that the

Earning trends for tech communication services is really outpacing the rest of the market. When you look at things like small caps and mid caps, you're actually seeing still weakness more related to the kind of the software economic readings we're seeing in parts of the economy.

Wasn't this supposed to be the year where the non-tech companies kind of started to grow faster and tech companies were growing slower? Is that just not materialized? We are seeing some of that. But, you know, what we focus on more is everyone knows coming into the year, OK, you know, the 493 stocks are going to be growing at 10 percent plus. And this is what

you know, the max seven and tech is supposed to grow. Well, our work focuses much more on relative to those expectations, are they moving higher or lower? And what we're seeing clearly is that tech and communications forward earning estimates continue to move higher

And that relative earnings momentum tends to be a key driver for those sectors. When we look at the equal weight S&P, where everything has the same weighting, so it has less tech, the earning trends there are flat, small and mid-caps, relatively flat. And that's why you're also seeing this diversion where you are seeing some moderating trends in the economy. You're seeing interest rates still relatively high. And at this point,

The large cap names and tech is holding up better. There is a case to be made over time that the benefits, the efficiency gains will accrue to these other 493 stocks. I think that's a longer term process. And we're only starting to see some signs of that. I think over time that will escalate. But we have not seen that in the earnings yet.

Fair enough. I wanted to switch to a discussion of earnings. And Ben, our friend Adam Parker at Trivariate, who was on here a few weeks ago, recently raised his earnings estimate for the S&P 500. We are just about through the quarters reporting. Where do things stand now for the quarter and for the year in terms of estimates?

They're a little bit higher. I think it's just a touch over 260 for the year. Adam Parker acknowledged that they got a little too bearish on earnings over there, which caused them to bring it up. But they're still below what the street is. I'd actually be curious, Keith, where you think earnings come in this year. Yeah. And by the way, I know Adam well. He does some really good work.

good work. If you talk to him, just let him know that we had a better podcast than his so I could talk about it. So again, instead of projecting where the estimates end up, really what we focus is just on the trend. In some ways, you talk about trend following for the equity market. We try to do somewhere the same thing with the earning estimates. And if you overlay both earning estimates

with the overall market the last few years. They've moved hand in hand. And in February, they had peaked and started to come down. It's probably some of the things that Adam had probably noticed as well. But what we started to see in April is that those forward earning estimates started to move higher and they've actually now moved back to a new high. So I guess my answer would be

continue to move higher. And as we move through mid-year, what happens with the analyst community, it's not focusing less on 2025 numbers and more on 2026 numbers, which are also higher. So I think that's the key. But as I mentioned, it's not as broad based as you may think. It's really more in these growth names and so forth. And if you have an economy that is now expected to grow one and a half percent maybe for the year,

it's hard to expect maybe a huge move up in earnings. But on the margin, what we've learned the last decade or decades is our corporations are extremely resilient. Think about what they've gone through the last five years. They went through a once-in-a-generation pandemic. They went through the fastest rate hike cycle we've seen in decades. The highest inflation since the 70s.

And they just continue to adapt. It's really amazing. And I think that's what's happened again. Going into that last quarterly earnings, there was a lot of concern around tariffs that there would be big disappointment. But we just didn't see that. And again, I would say one of the positives is that these companies will continue to adapt. And at this point, it's still growth led. All right, Ben, with that, let's take a look at some companies actually reporting earnings this week.

We are going to hear from FedEx tomorrow. FedEx used to be considered an excellent barometer of economic activity. That may be less the case these days as there are more competitors, but the earnings will give us a read on the early impact of tariffs and quite a bit more. So what do you expect when FedEx reports?

You know, no one's expecting great things. Sales are actually supposed to decline a bit to $21.8 billion from $22.1. Interestingly, earnings are actually still expected to rise to $5.88 up from $5.41, which suggests the margins are getting better, too.

One of the things there is just, as you said, that the tariffs are a big deal for FedEx. You know, they made a lot of money shipping things from China that didn't need to be taxed, that probably aren't coming anymore. And so that that

probably happened in the April and May part of the quarter. So hearing from them on that is going to be pretty important. It's also interesting to see if they even offer guidance for the year. You know, they probably, you know, it's one of the analysts I was reading from Evercore was saying that they very well may not because,

You know that it's just there's too much uncertainty. They actually think that that can help prevent a big swing in the stock price. But the stock is down. It's down about 10 percent. It's sort of trying to make a bottom if you're just looking at the chart and where it's trading and how it's been trading. You know, it's had a low a little bit under 200. It's now up at 226 and been trading sideways.

So the chart actually doesn't say much about really what's expected. There is room for upside if they can show that they're actually weathering sort of the tariffs pretty well. But I don't think anyone's terribly excited about it right now. All right. Well, here's another stock that people are definitely not excited about, and that is Nike. The company has had a disappointing year and it's had a very troubling 12 months down almost 40 percent. There's also a new CEO in the mix. So maybe things are looking up.

Yeah, I mean, this is a company that's just had a tough time really since the end of 2021, I think, is when it peaked. And every time it looked to be getting a rally going, it's gotten beaten up again. The difference now is that there is a new CEO. It's just unclear what the CEO is going to be able to do just yet. There's a lot of change in the work.

Steve Foles analysts have said that there's going to be a lot of messiness from things like they called unusual timing of sales or new taxes on imports and exports. That's the tariff stuff. They're trying to clean up the inventory. So it is going to be a very messy quarter. They're expected to report a profit of 12 cents. That'd be down from a dollar one during the same quarter last year. And sales are expected to drop to 10.7 billion from 12.6.

So I think what people are really looking for is like Nike is still a brand everybody knows, but they have to get new products that people want. They got to clean out their inventory and they just got to figure out what kind of company they are going to be going forward. So again, this is one where there's room here for a rally if the numbers come in well, just because of how beaten up the stock has been.

But there's also it's one of those things where you want to wait and see if these changes are really taking hold just yet. It could be a kitchen sink quarter where they clean out a lot of stuff and and take care of a lot of problems and then leave themselves a good springboard to bounce from there.

Yeah, it felt like every quarter recently has been out of the kitchen sink quarter, unfortunately. And it just, they can't get the stock going. So, you know, there's just a lot here, too, with tariffs and things. And we'll see. You know, I think the tone coming from the CEO is going to be a big deal. Well, there's also a lot of competition in athletic footwear. And, of course, the company's had troubles in China. Yeah.

So let's move on and talk about tech, specifically Micron, the chip maker. And Micron reports on Wednesday it's had a not great 12-month stock's down about 14%. Are things going to be looking up when the company reports? They certainly have been. The stock is, as you said, it's down 14% over the past 12 months, but up 20% over the last three. It's really rallied hard since bottoming with the market in April.

And it's really become kind of an AI trade, not even kind of, it's become an AI trade. It's expected to report a profit of $1.40. That'd be up from 43 cents. And sales are supposed to increase to 8.8 billion from 6.8 billion. And it's because of something called high bandwidth memory, which is what artificial intelligence needs. These are certain kinds of chips, memory chips.

And so, you know, Micron is one of the main suppliers to NVIDIA for these chips. It competes with SK Hynix and Samsung. Samsung's not doing so great right now, but it looks like they're getting better prices for those chips. It also looks like there was weakness in what's called NAND chips. It's another kind of memory. But that looks like that the inventory there seems to have come down. The pricing has stabilized significantly.

And if all this kind of memory demand is coming back because of AI, then they are maybe a lot more upside in the stock. I mean, it's been trading kind of, oh, it's sideways for quite a while now. It's a volatile stock and it's sort of, it's about, I don't know, it's a third of the way or it's come back about two thirds of the way towards its high, which was reached in the middle of last year.

And it'll be interesting to see where they can go. But with the earnings growing like that, if it can actually meet these expectations and beat them, there could be more room for upside. That's exciting. And you definitely want to have NVIDIA as a customer.

Yep. They have lots of money. All right, let's move on to Carnival, the cruise company, a splendid 12 months. The stock is up almost 50% and everybody is back on the water again after the terrible experience during COVID. So what's the outlook for earnings when the company reports tomorrow? Yeah.

You know, they're pretty good. You know, the company is supposed to report 25 cents a share. That'd be up from 11 during the same quarter a year ago. Sales up to 6.2 billion from 5.8 billion. They're you know, it's the stock has done well.

And so it remains to be seen whether the earnings are going to be good enough to keep it going. But it has some things working for it. One is before this recent spike in oil. So, you know, for the quarter itself, oil prices were low. That meant fuel costs were low.

And that probably helped. And the dollar has been weak. And that also helps them. They do a lot of business, you know, having to convert back into dollars. That helps. It makes the other currencies worth more. And so, you know, that part of it seems to be pretty good. There's, you know, some worries just about can it keep going with, you know,

the way the world is um there's uh the company saw fewer bookings in april um that was about the you know the uncertainty we actually had heard that from uh others in the cruise industry too um it'll be interesting to see if that has come back um what they say about the future quarters

But there are also some other interesting things. They have something called Celebration Key, which is kind of a private island in the Bahamas. I think a lot of the cruise companies are doing this now. They are. And so this is, you know, it's opening in mid-July. I think it's July 19th is the date. And they're supposed to have 2.2 million guests in the first year, get that up to four to five once they build a second dock. And it has, you know, little villages for families, for people who don't want to be around kids and all kinds of things.

And they think that the analysts in Mizuho think this is going to be huge for the company, that it could account for 14 to 15 percent of its guest capacity come 2026.

And that there's actually going to help with margins too. So that's good to hear what they say about that in demand for Celebration Key is also going to be key. I keep thinking, good thing there are so many extra islands around for the cruises. Maybe Lauren, you and I could go in on one together. Right, right. Go enjoy your private island. Don't forget about me, guys. No, we'll take you. But we won't take other podcast guests.

Anyway, I want to get back to you, Keith, and talk about some of the economic news this week. The Fed chair, Jerome Powell, will be giving congressional testimony, his semiannual testimony about monetary policy. That happens on Wednesday and Thursday. Wednesday, no, Tuesday and Wednesday. Sorry about that. I want to know what you'll be listening for when Powell speaks.

Well, I'll be listening to just any new comments about how what's happened with Iran affects their outlook. But my expectation is probably not that much. You know, the market isn't really pricing a change till September.

And right now, the Fed, as I mentioned, was on, you know, wait and see mode before this weekend. And after this, they're likely still to be on wait and see mode. So I don't expect, you know, that much of a shift. And, you know, in market days and months, I mean, between July and September, that's a long time. And right now, the Fed is basically on the sidelines. And I don't think the main

market move at this point. And it's more of a, what we're seeing is just more of a grind, the policy, like again, Fed policies on a holding pattern. And one of the things as you was going through some of the stocks, a lot of the stocks that you discussed, it's interesting to see like, oh, last year, they've been on this kind of back and forth. The technology sector is basically up about 1% since last July. So it's interesting kind of going through this, that there's lots of

of this market that's in this kind of holding pattern that likely persists for at least a few more weeks to a few more months. As you said, it would be a choppy summer. So what about inflation? We're going to get the PCE price index. That's the Fed's favorite inflation measure reported at the end of the week. What are your concerns, if any, about inflation expectations? Ooh.

Well, the question that the market is wrestling with is, are the impacts of the tariffs finally going to show up? If you look at the last couple of months, we've actually had pretty market-friendly inflation reports. It's interesting, some of the more recent inflation reports, the market hasn't really responded. But I think the underlying trend for inflation outside of the tariffs, again, which is a big caveat, is one that is showing somewhat of uncertainty.

at least moving down, which on the Fed's favorite metric, were only slightly above 2%. Oil prices are up a little bit, so that complicates things a bit. But the housing market is certainly showing some cooling. The labor market is certainly showing some cooling as well. So I think the broad-based kind of

I don't want to say maybe disinflationary, but low inflation is still somewhat supportive. But I think the challenge for a lot of economists and the market is to kind of see through what's likely going to be some erratic data over the next month or two as we work in some of this, you know, this tariff news and also the purchasing that happened before and after the announcement from the administration.

Right. As companies got ready. That's a good point. One thing I wanted to ask you about before we go to listener questions is international markets. Non-U.S. markets have moved out of a multi-decade trading range. And I know you look at a lot of international markets. How are you thinking about these days? Sure. Well, we have been Team USA for several years and we still are Team USA. But

On the margin, what we've been doing this year and even more recently is we've been raising our international position and more towards a neutral posture. Again, so we're overweight the U.S. still, saying we have more relative to a benchmark in the U.S., but we've been gradually increasing our international developed markets. And for a couple of reasons, you know, we look at our

Our approach is a weight of the evidence approach, right? There's no single way that we look at the markets. We want to have more positive than negatives to make a higher probability decision or outcome. And when we look at the international markets, we have a couple of positive things from the last couple of years. One is the technical side. You just mentioned it. These markets have not done anything really since 2007. So one, I respect that we have had a big breakout recently.

in these markets. And you can look at Europe, you can look at Japan, and you can look at even the UK. So we are seeing better technical action as a starting point. We all know from that really over the last decade, they've underperformed so much that

valuations compared to the U.S. are cheap. Now, they've been cheap and got cheaper. So that by itself is not a catalyst, but it is telling you that even though we've had a nice move this year on a relative basis, they're still at the low end of their multi-decade range from a valuation perspective. And then when we think about international markets, what's really important is the U.S. dollar. In fact, over 50% of the returns for U.S.-based investors has been US.

has been based on the dollar. So

When the dollar tends to weaken, that tends to be better for international markets because as a U.S.-based investor, you're getting the local return. And if the euro is increasing, you're getting that return as well. So I think in this kind of period where we're seeing some rebalancing, we still think the U.S. is the dollar reserve currency. But on the margin, you are seeing some rebalancing. I think it provides more of a portfolio hedge here.

And also, lastly, you have some now fiscal stimulus from Germany, from NATO on the defense side. You put all this thing together, positive technicals, cheap relative valuations, some stimulus. And I actually forgot one important point is that monetary policy from the ECB, European Central Bank, is much easier than the U.S.,

On the margin, I think you want to have a little bit more international than you would have, say, two years ago or four years ago. Longer term, again, the best companies in the world are still in the U.S. The big tech companies are U.S.-based as well. So I still want to hold that overweight. But again, on the margin, we would be increasing international relative to the past few years. And we've heard that from other investors, too. So it's a good point.

All right, let's go to some listener questions. We talked about what could go right with the markets this year. We had a question from John who wants to know, Keith, what are your concerns about the markets?

There's always concerns. One of the phrases I used a couple of years ago was the carousel of concerns. And as one concern recedes, another pops up. And it's often things that we're not talking about. If you think about Iran, as an example, that wasn't the main focus of the market up until a week ago. So I think the bear case is this. One,

From the overall market standpoint, valuations are at the higher end of the range. The S&P is trading around 21, 22 forward earning estimates. The economy itself is muddling along, but maybe growing 1%, 1.5%.

And at the same time, the Fed is somewhat constrained in that they have scar tissue of inflation from several years ago. So they're not being as aggressive relative to where they'd likely be without that scar tissue or the tariff uncertainty. So I think when you have markets that have high evaluations, an economy that's somewhat slower and the Fed constrained, you're in a position where you need good news to continue and or said another way, a little bit of bad news.

could go a long way. So I think the biggest risk for the market is you have somewhat higher expectations and some good news that's priced into the market at current levels. All good points there. Thank you. We have a question from Jeff for you. Besides the oil market, what other markets might be affected most by recent events in Iran?

Sure. And one area that we still like, we've been bullish on it all year long, is gold. And within portfolios and small allocations, we think it makes somewhat sense to have gold as a portfolio diversifier. I'm looking today, it's actually up a little bit today, but the thing with gold too is it tends to go through a big cycle. So if you think about

The 2000s had a big decade and then it peaked around 2011 and basically went sideways for almost a decade. So this is another market where sometimes it's helpful to zoom out. It's had a big move this year. It's up a lot. We've been positive during this period.

And but given the geopolitical uncertainty and a recent survey done by the Fed showing most global banks expect to continue to buy gold, I think in times of high uncertainty, that continues to make some sense. The other thing to be thinking about, even with oil prices, is who are net importers of oil?

That's where even in emerging markets, some areas like China could be negatively impacted by that. Maybe a place like Brazil would be more positively impacted as an example. But I think it's also looking at who's a price taker versus who is not is also something to think about, even on an individual stock perspective. That's a good point.

So, Ben, I'm going to ask you the next question. It's from Larry. And you do a lot of work with our colleague, Al Root, who had a good cover recently about defense stocks. And Larry wants to know, since warfare is changing, should he sell armaments companies and buy companies that produce drones?

- Well, I would say go read Al's cover 'cause I think he did a great job of explaining this. That was not too long ago, actually before all the escalation in the Middle East, but it was on May 9th. But I think the short answer is you wanna have them both.

the drones and things like that, those and not just the drone makers, but also companies like Palantir and whatnot are really are changing defense. They're changing the way that wars are fought. We see that very much between Russia and and Ukraine, where, you know, there's these drone attacks that are causing so much damage and really allowing Ukraine to stay in the game in the game of the way they might not be able to otherwise.

But then you look at the attacks, the war between Israel and Iran, and it's very much one of, you know, you have fighter pilots in fighter planes. So one thing that's been getting a lot of attention is this F-35 that Lockheed makes, which is the most up-to-date plane, and it costs a fortune.

But it's a very good plane. And it's been it's one of the reasons that Israel has been able to be so dominant is that if you have an F-14, which is what the Iranians have, among other things, you can't compete. You also have things like the B-2, which are, you know, big, giant bombers.

that are made by, I think those are Northrop, the bunker busters that were dropped, I think are Boeing. I may be getting this wrong. But my point is that you want them, you want to have both. It's almost like a barbell. They want the best of the startups and you want sort of the best of the older ones. And I think that'll cover what you need because as much as war is changing, you still do need them in.

The fact that you could fly the B-2 bombers, a 36-hour round trip to do the bombing was, I think, a pretty spectacular case to be made for the old-fashioned military companies. And, Lauren, if I can just chime in for a second. You mentioned earlier, if you look at the defense sector, and there's several ETFs that track the defense sector, they're close to a 52-week high today. But it's not just...

because of what happened over the last week, they've been strengthening for some time, both on an absolute and a relative basis. When you look at the industrial sector, you're seeing much stronger trends out of these companies relative to the transportation companies that we talked for obvious reasons on the geopolitical side, at the same time when the economy globally is somewhat more mixed. So it's an area on the industrials and defense specifically that we still like. And I think Ben framed it right. There's

There's probably both, right? It doesn't have to be either or because in some ways you want to have both the drones, but also some of these fighter ships and so forth, because you have more than one strategic enemy out there and how you approach that may be differently depending on what the next geopolitical event breaks out. Right. Different places, different wars. That's right. So very good to know. Yeah.

We had a question, Keith, that I think will be close to you from Nirmal, who wants to know the outlook for regional and money-centered banks. Well, a big picture on the financials is we were overweight financials early in the year. We have downgraded financials, and that would also be more consistent broadly. And

There are some positives, right? If we see deregulation, that's a positive. If we get to the other side of this tax bill, that's a positive. We are seeing some signs of the M&A side and the IPO market perk up a little bit. So those are all positives. But you still have an economy that's slowing somewhat by the Fed on hold. And then as we also overlay this with some of the technical and earning trends,

The relative technical trends have started to moderate after being strong, and the earning trends have also moderated. And credit trends seem to be somewhat stable, but we are seeing a divergence between the high-end consumer and the low-end consumer as well. We've seen that student loan debt payments start to move up as well. So again, it's a big sector, but it's one that we are not overweight currently.

All right. You mentioned interest rates. Mike had a question. What is your interest rate outlook for 2526? Yeah. So, you know, it kind of goes back to a lot of the things we've been seeing in the markets. Everyone's been making big calls on interest rates and they've been, you know, over the last two years that there's been some outliers, but it's been pretty flat. And our market

our fixed income team, the fair value on the work that we're looking at suggests that we're around fair value for the 10-year right around 415, 425. So we think the up end of the range is probably close to the recent highs of our 480. And

Unless you really start moving to a base case of recession, that the low end is probably 375 to 4 because you also have these kind of push and pull, right, with deficit spending, some uncertainties around tariffs. On the other side, you know, yields are still competitive relative to where they've been. You're showing a slowing trend.

labor market as well. So the way we're thinking about it is if, and the way we've been doing this and somewhat successfully over the last, I would say two years, if we start to see an overshoot above say 460, 470 on the 10 year, that's a time we would likely look more at potentially extending maturities. And as you get closer to four, we would likely shorten them up

Our fixed income team, though, I will also say more recently has become more positive on the municipal market. There's been some supply demand dynamics that have affected that somewhat negatively this year. And we think as we get through the summer months that that demand supply will start to be improved. And on a relative basis to treasuries, the taxable equivalent yield is one way we look at munis is relatively attractive.

All right. Good to know. One last question, and then we've got to wrap things up. TJ wants to know your assessment for the U.S. dollar weakening. What's the likelihood that the dollar index could drop to 90 or even 80 in the next few months? Well, so I think the way I think about the dollar is on a short-term basis, it did get a bit

oversold or stretched to the downside. And you are seeing a bit of a bid. I think we just saw one of the fund manager surveys showed one of the most negative views of the dollar in some times, which tends to be contrarian. So I think on a short-term basis, I think you're more likely to kind of bounce around here. Though longer term, as we see some of this rebalance, and I do think there's kind of this break of this multi-

multi-year range that we've seen recently, I think we'll likely come back and start moving lower again after more of a digestion period because we've moved sharply in a short period of time. I don't have a specific target, but I would just say breaking that technical multi-year level, that support level, I think is important. I think eventually we will move below it, but again, on a short-term basis, we

Just, you know, things don't move in a straight line. And I think you're getting a little bit of a bid around this, the Iran news. But if we're right on that US dollar, that also suggests going back to what we talked about earlier, having a little bit more international. And that's also should be a positive for gold prices as well.

All right, Keith, I want to thank you for hopping on today's call. It was really interesting. Yeah, a lot of fun to be, good timing to be on with you. And I really enjoyed it. Thank you for the opportunity. Great to have you. And Ben, thank you as always for joining us today. Thanks Lauren. I want to thank our listeners for tuning in and thanks for your provocative questions. Next Monday, Ben and I will conduct a mid-year checkup.

We'll be checking up on the stock market, fixed income, international markets, commodities, gold, crypto, you name it. Where have the markets been? Where are they going? And the half-year point seems a good moment to reassess and regroup. We look forward to your questions as you plan for the rest of the year. So please add them when you sign up for next week's call. Thanks again, everyone, for tuning in today. Stay well and have a great week.

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