Tech's almost a defensive story in the higher-for-longer environment, says Edward Jones' Mahajan

For more on what's moving the markets right now, we want to bring in Mona Mahajan. She is Senior Investment Strategist at Edward Jones. And Mona, thanks for coming in. Awesome to be here. We've been talking about NVIDIA and the Halo effect and you think this technology rally is really warranted? Yeah, you know, it's interesting. Mega cap tech has delivered this quarter and keep in mind in this higher for longer rate environment, what we're seeing is not only can these companies, they have fortress balance sheets reinvest in their businesses, they also can, they don't have to tap the debt market. So they are delivering value back to shareholders, whether it's buybacks, whether it's dividends and by the way, they are getting a higher rate on their cash as well. So this is a pretty good almost defensive story in the higher for longer environment. But we also have this secular bull market in AI that is underpinning some of the bull market in the broader economy as well. Yeah, that's what I think is really interesting. You still think that this is broadening out and this is the rest of the stocks that maybe don't catch up, but start to feel some of the gains as well. Yeah, I think certainly from an AI perspective, what we're seeing right now is the enablers of AI, the semiconductor stocks, they have really kind of taken the bull by the horns. They are the 1st to see the price appreciations as we think about where the productivity gains are felt, whether it's financial services, whether it's healthcare, those sectors, those parts of the market we think will benefit as well. By the way, as we look towards the back half the year, if we're looking at Fed rate cuts, if we're looking at better earnings from those parts of market, another couple of catalysts that can help as well. OK. But the by the way on this is there are plenty of Fed officials who are saying, yeah, I don't see any Fed cuts the the remainder of this year. The minutes yesterday sounded like they are definitely raising the bar. Even J Pal himself has sounded like the case for a cut is going to be much tougher to make. Yeah, I think, you know, certainly we also think the bar for a rate hike is pretty high. But since the May 1st meeting and since the Fed meetings came out, we've seen a slew of data points that actually have been, we think, supportive. So we certainly saw our first inflation print that came in on the better side. It was cooler than expected or at least in line. But we also saw a labor market that looks like it was softening. Retail sales were below expectations and we had a bunch of retail names, Target, Walmart, Starbucks, McDonald's, all kind of telling us that the consumer may be pulling back a bit. So this story of this Goldilocks cooling in the economy and inflation may be moderating, we think will be playing out in the back half of this year. Yeah, we did hear those notes struck by Christopher Waller of the Fed essentially taking some comfort in some of these signs of slackening demand. But I guess I'm. I'm reminded of what people were saying like late last year when they didn't believe the off landing thesis, which was it always looks like a soft landing on the way to a downturn when you're decelerating from strong growth to something not so great. I guess what would we look for to know if we're going to stop short of something troublesome? Yeah, it's a great call out because we think the Goldilocks scenario is still a base case. But probably one of the bigger tail risks now is do we go more quickly into something deeper or more prolonged in the economy? And certainly what we're watching is one, the labor market. So we have seen unemployment rates still 3.83 point 9% near multi decade lows. But if you look at things like job openings moving lower, the quits rate moving lower. So those are leading indicators of the labor economy. They are pointing to softening ahead. We look at the consumer, you know, not only retail sales, we're of course looking at things like credit card debt levels elevated, some signs that delinquencies are picking up as well. All of those signals still coming from the lower end consumer. So not a much, not much of A broadening out to the broader economy, broader consumer, but we'd say more broadly is we haven't seen red flags yet. I think all of those are yellow flags, but we're watching those signals carefully. We are watching the unemployment rate to see if it ticks up much beyond 4%. We don't see that yet. So we continue to see this base case of a moderation to trend or maybe slightly below trend economic growth. But by the way, that's good for inflation as well.

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