Now let's get to the big story breakdown. With benchmark ten year Treasury yields surging past 5% in the previous session and Brent crude trading above 106 a barrel yesterday. Fed fund futures are also pointing to a 93% chance of a Federal Reserve rate hike. At the same time, equity markets are swirling with volatility after AI industry leaders called for safety guardrails, triggering a selloff in chipmakers and also rotation into hyperscalers and cybersecurity.
Well, joining us live to break down the Fed's decision, market exposure as well as his main message for investors is Richard Reyle, chief investment officer at Questar Capital Partners. Well, thank you so much for joining us today.
Good morning. Nice to be here.
Finally it is Fed Day here, and this is the day that many of us have been counting down to. And right now, if we look at Fed fund futures, we do largely expect to get a rate hike later this afternoon. But of course, there are many parts to this. We're going to be waiting for Walsh's comments, as well as the summary of economic projections here.
So what do you think is key as we head into that 2 p.m. hour today?
Yeah, of course. I mean, no doubt that Tim Hersh's commentary, probably after the decision, will be just as important as the actual decision itself. Obviously, we think that it's kind of baked in the cake that we're going to get an interest rate increase. You know, the Fed funds have been telegraphing that the two year definitely is. That's 100 basis points above. And I think that gives us the best trajectory of where we're headed, because remember, probably if the Fed increases rates, it's not just a one and done. They're going to continue to increase rates. And I think that gives us the best picture, especially from Kevin. You know Kevin Warsh is on record. He's not going to give us any forward guidance. And I think that's where the market has to look for that price discovery that he spoke about. And that's where we're headed I think ultimately is higher rates. And obviously, you know, right now the market seems to be wanting that. You know that's the big deal.
If for some reason the market does stay on hold today. I think the markets would sell off. That would be the big surprise for today. But it's unlikely.
Yeah. And another area that we're paying attention to is artificial intelligence. So we all know it's not just the technology. It's also a national security issue. And we're hearing from leaders on both the business side as well as the political side. And we're also hearing from consumers out there, especially when it comes to data centers.
So give us your perspective on the AI trade as well as the sector rotation.
Well, right now we're really not seeing any pullback in the actual spend. You know that's the whole point. I think if people after, you know, all these essays came out and thought pieces came out over the weekend, you know, if they really thought there was a genuine pullback, I think the AI trades, the Nvidia's would have dropped precipitously if that, if that was the case.
And so far it's still full speed ahead. I think that right now what people are kind of trying to sort out is what's the regulatory environment going to look like going forward. And I think that's going to be a multi month, multi year process to get sorted out. And as investors, you have to focus on where's the money actually going.
And right now the chip trade still works, the memory trade still is in play. And, you know, and even into the power and data side of this, yes, there's going to be some slowdowns. But I think that, you know, the AI trade is going to continue to work going forward for the foreseeable future. And yes, there will be obviously big business comes into play.
Political considerations have to be part of it, and that's going to be a big conversation for many months going forward.
Yeah, and I do want to get your perspective on macro as well. Earlier this morning we got U.S. retail sales figures which came in better than expected. And while the Fed does focus on inflation as well as the labor market, I do want to get your perspective on what we're seeing across the board when it comes to macro.
And do you think the corporations out there can manage their performance as we head into year end, especially given the earnings performance we've seen so far in 2026.
Yeah. If you take away from inflation and you just look at earnings, we just had second quarter earnings that came in the strongest we've ever seen. Any other time outside of it coming directly out of a recession. So the numbers were fantastic. So you look at employment, we had very solid employment numbers come out.
And so if you're looking at everything from a macro level, if you set aside inflation, the economy looks very solid. And you know, as you mentioned, the retail numbers were solid this morning. So all that put together puts, you know, for the investor and for going forward I think for a very strong economy.
And that also probably helps the Fed, you know, put through an interest rate increase because otherwise the economy is on solid footing and can maybe absorb an interest rate increase or two.
Yeah. And many of our viewers are watching at the nation's airports or business lounges right now. So when it comes to portfolio allocation, what would you actually say to them right now, especially given elevated energy prices and elevated Treasury yields?
Great question. Well, I mean, that's really the crux of what do we do now. Right. And so I think the play that's actually been working, we've been buying pharmaceutical stocks for our clients in a big way. You look across especially the majors, look at Eli Lilly. I think their growth is going to continue.
They have 50% earnings growth for this year, 25% earnings growth for next year. That happens no matter what Kevin Warsh does with interest rates. That happens no matter what inflation does. J&J is on deck to be the largest oncology company in the entire world by 2030. So that's, you know, you've got these very solid, you know, brand name companies with great dividends and, you know, great earnings in front of them.
So that's the way that you can kind of step outside the AI trade, the interest rate fears that people have and do quite well and not have to play the game that's going on right now, perhaps on Wall Street.
Let them sort everything out on with AI, let them sort out interest rates. And as an investor, you can participate in the markets with kind of stepping outside of all those, you know, pressure points that we're focused on right now.
Yeah. And finally, before I let you go, because you mentioned the AI trade, I do want to get your perspective on factors in particular for value. So what do you think is the most sustainable value that you're finding in the AI trade?
I think it's the choke points that come into play and that's going to be Taiwan Semi is, you know, obviously the gold standard when it comes to chip manufacturing. And then a company ASML, you know, which makes the lithography equipment. Again, they're the only people that do at the top, top end. And so those are two choke points that are unassailable in their position in the markets.
Well, a lot of moving parts here. So I appreciate you joining us today on that day. And I appreciate all of your insights and perspective. Thank you so much for joining us.
Thank you for having me. Thank you.
