Today's capital market segment is brought to you by Alpaca. While U.S. Treasury yields are hovering near two decade highs, despite the Treasury Department buying back $4 billion of long term debt, hawkish Fed policy as well as elevated crude oil prices are keeping us on our toes. While much of Wall Street defends against short term volatility.
Contrarian allocators are using this rate driven selloff to aggressively deploy cash, as well as play offense in high tech as well as semis ahead of the final quarter of 2026. Well, joining us live this morning to break down his tactical portfolio rotation as well as provide his market outlook is Eddie Ghabour, co founder and CEO of Key Advisors Wealth Management.
Eddie, good morning. Happy Friday. So it has been quite the week and we are looking at a slight pullback in oil but elevated Treasury yields. So how are you now using this hawkish Fed induced selloff as an aggressive buying opportunity?
Well, fortunately for us, we told our clients that we did expect the Fed to raise rates. So going into the Fed meeting, we had anywhere from 15 to 30% cash position for clients. And right after the Fed meeting, we started to notice after the hawkishness and the selloff, we've started to notice the last few weeks of technology really showing some very strong relative strength and looking at early signs that they're going to really break out, really meaning the semiconductors, because they've been underperforming since the beginning of June.
So we have been rotating out of the defensive areas that we've been in since the beginning of June, and now we are really getting more on the offensive side on our portfolios and continuing to use September and October dips to increase our positioning to the semiconductor and technology space. We believe after a few months of underperformance, that it's like a coiled spring now, and we're going to really take off late into the fourth quarter, especially when we get to peak yields, and we think yields will peak here by next month at the latest.
And at that point in time, I think you're going to see a pretty strong rally because defense positioning is extremely defensive and sentiment is very, very negative right now.
Yeah. And Eddie, while we're on the topic of yields, we have been paying close attention to the bond market this week as well as yields all around the globe. So given the fact that the ten year is well above the 5% level, even on this Friday morning, give us your take on what you expect as we head into the final quarter of this year.
So we don't think that yields have peaked quite yet. We do think that there's probably some upside. Maybe we get the 5 to 5 and a quarter on the ten year. It really, it's a story about oil. If oil continues to accelerate to the upside, yields will probably follow. And if they get too high too fast, then that will be a headwind to markets.
We don't think that's what's going to happen. But the one key thing I want to really stress is in the face of yields near five, at the highest levels we've seen in over 19 years, the fact that the S&P is holding up as strong as it is speaks volumes about how strong things are underneath the hood. There are areas that are weak for sure.
You want to avoid those for now and just stay concentrated in the areas that continue to make higher lows and getting ready for that fourth quarter takeoff.
Yeah. And Eddie, while I have you here, we have been keeping a close eye on geopolitics, obviously this week with the UN General Assembly, as well as that summit and that state dinner that took place in the nation's capital yesterday between Trump and Xi Jinping. And you've identified geopolitical escalation as the primary risks to your bullish thesis here.
But given that we're also getting breaking headlines this morning that U.S. China trade negotiations are coming on Monday. Give us your take on geopolitics, especially as we inch closer to the midterm elections.
You know, I really expect positive news on the China front that's going to come out on Monday. Really just trying to get in line on AI. But the bigger story, I think, goes without being said is Iran. If things escalate further with Iran and oil blows through 100 and we start getting back to the highs that we had a few months ago on oil, that's absolutely a headwind we've told our clients, and we'll have to pivot and change what we're doing right now.
We are cautiously optimistic that we are going to see some de escalation there, and that will bring oil down. So if the Strait of Hormuz opens up fully, oil is going to plummet quickly and the market's really going to take off.
So I'm not sure we're going to get that this week or next week. But when that does happen, you're going to want to be positioned right or you're going to miss the rally because it's going to happen. It's going to be very, very steep when that happens. And I think heading into the midterms, there's a lot of political pressure to ease tensions overseas.
Yeah. And Eddie, you bring up a lot of important points because when we zoom out and look at where the major U.S. stock averages are, just earlier this week, we saw the Nasdaq post consecutive record highs. And the S&P 500, as well as the major U.S. stock averages, are still up year to date. So I do want to zoom in on semiconductors.
You talked about tech and semis at the top of the show, but what are your expectations for some of the key names out there such as AMD, Micron, Marvell, as well as tech ETFs?
So we own those names. For full disclosure, we own the semi ETF as well too. Again, we've been adding to them. We bought again yesterday morning when they opened down because they are really showing extremely strong relative strength to other areas. Micron reports earnings next week. The last earnings cycle these semis went through, they got punished because expectations were so high.
We are expecting this next earnings cycle with Micron to really add more fuel to that story. And again, I think semis are finally going to break back to new highs. We are not back to the highs of this year in the semiconductor names. When you look at the SMH and the SOXX, I think Micron could be a catalyst for that now.
That's a really aggressive strategy, so it's not for everyone. You got to have the right risk tolerance. But like it or not, that right now is the area that is showing the best strength in the market. And again, this morning when you look at the green tape on premarket and the market in the futures, semis are up much more than the S&P in other areas.
And very quickly, Eddie, before I let you go. Hard to believe, but we are counting down to earnings season as the month of October approaches. So how are you going into the season?
Well, I think what the bulls have in their favor is we are at a pretty high level of pessimism because of what's been happening with oil and yields and the hawkish Fed, and everyone's so worried about the Fed raising one more time this year that you're heading into an earnings cycle where people are under positioned in the markets, as well as peak pessimism.
So I think that is a pretty good catalyst for earnings for those markets to actually react positive to earnings. This has not been an earnings problem in this market. Earnings have been extremely strong. And we expect the rate of change of earnings in this quarter coming up to continue to show acceleration.
And if you have acceleration from a rate of change standpoint on earnings growth, that should be a positive catalyst for markets.
Well, Eddie, I appreciate your time this morning. Thank you so much for weighing in and breaking it all down for us. Have a great weekend.
Thanks for having me.
