Host: Joining me today to discuss the macro environment — and much more — is John Livingstone, Chief Investment Officer and Investment Director. John, thanks so much for joining us.
John Livingstone: Good afternoon. Thank you.
Host: Let's start with macro — specifically inflation. Last week we saw incoming Fed Chair Kevin Walsh hold interest rates unchanged, but there is speculation that they will rise in future. Talk me through where inflation stands today, and where markets have got it wrong in the past.
John Livingstone: Inflation expectations are definitely increasing, both core and headline. Core always lags headline because headline includes energy. Kevin Walsh was brought in as someone Trump expected to reduce rates, but with what's happened geopolitically, things have definitely changed. There is a real possibility of a surprise to the upside in the next three to six months, and potentially one or even two interest rate increases within the next six to nine months.
Host: How does the current environment compare to past periods where expectations were badly misjudged?
John Livingstone: 2021–22 is the classic example. In 2021, everyone was anchored to 1–2% inflation. By 2022 it had hit 5.7%, and policymakers were massively behind the curve — anchored to their previous predictions and very slow to react. Interestingly, the consumer was actually far better at predicting the next inflation data point than the professionals were. You had anchoring, groupthink, and people not wanting to look foolish. The net result: the Nasdaq fell 33% in 2022 and the S&P 500 was down 19%.
Host: As an experienced investor — both in listening to companies and in managing your own book — what short-to-medium term opportunities are you seeing in this environment?
John Livingstone: If we do get inflation surprises, it will hit longer-duration stocks. Some AI names — particularly those whose revenues are further out on the timeline — could be affected. That said, the key leaders with extremely strong pricing power should continue to perform reasonably well; they'd be impacted, but less so than others. One name to watch is Micron, which is reporting quarterly earnings today, and the market will be watching that closely to gauge the strength of momentum in that space.
Host: This clearly has a trickle-down effect across markets — we saw Space42, for instance, positively impacted when SpaceX had its IPO. On AI specifically, how are you positioning it within your portfolio?
John Livingstone: I look at AI from a few angles. Macro-wise, I think AI could be one of the biggest deflationary forces we've ever seen — with a massive long-term impact on equities and beyond. But in the short term it's actually quite inflationary, because we haven't yet captured the productivity benefits.
In terms of my portfolio, I've been in markets for 25 years and I run around 15 to 20 different trading strategies. I simply can't monitor all of them all the time. So what I'm trying to do is automate as many of those processes as possible — and make extensive use of unstructured data. For example, getting AI to analyse 500 announcements from CFOs and CEOs around the world at any given moment, and then prioritising which represent the greatest opportunities for change. That's really where I see the practical value.
Host: Fabulous. Thank you so much for joining us today — great to hear your views on the macro environment, on investing in AI, and on its impact on portfolio management. Thank you, John.
John Livingstone: Thank you.
