JD Durkin: Get Drew Pettit’s take on this, Chief Investment Strategist at Roundhill Investments. My man, thank you for being here.
I actually had not planned to ask you about yields. I don’t know how I could have, but let’s start there. Another big move. Is this bond vigilantes expressing their frustration once again? How did you see this playing out the last few days?
Drew Pettit: Yeah. Look, I think what’s happening in markets right now is we’re getting that reaction function from the Fed and the Fed watchers. So when we get that good economic data like we had yesterday with the PMIs, you start to see the real rates move higher, and that’s why Treasuries are up.
Why the stock market’s shaking it off is because earnings growth is really good.
JD Durkin: What do you make overall of the parts of rotation earlier in the week? It really seems like artificial intelligence, the high-flying, high-beta parts of the market, semiconductors started to rip at the expense of financials. Maybe some profit-taking there even into today’s session.
What have you made of some of the rotational moves we’ve seen here on Wall Street?
Drew Pettit: It’s going to where there is conviction in long-term earnings growth. So this is the MAGS ETF. MAGS is working. MAGS is back. We’re seeing that.
And then on AI, yeah, we had those fears on the [unclear]. But look, compute’s going up. We have some really strong, I would say, product launches with Meta right now around [unclear]. Compute’s going higher. Conviction’s there. Markets want to go there.
JD Durkin: Yeah, the MAGS ETF you mentioned, up six-tenths of a percent today, up 9% year to date. Obviously, can’t use the same brush to paint all seven Mag Seven tech stocks, but obviously Meta’s been a big outperformer.
Has that surprised you, seeing obviously the Muse AI rollout, the number one free app in the Apple App Store? And for all the naysayers out there against Mark Zuckerberg, the stock has been ripping the last few weeks.
Drew Pettit: It’s funny, you’re seeing the Mag Seven move more idiosyncratically than it has in a long time. And it’s funny, Meta’s kind of the story right now. Again, product cycle.
Apple was kind of into that world with its product cycle, and then Google seems to work every time people count that out. So it’s funny, it’s a rotation story, but you have leverage to that growth trade with the Mag Seven, and that’s why it can work even if all the individual parts don’t always work at the same time.
JD Durkin: Yeah, I think of all the obituaries that were being written by analysts against Apple. Apple shares reached an all-time high just a couple of days ago.
Expectations for an interest rate hike. Now you already had one. Now maybe another one October 28. How do you see that playing itself out? What’s priced in? What is not yet priced in, if anything?
Drew Pettit: So look, I get the front-end markets are definitely expecting some more hikes from the Fed. The 10-year is actually behaving relatively well. I think that matters more to us because growth is so good.
We think the equity markets can actually handle a 10-year around 5.30, let’s say. And I guess that’s testing the thesis as we get to, what, 5.20 on the close today.
But the kicker, and I’ll keep coming back to it, JD, is if earnings growth is good, you can still buy risk. And we like growth risk right now.
JD Durkin: Yeah, I think the yield curve in general, it seems maybe a little skittish given recent history, but historical averages, maybe we’re kind of getting back to our historical mean.
Let me get your take on geopolitics. Obviously, we’re here with the Peruvian delegation, U.N. General Assembly week. We also have the presidents of the two largest economies meeting at the White House today, Xi Jinping, Donald Trump.
What in the world of geopolitics do you pay attention to? What do you think investors should keep their eyes on as well?
Drew Pettit: So look, it’s hard to make money trading in geopolitics. But to us, when you’re thinking thematically about AI, we want to make sure parts of that supply chain are open. We think they should be.
It matters if we have a cooling in tensions in trade. We think that’s really good for a lot of semiconductors.
In the back end of the AI trade, you need China in these thematics. We think investors should have that in their portfolios.
JD Durkin: Drew Pettit, Chief Investment Strategist at Roundhill Investments. My man, come back on the show anytime. Good to see you again.
