As we kick off a new trading month, we're looking at the S&P 500 up over 11% this year, shrugging off headwinds from elevated rates as well as geopolitical tensions and persistent inflation. Now, while tech heavyweights like Nvidia continue to drive headlines ahead of major earnings reports from Dell, Broadcom as well as Palo Alto Networks this week, a surprising rally is also underway in value as well as small caps.
And this is reinforcing the critical need for portfolio diversification. So joining us here to talk about what's going on below the surface is Eric Bailey, wealth manager and executive managing director of the Baillie Group at Stewart Partners. Great to have you back. Thank you so much for joining us.
Thanks for having me. Glad to be.
Here. You and I were talking about seasonality as the month of September gets underway. But if we take a step back, the major stock averages are still higher year to date. So what do you make of what's happening and what are you paying attention to?
Right now the main thing I'm paying attention to is not so much equities. It's more interest rates, fed policy. I think that's really dictating where the markets are going to go. And you can see investors now have kind of paused right. Step back. We're not seeing a lot of leadership right now. You've had you know Nvidia had good earnings last week.
That kind of fueled a little bit of a tech rally that's that's pulled back a little bit. We have Broadcom. We have Dell this week. That's important. But I think the markets are nervous about where rates are going. And so you're seeing especially as we start September a little bit of selling.
Mhm. Absolutely. And we're also keeping an eye on Treasury yields as well. But as you mentioned we are counting down to the Federal Reserve meeting because we want to see what happens with interest rates. And we did hear from the Fed's chair Warsh at Jackson Hole last week. So given what he's been saying and given the geopolitical tensions in the Middle East, what does all of this mean when it comes to the rate outlook?
I think that, you know, higher rates is what it looks like, right? I mean, you're certainly seeing the long end has been new highs today on the ten year and the short end. Yeah. Looks like because of persistent inflation, high energy prices, high food prices, that Warsh and his comments you saw on the market reaction was the likelihood of possible rate hikes.
And so that's kind of being priced in. There's still a little uncertainty there. But the markets are certainly reacting to a higher rate environment.
Yeah absolutely. So I do want to get your perspective when it comes to the divergence we're seeing between value as well as growth. So tell us what you're seeing.
Yeah I think one of the big surprises is how well value sectors have been. Clearly energy is in that group. And they've been the number one performer with the high oil prices. But even outside of that, if you look at the Russell 1000 value, it's up north of 20%. And when you look at the same Russell for growth equities, it's only up a few percent 3 or 4%.
And so that's a substantial
difference. And so value stocks dividend paying stocks financials health care has done very well. And these need to be in an investor's portfolio. A lot of investors get caught in AI and growth in that sector. But if you look at these broad groups, you know you want to have value, lower risk equities in your portfolio.
And also, when we take a step back and look at 2026, it goes without saying that there was plenty of volatility. And we saw this affect all asset classes. And you did touch on some of the energy that we're watching when it comes to headwinds. So what does it mean when it comes to tech as well as the energy sector.
Well tech has clearly been you know, very strong. I mean the earnings from a lot of tech companies were incredible Nvidia just last week right. And just amazing numbers. So I think Broadcom the markets are certainly hoping for good earnings there. So tech is leading AI. The capital expenditures in AI are incredible.
And so that's fueling a lot of this rally. And semiconductors the whole space. So tech is going to lead the markets right. I think right now we're seeing a little bit of a pause. You've seen some come down. Semiconductors for example are still down over 10% as a group. And so we're in this you know who's going to lead us now?
Who's going to lead the markets going forward? I think tech needs to. But the jury's out right now.
Yeah. And while I have you here, Eric, I do want to get your take on Dividend Aristocrats here, especially when it comes to high net worth investors. So give us your perspective on what we should be focusing on.
Well, yeah, I'm a big proponent of investing in companies that are paying dividends and also growing their dividends because it really shows fiscal discipline. These companies and the Dividend Aristocrats specifically, these are companies that have increased their dividend payments every year for at least 25 years.
And so that's impressive. In all different economic cycles, they are rewarding their investors. And so these companies have done very well. And if you're able to reinvest these dividends, you can compound the growth from higher returns and dividends over time can really make up a substantial part of your return.
So I'm a big proponent of investing in in dividend equities.
And finally, Eric, before I let you go, I understand when it comes to fixed income, you have a barbell strategy. Here. So walk us through this.
Well, it's really the environment we're in, right? This uncertainty, as we talked about earlier about the fed likely raising rates. So
staying in short term cash money markets you're getting close to 4%. And you have daily liquidity no risk. And so that's a very attractive place. And investors clearly are going there. If you look at the balances in money markets it's staggering. But I do like some parts of the of the longer end curve just because where yields are I like tax free bonds for high net worth investors.
Um they are very attractive at certain levels and then some high quality like preferred stocks I like from high quality financial institutions. They pay attractive yields.
Well Eric, it was great having you on the show today. Thank you so much for joining us. And thank you so much for sharing your insights as well as your perspective today.
Thanks.
Thank you.
