JD Durkin: Drew, chief investment strategist at Roundhill. Always grateful for your time today.
Drew Pettit: Yeah, thanks for having me.
JD Durkin: And good to see you back in the Meta shades, too. Those are [unclear: “Chris”].
Drew Pettit: Yeah, I really like them.
JD Durkin: And I appreciate you being here. We’ve got a lot of good stuff to talk about. First of all, was this the reaction you expected? I don’t know if you saw pre-market last night around midnight. If you were up as late as I was, we were looking at a very different story today. What did you make of what we saw today?
Drew Pettit: Yeah. Look, the trade today for me has been long caffeine, because we were watching this play out live last night. A little bit surprised at the rally, but it kind of reminds me of what happened when Trump won in 2016. The markets were down even worse and kind of corrected. I really believe this, personal view here: you don’t make money trading politics. You make money trading long-run fundamentals. I think what we’re really seeing today is the reaction that everything was overblown. The fundamental story in the secular trends has not changed.
We’ll get a better sense as the dust continues to settle. I mean, we’re still counting states like Mississippi, so obviously the margin for Democrats could continue. But in terms of the next big catalyst for the market to trade on, the October jobs report, obviously coming up on Friday.
JD Durkin: We’ve got this Anthropic IPO, which I kind of forgot about the last 48 hours. What do you see on the timing and the fundraising side, specifically for Anthropic’s listing?
Drew Pettit: Yeah, so this is interesting. Today is a clearing event. We’re past the news. So it doesn’t really matter if the Democrats get another seat or not. We know the outcome. That was the good story that kind of hit around midnight, when we saw the turn. The next clearing event is Anthropic.
JD Durkin: Thank you for bringing that up, because I still think there is some chop within the market. You see semis in the red today, even though you feel like there is a green wave in the headline indices. So there’s still some money, I would say, people making room in portfolios for Anthropic.
Drew Pettit: Once we finally get that coming to market, we really want to see this deal around 1.5 trillion, and we want to see it priced sometime in the middle of November. Once we have that news and that unknown is then known, we can refocus on the long term around semis, software, the broader AI trade, rather than just freeing up cash for that.
JD Durkin: I want your take on what we’ve seen from earnings season more broadly. A lot of companies beating, but maybe it’s not enough to be good. You have to be better than good. What are you seeing in terms of the numbers that Wall Street is expecting? A lot of beats, but maybe still not being quite good enough for Wall Street overall.
Drew Pettit: So in my past life, I lived on [unclear: “the south side”], and everyone kind of gets the joke that everyone beats earnings. So when you have very strong growth priced into stocks, look, we still think growth expectations are really high. When growth expectations are high, you need better-than-average beats. We are not getting that. And look, the economic data has been really good. Economic surprises have been really strong. We thought we would see over 5% earnings beats. We’re seeing something closer to four. So good, not good enough.
And then the other piece that we’re keying in on is gross margins. AMD was up big last night until people started talking about the gross margin negative surprise, and you’re seeing that stock down today.
JD Durkin: Yeah, of course. They reported results yesterday after the bell. The days are blending together. We got AMD’s print yesterday. Are you expecting more volatility across the AI trade, across AI stocks, or are you in the camp that expects to see a more clear delineation between AI winners and AI losers?
Drew Pettit: I think AI is going to stay choppy. So we’re going to stay in the secular, real drivers, not necessarily the users of AI but the semis, the software stocks, which we still think are choppy. You’ve got to get to the next clearing event, Anthropic. But what we think you pair it with, and what’s working right now, are the HALO stocks, the heavy-asset, low-obsolescence stocks. These are the cyclicals that are getting the benefit from lower rates and economic data hanging in. We think if you have that barbell, that’s how you survive AI choppiness. Stay in the market and get some of the cyclical rebound.
JD Durkin: That’s a nice barbell. Yeah. Thank you for reminding me what the HALO acronym is. I always mess it up. I’m like, it’s something with obsolescence. So thank you for the primer, and thank you for joining us the day after the midterms. Good to see you, Drew.
Drew Pettit: Yeah. Great to be here, JD.
