Last week, I had the pleasure of joining Sid Ahl and Erika Pagel, co-CIOs of our Private Client, Endowments, and Foundations team, on their CIO perspectives podcast. In this month’s Equity Beat, I’m excited to share some key takeaways from our conversation and a link for those of you who want to listen to the full recording.



Inflation and the Fed: We kicked off the discussion with an update on inflation and the current mindset of the Federal Reserve. Despite mixed signals from corporate America throughout earnings season, the economy remains resilient, with GDP growth exceeding expectations in concert with a tight labor market. However, inflation remains a concern, and we believe that the equity market is eagerly anticipating potential rate cuts by the Fed.

Market Leadership: One of the most intriguing aspects of the current market environment is the narrow thematic approach to public equity investing. This year, 20 of the top 25 performers in the S&P 500® Index are associated with just two themes: generative AI and the related data center buildout, and aerospace and defense. While fundamentals in these two areas generally support their strong stock performance, it has left many other areas of the market in the dust, potentially creating opportunities for longer-term investors in high quality businesses.

Consumer Behavior: We also delved into consumer behavior, noting that while higher-income consumers continue to spend, middle and lower-income cohorts are feeling the pressure from inflation and elevated interest rates. This has led to reduced or deferred spending on larger discretionary items, as well as on aspirational impulse purchases. It’s no surprise that only two of the top 25 performers in the S&P 500 Index are in the consumer sector year-to-date.

AI Advancements: The rapid advancements in Generative AI have been a hot topic, with significant developments from companies like Google, Meta, and OpenAI. The excitement around these innovations is accelerating investment in traditional cyclical and value-oriented pockets of the economy and have therefore established new thematic winners in the utilities, energy and industrials sectors. However, it’s important to recognize that we are still in the very early innings of the Generative AI economy, and as such drawing definitive conclusions on distinct long-term winners remains very challenging.

Life Sciences and Healthcare: Lastly, we touched on the health care sector, across life sciences and biotechnology. Despite recent challenges that have muted performance, there are promising opportunities in these fields, particularly with advancements in medical technology and treatments.

Thanks for reading, and remember to never skip a Beat Eric

Source: Factset® as of 05/29/024. FactSet® is a registered trademark of FactSet Research Systems, Inc1


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