Welcome to the Market Minute Podcast with Jason Katz, a
UBS Managing Director, private wealth Advisor and senior portfolio Manager
with Katz Wealth Management.
We are located in the Manhattan market in New York
and can be reached at jason.m.katz@ubs.com.
I am Jordan Ricciardi, a Senior Wealth Strategy Associate and
host for our podcast.
So let's get into it, Jason.
On Friday, the Department of Justice served the Fed Reserve
for criminal indictment over a testimony concerning renovations for the
Federal Reserve office building, but then flash to Monday morning,
futures are down.
What do you make of this market reaction?
Do you think it has legs?
So, Jordan, I understand why investors would be in a
tizzy about this because it's really not about inflation this
morning or the next Fed rate cut.
It's about Fed independence, and when investors start questioning whether
monetary policy is influenced by politics or legal pressure, they
demand a higher risk premium, whether that's lower stocks or
a weaker dollar or higher interest rates
a flight to safety in terms of safe havens like
gold.
That'll being said, the bond market, which is the ultimate
arbiter, is really holding in there this morning.
And that's because the bond participants recognize that the Fed
has already begun the path of cutting rates.
That's the path of least resistance here.
They're already engaging in quantitative easing.
And captain obvious here, everyone knows the next Fed chair,
whether it's Kevin Hassett, Kevin Warsh, is very likely to
be dovish.
So the bottom line is I think the markets will
look through this in short order and get back to
business.
Got it.
So you're expecting more of this short term reaction.
Let's talk about 2026.
You're saying this is the year of everything but the
MAG 7 rally.
Tell us why you think that.
When you look at through Friday, the Russell 2000's up
what, 6% to start the year?
You have materials up 8 1/2, industrials 5 1/2, energy
up 2 1/2.
But guess what, technology is flat.
So everyone for the last decade has been focusing on
Big Tech and more recently the MAG 7.
But the real opportunity may be everything else.
And that's because, one, the MAG 7 may be great
companies, but they're trading at nearly three times the valuation
of the rest of the market.
Secondly, earnings are broadening.
You're seeing improvement in profits as a result of infrastructure,
reshoring, steady consumer demand.
And it's happening with industrials and materials and banks and
cyclicals.
Third rate cuts, which are forthcoming, disproportionately help these rate
sensitive parts of the market.
And then lastly, AI is moving beyond big tech.
The real monetization is happening in traditional everyday companies that
are using AI to cut costs and boost productivity and
to expand margins.
So I am not implying that one wants to abandon
the MAG 7. Right size it, hold it, earnings will
grow into those valuations.
But at the margin you want to incrementally overweight some
of these areas that have begun to really start to
catch up.
And I think we're in the early innings, Jordan.
Exactly, Jason.
That's why diversification is so important to our clients
and why we advise clients to be well broadened out
in the market.
Well, diversification hasn't worked in recent years, but it's time
tested and now is the time to lean into it.
Exactly.
Well, Jason, thank you so much.
That was the market in a minute.
To our listeners, we appreciate you tuning in and hope
you tune in for next week's episode.
Have a great day.
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