How are you thinking about this relationship?

I think one of the key questions we always get is what level of yields break equities? And I think that's almost the wrong way to think about it.

I don't think there is a level that breaks equities.

I think what breaks equities is the speed of the move.

And apart from the last couple of days, actually, yields haven't been going that aggressively higher in terms of the speed.

It's been somewhat manageable.

The last couple of days have been a bit more scary.

I mean, if the Fed feels the need to tighten financial conditions in a way that at least helps bring inflation in the direction it wants,

Alistair, let's kick off with a high-level overview of what's driving US markets at the moment.

I mean, there's many competing forces as, as you mentioned.

I think the one topic that everyone is focused on, and has been for the majority of this year is, is AI, and, you know, this earning season has been just so important for the market in terms of, you know, a number of factors.

One, are tech companies, um, able to monetize all of this huge CapEx that they're spending, um, to basically deliver this AI? And, you know, beyond that, even beyond the tech sector, the other big question I think, uh, which is coming to a, a lot of investors is that are other sectors using AI? How is that actually impacting their earnings? And, you know, what are we seeing from the bottom up? And I think, you know, against this backdrop of, you know, heightened geopolitical risks, higher oil concerns around the Fed, uh, the S&P is incredibly dependent on a strong earnings profile to go through this.

And, and so far the data has been incredibly strong.

85% of companies have beaten, uh, earnings expectations so far.

The growth rate is running at around 25% year on year.

Are there some other takeaways in terms of answering some of these key AI questions that you're already seeing in this earnings cycle, or is there something that you're particularly looking out for?

Alistair, let's kick off with a high-level overview of what's driving U.S. markets at the moment.

I mean, there's many competing forces, as you mentioned.

I think the one topic that everyone is focused on and has been for the majority of this year is AI.

And, you know, this earnings season has been just so important for the market in terms of, you know, a number of factors.

One, are tech companies able to monetize all of this technology? huge capex that they're spending to basically deliver this AI.

And beyond that, even beyond the tech sector, the other big question, I think, which is coming to a lot of investors, is that are other sectors using AI? How is that actually impacting their earnings? And what are we seeing from the bottom up? And I think against this backdrop of heightened geopolitical risks, higher oil concerns around the Fed, the S&P is incredibly dependent on a strong earnings profile to go through this.

And so far, the data has been incredibly strong.

Are there some other takeaways in terms of answering some of these key AI questions that you're already seeing in this earning cycle? Or is there something that you're particularly looking out for?

So just taking your advice and looking right now at a 10-year yield of 4.53% and I'm ready to hit sell, why shouldn't I, right? I mean, if we're in the danger zone, why is that not the logical response?

Well, I guess our view is, and our base case is that there will be some normalization of the Strait of Hormuz in, in the next month or so.

I know our view is that oil will start to creep back down towards the end of the year, and that should start to put some of the pressure off bond yields.

So, you know, the base case here is that the market is already pricing in a pretty panicky kind of scenario, and we don't think we're there just yet.

I think the, you know, what makes us more concerned is, again, if this persists throughout the summer.

And, you know, from an economic perspective, a good way to frame it is that, uh, you know, US consumers have received almost $50 billion in tax refunds this year, um, you know, more so than, than 2025.

Um, the cost of oil at $100 a barrel is $14 billion every month.

Where do you sit on the whole diversification issue?

Despite all the uncertainty, you actually see buy signals? Where are these buy signals showing?

Well, I mean, uh, the buy signals are coming through on the positioning side, where we've seen quant funds just been really reducing, uh, you know, heavily their positioning.

And the surprising thing, particularly in the US, is the data, how strong it has been.

You know, we talk a lot about that US consumer and the weakness from the energy shock, but what we're seeing in the real-time data is retail spending is still accelerating, and there's support.

There's support from the tax refunds, which are currently running 15, 16% above last year's levels, and that's just an extra $30 billion just this year alone that's been in- given to, to retailers to basically offset some of this energy pressure.

So I think there's elements there that make us positive.

And then you got the earnings season, where, you know, the, the S&P 500 is gonna probably deliver another 13% driven by, uh, tech, financials, and materials.

Presumably, parts of the rest of the world are not as well-insulated, so I'm just kinda wondering how the, the difficulty might be distributed here.

There's a lot to get to, but I do want to start with Europe, because you're very bullish right now.

Yeah, totally.

I mean, I think with Europe, one of the best things that is going for it is that, you know, we have this German infrastructure stimulus, which is going to lift growth pretty significantly.

That's just not baked into the earnings estimates or into the consensus growth forecast.

So I think there's a lot of upside there.

And then the other factor is the euro.

The euro, which has been actually quite strong, has sort of stabilised that headwind for earnings, also becomes much easier for these markets going into Q1 and Q2.

Yeah, exactly.

Does that immediately impact emerging markets? And which one of those markets are most sensitive to the dollar actually gaining? So I think

one of the most fascinating things this week is that while the dollar has gained against developed market currencies, EM currencies have actually held much stronger.

So this whole dollar strength trade, I think, is more of a developed market thing.

The issues in Japan and in Europe, actually in EM, they've held quite resilient.

But look, if the dollar does start to strengthen more broadly based, I think it's the higher beta currencies that get hit on this.

So some of the ones that I'd be more concerned about would be LATAM, you know, Mexico, Brazil.

They've gained a lot this year and also potentially areas like India.

And so if we see a lessening of U.S.-China tensions, which doesn't seem like it's going to happen today, at least with NVIDIA and Qualcomm, but if we do see that, are there beneficiaries? And if the

What is your what are your expectations for PCE? How influential do you think it's going to be in the Fed's decision making process, knowing we have a jobs report coming up just a week later?

I think the inflation report is extremely key for the Fed's decision here.

I think, you know.

It's also really important for the equity market.

I think one of the trends that we're looking for at this point is if the Fed starts to ease in September, that can actually be a big catalyst for a broader rotation in sector performance.

That can actually start to drive the small cap outperformance.

That can start to drive some of the cyclical outperformance in the equity markets.

Do you see the same setup, the fact that we're seeing these trends in these two sectors and also economic growth, that investors will continue to feel the confidence to put their money in different parts of the market outside of AI? Totally.

Surprised at all by that?

I mean, not really.

I think to a certain extent, people are in this wait and see moment.

And I think really the real, you know, catalyst for equity markets was going off that brink from 145 percent tariff down to 30.

That was a game changer, I think, for equity markets to rally.

These trade talks a bit more nuanced about, you know, rare earth materials.

But for me, I think the big catalyst that can drive equity markets higher from here is better than expected data.

Does that continue? And if so, is it because of a softer dollar? Like if we're looking at for signs of strength or weakness in that trade, what's the factor that creates the strength or weakness?