So does the conventional wisdom about divided government have merit?

Look, the reality of a divided government, it generally means you're not going to get anything big done that's going to meaningfully change the direction of the economy, that's going to meaningfully change what the Federal Reserve may or may not have to do.

So it generally means that the economic trends that you're currently dealing with will continue.

This whole idea of, you know, divided government works best.

Look, the reality is you just don't have enough years to look at each of the combinations.

There's just not a big enough sample size.

When you work at a company like Invesco, you can use the S&P 500 back to 1957, right? That's the live start date.

So in your view, what really does matter to markets if it's not politics?

So what winds up being the thing that stops this round?

At some point, you will see concern about the amount of investment being made in the AI space if we don't see the results.

And so I'm of the mind right now, and I use the meta example with Muse as, you know, I think this investment is starting to pay off and I think these companies are figuring out how to commercialize it.

So I'm not overly concerned in the near term.

Um, Over the intermediate term, will we have gone too far with this? Will there be too much investment based on return on investment? That's what history would tell us.

There's just very little to suggest that that's the case today, especially given the fact that what we're starting to think about is a move towards more agentic, where usage of agents, giving them tasks that kind of work for us all day, suggests a lot more demand is coming globally at a time where we're still in supply constraints so that doesn't feel like end of cycle to me at some point will we go too far with this again i think that's what history suggests we haven't solved recessions or ends of cycles but there's little to show again how would i be worried today chuck i'd be worried if credit spreads were blowing out i'd be worried if inflation expectations were rising meaningfully I'd be worried if the market wasn't able to digest a meaningful move in the two-year treasury rate, but it has fared well, albeit with a shift in leadership.

Don't worry so much about what has been on the fringes.

I would view those as hedges.

it speaks to the concentration of the market in many respects, but it, it also speaks to the rollover under the surface in many other areas of the market outside of the mega caps.

Yeah.

It was the, the broadening trade that we were all talking about at the beginning of the year that actually, um, had done quite well, um, The challenge, of course, being the move higher in rates and the move higher in oil prices.

So the interesting thing, Scott, is while we were doing that broadening, the types of names that investors used to ask, what happens if they ever go down? Can this market sustain itself? We had the very weak moments in software and the hyperscalers and the chip stocks.

So what you're seeing a bit now is another one of these transitions from what had been finally a broadening market back to companies that can still generate growth in these types of environments.

Is there a level that you start to get more concerned about a backup in yields? The interesting thing is it's not a particularly over levered economy and so If you ask most Americans, do you have a fixed-rate mortgage or do you have no mortgage, most hands go up.

If you look at businesses, businesses have not levered up significantly, and most CFOs locked in low rates.

Because

Why, and what are you looking for in terms of thwarting it?

What thwarts it? I mean, at some point you, you would need an environment where either the hyperscalers are pulling back.

You would need some bad bond issuance in those markets.

You would need, um, earnings being revised lower, disappointments.

So we're not seeing any of that.

We also don't have a very over-levered economy.

I don't think inflation's as big as a problem as other people say.

If that pulls back, then I think you do have secondary effects in the bond market as well, and perhaps you actually see yields come down a little bit.

No? No.

I'm just wondering if we're talking about, is there short-term volatility in the markets? Are we talking about the end of the structural bull market? No, the former.

Yeah, the short-term volatility.

We've already had a lot of volatility under the hood this year.

I mean, if anything, it looks like tech's put in a bottom.

The saxpocalypse is well behind us.

The hyperscalers bottomed at the 200-day moving average.

A, when are you going to get back in? And why would you do that if you and I know you do believe because you just said it and others believe, too, that there's nothing changed about the trend itself or the structural bull market that you think

But the point being that they're elevated, okay? Um, what do we make of that?

So they're elevated, but they're elevated on the real side, so they're elevated on reasonable growth expectations, inflation expectations very much contained.

Yes, if something were to happen where the market repriced its inflation expectation or there was any type of concern about government funding and yields went up, then yeah, you'd see some type of valuation correction.

But I'm of the belief, particularly you look at the 10-year, you've, you've seen it bouncing from low four to high four.

That seems like a very reasonable range.

That seems like a bullish range to me.

And when yields start to move towards 5%, I wanna be a, a, a buyer of that, and it seems quite clear to me that there's plenty of investors who wanna be a buyer of that.

[laughs]

I'm curious how you think this whole trade is evolving.

Yeah, I think that there's going to be different periods of concern at different parts in this full A.L. build out.

But we're still very much in the early innings of this.

I know I'm not the first person to say this.

A lot of what we're doing right now is still the automation of work in terms of the augmentation of work or the next agentic phase where.

AI is going to be working for us all the time while we're sleeping.

That's not even close to being prevalent in the economy yet.

So where exactly then do you put the most emphasis on where you find the most relative value?

Brian, how are you thinking about just the overall importance of the hyperscalers these days given what we've seen in terms of the momentum reversal, a little bit of a rebound yesterday? Um, how important is tonight's report in terms of just the overall market sentiment right now?

Yeah, it's important for the entire AI trade, but if you look at the Magnificent Seven and how they've been trading, um, you know, we were talking about how expectations had just gotten so high, and the market corrected around a lot of those names.

Now, Google held in, but a lot of those names corrected.

In fact, uh, for the third time in the last couple of years, the Magnificent Seven fell through the 200-day moving average and held and bounced higher.

And, you know, for the people who look at technicals, I think the important thing to look at there is the highs continue to be higher and the lows are higher.

That's a structural bull market, and I expect it to continue, and I, I think the e- earning season will confirm it.

Do you agree with that? Is there anything that we could garner from the hyperscaler reports this week, next week that could kind of support that thesis?

I'm not overly concerned about it.

After the inflation reports?

Yeah, I mean, our view was that inflation expectations were already falling.

Our view was that the Federal Reserve was not going to raise interest rates, and our view was that would be supportive of this broadening in markets that we've seen.

And, and I don't see any need to change that.

In fact, the inflation reports were favorable to that view, um, what we saw this week.

And a little bit of the chatter-

Okay

... because of some weakness, because of some slowdown here.

Oh, but by the time we get to June, and even though there's no real resolution to the war yet, we'll still be at a record high on the Dow, and we'll have all these milestones that we just pointed to," you probably would've said, "I doubt that's realistic."

Well, to Adam's point, the earnings growth has been so strong that the markets have, um, you know, been able to look past it.

But if you think about, Scott, the, the leadership in markets, you started the year, felt like a nice global expansion, moving into an easing cycle.

That did shift a bit, um, following the beginning of the war in Iran and ultimately what became the, the peak in oil prices in early April.

You did get more of a move back towards, you know, hi-higher quality mega cap names.

What you've seen really since, uh, oil prices peaked, inflation expectations peaked, is you, you've seen a, a continuation of what had started earlier in the year.

Yeah, the market's been willing to look past it, I would say because earnings growth is strong and inflation expectations are coming down.

How key are the chips in the months ahead for the, for the market overall?

Is this time any different?

Well, it's already been happening.

And, you know, it's a little bit hyperbolic to call it a wreck, right, because we still have good returns year to date.

We've had a consolidation of sorts in recent weeks.

But but, yeah, it's been a much broader market this year.

I mean, you look at small cap indices, whether using Russell or the S&P at all time highs.

If you look over the last three months, very good performance from industrials, from financials, from real estate.

At what point can we expect to see, if at all, in this current foreseeable future, multiple expansion that can couple with earnings growth to provide that real bullish narrative for the next, say, two to three years?

What if the red line, forget about catches up, but what if that gets a, gets a lift from all the AI productivity?

Right, and I think it's starting to happen.

If you actually look at the first quarter of this year, you had earnings across most sectors posting very strong gains.

So it was 7 of the 11 sectors posting double-digit earnings growth, 9 of 11 positive earnings growth, or maybe even 10 of 11 positive earnings growth.

So it is broadening out.

The interesting thing, for the second year in a row, we really were at a point where we expected the markets to broaden out, and it was starting to work.

Two years in a row, a policy decision disrupted it.

... falls 30% and stays there? Like, what would have to happen to the stock market to change the upper case spending habits? 'Cause that is what's driving the stock market, and I know it's, like, sort of a circular conversation, but-

there will take some time for the strait to open and for oil to continue flowing through, and so, you know, how concerned are you that ultimately this, this may not be an issue quite yet, but it could turn into one?

I'm not overly concerned.

I mean, the markets tend to be forward-looking on these things, and what you've seen, even with a little bit of an advance in oil prices today, is most of the major things that investors were concerned about have peaked and gone the better way, and markets are gonna trade on whether things are better or worse.

And so clearly oil prices have gotten better from where they were.

Inflation expectations have gotten better.

Interest rates have come down.

So that's a better macro backdrop, and of course, corporate America continues to be strong.

So, you know, what does that tell you about the potential volatility for a name like SpaceX, um, and if that is kind of the model for the other mega IPOs that we see down the road?

Brian Levitt of Invesco.

The nation's personal finance, I would say in terms of the literacy, we still have work to do in terms of guiding people on, you know, saving money and how to invest.

I think there's a lot of superfluous purchases being made.

Those, those little purchases-

There's way too much speculation going on, right?

Yeah, back in '84, I guess the Tigers did actually win.

So, um, you know, if you look at the broad market, I think there's a perception from people that it might be speculation.

The reality is in the broad market, companies in the S&P 500 are growing earnings double digits.

I'm not saying it doesn't matter overall, but for our equity markets, technology, things you track at Invesco, I would imagine that's not the most important map in the world anymore.

It...

It certainly matters from a humanitarian perspective.

It's a market that has chosen to look past it quite quickly.

Historically, if you look at events that take place, geopolitical events, if you come into them with the market, with the economy in a reasonably good place, you tend to be positive a year out from those events.

So that was our expectation.

We came at this with good fundamental strength.

Kelly, should I sell everything? Should I sell everything? Because

Little fast?

Yeah, a little fast.

I suspected we might have needed a little bit more clarity with regards to, um, a negotiated deal between the US and Iran.

But you and I were sitting in Miami a handful of weeks ago talking about it and I said, "You know, most of these conflicts a year later the market does well so long as you're coming into it with good fundamental strength." It wasn't 1973 with 7% inflation.

It wasn't 2022 with 7% inflation.

It was an environment where leading indicators across the globe were resilient, um, and inflation expectations were contained in the US.

So I'm not surprised.

Does that make sense or no?

And if it is, it's certainly not any time soon.

I suppose it depends what normal is.

I mean, we were in an environment, we were at $55 a barrel in the United States coming into this.

So if you look out the forward curve, there's not an expectation of going back to $55.

There's an expectation that oil prices will be meaningfully lower, even in July, than they are right now.

Call it, you know, 75, $80 a barrel.

And it's in an environment where the US and most of the world is far less energy intensive from an economic perspective.

Do you believe in the Mike Wilson broadening story that, that he articulated?

it won't last too long.

So here's the good news.

The good news is the market came into the year expecting two to three rate cuts.

We've now basically priced that out of the market without substantial disruption to the S&P 500 market down overall what? 4 or 5%.

So we've already priced that out.

My expectation, I mean, prior to the war, the 10-year rate was falling below four- had fallen below 4%.

I mean, that's Holly's point about a weakness in economic activity.

I, I don't know whether it's sentiment or, um, you know, what's gonna happen as far as pricing in some movement one way or the other for the rest of the year?

That's what I'm struggling, you know?

So uncertainty always creates volatility.

I think for most investors, their time horizons are a lot longer than what this conflict would span.

So the question is, how do you think about it from a intermediate to longer term perspective, and what type of context do you wanna consider? If you go back the last 60, 70 years and look at all the conflicts, far more often than not, the market is positive one year after it begins.

Now, when is that not the case? 1973 with the Yom Kippur War, 2001 with 9/11, and 2022 with Russia-Ukraine.

Now, what's different about those times? With the Yom Kippur War, when it started, inflation was already above 7%.

In 2001, we were already in a recession.

Learn more at schwab.com/trading.

What policy changes, Brian, do you expect from the Fed, and how do you expect monetary policy to perhaps change or adjust under expected new leadership, uh, later in the spring?

Two cuts would get you to about three percent by the end of the year, which seems very reasonable.

Call it a, a target rate of three to three and a quarter.

I would, I would view that as neutral policy right now, given the flattish shape of the yield curve.

I would view the Fed as being a little bit restrictive.

So moving towards a more neutral rate, given where we are, seems appropriate.

There's no reason to be overly restrictive with price stability, um, with inflation expectations contained.

But if we focus in on AI disruption with most of the focus being on the company or business model level, what macro implications, Brian, do you expect from AI, and how soon could they occur?

What do you think?

Well, the first thing I want to point out is we- when we think about the big stories of last year, what people were so worried about, are people running away from US assets? Is nobody gonna buy US debt? I think we can table that one, as I always assumed we would be able to.

In terms of an AI bubble, look, the reality is there's some steam coming out of certain names as the market tries to determine winners and losers, as- and is becoming more discriminate.

But the Dow Jones Industrial Average is close to 50,000.

The S&P 500 is close to 6,900.

So look, there is obviously some carnage underneath, but in, in general, the- this is not an AI bubble.

The markets are holding up very nicely.

... pretty good.

What was the last 24 hours about compared to the previous two days?

I would say that the...

You know, this is a market that's been, uh, letting off some steam, certainly in the, in the, in the hotter parts of the market.

And primarily, I think you gotta look- if you look at the broad index level, these markets are not down all that much.

I mean, NASDAQ down 5% over the last five days isn't great.

S&P, a couple of percent.

It's really the carnage being hit in the software stocks and some of the more speculative parts of the market.

Could they still be comfortable with those trades?

If that is the case, then what are the implications for the market?

Well, I'd say the first thing is the good news is that the market is geared up for some rate cuts upcoming.

So that's a nice place to start.

Inflation expectations have been moving up a little bit, but still I would categorize them as price stability and generally contain it.

Look, I think you can paint Warsh, you can project on him what you want to project.

We heard him being overly hawkish in 2010, which I did not agree with.

at the time.

What do you think of that move? I mean, I've been talking to some analysts who cover the sector recently who had said even before yesterday that the selling was overdone.

You agree with that, Brian?

Yeah, I do.

But, you know, if you think about the broad macro backdrop continues to be quite conducive.

And I suspect we'll have another good earnings season, as Adam points to.

And I look towards what is likely to be an improving economic backdrop.

policy easing, not only in the United States and around the world.

So it continues to be good for risk assets.

Brian, I'm not so sure you agree 100% with that, right? Haven't you made the case here before that you believe in this small cap trade?

Given that with so much bullishness baked in, could that be a bearish indicator?

I don't think so.

I think in most years you tend to see most analyst expectations being positive.

You don't last in this industry very long putting out bearish outlooks on the S&P 500 each year.

I guess there's a couple of prominent perma bears, but for the most part, markets tend to go up far more often than they tend to go down.

And that's because in most years things get better.

rather than get worse.

What's your view on where the Fed goes in the first half of 2026? Could we see those cuts sooner than later? And what could that mean for the equity market?