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Markets of opportunity · UBS Trending

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  With the uncertainty around
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  the US election now behind
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  us, investors are looking for the next opportunity.
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  So with an accommodative fed,
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  a tech rally
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  that doesn't seem to have an end in sight,
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  and decent valuations in small caps.
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  My next guest sees pockets of opportunity.
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  But what about on the fixed income side?
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  Well he has some thoughts there as well.
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  We're going to get to that right now.
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  On UBS trending.
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  Hello again everyone.
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  Thank you for joining us.
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  I'm Anthony Pistorius and this is UBS trending.
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  Please join me in welcoming guests back to the studio.
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  Who needs no introduction.
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  He's been a frequent friend of ours and a frequent guest.
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  Eddie Gabor, co-founder and CEO of Key Advisors Wealth Management.
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  Eddie, it's always a pleasure to have you join the show with us.
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  Thanks for being here.
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  Thank you for having me. Yeah. My pleasure.
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  So it's been a couple of months
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  since you've been on with us, Eddie,
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  and a lot has changed through the summer
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  and obviously the election. So that's behind us.
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  And we did obviously see on the equity side a pretty strong post
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  election rally.
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  So the question is
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  where do you see this going when you were talking
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  about the equity side of the market,
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  what do we expect now for the next couple of months into next year?
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  So I think as we look out to the first quarter of next year,
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  I think the equity markets are going to stay extremely resilient.
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  And continue to trend high.
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  I do you'll see pockets of dips, of course,
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  because when you get an overbought market, you'll get, dips
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  that will follow that.
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  But right now, as we have shared with our clients, in our opinion,
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  every dip
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  for the right investor, the right risk
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  tolerance should be bought,
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  because I think you're going to see asset prices
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  go significantly higher.
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  And the reason why is there is a lot of cash
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  that was on the sideline pre-election because of one, you know,
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  what this election was going to look like
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  from a fundamental perspective on taxes and regulations.
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  So that way they can draw up their playbook
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  for how they want to go with their cash.
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  And I think you're going to see a lot of money
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  flow into the equity market.
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  You go see a lot of performance chasing.
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  And that's why we continue to be,
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  very bullish here over the next 3 to 4 months.
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  How much of that do you think, Eddie?
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  I mean,
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  obviously everyone was waiting for
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  the election results to be known.
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  And so there was that uncertainty that went out the window.
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  Now we know it's a Trump administration.
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  How much of that do you think with this going into the stock
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  market is related to expectations on the fed?
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  Also just kind of them being so accommodative,
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  how much of that plays into what you're thinking is here?
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  A lot of it does.
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  I mean, at the end of the day,
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  the biggest thing that we can take away when we put
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  election behind us, is you have a fed
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  that is a,
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  I would call it
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  aggressively cutting rates at a time that there's no recession.
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  It's very rare to see that.
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  I don't even know if there's a precedent for that.
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  I personally think it's a mistake.
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  However, I'm not going to fight the fed.
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  And if you're going to loosen monetary policy in an environment
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  where the labor market is still strong,
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  the economy is showing growth.
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  Company earnings are looking good.
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  That's about as bullish as it gets.
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  And so it's really hard right now to find something
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  very bearish to hang your hat on.
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  And until the fed changes we're not going to fight that.
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  Yeah I mean I would have to agree looking at even just the way
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  we just had the charts up there for the S&P 500
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  and even the Russell 2000,
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  we're going to get into small caps in a minute.
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  But clearly they're still aggressive buying when it comes to
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  large caps especially in the S&P side.
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  So let me just kind of fast forward a little bit.
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  Now putting election behind us.
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  We still have a lot of conflicting, issues
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  happening overseas between Ukraine and Russia.
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  And of course, what's going on in the Middle East.
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  So given what we know, and with the new administration coming in
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  from a sector perspective,
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  where do you see the best opportunities here?
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  So what we have done is we are staying away
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  and being extremely underweight consumer staples and health care
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  and our tactical strategies.
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  We don't even have consumer staples at all in the portfolio.
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  We want to be in the higher beta, higher risk areas, small caps.
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  We continue to add to our small cap position.
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  It's been one of the probably worst places
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  to be here over the last three years.
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  I think this environment
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  is going to be conducive to regional banks and financials,
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  and small caps should thrive in that environment
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  because they seem to be overweight.
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  That, large cap financials, again, are another area you can add to.
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  And we also tech I mean Mega-cap tech
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  is going to continue to lead the way in our opinion.
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  If you take a look at what was the most,
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  appreciated assets in reaction to the election,
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  I think if you look at those in order,
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  that's where you're going to want to be.
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  And so you want to stay away from defensive equities
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  and you want to be more in your more aggressive equities
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  that are more growth oriented.
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  Because that
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  or those are the stocks in our opinion, that are going to thrive,
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  in this type of environment,
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  even on the fixed income side, is being more aggressive on there.
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  If that risk tolerance is suitable
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  for the investor making that decision. Yeah, absolutely.
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  And just to give our audience
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  a little bit of color from our side
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  and the UBS chief investment office,
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  they do maintain an attractive view on large caps.
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  And right now neutral on small and mid
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  and right now I know you have a bullish call on small caps.
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  We were just talking about that.
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  I think for for CIO their concern is not necessarily tied
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  directly to you know the precedent that's been set beforehand.
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  They're just kind of saying
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  profit growth could continue to lag
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  a little bit when it comes to small.
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  But the fact that the fed is cutting
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  rates is pretty attractive,
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  especially considering that there's so much kind of floating
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  debt in the small cap space.
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  So give us your thoughts on small caps here, Eddie.
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  Small caps is really a contrarian play.
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  It's probably
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  one of the most hated areas in the most underweight area.
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  When you take a look
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  at how asset managers are positioned and so we have found that
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  when you think you're going to see an acceleration
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  of growth, that you want to get in there before everyone else does.
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  And so I think you will see money rotate out of certain areas
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  and go in the small caps.
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  When people get more confident.
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  They're very skittish now
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  because of their lack of performance, in my opinion,
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  because of their risk, because they're smaller companies.
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  But again, when you look at regional banks and financials
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  that are a big component, the small caps and you have the fed,
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  cutting the short end, but the long end is continue
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  to actually increase.
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  From a business model
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  perspective, financial companies
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  can make a lot of money in that environment
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  where they're lending out at a much higher rate
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  than they're having to pay their clients.
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  So I think it's a really good setup for small caps.
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  And I think you will see a performance chase there.
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  And those folks that are probably underweight will probably go more
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  to neutral to overweight
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  as we get into January and February of next year.
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  Yeah, especially after you look at the chart.
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  I mean, there was a lot of volatility from maybe,
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  you know, late winter spring up until right around the election.
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  And now we're seeing some pretty strong performance in there.
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  Thanks, Eddie.
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  As we're wrapping up, you know, you briefly mentioned fixed income.
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  We can't get away from not talking about that because we did
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  see obviously a lot of progress with the fed lowering rates.
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  Our call here at CIO is another 125 basis points from the fed
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  between the December meeting and all of 2025 as of now.
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  But, you know,
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  you still have a job market that's slowly decelerating.
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  Inflation has mostly come under control.
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  We're kind of to around that 2.4% mark,
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  pretty close to the Fed's, the Fed's, inflation.
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  You know, expectations.
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  So what's the story behind them?
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  What is the bond market telling you here.
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  Because equities is one story but bonds is another.
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  In my opinion the bond market is telling me that the fed
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  is making a policy mistake by cutting so aggressively.
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  If you look at the chart
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  on the ten year,
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  it has gone straight up since they started cutting rates.
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  And when you cut interest rates, you are basically, in my opinion,
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  stimulating the economy
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  and you're going to cause asset prices to go up.
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  This is what you're seeing with stocks.
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  So if they cut in December and then they also cut
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  in January
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  or the beginning of next year,
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  our biggest concern that we are seeing a very high
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  probability of happening
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  is you're going to see inflation reaccelerate,
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  and the fed is going to have to pause on cutting rates.
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  And the biggest fear we have is if it gets too hot,
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  they have to raise rates next year.
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  That's not priced into the market.
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  And I don't think many people are prepared for that.
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  And I think there is a high probability
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  that we absolutely see inflationary accelerate.
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  And we'll have to wait and see how the fed reacts to that,
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  because I don't think there's any way
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  they're going to be able to cut next year
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  as aggressively as the market has priced in.
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  Right.
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  What makes you think that you're going to see inflation accelerate?
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  I mean,
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  I mean tariffs, if, President Trump does put tariffs in place,
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  there's a call that that could cause inflation, especially
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  here in the US.
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  Is that part of the story.
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  Is there something else that's going on there.
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  So you have that.
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  You have the Middle East and overseas issues that are going
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  to continue to keep energy prices high.
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  You also look at immigration reform that we could potentially
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  have, right.
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  That's going to put some strain on businesses and cause prices
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  to go up
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  because of laborers are going to have to replace
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  and again, at the end of the day, when a fed is cutting
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  rates, that's inflationary in itself.
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  And so when you take a look at all those components,
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  I don't see how asset prices don't accelerate
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  with all of those things happening.
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  So,
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  it's going to be a very to me, it's very reminiscent
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  of what happened in the late 70s
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  when they thought they beat inflation,
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  they took their foot off the gas,
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  and then we had a re acceleration
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  that had the caused them
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  to raise rates and kill the economy to get things back in line.
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  I hope it's
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  not that extreme,
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  but there's a lot of similarities between those two time periods.
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  Yeah. Eddie, thank you very much.
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  Appreciate your views there and
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  and backing it up with some real catalysts.
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  So thank you very much Eddie Gabor. Always a pleasure to have you.
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  Thank you.
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  Good to see you.
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  Thank you again, Eddie.
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  And make sure to follow us on our website.
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  And as always,
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  if you have any questions about what we spoke about today,
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  make sure you're contacting your financial advisor.
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  Until next time, I'm Anthony Pastore.
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  We wish you a great rest of your day,
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  and remember to keep your eyes on what's trending.
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  We'll see you soon.