Chris Verrone, Partner at Strategas Research Partners, speaks with Quartz in the latest installment of our “Smart Investing” video series.
Watch the interview above and check out the transcript below. This transcript of the conversation has been lightly edited for length and clarity.
Andy Mills (AM): 7 great tech stocks are starting to diverge a little bit. Nvidia experienced something of a reversal on Friday. And has it reached its climax now? What do you think is happening?
Chris Verone (CV): Yeah. A very meaningful reversal occurred in Nvidia on Friday, resulting in massive volume, a record volume for the stock. And one of the big themes at the beginning of this year was that this year, the “Magnificent Seven” is not the “Monolithic Seven.” This is a big change from 2023 where he basically has a whole set of stocks like Nvidia, Apple, Amazon, Meta moving all at once, but that's not going to happen here. They're really split, while he Nvidia has been going strong for most of the year, but Friday was unbearable and we watched his Apple weaken and Google weaken. I'm here. So I think this idea that that's the only source of stock market outperformance is probably a little misleading at this point. We recommend that investors view the S&P in an equally weighted manner. So it's a broad complex. All stocks are equally weighted. Just last week, the stock hit a new high of two and a half years for the first time in several years. So this is not just the top of the market driving this. We have seen an expansion over the past few months and we welcome that.
i'm ok. So which S&P stocks are you paying attention to? What do you like?
resume: Yeah. A few notable things are happening. First, industry has the leadership here, and we've been talking about stocks like Parker, Hanafin, Cummins, Emerson Electric and Caterpillar for 18 months. I believe their leadership qualities are still intact. I think recent advances in our work, say in the last four or five months, are improvements in healthcare. The reason we're interested in healthcare here is from the perspective that healthcare still fits somewhat into the growth investment corner of the market, so it's a logical place for tech money to go. . And it's worth noting, if you've seen the huge surge in influx into technology in recent months, you haven't really seen it in healthcare. So when the time is ripe for money to come out of technology, I think healthcare will be the natural destination for it. You've seen the turn of pharmaceutical companies and biotechs. The order of biotech companies in particular, given how interest rate sensitive that group tends to be, the fact that they are outperforming and breaking out and rising means that Bonn yields will likely rise further. I think that's another message to us, that it's not going to happen. from here.
read more: Let's talk about Nvidia stock and whether it's a bubble or not.
AM: Which biotech stocks should you buy right now?
resume: Is it just the broader pharmaceutical and biotech space? Merck is a very good chart. There was a nice turnaround with Abbott, ABT, and we were looking at Regeneron, REGN. Investors may also want to keep an eye on the life science tools names Thermo Fisher and Danaher. They've been in a bear market for three years. It's finally getting better. So all of this tells us that it's not just the Magnificent 7 that's driving this market, and it's not just Nvidia. Healthcare is improving and finances are fine. Industry generally has also shown leadership.
AM: If AI revenues start to lose momentum, will the overall market go along with it at this point? Are we on a cliff?
resume: Interestingly, the word bubble is always used with a negative connotation. You have to look for bubbles. Most of the money in this business is made by investing in bubbles. Whether this is a bubble or not, if we are caught up in it, we are very lucky. Only the Lord knows that. What we do know is that this movement in AI is never about revenue, but about revenue potential, and what can disrupt revenue potential is interest rate The cost, the cost of debt. So bond yields are important here, which is another thing that I think is really important information. And we're generally pretty bullish. We're generally pretty risk-on. What will disrupt that perspective, especially when it comes to technology? Perhaps with bond yields above 450x, it challenges the question a bit: “Are we going to get as much as most people expect?”
