stock markets don’t care who is elected president of the United States

Artificial intelligence is becoming an important new technology, and the outcome of the US presidential election may affect individual sectors, but not the stock market as a whole. Jay Woods, chief global strategist of Freedom Capital Markets, made such conclusions in an interview with Baltic journalists.

For 28 years, most of his career, Mr. Woods worked as a broker on the New York Stock Exchange. He has been with Freedom Capital Markets for the past two years, sharing his insights with viewers and readers of CNBC, The Wall Stret Journal, Bloomberg, The Fox Business News.

– What are the biggest risks to the stock markets this year?

– The biggest risk that is constantly talked about is the Federal Reserve (FED), and more specifically, interest rates. If interest rates start to move sharply in one direction or another, that could cause some volatility in the markets.

This is the one question I get all the time. I keep hearing, “What about the Fed, what about the Fed?” We’re paying so much attention to the Fed and now we’re watching that one data point, as our Fed chairman keeps saying, tomorrow we’ll be looking again at what the CPI is. And if inflation is lower than expected, then we might get the rate cut that everyone is hoping for. So at the moment the focus is on FED policy.

Now that we’ve survived the COVID-19 pandemic, we’re back to a normal interest rate cycle. We are in a new normal, back to how it was before. Younger people may not remember that 6 percent. was the normal interest rate for taking out a home loan. These were normal things. We come back to that. We just have to get used to it.

– The European Central Bank keeps postponing interest rate cuts. What do you think about it?

– I pay the most attention to the US stock market, I am not deeply involved in European affairs. But the ECB’s policy tends to mimic what the US is doing, only slightly behind us. I still believe that US stock markets have a tendency to lead global markets.

– Let’s take a look at individual sectors that are holding up better than others?

– Everyone’s talking about the tech “Magnificent Seven” (Microsoft, Apple, Nvidia, Alphabet, Amazon, Meta and Tesla – IQ post) whose stock values ​​have risen significantly in the past year . But that is already the story of last year. This year’s highlight is the growth that started at the end of last year and continues. The three largest sectors grew by 10 percent. in the last quarter of last year, another 10 percent. grew in the first quarter of this year, thus raising the S&P 500 stock index by 10 percent each. two quarters in a row. That hasn’t happened since the 1950s. But we’ve never grown at this pace for three quarters in a row, so we may be slowing down now.

Already at the beginning of the year, it was expected that the Fed would cut interest rates, and it was even mentioned that six cuts were expected. I don’t know where that number comes from. Markets are not expecting those cuts. Markets are doing well despite rising interest rates. This is the first time we’ve seen interest rates rise, but markets have been rising for quite some time. The only factor that could throw markets off track is a spike in 10-year Treasury yields. It would really change the markets.

I also think stock markets need to pull back, that would be healthy. And I think the pullback will start with the semiconductor industry, which has been lifting us lately. Their profit cycles are separated by a small period. And we’ve seen elements of exhaustion where volume starts to drop, prices start to come down a little bit as well. Therefore, investors take their profits there and move into industrial materials and then hopefully into financial stocks. This is an election year, and industrials and materials tend to do very well during election years.

– Let’s go back to technology and semiconductor companies. There was a lot of talk about the bubble and its bursting. But I understand from your answer that we are moving away from the risk of a bubble bursting as investors move money to other sectors?

– The “magnificent seven” should be looked at from a longer time perspective. Let’s remember 2022. What a bad year it has been for the stocks of these companies. The value of the shares of these companies decreased by an average of 45 percent. In 2023, they recovered, this happened first, and then climbed to new heights.

However, not all seven did equally well. Nvidia was the clear leader, followed by Microsoft, Meta, which also rose significantly in value. Apple is effectively back to where it was in 2022 before the recession. This quartet generated losses for investors in 2022, but then started to rise. Amazon just got closer to 2022. peaks.

So we’re seeing stocks that have only recouped their losses when they tanked after that incredible pandemic frenzy. It was crazy. Stock markets boomed during the pandemic because governments came to the rescue, gave people money, we were all isolated and it heated up the market. After that she cooled down. Now things are starting to normalize and this is the new normal.

IQ

J. Woods.

Nvidia has gained momentum in recent years, rising from $500 to $950 (IQ Post). But there is a reason for that. Let’s take Meta and AI solutions as an example. I’ll go on Instagram, mention the name of a mineral water, and two seconds later I’ll see an ad for it. This is their artificial intelligence. He is fantastic.

We are now also seeing the value of shares in other sectors returning to where they were. Look at a boring sector like materials. He just reached new heights. Shares of materials companies rose for 10 weeks in a row, the index grew by 21 percent. But no one will write about the materials sector. Nobody cares about Sherwin-Williams. Nobody knows what it is.

But as a trader, I’m looking at a stock price chart for a company I may know nothing about. Because the price always tells the story. I see the graph goes up, the graph goes down. Then I step back and look at the time slots. And it is this kind of price and turnover analysis that allows me to delve in properly. And that allows me to make the right decisions.

And talk to young investors, ask them why they buy shares? What is the price? Does it assess risk? I have three teenage sons and one has taken an interest in stocks. Bought Tesla shares for $70. And suddenly their value went up, because there was a time when all stocks went up in price. My son tells me he is a better stockbroker than me. Then there were many young investors who thought they could trade successfully as the stock rose in value. It was euphoric. But soon their value fell and then the mood changed. My son no longer sends arrogant messages. And he had 20 dollars left, even though he had grown to 300. Then he needed his father’s advice.

Now I don’t think it’s a bubble. When a bubble pops, we see a very hot IPO (initial public offering – IQ post) market. We are talking about new share issues that are issued every day, new shares appear every day. We see bursts of euphoria, excitement. But now it is not. We don’t see anyone in a rush, people are still very stressed about losses in 2022. They remember that, not that 2023 was a good year. The stock market will continue to be the best place to make money. Treasuries look safe, but they’re boring and their returns will start to decline.

– Now everyone is talking about artificial intelligence. What is its influence?

– I ask the young generation, what will be the next big technology? Yes, we can now talk about artificial intelligence. AI will take away jobs, but it will create a whole new ecosystem. I remember when the internet boomed in the 1990s, it also seemed like the end of the world to some. But the job creation that came from creating Amazon and moving everything online was incredible. Now we cannot live without internet. Artificial intelligence will do something spectacular.

As with any innovation, there will be people who want to take advantage of it. That is why we need rules and regulations to monitor what happens as this technology develops.

It reminds me of 1995. I think we are at the beginning of a new big cycle. And going back to the bubble question, no, I don’t think we’re in a bubble.

– Let’s talk about small-cap stocks (companies with a market value of 0.3-2 billion USD – IQ Post). Even the largest Lithuanian companies would be assigned to this category, maybe only one is worth more. And they’re private, like many companies of their size, and don’t appear to be going public. Do they need it? Do they have a place on the New York Stock Exchange?

– Yes, it is a challenge for very small capitalization companies. Our job is to help them get to the level where they can file for an IPO. But for small companies, going public is very important, it’s a big step forward.

There are lots of exciting small businesses out there and it’s our job to find those diamonds. It is interesting to work with them on the stock exchanges, because these are not companies that everyone knows and therefore buys their shares. Now is a good time for them to come out into the light. We can see such companies in the artificial intelligence sector. Healthcare and pharmaceuticals are other areas where successful companies can grow.

And let’s look at the story of us, Freedom Holding. I like her very much. We are still a small company, our capitalization is below 5 billion. USD, but we’ve grown from a micro company ($50-300 million – IQ post) and we’re still looking to the future. Therefore, we are looking for companies with a similar culture, high energy and good leaders that will be attractive to the markets.

– This year the USA will elect a president and there is a high probability that Donald Trump will return to the White House. In this case, perhaps tariffs will be increased again, the internal market will be protected. What would this mean for the stock markets and what scenarios are you preparing for?

– You need to prepare for all scenarios, not just this one. Certain sectors benefit from the victory of one candidate, while others benefit from the victory of another. We saw the solar energy sector boom after Joe Biden’s victory and conventional energy after Trump’s success in 2016. But after they took office, both of them declined.

If D. Trump were to win, I think the defense industry would be strengthened, so the shares of defense sector companies would rise. If Mr. Biden wins, materials and infrastructure companies are likely to be better off, which he will focus on. At least that’s what they say now, I don’t know if it would be like that if he is re-elected.

But in general, we do not care who will be elected. We just want the election to be over. When Hillary Clinton lost in 2016, stocks were at a cycle low on Election Day. Half of America was happy, half was sad. Ultimately, the markets soon recovered as they adjusted to Trump’s policies. The same thing happened during the 2020 election, when there was also a lot of uncertainty. But as soon as the election was over, we soon rebounded from the November lows.

On January 8, after January 6. unrest (Trump supporters stormed the Capitol in 2021 – IQ post), the S&P 500 hit new highs. So in a whirlwind of political events like this, I tell clients, “Ignore the headlines, put on your headphones, block out the political news because the market doesn’t care.” We’ll have a nice little market swing after the election, but no matter who becomes president, the markets will continue to rise, although some sectors will do well better, others worse. The market does not favor either candidate, although their supporters and voters may not want to agree.