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Markets may have regained their footing following a recent wave of volatility, but there are concerns about valuations potentially being too high. Phil Davis, founder of Philstockworld.com, speaks with MoneyTalk’s Kim Parlee about the state of the markets and why he believes they may be on their way to a more sustainable, broad-based rally.
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* But let's start with just-- it was a crazy, crazy month of trading. We saw some pretty big sell-offs and some pretty big rebounds. Are we out of the volatility woods, so to speak?
* Oh, no, I don't think so. The Magnificent Seven, the tech stocks, the AI world, there's still a lot of huge overvaluations there. Not that they're not going to make a lot of money but that the anticipation is ahead of the reality of the thing. So we're going to have that going on for a while. It's going to take a long time to settle down.
* It's like dot com. It's like, Google was a great company. Apple was a great company. They went up too much, came down, and then now they're 10 times where they were back then.
* You know, this always happens. Like you said, it's really easy to see when you look backwards in history that these things happen. It's sometimes harder when you're in it to actually see it happening at the same time. So let me ask you about sector rotation, though, because we've seen some pretty interesting things.
* Some air came out of the AI world and AI-related stocks. We saw things like utilities and other things starting to pop up in the last little while. Do you think the AI surge has run out of steam? Has it peaked?
* It's like the dot com boom. It's like they're going to be 90% bust and 10% that are going to make you a fortune. And the trick is to figure out which are the ones that are going to make you a fortune over the long term. Mostly, this is a case of getting ahead of itself, though.
* The profits in AI are phenomenal. It's the future. It's the future the same way the internet was the future, but it didn't happen all at once. So this rotation that we're seeing right now, where money's coming out of the huge profits from the AI sector and the Magnificent Seven and going into other stocks is very healthy. Money does need to go to other stocks that have to invest their money and build the economy so that we can support all this fantastic new stuff.
* What about-- let's talk a bit about the Fed. That is coming up in September. And I know Jackson Hole is coming up ahead of that. We'll talk about the US election that's coming out after that. But it's pretty unusual to see a Fed move before a US election, but the markets are pricing in a move.
* Well, if you remember, Donald Trump threatened Jay Powell that if he raises before the election, he's going to be fired. I mean if he lowers the rates before the election, he's going to be fired because Trump sees it as helping the Democrats. If you take that out of the equation-- you say the Fed is data driven. Is the data consistent enough and pointing enough to give the Fed a reason to lower rates at the next meeting?
* I don't think so. Most people-- 80%, 90% are saying, yes, they're going to lower rates at least a quarter point at the next meeting. I don't think the data is there yet. That's my take on it.
* Interesting. All right, well, we'll see. I don't know how much more data is coming out before that meeting, but not a lot. I think a lot of it is kind of out there.
* Actually, there's a very big revision coming to non-farm payrolls in the US. There always is this time of year. Probably, I think, in the next couple of days. And they true up the non-farm payrolls for the past year. And the revision could be a half a million-- even more than a half a million jobs, plus or minus. Most likely minus because they don't count the immigrant.
* Immigrant labor is counted in the monthly report but isn't counted in the annual report, and that makes a huge difference, of course. That's where you're going to see a big revision. But it's still-- I don't think it's going to be enough to move the Fed not to change it.
* Interesting. All right, so we could see a big revision lower. OK, let's talk a bit about the US election. I have to tell you, for most people I've talked to over the past couple of months, Phil, there's been a lot of focus on the Trump-Vance ticket because up until Joe Biden resigned, people were kind of leaning more to saying this is moving towards a coronation versus a race.
* Kamala Harris now is in the race with Tim Walz. It sounds like there is more of a race now. And you've got some things to look at from the perspective is what happens if we see a President Kamala-- or President Harris, I should say, come in and lead the way.
* Oh, yeah. I think very, very much so that the conservative investors, the conservative pundits, and so on and so forth, they're not accepting the fact that Trump has now lost his lead in the polls, is in big trouble. And the implications to this are sort of-- you got to look at some factors, like sector rotation. Harris is all renewable energy, whereas Trump's against it, basically. Healthcare stocks-- and again, Trump is against universal healthcare, Harris is for it.
* Fiscal policy-- Harris is going to want more increased government spending, higher corporate taxes, higher personal taxes. These a big changes, a 360 from where Trump is on these things. The trade relations with China and how we do that. Harris is going to be a little bit more friendly in trying to establish trade again, unlike Trump, who wants to put tariffs on everything and shut everything down.
* The regulations-- Trump wants no regulations. And, of course, Biden and Harris want to put more regulations on things, especially the financial sector and polluting and, obviously, anything to do with global warming.
* And then you've got market volatility because just as the race seesaws back and forth, people are going to Bugs Bunny their bets in and out, like the Bugs Bunny audience that runs in and out of the theater. It's going to be like that. It's like whatever the last poll is, everybody's going to change their bets.
[MUSIC PLAYING]
* But let's start with just-- it was a crazy, crazy month of trading. We saw some pretty big sell-offs and some pretty big rebounds. Are we out of the volatility woods, so to speak?
* Oh, no, I don't think so. The Magnificent Seven, the tech stocks, the AI world, there's still a lot of huge overvaluations there. Not that they're not going to make a lot of money but that the anticipation is ahead of the reality of the thing. So we're going to have that going on for a while. It's going to take a long time to settle down.
* It's like dot com. It's like, Google was a great company. Apple was a great company. They went up too much, came down, and then now they're 10 times where they were back then.
* You know, this always happens. Like you said, it's really easy to see when you look backwards in history that these things happen. It's sometimes harder when you're in it to actually see it happening at the same time. So let me ask you about sector rotation, though, because we've seen some pretty interesting things.
* Some air came out of the AI world and AI-related stocks. We saw things like utilities and other things starting to pop up in the last little while. Do you think the AI surge has run out of steam? Has it peaked?
* It's like the dot com boom. It's like they're going to be 90% bust and 10% that are going to make you a fortune. And the trick is to figure out which are the ones that are going to make you a fortune over the long term. Mostly, this is a case of getting ahead of itself, though.
* The profits in AI are phenomenal. It's the future. It's the future the same way the internet was the future, but it didn't happen all at once. So this rotation that we're seeing right now, where money's coming out of the huge profits from the AI sector and the Magnificent Seven and going into other stocks is very healthy. Money does need to go to other stocks that have to invest their money and build the economy so that we can support all this fantastic new stuff.
* What about-- let's talk a bit about the Fed. That is coming up in September. And I know Jackson Hole is coming up ahead of that. We'll talk about the US election that's coming out after that. But it's pretty unusual to see a Fed move before a US election, but the markets are pricing in a move.
* Well, if you remember, Donald Trump threatened Jay Powell that if he raises before the election, he's going to be fired. I mean if he lowers the rates before the election, he's going to be fired because Trump sees it as helping the Democrats. If you take that out of the equation-- you say the Fed is data driven. Is the data consistent enough and pointing enough to give the Fed a reason to lower rates at the next meeting?
* I don't think so. Most people-- 80%, 90% are saying, yes, they're going to lower rates at least a quarter point at the next meeting. I don't think the data is there yet. That's my take on it.
* Interesting. All right, well, we'll see. I don't know how much more data is coming out before that meeting, but not a lot. I think a lot of it is kind of out there.
* Actually, there's a very big revision coming to non-farm payrolls in the US. There always is this time of year. Probably, I think, in the next couple of days. And they true up the non-farm payrolls for the past year. And the revision could be a half a million-- even more than a half a million jobs, plus or minus. Most likely minus because they don't count the immigrant.
* Immigrant labor is counted in the monthly report but isn't counted in the annual report, and that makes a huge difference, of course. That's where you're going to see a big revision. But it's still-- I don't think it's going to be enough to move the Fed not to change it.
* Interesting. All right, so we could see a big revision lower. OK, let's talk a bit about the US election. I have to tell you, for most people I've talked to over the past couple of months, Phil, there's been a lot of focus on the Trump-Vance ticket because up until Joe Biden resigned, people were kind of leaning more to saying this is moving towards a coronation versus a race.
* Kamala Harris now is in the race with Tim Walz. It sounds like there is more of a race now. And you've got some things to look at from the perspective is what happens if we see a President Kamala-- or President Harris, I should say, come in and lead the way.
* Oh, yeah. I think very, very much so that the conservative investors, the conservative pundits, and so on and so forth, they're not accepting the fact that Trump has now lost his lead in the polls, is in big trouble. And the implications to this are sort of-- you got to look at some factors, like sector rotation. Harris is all renewable energy, whereas Trump's against it, basically. Healthcare stocks-- and again, Trump is against universal healthcare, Harris is for it.
* Fiscal policy-- Harris is going to want more increased government spending, higher corporate taxes, higher personal taxes. These a big changes, a 360 from where Trump is on these things. The trade relations with China and how we do that. Harris is going to be a little bit more friendly in trying to establish trade again, unlike Trump, who wants to put tariffs on everything and shut everything down.
* The regulations-- Trump wants no regulations. And, of course, Biden and Harris want to put more regulations on things, especially the financial sector and polluting and, obviously, anything to do with global warming.
* And then you've got market volatility because just as the race seesaws back and forth, people are going to Bugs Bunny their bets in and out, like the Bugs Bunny audience that runs in and out of the theater. It's going to be like that. It's like whatever the last poll is, everybody's going to change their bets.
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