00:00 Speaker A
So let’s talk about the big picture of the market. While all these big important events are happening;
00:08 Speaker A
This week’s ETF report from Pimco is joined by Kristi Akrian, Head of IShares Investment Strategy Americas at BlackRock.
00:15 Speaker A
Christie, nice to meet you. Obviously it’s going to be a really busy day here. Well, I’d like to hear about technology-related revenue, but let’s start with that first. What are you watching most closely to get the information you need to know whether the rally will continue broadly, especially in tech stocks?
00:34 Christy Akrian
Yes, really, and thank you for having me. This morning feels like the calm before the storm. Obviously, it’s a very important day. Well, we’re keeping a close eye on the overall bottom line. Yeah, sure, you mentioned this too. Whereas oil was in the driver’s seat for most of March, it feels like AI is now in the driver’s seat. Well, perhaps that’s not surprising, as we’ve gone from the kind of conflict dominating the headlines to the very prime of the money market.
01:03 Christy Akrian
Therefore, we still see technology as the biggest contributor to S&P 500 earnings growth, with earnings increasing by about 30%. The rest of the market is about half that amount overall. I think some of the most important things that the market is looking for are some of the conversations we’re hearing around capital investment and AI spending. Depending on the day and mood in which you capture the market and make capital investments, you may gain confidence in the future, or you may be viewed with skepticism as to whether you will be able to reliably generate profits on the other side.
01:34 Christy Akrian
We think we’re going to see a kind of resurgence of the AI industry from a revenue growth flow perspective. We believe this can continue, and we think technology revenues will continue to be fairly strong this quarter. This should be double-digit profit growth for the S&P 500 company in the sixth quarter.
01:52 Speaker A
So the companies that are scheduled to report tonight have had mixed results recently, and semiconductors have been a complete disaster recently. So how do you think about where investors should put their money within technology?
02:11 Christy Akrian
Well, I think that’s a very important question. Apparently earlier this year, hmmm, feels like half a year ago. It was really only about two months ago. There’s a lot of skepticism when it comes to software, but what does its future look like in this world of AI? Well, there’s a lot of variation within the technology industry, or even within the technology field. We prefer to target themes more specifically. What is currently working well is the foundational layer of AI development, something like the physical layer. Well, I think you know the value across the value chain. Well, something like BIAI, which is BlackRock AIF, has access to all parts of it. Well, what we’re actually seeing is once again huge dispersion and AI creating winners and losers. It’s not as simple as just assigning it to a sector now. You need to make your theme more specific.
03:10 Speaker A
interesting. Well, Christie, that’s AI and technology. Let’s talk about other things. I think that’s happening today. As you know, Mr. Warsh’s approval is expected, followed by a Fed press conference this afternoon. Well, we’re in this in-between state, so what are we going to key there? I feel the same way about the Federal Reserve’s policy decisions.
03:34 Christy Akrian
Yes, absolutely. We are now firmly in the camp of indefinitely pausing. You know, we’ve had some sort of, probably a lot of personnel turnover. Clearly no changes in policy rates are expected today. We are closely monitoring what language is updated in statements, what language is updated in press conferences, and how the FOMC thinks about inflation-related increases in oil prices. Well, I don’t know how sticky it is or not. So I think there will be a lot of focus on inflation expectations. Well, whether inflation expectations have changed recently. Um, but ultimately, we do think the Fed will stop here for a while, although we have a strong belief that the next action will ultimately be a rate cut. The question is, exactly when?
04:21 Speaker A
Well, given this backdrop where there’s a lot of focus on AI and technology being the driving force behind this market. Well, given that we’re in this kind of pause frame, I know you’re all looking at diversification, right? Ah, in this market. And what are the ways that people are looking at potentially getting that? Where should people diversify?
04:43 Christy Akrian
Yes, absolutely. I think there are two parts to this question. One is how to diversify within your stock sleeve. And, you know, even though we’re seeing strong growth on the growth side of the index, the growth cohort of stocks, we actually still think there’s value in having a little bit more of a balance between growth and value as a diversifier. So it’s like DNF, which is a dynamic factor rotation ETF. We think it makes a lot of sense in this market. We went into this year expecting to focus on performance, and that’s exactly what happened. Um, but the fact that the Fed is going to keep policy on hold for an extended period of time as a result of some of the higher oil prices, you know, we think that growth could continue to be on the upswing, but that’s a little bit of a balance between those two things.
05:18 Christy Akrian
But if you’re thinking about a whole portfolio other than stocks, you know, what we’re advocating for is actually kind of a diversified basket of diversification vehicles. Another lesson from March was that stocks, bonds, and gold sold off all at once. So we think this opens up an opportunity for investors to not only look at alternative asset classes, but also look at alternative strategies. So what does that mean? You know, I think it can sometimes look like a long-short strategy that looks like stock market neutral. You can actually take advantage of some of the relative value trading that all the AI-powered diversification creates, so you can actually generate alpha and create value without having to bet the direction.
06:04 Christy Akrian
Something like IL shares alternative active ETFs, offering some of the alternative strategies in an ETF wrapper. And we’ve seen these do very well this year, even in the face of perhaps something like a stagflation shock, where traditional ballast and traditional asset classes don’t really act as diversifiers.
06:25 Speaker A
Thank you, Christy, for taking your time. appreciate.
06:29 Christy Akrian
thank you.
