This week on 7 Market Movers, Doug Huber, Wealth Enhancement Deputy Chief Investment Officer, discusses recent investment market performance, including: 

• Increased volatility due to AI, earnings, and private credit
• Interest rates easing slightly
• Inflation and jobs data remaining key drivers for what comes next

Please contact our office if you have any questions you’d like to discuss.

TRANSCRIPT BELOW

Hello, everybody, and welcome to this week's 7 Market Movers video series. My name is Doug Huber. I'm the Deputy Chief Investment Officer here at Wealth Enhancement. I'm excited to talk to you about what's been driving markets this week.

Markets started the week with a little bit of a relief on the back of the Supreme Court decision overturning the Trump administration's tariffs.

Markets originally responded relatively negatively to that, but I think as the markets digested that, as traders become less unnerved with what the consequence of that is, we saw a bit of a relief rally, especially in those tariff sensitive sectors like e-commerce that really did start the week on a positive footing. However, there's been a lot of volatility this week, especially as we've seen more earnings results. But there's a lot of concern around traders trying to understand the impact of AI. I think we all acknowledge there's a lot of positives to what AI is bringing to our world, to a lot of our jobs, the productivity enhancements we can all have. But I think there's also concerns around how much productivity is that bringing in and what are the risks to the job picture?

Are we really going to displace a great deal of the workforce? And there's been some commentary that is quite draconian around what AI could look like in five, ten, twenty years. We've also seen a lot of pressure on sectors that the market has deemed ripe for disruption from AI, particularly things in the tech sector like software, where a lot of the new models from Claude or ChatGPT are really pulling into question the viability of these software business models if these AI models can in fact do it better, faster and cheaper than than these software businesses. And so we've seen some pressure there, and so that has increased a lot of volatility.

We did have a big earnings announcement this week. The one that the markets look forward to the most at this point for the last several quarters, NVIDIA. And so NVIDIA did come out Wednesday after the bell with earnings. You The earnings report looked relatively good.

They beat on the quarter. Their guidance looked pretty strong. But frankly, as I think I've talked about and I or Gary have in other videos, this is a market that is really pricing in kind of perfection as it relates to future growth. And so these numbers weren't quite what the market was looking for.

And Nvidia did get, did get hit subsequently on Thursday, down a little bit because the market, you know, it just wasn't quite good enough. And so we're talking a lot about how this market is really priced for execution from here. It's really pricing in, you know, if these companies aren't going to live up to these lofty expectations, you know, you're starting to see real impacts on these earnings announcements. And I think that's leading to more volatility.

We've seen a bit more selective layoffs being announced from companies like eBay and Block, the old Snapchat.

And stocks are responding different ways. I think it's always hard to tell. There's been a bit of a narrative around AI being a driving force for that, but it's always hard to tell.

Corporations kind of hiding behind the AI narrative? Is that really a driver? Are they just protecting their balance sheets because their business models are softening? Really hard to say.

So that has elevated some volatility this week. And then there's been a lot of discussion around the private credit markets. We've seen some of these BDCs gate their investors from exiting and that has caused a lot of misunderstanding, a lot of tensions amongst investors. It's also led to a lot of headlines where I think there's a lot of, you know, it's easy to kind of click on these things.

It's easy to kind of pile on. And that's not to say that we don't see some increasing risks in the private credit markets. But I think that, you know, we do a lot of work to understand what actual impacts of those are and why they could certainly have impacts in certain pockets of the markets.

You know, they're relatively well insulated overall. But we are keeping an eye on what is the overflow effect of that. Because if private credit markets start to experience some stress, that naturally has a reaction into public credit markets and we could see spreads widen and you could see some volatility step into a place that has actually for the last 18 - 24 months been quite stable. Corporate balance sheets have looked very strong.

We've seen spreads very tight, meaning the market is demanding, saying, you don't look very risky to us. And so it's been an an area that has has been relatively benign from volatility. And so it'll be interesting to see if if we do have a spillover effect. But it's gonna take some while, I think, for for the private credit if there is an event to to kind of come to fruition.

I think for now, it continues to be an easy headline to publish. And so we see a lot of a lot of talk about it, but we've yet to see real real duress in in any of the underlying credits. And I think I can point to a lot of different things that would lead me to say that I think a lot of it is still noise. You see a lot of folks coming in and saying, oh, private credit's bad.

But at the same time, they're out there trying to buy that same pool of private credit at a small discount, which would make me believe that they really think those bonds are money good or worth par. So, you know, it's just one of those things that I think we'll have to continue to evaluate, but I don't see as a canary in the coal mine quite yet. If you look at markets this week, they have been flat, but certainly the path to get there hasn't felt, quite that calm. And so we've had some up days, some down days, some sideways days.

And so we expect that to continue until we get, some further data. Obviously, there's been some more talk around how sticky inflation is, and so we will wait to see what the next inflation print looks like. We have seen rates come down a bit. They started the week at around 4.09% on the 10-year. We're down to 4.01% as of the close on Thursday. And so that's frankly, you know, expected as bonds typically serve as a little bit of a safe haven asset, not always, but, you know, it's good to see the market is pricing that. That has actually led to lower mortgage rates. And so we are seeing refinancing the rate of refinancing start to pick back up a little bit.

And so it'll be interesting to see if that has any longer term implications for the housing markets. But on the whole, nothing more than a lot of, you know, more news coming out, a lot of headlines this week, nothing of huge significance, but a lot to continue to monitor. And we're going to keep paying attention to, where are the winners and losers in AI because I think that's going to drive the day to day pricing narrative. And on the other hand, obviously paying attention to the jobs market and the inflation market as that continues to be really where the meat of the economy is and is going to be the barometer of how healthy we believe the economy will be going forward.

This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor's specific circumstances.

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