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Big Big Earnings week This week, we've got Amazon Molly after the closed Thursday, So I think it's time to get a preview of what we might see from Amazon. And when we talk about Amazon these days, it's both a retail story etail and a text retailer with its cloud. Yeah, with its cloud. So what do you do?
How do you get an expert on both?
Well, you go to Bloomberg Intelligence because we have Punham Guoyle. She's a Bloomberg Intelligence senior analyst for e commerce and all that retail stuff. She joins us here, as does an Aragrana, senior analyst on a tech side for Bloomberg Intelligence.
Pooham, let's start with you here.
I'm gonna go back to the roots of Amazon as a retail story.
Here.
What do you expect to see and hear from Amazon this quarter about that core retail business.
I think the retail business will be very strong for the fourth quarter. We already saw it in some of the industry numbers that were reported back in November and December, with really strong online sales, especially in November, and that momentum kind of continuing into December. So from the retail side, we expect Amazon to report a much stronger four Q and they'll still be driven Paul by the third party marketplace.
So you know, Amazon's business is one P and third party where they sell stuff on their own and then they have sellers sell on the platform. We think the third party business will continue to outpace first party, but both will have strong growth rates.
And that's just you know, that's just one piece of Amazon's business. I mean, granted a big piece, but just one of them. So An Rag, why don't you tell us a bit about the Amazon Web Service component and what that is going, what you were expecting out of that.
Yeah, thank you. So, you know, AW is the biggest cloud infrastructure vendor out there, and what we have seen over the last two years, it has been a bit of slow down in the growth rates of AWS and the reason for that is it's a variable pricing model. You know, you pay what you use and in this economic downturn in the last I would say one and a half to two years. Companies are dialing back on their cloud usage. It's one way for them to control their cost. So that doesn't mean that they are not
embracing cloud at the same pace. They're not just using as much. But we think that takes a u turn either in this quarter or the next quarter. We are fairly optimistic based on a survey we did. We think, you know, we are coming to a point with easy comparisons, so we are fairly optimistic that over the next twelve months we'll see rebound in growth rates for AWS and by default for for Microsoft also.
So on our what's the I mean if I'm Amazon, Amazon Web Web Services, how do I position myself in this AI discussion here?
I mean, if I'm the IR person, what am I telling.
My executives to say when I get on this conference call?
You know, one of the most important things. I think the message they have been telling people is, you know, you don't really need just open AI to go out and build your AI. You could say strategy. They work with a lot of open source companies or AI vendors that have the large language models. They work with Meta for example. They really promote a lot of Meta's large
language model. So if I'm a company, you can go out and choose whichever raw material you want, whichever you know, large language model that you want, but you can host that on AWS. And that's how they're going to make money is by giving the building blocks of AI to companies.
So, pun On, let's come back to the retail side of it.
Obviously, the big news with Amazon today the termination of the one point for billion dollar deal with Irobod. I'm going to say, again, pretty sure Amazon's going to be okay, but maybe you could tell us a little bit more about like the you know, is this really material for them that this deal didn't go through? And of course, you know, we just keep hammering it time and time again, this m and A outlook.
It's really tough.
Yeah, you know, we talked about this a little earlier and it's non material to Amazon just looking at the size of it, right, a billion dollars a little more than a billion dollars on Amazon scale of over six hundred billion dollars in GMB. It doesn't move the needle at all. But that said, it just reinforces our view that we've had for a long time that acquisitions for these companies will be more difficult given the scrutiny that
they're under. So we do think that organic growth is what Amazon is going to have to focus on, and we think there's plenty of it on the retail side, on the advertising side, and on the cloud side.
Just a little redhead crossing the Bloomberg truminal bring to your attention Renault to cancel and peer.
Ipo, So not good news for the IPO market.
We'll get some reporting on that coming up and pun them with the e commerce side of Amazon. What's your sense, you know, talking to the Amazons of the world, the Walmarts of the world. How's the consumer these days and how's this spending out there?
The spending is pretty good. Surprisingly, you know, we've been talking about the consumer possibly falling off and really slowing down their spend, but we haven't seen it. The holiday numbers suggests that spending is strong. I'd still say, though, I think people are picking and choosing where they spend. They're deciding where they want to spend their dollars, and Amazon has been a place where they're more likely to spend it, given the fact that they get speed, convenience,
and really everything that they want from there. But that said, I do think that on the low end you could see some issues arise as inflation and other concerns really do hamper their spending power.
So Ana Punam was just saying how the growth story for Amazon is really going to come more from organic growth rather than acquiring it. So tell us about on the cloud side, if you see a lot of organic growth opportunities coming from that business.
Yeah, no, we expect actually growth to pick up. We think the growth is going to be closer to twenty percent by the end of this year. You know, this is a market that has a long, long I would say runway overall cloud spending, it's still less than twenty percent of total tach spending, somewhere in that twenty to twenty five percent range. I think we have a long way to go, and Amazon is right in the middle
of it. They are the biggest cloud infrastructure vendor, as I said, with over forty percent of the market share. So I feel fairly optimistic that this year we're going to see a rebound.
So in the cloud infrastructure side of it, who do they compete against and is that forty percent market share something that they have to defend. Is that something they can grow. How's the competitive landscape look in the infrastructure space?
Yeah, in five years if they get able to maintain it, I'll be very happy with that. Because what has happened is, you know, Microsoft has really gone out big over the last you know, seven, eight, ten years, and it is now the second biggest vendor. Now, surprisingly enough, this is a space where the smaller vendors cannot really make a dent because you need a lot of capital expenditures to come up with a cloud model. You or infrastructure business
US can't do it in your garage. You really need billions of dollars off data centers in order to you know, really be good at this business. So right now there are two big vendors. AT's aws and it's Microsoft Azure, and then after that we have Google and you know the likes of Oracle and IBM after that.
So last one here for you, poone.
I'm just quick on the thirty seconds looking at pharmacy and grocery for Amazon.
What are the next developments there?
There's a long way to go there. We think they're still in very early innings and it's a harder market for them to crack with grocery, they're trying to build out their fresh business, but we really haven't seen that much progress there. And on pharmacy they're still very very early on. So those are businesses that we haven't even factored into our growth scenario for Amazon.
Wow.
Yeah, that's it seems like a tough nut for them to crack and for a lot of people. All right, put them Goyle on a rag rana. Two of our best analysts at Bloomberg Intelligence also.
Absolutely are some of our very first.
Folks we brought on board to Bloomberg Intelligence many moons ago, but they cover it give us a little preview there of Amazon because it is the giant retailer and it is a significant player in the cloud business. So you got to bring the two expert areas together, which we.
Can do with Bloomberg Intelligence.
And you can find Punam's and on a Rog's research as well as the other four hundred analyst of Bloomberg Intelligence. B I go on the Bloomberg terminal, Best Research on the Street.
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Big big news is several weeks ago in the crypto space because we finally they finally got approval from the SEC for a spot Bitcoin ETF and that was huge for the crypto space and big, big news for the ETF space as well. So let's dig in see how things are progressing there. Austin re joins us. He's global head of revenue and business at falcon X. What is falcons the largest institutional crypto prime brokeridge in the world. Austin, thanks so much for joining us here. Where are you based?
Where is the falcon X?
Yeah?
First of all, thank you guys for having me so excited for the conversation. I'm actually based in San Francisco. The team has spread globally. We have an office in Silicon Valley, New York, Chicago, Singapore, Hong Kong, and London, so a little bit of everywhere.
Who trades on your platform and what did they trade?
Yeah, so we trade with a wide variety of institutional market participants, so that's everyone from today and topically ETF issuers who are active within the cryptocurrency space, to hedge funds, asset managers, venture capital firms, really anyone that's looking to access liquidity on the spot markets or in the derivative side of the cryptocurrency space. Our options business, it's the substantial growth over the past couple of quarters as well.
So basically, if you're looking to get access to the asset class headge or exposure either in spot or derivatives markets, we work with a lot of those market participants.
Yeah, tell us Austin, like, why that recent news from the SEC regarding the coinets was so important and what's that what that's meant for your business?
Yeah, for sure. Look, I think if you look at what the ETF means in the mid to long term, really the unlock with the ETF is net new pools of capital that historically haven't had access to the cryptocurrency or digital asset market, specifically rias and financial advisors within the US so thirty trillion dollar markets roughly forty percent of US capital markets, and within that they haven't had
an instrument to access this asset class yet. And so the thought is the ETF provides a regulated instrument through which these different market participants can get access and that will increase overall adoption over time. So in relation to our business there where we service where Spot liquidity provider to number the etf issuers within that we've partnered. We've partnered to provide liquidity and we did about thirty percent of the day one issuances. From a trading perspective itself.
Interesting, Oh okay, very good.
Ask.
I wanted to know, like, how has that impacted your business? So you saw day one, we saw day one.
Look, this is something we've been preparing for for years at this point, right in terms of building out the liquidity at scale ability to transact significant size within this market. And so we've been working with different issuers, larger asset managers that they've been preparing their crypto strategies and I think Day one saw significant amount of flows and we continue to basically see consistent trading activity from those issues.
Right, So, just for our listeners and for me, you're a prime brokerage. You're not in exchange like FTX, correct?
Correct?
Now you traded on FTX at some.
Point, yeah, correct, So we're a prime brokerage. What that means is we aggregate liquidity from a number of different liquidity pools globally, exchanges, proprietary trading firms, market makers, and so we trade with all major venues around the world, depending on the structure where the client is in some uh in the regulatory jurisdiction, and our goal is to basically provide our clients the most seamless trading experience possible and an aggregation of that global liquidity within.
You want to get and your clients mostly institutional.
Money, correct, all institutions.
Okay, So tell me then about like where the retail bitcoin trader stands right now and like their access to ETFs.
Yeah, so it's an interesting question, right, and I think with the initial ETF rollout, the perspective would be that this would give broader access to the retail side of the market as well as segments of the institutional side of the market. What I would say is we're still early in this ETF cycle though right it was approved earlier this month, and within that you're still seeing some platforms not actually allow their end clients to trade this asset.
Right.
Vanguard is an example, seven trillion dollars of assets that are invested there. You're not seeing them basically allow access to Bitcoin ETF vehicles. You've seen some of the other brokerages still working through that cycle, and so from a retail investor perspective, it should open up access. But I think it's also a longer term cycle as to know how these really open up over time.
We had Bitcoin ETF, do you expect other crypto spot ETFs to get approved?
Yeah? So I think the next ETF that the market is looking at right now is the Ethereum ETF, and specifically within that, there's a perspective from some market participants that you could see in eth ETF approved later this year. What I would say is, in contrast to the Bitcoin ETF that realistically through Q three and Q four the market consensus was this was likely to happen the eth ETF,
there's not the same level of consensus right now. So I think what we'll see right now we have different Some clients that anticipate this happening later this year, others think it's a longer road ahead. I think that the market is still waiting to determine what ultimately happens here.
It looks like another catalyst potentially that the SEC is seeking comments on a proposal to allow options trading on blackrocks ETF.
So how do you see that one unfolding?
Yeah, So, I think one of the interesting elements in relation to the ETF approval itself is the potential to catalyze greater options market activity domestically in the United States. We've actually seen substantial options growth in our own business just for context, Q three to Q four falcon X's options business group ten x quarter over quarter, and so currently one of the largest options market participants on the
institutional side of the market. And if I look at why that matters, right, people are looking for different ways to express their views within this market as well as to hedge their exposure. And over time, what you see as these options markets evolve around ETFs is actually greater liquidity going into those ETF instruments itself and in the future potentially a lowering of volatility.
Right.
So, if you look at gold as an analogy, gold ETF options markets around those ETFs, what you saw is over time that's a more liquid market, lower volatility within that market itself, and that actually attracts more capital over time because it's a more investable asset that is less volatile.
Largest institutional crypto prime brokers in the world.
How do you define that?
How do I define largest?
Like?
Is it five volume transaction volume?
Yeah?
So defined from a volume perspective there, Right, So, like I mentioned, we're active both on spot markets, derivatives markets, and partnering with clients both in the US and globally.
So what are other Like who do you compete with for that market share?
Yeah? So Look, if I look at the crypto market and where prime brokers sits within this ecosystem, you have different players that are providing different products and services across the board.
Right.
It's not like traditional financial services where you can go to Gold Midzas or JP Morgan and get basically most things that you need from an institutional market participation perspective, So where we're focused is trading spot and derivatives markets, the extension of credit and solving capital efficiency for our customers, and providing technology to facilitate risk management. As it relates to competition, what you see is we compete with different
players in each of those different segments. Those could be some of the proprietary trading firms in one, it could be other trading market part participants in the other. But from my perspective, look, there's a huge market opportunity here. The question is how we grow this over time. I think, Uh, the ETF is a great catalyst, and we're excited to continue with partner with you know, wide write and market participants to grow the pie.
So I know that you're working with institutional clients, but I got to ask on behalf of myself and maybe other you know, retail participants who are maybe a little bit hesitant to get into crypto. There's obviously, I think since it began, just been a lot of skepticism around the asset and obviously with FTX imploding, like a lot of concerns about.
The viability of it.
So what's your pitch to somebody who's like, you know, not involved in crypto why they should?
Yeah.
So I don't spend much time actually convincing people to be active within the crypto's base.
Probably because they already are with the people.
You people come to me, right, they're actually active already, Yes, But like look within that, if I think, what's the value within crypto? Right, and where's the value within bitcoin? And why are people excited about the ETF as an example here, what you're looking at as a non soft and stored a value that's digitally scarce and solving what many refer to as a digital goal. Right, why does that matter today?
Right?
We're looking at a macroeconomic landscape of seventy plus elections globally, not just in the US. Within that, we didn't anticipate loose in monetary policy that could lead to inflation. Do you want to protect your assets against that? And then the other area that we see, you know, our clients investing within crypto is some believe it could be a good geopolitical hedge over time and increasingly uncertain geopolitical landscape.
As you guys know, question is is a portion of your portfolio makes sense to act to allocate to this asset class. But obviously, you know, always recommend people look at all the risks and of course body volatility is.
So read the fine print. I'm sure.
Austin Reid, thanks so much for joining us.
Really appreciate Austin Reid, Global Head of Revenues and Business at falcon X. Falcon X is the largest institutional crypto prime brokerage in the world, and we again all getting a lot small arder on crypto.
You're listening to the Bloomberg Intelligence Podcast. Catch us live weekdays at ten am Eastern on Apple car Playing and broud Otto with the Bloomberg Business App. Listen on demand wherever you get your podcasts, or watch us live on YouTube.
Adam Coons joins us from Winthrop Capital here. We talked at him about the markets and so forth going forward. Adam, you know, we had that big, big September, I mean really kind of November December last year that just ripped equities, just went through the roof bods actually turned in positive performance.
For the year.
You know, what do you tell your clients here as we kind of start off another year, do we just kind of start from zero and try to find some winners out there?
What's the theme for you this year?
Yeah?
I mean I think this year is going to definitely be a stock pickers year. I think fixed income will continue to be a primary story for returns and that's going to come despite what the FED does, Even if the FED doesn't lower rates as quickly as.
Some are saying, and we do believe that.
What we're thinking really fourth quarter before they make any cuts at all. Yeah, So we're we're a little bit divergent from the consensus, and that's really driven by if you look at what the Fed has done through this cycle. They obviously got it wrong with the transitory nonsense, and we think they're going to act slow to do the same thing. Right, they were slow to raise rates, suddenly
did it. We think they're going to be slow to decrease interest rates because they don't want to be wrong again, right, They don't want to lower rates and then see another flash of inflation. So I think that's really going to squeeze the economy, and so that's going to be good for long term bonds. I think it's going to be somewhat of a difficult year for stocks, and that's driven by two things. One is what I just highlight is
you're going to start to see economic weakness. But secondly, I mean, coming to this year, you nailed it is we had that rally coming into the end of the year that that really drove valuations to some somewhat unsustainable levels for specific companies. And I'm highlighting your Teslas or in the videos, and obviously you're seeing the result of that with Tesla missing and dropping quite a bit.
So you're saying it's going to be good year for long term bonds. I'm looking at the thirty year right now. Yield peaks a little bit above five percent in October. That's when the pivot story started to become a bit more clear, and now we're at four thirty five.
I think that's still attractive to get get you.
I mean, look, it's really asymmetric right now in bonds, which is the attractive part of it. The worst case scenario is you get a fairly high yield to carry until we'd start to see that. You know, this secular trend in rates is not changed. Rates are going to go back down. Demographics and all those things are pushing that. So worst case scenarios, I get to hold bonds and a pretty high yield, you know, corporate bonds. I'm getting five percent, So I get to hold that until and
wait until I'm right. And so ultimately I think that's the easiest, Like I said, from a wrist standpoint, asymmetric trade.
You know, I was surprised, you know, looking at the performance and can come last year in twenty twenty three that the best performing sector was high yield.
And that's in a world.
Where everybody kept talking about our recession. I would have would have thought going into the year that maybe high yield would not be the place to be, but it really outperformed it did.
I mean, and I think that goes hand in hand with what the equity markets did, right. They tend to correlate in certain pockets of the market, and so I think when we saw that rally that that helped tighten credit spreads. I mean, we really aren't seeing big increases in delinquencies. Yes they're going up a little bit, but recovery rates are stable. So it's just, yeah, it was it was a place to be because credit markets still look pretty solid.
So in a year when rates are broadly going to be coming down, you think that's pretty accommodative for everybody. Is there really a place that you would say like you would not benefit from that and to avoid.
Well, I think it really comes down to commodities.
I'd stay probably away from that in the in the short term, especially kind of the oil commodities. But if you look at stocks, I think, once again, I think you want to stay away from the narrative based companies, like I said in Navidio or where the AI narrative has really gotten over it yeah, I've been over there for a while, but.
I feel like it's just starting.
I think there's going to be a pause, right and then because everyone's going to figure out, well, there's no monetization of the story of AI right.
Now, so I think there will be a little bit of a pause with that.
You'll still see the companies like Microsoft and alphabet that have an AI component but have a real business model, those.
Will still do it, still do well.
But the companies that really just kind of got over their skis last year, that's where I would stay away from right right now.
So big earnings week this week from a lot of the high profile names, including Meta and Alphabetters. I call them Facebook and Google. Why change a good thing? I don't, right, But in any case, I know there are names that you guys have an interest in.
How do you think about Facebook.
Google that whole I guess digital advertising space.
Well, I think it comes down to you know, once again, these or business models that have been able to adapt. Meta has gone through a little bit of an identity crisis, but I think they're back on the right track where they're able to adapt to what the consumer behavior and those shifts are. We still think the consumer can kind of push this cycle out and that's what's going to drive stocks like that, where advertising is really you know, at the end of the day, that the revenue driver.
So that's why we think those companies can outperform relative to some of the hardware type companies.
All right, so those ones are the communication slash tech sector. How about healthcare looks like that's one that you've got your eyes on too.
It is, I mean, if you look at valuations, and I keep saying that word, it's obviously something that matters to this year a company like merk where you know it is trading very attractively relative to other companies in healthcare, and then also just in the S and P five hundred, but you know, it ran up significantly through covid obviously with with their vaccine, and then basically has given away all those gains. So what we see here as a
company that has a nice amount of cash flow. Yes, the pipeline and the short term is a little bit questionable, but we think that they can pull off an M and a strategy that will kind of help prop up their pipeline in the future.
I don't know, I mean, we just had our anti trust expert in here, I wouldn't be trying to get at the mn A right, that's.
Fair, that is fair. It's hard.
Yeah, it still seems like you can get healthcare deals done because usually what it is is like a big pharma company buying a little guy who got some cool yeah new thing coming.
So maybe just not in like healthcare as far as like insurance, you know, obviously like the humanist sigma that didn't go so well.
I mean, does Mark have It seems like if I'm going to have exposure to healthcare, it's got to have a g l P one angle, a.
B CD drug.
I was going to say they need, because does MERK have?
Then they don't, and I think that Lily would be behind that. The valuation is really what's giving me pause there. But I would still own Lily. I probably wouldn't add to it or you know, particularly an Indianapolis. Yeah, I get Yeah, I love Indianapolis because I know that because a lot of my friends from business school went to indian Aples and begrudgingly, but they went there because it's.
Ei Lily, Yep, you know that's the place.
Yeah, exactly so so, but so your highest conviction trade is that high grade long duration zond so so boring.
I know.
So what's like, like, what's a piece of paper that you guys hold that you feel really comfortable with?
I mean, I look, I really do like tech TMT. When you're looking at corporate bonds, you can go out there and are.
You buying like on the Comcast and yes, absolutely Comcast Charter.
I like Cox.
Communication, Yeah, I like Coxy Communications.
Yeah, yeah, I mean Oracle. Oracle is honestly, honestly one of the cheapest. It's triple bu but you're getting a lot of spread, Like so you're getting well north of five percent for you know, a well cash flowed company.
I just it's a no brainer for Cox Communications.
Man, I made a lot of fees off of those good people, smart people. They made your work for it, but they paid and they paid on time. Adam Coons thanks so much for joining us. Adam Kuons is Cheap portfolio manager for Winthrop Capital Management located in Indianapolis.
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You kind of think about, you know, twenty twenty three and the rip we had there at the end of the year. It's like almost he's coming to twenty twenty four.
Now what do I do?
It seems like I might have gotten all my performance at the end of twenty three. Let's check with Katerina Simonendi. She probably has some good views here. She's the senior vice president Morgan Stanley Private Wealth Management. So, Katerina, what's kind of the message you started off you know, twenty twenty four with with your clients here after you know, a pretty good twenty twenty three.
Paul and Molly, thank you for having me on the show.
Yes, you know, surprisingly good and off twenty twenty three where we investors seem to be so excited about the potential for the raid cuts.
You know, we saw this, you.
Know, pretty remarkable year end. And also, you know, somewhat unusual was the fact that the seven large stocks essentially carried the market. So if you look at the performance that investors experienced in the some of the broad indexes like S and P five hundred for example. You know, there were two stories of the index. There was a story of this magnificent seven stocks and then the rest
of the market. So when we look at twenty four, it definitely continues being the story of the FED and it is really the timeline of the rate cuts that we're looking at, you know, first, and then of course the earnings, because to some degree it is a little bit confusing for investors to figure out what they're hoping for.
Are they hoping that rates are going to start coming down soon and we have significant doubts that that is going to start cutting in March, or are they hoping for good earnings for the stocks that they have in their portfolio.
We think it's a little bit of both.
Well, let's solve into that timeline for the FED cuts, because I feel like, you know, you can ask five people and get ten different answers on this of when the FED cuts are going to start. We hear March the earliest. Our previous guest said, you know, fourth.
Quarter the earliest. So where do you stand in all that categorina? What do you think?
Well, we think that March is a bit aggressive, and in our view, we expect that the rates cuts are going to start in June, and of course economic data will be something that will have to support it. So we're going to have to see some weakness because after all, well we can't forget that the rate cuts, you know, is it's economic stimulus, you know, this is what we do to stimulate the economy. But the question of course also is would FED be willing to do something preemptively?
You know, if this week is a huge week, we have earnings, we have job data, we have the FED meeting that is coming up, and perhaps they give us some guidance as far as what they think on the timeline, you know, because if economy remains strong, you know, is it something that they're going to be willing to do. In our view, we expect less rate cuts that market is pricing in.
All right, Katerina, what are you telling your clients here in twenty twenty four in terms of maybe stocks versus bonds? Is a client specific or do you have a kind of a balanced approach you like to take?
Our message to clients right now is get out of cash.
We have we tend to have a little bit of get out of cash because we tend to have a little bit of a short term memory. And you know, when we think about it, it seems like we've been earning five percent on cash forever, but reality is that
it hasn't been a year. And our biggest conversations right now is extending the duration of fixed income portfolios, getting out of cash, positioning both in high quality equity, not necessarily the stocks that have done so well in the previous year, but maybe taking some profits there, but making sure that we have a nice, high quality, well balanced portfolios. On the equity side, you know, we like healthcare, we
like in austrials, so we see opportunities in financials. But on the fixed income side, even more importantly, we're looking at extending the duration and the quality because this is this remarkable opportunity of picking up some of these high quality bonds and enjoying that five percent yield for longer.
Is there a lot of that out there?
I mean, especially looking at corporate issuance, like you're seeing much in that longer duration tenor.
Well, moly, there is longer duration, but there's also intermediate and when we're looking really about you know, that message of getting out of cash, you know, even getting a CD that is few years out, you know, looking at some corporate bonds, investment grade corporate bonds, you know, just kind of trying to get as much of that yield as possible. We might not be able to get that yield going out fifteen twenty years, but we when we
look five years out, have seven years out. You know, this is really something that is still out there.
Absolutely so on the equity side of the equation, here are there some sectors that you and your team like right here that you're trying to conveyed your clients.
Well, well, the first message is, of course, you know, trying to again you know, getting away from the the tech names that did so well, right, and it's the hardest thing to do to know when to take a profit and to reallocate, you know, to the areas that maybe have not done well, but our positions in our
opinion better. And when we look historically, usually you know, after the rate cuts, large cap is this sector you know that usually just performs better immediately, but small and mid cap stocks you know, are not that far after.
And in our review, with the potential for rate cuts, but also with some of the geopolitical concerns that we are dealing with, especially you know, some of the news that came out over the weekend as example, you know, we really are our return expectations for this year, the risk reward are kind of low.
You know, we are setting.
Expectations to the clients that this is going to be the year will reposition where we get those quality position sort of make sure that our portfolios are well diversified. We do like healthcare, we like industrials, we like financials, you know, they we like just generally dividend being stocks as this poor building block of the portfolios.
But we're also.
Setting timeline expectations that this is the positioning that is going to be more for twenty five and even twenty six after the raid cuts, after that stimulus hits the market, you know, when there is another wave of growth that clients will be able to enjoy.
So Paul is a huge fan of the Russell two thousand, and I know it is a burning question for him. Is there a magnificent seven of the Russell two thousand?
Ah?
That's you know, how many sevens would it take to really make an impact, you know, in the index that has two thousand stocks.
You know, that's that's the question.
So I think that the answer, there is just broad
index versus stock picking. In in our view, this is very much the year for this where valuations and earnings and competitive positioning of these individual names, that the individual stocks will make all the difference in the world for the investment portfolios for that alpha that access return above the market, and we actually would encourage investors to, you know, some would take profits and decrease their positions in the broad indexes that benefited from some of the stocks that
you know performed well last year.
Katerina, one last question about thirty seconds. What do you do with alternative investments? How do you kind of position them for your clients.
We think alternative investments, you know, as far as diversifier or even return amplifier play essential role in the portfolio where appropriate. You know, it just really takes time to get educated in that space, but we think that at least ten to fifteen percent of the portfolio, you know, could really benefit from some alternative exposure.
Katerina, thanks so much for joining us. As always, Katerina siminating. She is a senior vice president of Morgan Stanley Private Wealth Management, joining us to give us her thoughts on these markets.
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