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News, leaving behind a February full of tech fueld stock market records. Steve wideger City expected the broader market to close the gap on big tech, saying this the extreme divergence of large cap tech profits from other industries should diminish this year and next. We would not be surprised if MAC seven EPs gains in twenty twenty four were cut in half on strong investment spending and greater competition. Steve joins us now and Steve, that's a lot to
get through. Can we build on that just a little bit more where you're expecting some of that gap.
All if cutting half means twenty to twenty five percent EPs gains, that's still still substantial growth. You know, industries that are literally booming, and there's probably a very limited number that are doing that booms you worry about on the other side of those those sorts of things. But they're not going from large gains to declines. They're going
to a bit of a slowdown. And you know, again look at mag seven, probably four companies that are buying up every microchip that they possibly can to offer AI services. Now as an open question, as to whether these services again are going to find demand in the economy from just about everywhere that they're not going to compete with each other and they're really going to all be able to boom together, or will they compete and they will
narrow down profits. I think again, we're not willing to give up diversification in portfolios right to just bet on that single trend. And so again, a lot of other good things are happening in the economy. We're raising our economic forecasts, raising s and p EPs forecasts, and seeing industries that have been weak for the last year and a half bottom out and begin a recovery. They won't do as well as mag seven in terms of EPs gains, but hey, they're at a very different valuation.
You clearly ombearrass your SOI equities small midcaps. Tell to us about the industries you like right now?
Well, again, you can get mid cap growth companies in the United States for about the valuation as European shares only. The US midcaps have grown at about eleven percent and Europe has grown at about two I think we increasingly want to swerve towards healthcare, something that's been out of favor with the exception of GOP drugs, equipment makers have had an historic growth rate of nine percent, dibiting growth
for three decades. They're trading fifteen percent off of their highs, and again, a lot of people thinking that we'll never do anything in healthcare except lose weight, which I wish I could.
I will say that a lot of people are working on that. I'm curious about the idea that everyone seems to be shifting to. This idea that earnings are coming better than expected, the US economy is more stronger than expected, fiscal keeps on supporting everybody for the foreseeable future. So why is it that CAST funds are on pace for another year of record inflows. People are talking about cast is trust. I don't think so. People love their CAST funds and they're plowing more and money into them.
So look, the reason why we're not more overweight equities is a great competition from yield, and so we want to participate that our bond portfolios have a little bit below average duration. We expect again to earn that longer than the FED. We'll stay at five and a half percent. But this is good competition. And look, we've been bullish for a while. We have seen increasing bullishness. We see
new shorts being said in the equity market. Everybody is bearish in the bond market and extremely short the bond market. I think that there are some areas which have been so strong that we want to just start the ease back from them. When you've had eighty percent returns in software, for example, you know it's just is time again to just start to shift to some of the other areas. But there's room for both stocks and bonds and portfolios right now.
This doesn't sound like a market that's been drained of liquidity. It sounds like an economy that is flush with liquidity. Why has the Fed been so ineffective at draining this market of liquidity?
Well, again, do you have do must we have a new recession again to stop this rapid inflation. I think we have another troubling inflation report that's going to come for in March. For the month of February, it's going to be another reason for everyone to again say, well, wait a second, maybe we're not on this disinflation trend. Maybe we're going to be stuck here with the FED doing qt in five and a half percent, funds that's
possible over the short term. But the reality is the good news has been we've been able again to supply and demand to line up a lot more in a more in a stable way without a massive surgeon unemployment. Now, if we get too excited about that, there's going to be some problems.
Eve upgraded growth. What do you say, what you like? What's leading to that?
Well, I think again it's weaker pieces of the economy. We've had a hidden recession underneath the surface. If you're looking at Germany, if you're looking at Japan, if you're looking at China, if you're looking at manufacturing in the US, which is nobody would really look at. But the reality is it's contracted for the year behind US trade contracted eight percent in the year through the third quarter of
last year. And these weaker components again are moving into a more stable growing place, probably not going to be anything V shaped, but it's those things, along with large cap tech with AI which is.
In the boom.
There's been a big spread between manufacturing and services for quite a while. As you've been indicated, over the last year two years, manufacturing started to come up to services. Is that how you expect that story to complete.
But remember it will come off a very different labor market outcome. Services labor intensive, manufacturing automated, right, So the head count differences are going to be really, really substantial. The services industries can't keep adding two hundred thousand jobs per month just in those industries, right. So you've seen having an employment growth from where we were two years ago when services just turn right back on like a
light switch again. Hospitality, airlines, travel, all of these things incredibly labor intensive, and we had massive job losses there to recover. But now we're at the point where I think it'll slow down, and that didn't in the month of January. It was three hundred and fifty three thousand jobs in January, but we saw seasonal distortions and employment inflation, retail sales, all of these things in different directions. It's going to take a while from the market to sort
it out. I think we'll be a little more worried before before we start to really come to grips again.
John mentioned your upgrade of us GDP.
Muhammad Alarian recently in Projects Indicate was talking about what happens in the United States matters to the rest of the role doesn't.
Stay in the United States.
Do you foresee then US growth if you see it picking up helping the rest of the world. It is, but it's challenging at the same time because again, the amount of time that we spend with restrictive monetary policy is still going to be a bit longer. We haven't changed our mid year estimate really, but again confidence that we're going to have easing, the communication of easing through markets, right, we could set that backs up. So the dollar has
been stronger now that both helps and that hurts. Yields have risen this year right at the long end of the curve and across most of the curve. So those are modest challenges while some of the things are really helping. Consumer demand is not collapsed, and producers have been underwhelming and they've been really short in terms of meeting demand.
Is going to say it always going to catch up, Thank you, sir, Steve. Wanting to if SITSI