Market breadth, AI concentration, and global diversification (with Romaine Bostick, Katie Greifeld)

Asks whether the AI-driven rally heading toward a 10th straight week of gains is a healthy 'up crash' as Amy Wu Silverman described.

Romaine Bostick

Julia Hermann

Tech is doing the heavy lifting to keep sentiment afloat despite mounting geopolitical risks. Theoretically this raises concentration risk concerns, but US tech is the hub of global profits and earnings growth—so it's a flight to quality/profits in itself.

Notes that consumer discretionary is one of the worst sectors despite the US being a consumer-driven economy, and asks if there's reason to worry about elevated valuations.

Romaine Bostick

Julia Hermann

There are cracks on the consumer surface—a huge drawdown in savings to finance current expenditures. Adding inflation as a stressor means we need to diversify against a wider range of outcomes. Globally, even though the US is the 'cleaner dirty shirt,' balanced international diversification is favored given the mounting risk around any single geopolitical outcome.

Asks for more specifics on international diversification—EM or developed markets, and specifically about Europe given energy price concerns.

Katie Greifeld

Julia Hermann

In Europe, weakening wage growth and hiring, and the ECB facing an imminent rate hike as soon as June, could lead to demand destruction to meet a supply-driven inflation wave. However, increased German defense/infrastructure spending could soften worst-case scenarios. Emerging markets are a similar story to US tech—a play on on-chip demand.

Asks how much they are discussing the possibility of the Fed raising rates rather than lowering them.

Katie Greifeld

Julia Hermann

The US is a hub of policy flexibility—everyone has coalesced around hikes from the BOE and ECB, but the US is still debating whether there will be a hike at all. Her team has an out-of-consensus view: one cut is still on the table for the next 12 months, not a hike.

Based on a balanced view that any inflation upswing would likely pressure consumer demand and corporate margins, which have been primed for disappointment given upgraded earnings expectations into higher input costs for Q2.

Asks about the next earnings season and whether corporate bottom lines will hold up given inflationary pressures from Iran.

Romaine Bostick

Julia Hermann

Relatively optimistic. Q1 showed that market broadening of earnings health doesn't have to come at the cost of tech leadership. Since the post-pandemic period, earnings growth in large-cap tech has led the rest of the index—a halo effect. Even with higher input costs from fuel, they're starting from a robust earnings environment for tech and broader sectors.

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