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All right, markets are higher today, although we really call them mixed here. As a slew of key earnings this morning has investors feeling relatively bullish on stocks. For more and if this earning season can sustain the markets run higher this year. We want to welcome George Cipolloni, Penn Mutual Asset Management portfolio manager. Um good to see you George. So as we look at what we've gotten thus far, and of course this is the peak earnings week. We get what, 131 companies in the S&P 500 reporting. What's your read so far um and what would be your answer to that question of the sustainability of the rally?

Hey Julie, thanks for having me and and really appreciate being here. So you said the right word. The right word is mixed. And so we are have already seen a kind of mixed earnings outlook so far. Now obviously more companies have beat the miss, but the big thing is that expectations are really high now. So we're coming into an earning season with earning earning expectation for the next year is expected to be about 15% and then another 14% beyond that. So again, the bar is set high. So what we are seeing are mixed results. We saw GM actually post really good results as you mentioned, but people are looking for cracks now. And the crack for GM was China. And so if you look at UPS for example, they got volume growth finally, but the crack was in the margins and and the new union contract that they're trying to digest on the cost basis. So I think that's how we're looking at earnings right now. The other key thing is that we have tech coming up. Uh four companies, Google, Meta, Nvidia and Amazon have contributed 56% earnings growth where the other 496 stocks in the S&P have contributed 6%. So we've been super concentrated and we know that in terms of stock performance and valuation, we've also been pretty concentrated in terms of growth. So as we had this great rotation in the small caps and the market broadened out, we're going to have to see earnings broaden out as well for those companies.

And you mentioned it George and listen, big tech earnings on deck. The Magnificent 7, Alphabet and Tesla, they started tonight after the bell. Do you still like those names George?

I think those names have done terrifically well. Now just you know, for disclosure, I'm a value investor and I tend to gravitate towards value. So this small cap uh rotation that we've had has really has really helped us and we like that a lot. Again, the market was so concentrated. But I have to give them all the credit in the world. They have delivered on earnings growth. And they're going to have to keep doing that given where valuations are and then given where given where those expectations are. So at this point, I think there's a lot more value in other areas of the market and that's where we're going to tend to gravitate towards.

So what are those other areas then?

Yeah, so so I think within small caps, one of the biggest things that we've seen is the impact of interest rates. So as interest rates went up, small caps were punished. Quick stat for you. Uh small caps have a lot more variable rate debt than large caps do and that's one of the main reasons why they suffered so bad with a higher rate environment. Now that interest rates will pull back, we should see areas like financials do better. I like non-consumer discretionary areas within small cap, companies with really good balance sheets. One of the cracks we are seeing in terms of a sector standpoint is in discretionary certain areas. QSR and restaurants are all focusing on value menus. Uh if you think about luxury, it's been pretty hit or miss. Uh Polaris is a name today, an ATV company that really did not do well. So heavy discretionary I think is going to be tough. I think consumers are doing broadly well, but there are starting to be some cracks there that we that we are noticing.

George, you know politics are front and center as well. We have an election, uh different candidates with very different views and policies on everything from tax rates, George, regulation, trade. How just as a strategist, are you trying to think through that?

It it's funny. I mean, summertime is supposed to be nice and and easy for us or at least a little more low key, but this summer certainly has not been and the past two weeks really have not been. So one of the key things with politics is we you need to keep your mind clear. I think Charlie Munger was a very good teacher in that regard. Uh if you have a political bias, it tends to cabbage up your brain and I absolutely believe that. So we try to look at things as clearly as possible. And and the way you do that is look at the policy and and try to see if that policy makes sense. Obviously with Trump coming in, he's going to want to cut rates. He's going to want to grow out of the debt problem that we have and that's going to be really tough to do long term. In the short term, it could be beneficial for some stocks. On the flip side, the tariff policy that he may implement might be inflationary. So one of the things that we've noticed with inflation pulling back, uh China is starting actually to export some deflation to us through industrial metals and in some other ways. And so I think if we institute tariffs here, that could be tricky for inflation. So again, I think seeing the field pretty clearly and looking at each of the elements that that might be applied in terms of policy, I think we know what Harris would do probably be, you know, continuation of Biden's policies quite frankly. So yeah, I think the trick is to try to gauge and understand all the risks at a minimum.

You know, we've been talking about this issue so much, George. But have you actually made any moves based on those various policy sort of gaming it out, right? Or do you just kind of stay the course here, you know, trade and and and buy on and sell on fundamentals and kind of wait till you get closer?

Yeah, it's it's a great question, Julie. And I think, so we are long-term investors. We tend to see through a lot of noise and and that's our jobs to try to stay the course, make sure your long-term decisions are good and then you stick with them. So again, you can get swung around a lot in the short term by any any headline. But I do think it is important to understand policy. So if you look at the yield curve, for example, we are bond investors as well. Uh the shift in the yield curve has been amazing just in the last few weeks. Now, part of that has been inflation coming down, expected Fed rate cuts obviously. And then the third part is the long end has been pretty stable in terms of yield because the market is at least concerned that there may be some deficit issues with either party. So again, there's been a nice steepening of that yield curve finally, which has been so flat for so long. And so that's something I need to understand in terms of how I want to position my bond portfolio for Penn Mutual.

Makes sense. George, good to see you. Thank you.

Thank you, Julie.