Annex Wealth Management Chief Economist and Strategist Brian Jacobsen joins Yahoo Finance to discuss the upcoming PCE report and what investors need to know to best position their portfolios.
Jacobsen warns investors should remain cautious about companies that use artificial intelligence as a gimmick, specifically "those who claim to be related to AI, but are only so in name."
"I think that's something you often times see. Think about when Bitcoin (BTC-USD) was on one of its many runs higher, before its precipitous falls, that a lot of companies were talking about blockchain, talking about issuing their own coins. And so when we were actually going through on our investment committee, looking at those word clouds that you can do for earnings transcripts, artificial intelligence began popping up quite often, but then when you look at the companies actually talking about it, not all of them are actually using it. It seems like maybe they're just trying to say they're being very fashionable."
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SEANA SMITH: The market rally taking a bit of a breather here shortly after the open as investors look ahead to a very busy week of economic data and also corporate earnings. The S&P 500 and the Dow just hovering shy of those record highs that we talked about last week. Well, can lackluster reports break the market's recent momentum? And what do we all say about where Nvidia and the AI-fueled rally is headed?
We want to bring in Brian Jacobsen. He is an Annex's Wealth Management's chief economist and strategist. Brian, it's good to see you here. So what do you make of this massive move higher that we saw? A lot of that on the back of the Nvidia's blowout quarter last week. Are we set up to maybe see a bit of a correction here on the horizon?
BRIAN JACOBSEN: Yeah. Thanks for having me. We think that actually, we might be set up for a bit of a pullback in some of the high flyer names, but not necessarily anything all that broad or all that deep. And when we look at last March, it was Nvidia to the rescue in terms of the AI story, the tech story, and the rally from there. And once again, it was the Nvidia earnings that really helped kind of turn sentiment around.
End of December, things were looking really good. January is beginning to look a little bit chilly for the markets. And then things turned around when we realized that maybe this whole AI thing does have some legs. But maybe some of the names have been pulled along in the wake of Nvidia that perhaps shouldn't be. And so we could maybe see a little bit more sifting and winnowing in the markets over the next few weeks.
BRAD SMITH: What is the profile of the companies that you would believe are perhaps positioned to fall off of the Nvidia coattails then?
BRIAN JACOBSEN: Yeah. So a lot of it would really have to do with those who claim to be related to AI but are only so in name. And I think that's something that you oftentimes see is think about when Bitcoin was on one of its many runs higher before its precipitous falls that a lot of companies were talking about blockchain, talking about issuing their own coins.
And so when we were actually going through on our investment committee looking at those word clouds that you can do for earnings transcripts, artificial intelligence began popping up quite often. But then when you look at the companies that are actually talking about it, not all of them are actually using it.
It seems like maybe they're just trying to say that they're being very fashionable. So we would just urge caution with a lot of investors that if somebody claims that they are using AI or that they stand to benefit from it, really dig into the details and find out if there's any substance there behind the words.
SEANA SMITH: Brian, I also want to bring up what we heard from Berkshire Hathaway over the weekend. They have a record set of cash here, $167.7 billion. You had Warren Buffett warning that there's not many deals out there that there's no possibility of another eye-popping performance. I'm curious how you take that into account when you're thinking about what this next several months, couple of years could look like. Those words from Warren Buffett, is that a warning, do you think, to the market?
BRIAN JACOBSEN: Well, yes. I think it's a Warning for the bigger cap companies, because for a company like Berkshire Hathaway, for them to have something that's going to move the needle, some sort of transformational deal, it's going to have to be very big. They're either going to have to have a large deal or a large number of deals. And so for us, it actually seems like maybe more of those transformational deals are going to be more lower cap.
So think about mid cap and small cap companies. So for a company like Berkshire Hathaway where they have, what is it, like $140 billion in cash, it would take quite a large deal to actually improve their return on investment for the next quarter. But if you consider a smaller or mid cap company where they don't have billions in cash, where is might be millions instead, some of these deals can be very transformational, very impactful on their businesses.
BRAD SMITH: Brian Jacobsen, who is the Annex Wealth management chief economist and strategist, Brian, thanks so much for taking the time this morning.
