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Traders are increasingly pricing in a 25 basis point rate cut from the Fed next week. So let's talk about how all of this is going to affect your investments here with more. We've got Andrew Cry who is the co-chief investment officer over at Crescent Grove advisors here. Andrew, thanks so much for taking the time here with us this morning. So, as all of us are staring down these next few trading sessions, all eyes are in focus for this Fed FOMC meeting. And so for the meeting that is anticipated to yield a 25 basis point rate cut, how might that impact people's portfolios?

Sure. Yeah, I think if we look at where we've come from in terms of the narrative and how this has played out ahead of this Fed meeting, I think it's really important to keep that in mind. This big shift towards the labor market data, right, as opposed to the inflation data. In fact, this week, sort of the lack of fanfare around CPI, the lack of fanfare today around PPI is telling that there's been such a focus on the labor market and what that then portends in terms of the trajectory for the economy. If we're seeing unemployment tick up, you know, ultimately, is that a signal that the economy's weakening, that we're headed towards a recession, that the Fed needs to act more quickly? You know, I think that was sort of top of mind for investors and as you evaluate, again, the outlook for corporate earnings. But for us, if we kind of take the mosaic of data that we've seen, whether it is looking, you know, purely at the labor market, which we think is just more softening off of an ultra hot level, but then you look at corporate earnings, what we saw last quarter in terms of earnings growth, um, you know, still very solid from that perspective. If you look at credit markets, which are usually an early indicator of stress, broadly speaking, in financial markets, pretty quiescent, all things considered. You know, we just sort of take the totality of information and think that perhaps this last little bit of volatility that we've seen over the last several weeks here is a bit unwarranted given, again, you know, everything that's going on. We think there's a pretty favorable backdrop going forward for markets.

Yeah, it was interesting because the markets were trying to see whether or not, or at least game out whether or not, they should have been paying closer attention to CPI. We did see an early morning dip off of the print yesterday, but then we saw markets rally back after that and ultimately regain some control of the emotion that seemed like it was in the tape. And so all of these things considered, where are the strongest sectors that people should be positioned for or positioned in when the rate cutting cycle does begin and when we ultimately get some type of sense what the terminal rate will look like?

Sure. So we think we would kind of frame it in terms of tech versus everything else in this environment, right? And this kind of goes back to blocking and tackling portfolio management in some respects where you've seen these tech names, these mega cap growth names in particular, the mag 7 do so well over the last 12, 18 plus months in particular, and and warranted in the sense that their earnings growth was far superior to the rest of the market. But as you look out now over the next two to four quarters in particular, you look at the sort of broadening of earnings growth, this trajectory now for the S&P 493, if you will, kind of the rest of the market to catch up. And in particular, some sectors like health care, like financials, industrials, some things that would be more traditionally thought of as kind of value type sectors. You know, the forward-looking earnings growth expectations there are starting to look a lot more favorable and you're starting to converge with these tech names, which we think presents an opportunity alongside it. You've got a much less demanding valuation backdrop for those sectors. Right? So I think you point to that, you say, okay, some of the exuberance and enthusiasm if people are rotating out of those tech names, taking some chips off the table, where do you go? You look at these types of sectors that I just highlighted.

We also just got an ECB rate cut for the second time here in just about three months essentially. And so with that considered, I bring that up because there are also investment opportunities outside of the US that you've been looking towards as well. Where are those more pronounced opportunities that you would be telling investors to really consider for their portfolio?

Sure. And a lot of that comes back to again, US versus non-US is effectively a tech versus everything else type of bet in many respects. And what you see is historically, non-US stocks, they kind of follow the cyclical type pattern. Every 18 to 24 months, you see business cycle dynamics play out. And right now, we're sort of at a trough or coming off of a trough, let's say, with manufacturing activity, export activity, global trade. So if you start to look at some of those early indications of if the trade cycle is going to inflect higher, it's starting to look reasonably positive. So to your point, we would look at areas like Europe, which hasn't had the most flattering data prints recently, but they do have the ECB providing some support in terms of lower rates. And then you are seeing some sort of inflection points again looking like an improving economy or sort of dynamic around exports and the cyclical portions of the economy playing out. Then you look at Japan and you look at things like emerging markets, ex China. We've sort of set China to the side, but all these different dynamics point to us in a direction that say that cyclical picture is playing out, and you've got much less demanding valuations. Again, it come back to this theme because you've got these mega cap tech names which trade at pretty rich valuations in this environment. You know, is there an opportunity to make that relative value rotational trade right now in advance of this sort of inflection point playing out?

Andrew Cry, who is the co-chief investment officer at Crescent Grove Advisors. Andrew, thanks so much for taking the time here with us today.

Thanks for having me.