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For more on the latest market moves, let's welcome in Ryan Grabinski, Managing Director of Investment Strategy at Strategas Research Partners, a Baird Company. Ryan, it's good to see you. So you just heard, um, Julie and I talking, Ryan. We were talking about, of course, the small caps. Ryan, investors have been talking a lot about those pint-sized companies and they're down today, Ryan, but such a quick aggressive move higher. I'm not sure what you you make of it. Um, because your notes, Ryan, were interesting when you look at that small small cap rally, what you're suggesting is you really see it as kind of maybe more of a trade rather than the start of something bigger and broader.

Yeah, so it's first off, it's it's great to be here. Thanks for having me on. Uh, you know, the one thing I will say about small caps is, you know, I I would say I'm probably a little more skeptical, uh, than most of the the the street right now in terms of the durability of the rally rally within the space. We've generally, uh, saw, you know, 10% move higher here. And what largely what that was was it was a rerating of multiples, uh, due to a, uh, uh, reduced odds, uh, I I'd say lower Fed rate expectations. Uh, and that's a way of saying that the terminal rate for the Fed funds rate is has come down to about three and a half percent. Uh, so there were an additional two cuts that were priced in. So multiples, uh, the NTM multiple for small caps basically jumped from about 22 times to about 24 times over the past week. But we didn't see was any follow through, uh, uh, in terms of the fundamentals overall. So I look at the NTM EPS for both the the S&P 600 and the Russell 2000, and it continues to be, uh, sort of in the low end of the range of where it has been. It really hasn't seen any optic. So until I start to see some sort of fundamental follow through, uh, with regards to the small caps, I'm a little skeptical about the durability of the rally. Now, sure, I do understand that, uh, you know, the banks make up a large portion of the small cap index. And, you know, everything that's going on in Washington, there's certainly some, uh, you know, might be some regulatory reprieve that that comes should the the the Republicans ultimately win, uh, and there ultimately be a Republican sweep. But, you know, I think that's that's probably more likely going to be a a trade rather than an investment opportunity. There's not necessarily a story that would be associated with the banks more longer term. And so obviously that that kind of hurts, uh, hurts the, uh, the small cap space overall.

So, Ryan, as I was just talking about, you know, in recent days we've had this rotation, right, where things have come out of mega cap tech, um, out of some other winning areas, gone into places like the small caps. Today, it's not going much of anywhere in terms of winners, right? And so what kind of risk are we seeing from that rotation and the broadening out that could be supportive of a continued rally to just being a a plain old selloff?

Yeah, it's a great question. So one of the things that clients have asked me today is say, have we seen the top in the markets, uh, you know, this this cycle and you know, are we in a bigger sell off? So I think I think it's a good good question to ask. I'm I, you know, I I think there's getting into this earnings season, the earnings overall, the the bar is pretty high for the for the the overall index, I would say, especially on the large cap side of things. Obviously, there's there's been a lot of, uh, growth that's associated with the magnificent seven, and that's kind of where we're seeing, uh, seeing that rotation out of. I I, um, you know, I I'm going to I'm going to wait for where the earnings season to really come about to kind of to get get a better picture. Obviously, we saw the earnings report from ASML, uh, you know, things were looking a little weaker, uh, their guidance was a little weaker. Um, you know, thinking about TSM today, obviously, if things seem to be okay. So it it starts to you start to think about, okay, have we had this sort of AI euphoria that the market has been facing over the last six months? Is that sort of turning into an AI disappointment? And so, um, you know, I think I think generally speaking, that's the biggest risk heading into the next six to eight weeks is, are we setting ourselves up for this AI disappointment? And do all of the trades that were associated with AI ultimately begin to unwind themselves? And that's not only associated with the tech sector, right? You had, uh, some of the nuclear industry, uh, nuclear companies had been associated with, okay, there's going to be more power demand, uh, and, you know, that power generation is going to come from the nuclear space. And so, uh, you know, those names had started to see a bit. Uh, the other the other trade, which, um, you know, I think it kind of goes underappreciated here and, you know, is starting to see some of itself is actually the the sell off related to the weight loss drugs. Uh, and so Lilly and Novo come to mind specifically there, uh, within within, uh, the healthcare sector, right? They had they had accounted for a lot of the gains, uh, within healthcare. And to the extent to which that story starts to starts to change, uh, it may be, uh, you know, it may not carry the sector. Obviously, healthcare hasn't been one of the great performing sectors this year, uh, but Lilly has has ultimately held it up, uh, more than, uh, would have otherwise been.

Ryan, you're over at Strategas, you work with, uh, folks who who know politics in Washington very, very well. I'm just curious, Ryan, how how you the team there is thinking about, you know, the possibility of a Trump Vance White House and what that would mean for the markets.

Yeah, so so I don't want to I don't want to speak too soon. I don't want to speak, uh, you know, for our Washington DC team, but obviously, um, you know, we have to we have to kind of get through, uh, the the nominee portion. Obviously, we know, uh, you know, we know who the Republican nominee is. Obviously, there's still some questions out there about who the Democratic nominee. I think ultimately, you know, trade is going to be a big focus, uh, um, you know, should should the Republicans ultimately win the White House. Uh, you know, obviously there's there's a lot of concerns about what that means for for China and and the tariffs. Um, you know, so so I think that's also playing into some of the sell off that we're seeing here with regards to technology. I think the other thing ultimately that comes up is, uh, you know, there there's a lot of talk about what's ultimately going to happen with, uh, uh, some of our closer trading partners like Mexico. Are they being used by China right now as a, um, you know, as as a as a uh uh uh a a a building block to kind of assemble pieces and then distribute them into the US. Obviously, there's been a lot of foreign direct investment from China into Mexico, and will that ultimately, uh, come to fruition, uh, will that will that come to a head during, uh, say a Republican presidency? So these are some things that are left out there. Um, you know, I think I think the the biggest thing, uh, will be ultimately on the tax front, which obviously we're starting to get ahead of ourselves when we really start to talk about that, just given the amount of of stuff of events that are ultimately going to occur occur between now and actually the election and then, you know, the investment implications will be even further on from there.

It's a long way between now and November, for sure. Thanks a lot, Ryan. Appreciate it.

Absolutely. Thanks for having me.