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Well, now tech features showing signs of that rebound that we've been talking about after sliding over two and a half percent. Now to discuss if it's time to shed some tech or if there's still room to go to the upside, we want to bring in Brian Jacobson. He's Annex wealth managements chief economist and strategist. Brian, it's great to see you. So let's start with tech. It's top of mind here for investors this morning ahead of the opening bell. Where do you stand on whether or not investors should be adding to their tech positions at this point?

Yeah, thanks for having me on. And we've been discussing this on our investment committee here at Annex actually for a while as far as what type of overweight or underweight to have to tech. Uh, if you look at the distribution of valuations within the tech sector, because it covers a wide variety of different types of companies and industries, we were really most concerned about with the chips stocks, right? People were looking at it that is this a trade for now or forever that you kind of just want to hold them and just let the earnings, the fundamentals really kind of push the prices higher. We were a little concerned as far as the valuations. There could continue to be a little bit of a repricing. So we wouldn't necessarily view this as a buy on the dip kind of opportunity here with the chip stocks. We do like tech in general, if you think about like the software companies, uh, the ones who manage the data centers, the ones who are providing the electricity, um, you know, all the plumbing that goes into them. And so it's really a broad ecosystem that we think you can kind of think about. But in terms of the chips themselves, this highlights political risks that are out there. It wasn't the fundamentals that really disappointed, it was the shock of the politics.

What does that tell you, Brian, about the likelihood of this earning season to be driven by company fundamentals more broadly or by politics? Do you think that that is a story that's going to continue throughout this cycle?

Well, thankfully we think that actually in the near term here, it is mostly about the fundamentals, but then as we get into, say 2025, it is going to likely be a little bit more about the politics. So it will almost be punctuated by political volatility. The fundamentals we think are okay, but keep in mind, it's a matter of how much do you pay for those fundamentals. If you look at a couple of examples, like we were looking at say Microsoft, for example, it's a a stock that we've held for quite a long time, fundamentals look good, but then you have to ask, you know, how long would it take for it to have decent growth to really get back to what you might consider historically normal valuations. That could be like 10 years. So a lot of the gains that we've seen over the last year, year and a half, maybe we're anticipating the good growth of the fundamentals going forward. So this earning season that we're going into, we think it's actually going to be okay for say small mid and even for the tech sector in general because the fundamentals are holding up. It's more about the price that you're paying for those fundamentals, and that's where I think there's a lot of questions and some of the vulnerabilities out there.

So, Brian, then given that, are you buying small caps? And again, I guess when we talk about even beyond earnings, you were saying that, hey, maybe we are going to get stronger results this earning season. What is it going to take to keep some of this momentum that we have seen in the names that had been left out to dry over the last several quarters? What's it going to take in order for those to stay in favor?

Yeah, I think it is really about the earnings, the reports that come in. We have increased our allocation to small and mid, uh, relative to the large cap space, more in, uh, what you could consider the cyclical areas like say industrials, but coupling that with some defensives like say healthcare and consumer staples, mainly on a valuation basis as far as where do we want to be for the longer term, taking this opportunity of the past underperformance of those sectors and those market caps in order to position for what is hopefully longer term success. And so when we go into earning season here, we're really expecting that some of those smaller cap names, they're going to start emerging from this repeat recession that they've been going through. If you look at the quarter by quarter earnings of small cap and mid-cap over the last two years, they have not really had a string of more than two quarters in a row of increases in earnings per share. And that just shows and it highlights the struggles that some of these smaller companies are having with high financing costs and weak pockets of growth for the markets that they serve, whether it's lower income individuals, or if it's exporting to Europe where you've seen lower growth. Most of the great growth has been in the mega cap space.

Brian, when you talk about earnings being so important here for the market, you've also got Fed decisions, and then looking ahead to November, you've got the elections. I'm curious, what is the biggest driver of the market do you think between now and year end?

Yeah, I think between now and year end, it's going to be broken into really two different parts. Between now and September, it's likely more focused on the Fed. We will get distracted by politics, but really until we get closer to say end of September, beginning of October when the polls are going to get a little bit more accurate, we think that those are just going to be like pockets of volatility. You know, the Trump trade came back in vogue with a vengeance over the last week or so, but that could kind of simmer down a little bit. Now focus is more on the Fed about whether or not they're actually going to cut in September. We think that they likely will, probably at an every other meeting pace. You'll be talking to Austin Gulesby later, and so I'm going to be tuning in for that because I think he's a a great guy to listen to as far as, uh, sort of how to think about what the Fed is thinking. Then when we get into October, it is more about the politics, it's more about policies. Keep in mind, November and December tends to be a very good time. You tend to get a relief rally for the markets. So we would be looking at stay diversified, but if you're looking to put that cash to work, we should have a few opportunities between now and the election in order to deploy that capital.

Brian, we love when we have guests promote our own show. Thank you so much for joining us and for the great insights as well. We appreciate it. That was Brian Jacobson, Annex Wealth Managements, chief economist and strategist.