The AI craze has dominated conversations on Wall Street in the first half of 2024, with chip-making giant Nvidia (NVDA) making significant gains. Envestnet co-chief investment officer Dana D’Auria joins Wealth! to give insight into which sectors investors should consider as markets head into the year’s second half.
D’Auria argues that the broadening out in artificial intelligence will materialize among companies that “support AI” needs: “Semiconductors, for example; equipment manufacturing that’s necessary for AI; energy, of course, has been a huge theme this year around AI and the expectation that we’re going to need massive amounts of energy to power this. So if you think about some of the international spaces where some of the stuff is made, and there may be not priced so stratospherically as what you’re seeing in cases here in the US, that’s one way to play it.”
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This post was written by Nicholas Jacobino
Video Transcript
Markets in the first half largely led higher by the A. I trade more than two thirds of the S and P 500.
Gains for the year have come from names like NVIDIA, Alphabet, Apple and Microsoft.
Investors want to know whether or not the A I trade, of course, is still hot on the back half of 2024 here and for an investor’s guide to the second half of the year, we’re joined by Dana Do or who is the investment co chief investment officer.
Great to have you here in studio with us.
Thank you so much.
Absolutely so First, let’s start there with the A I trade.
That has absolutely fueled so much new vigour into a theme that investors who were perhaps a little bit more passive are now becoming a little bit more active about here.
How much more legs do we think the A I trade has at this juncture?
Oh, I, I think the A I trade has plenty to go, right.
We’re we’re sort of at the beginning of this.
If a I takes off in any way in in any of the ways that we expect in terms of increasing productivity.
Um, you know, enabling companies to change the way they do business.
We are going to have a huge, huge demand for a I.
So we’re just at the start of this.
I think what’s going on, of course, is that there’s a lot of focus around NVIDIA.
And so where goes NVIDIA?
Folks think goes the A I trade, which is not necessarily the case, right?
This thing has to broaden out much more.
Where would that broadening kind of start to take effect from your purview?
Yeah, So I mean, to start with, I think you’re still looking at companies that support that support A I in terms of, uh, needs semiconductors, for example.
Right.
Equipment manufacturing that’s necessary for a I energy, of course, has been a huge theme this year around a I and the expectation that we’re gonna need massive amounts of energy to power this.
So if you think about some of the international spaces where some of the stuff is made and they may not priced so stratospherically as what you’re seeing, you know, in in in cases, uh, here in the US, that’s one way to play it.
I would say to be very careful, though, about, um, a I washing right And this notion that, you know, I I’m an a I server and a I this a I that right?
I mean it.
You know, putting the words a I in your earning script is a good thing.
So everyone’s doing it.
Yeah.
Facts that’s been tracking the number of mentions and seems quarter after quarter that they’re saying, Hey, once again, this is a new record quarter for the amount of mentions of a I on earnings calls.
You know, all these things considered here one of the other major themes or or catalysts, if you will, that investors were tracking coming into the start of this year, and they’re gonna continue to track going into the back half is the policy pathway for rate cuts.
What is your best estimation of when that will start to, or if it’s impacting people’s playbook?
Yeah, it’s definitely impacting the playbook.
I think for sure so much in the in terms of our economy is interest rate sensitive and starts with you know what What’s going on with interest rates?
Um, I think small caps have had a lot of pain.
For example, they they’re known to be more interest rate sensitive.
Um, and and that’s hurt them, the higher for longer.
Uh, so I do think, you know that monitoring of exactly how many cuts I think Look, everybody kind of thinks we’re gonna get some start on the rate cuts this year.
Uh, it would be an odd play to get moving too early on rate cuts, considering where our economy is.
I mean, GDP is you know it.
It’s good.
It’s not the blow out.
It had been for a while there.
But it’s good.
Unemployment is fantastic.
Still, right?
I mean, there’s really not cracks there.
So with the market doing very well, GDP kind of remaining pretty good and unemployment, uh, low, you know, employment strong.
It’s really hard to make a case that we need rate cuts right away.
That being said and in a re election year, the Fed usually cuts rates, so we should expect some.
So is it one?
Is it two, You know, betting odds.
Probably one before the election, one after the election.
But there’s a lot of data come in between now and then.
Is there a good election rule of thumb that investors need to remember, as they’re trying to really navigate what could be some potential volatility, as S had put it in some of their election watch coming into that general election.
Yeah.
Look, I mean, the empirical evidence looking historically at what happens in election years, it’s there hasn’t been a lot by way of correlation between the party in power and whether markets in general do well, although mu much attempt to, you know, create something like that, right, and find that kind of a link.
Um, but that being said, of course, this election in particular, there are clear winners and losers that the market In fact, you have whole country economies markets kind of moving on the basis of this election.
So, you know, China versus India, Right?
Um, Trump wins.
Not good for China.
Maybe not good for Mexico.
Uh, good for India, and vice versa.
So So the idea of this near shoring and and, you know, trump kind of coming in and with with much more massive tariffs.
So I think when you’re looking within countries and within sectors, yes, there are clear winners.
Financials got a big bump after the debate, I think we we can all, you know, kind of point to why that was the case.
So, you know, as as you’re looking at the second half and you’re you’re judging where you’re gonna be in terms of the market.
The other thing I would just remember is look, the market prices this information pretty quickly into the prices.
And I think a lot of times people forget that, you know, So the price has to reflect both the potential outcomes and the probability all in one number.
So it’s gonna move at least to a certain extent to to what the expectation is.
And, you know, then when the actual you know, the event happens, um, the rest of that movement tends to happen.
So getting ahead of that is a very difficult thing to do.
Dana, Great to have you here in studio with us.
Thanks so much for kicking off the second half of 2024 with us.
Appreciate it.
Dana Doria, who is the investment co chief Investment officer.
Good to see you.
Thank you.
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