Oil Shocks, AI Dominance and the Next Growth Story

The Fed held steady. Oil is moving markets. And the AI race just picked a new front line.

Inflation remains elevated, yet many consumers still feel squeezed. Earnings continue to grow, yet questions around valuations remain. Geopolitical tensions threaten energy markets, while artificial intelligence continues to shift where capital is flowing.

Michelle Connell of Portia Capital Management and Andrew Tang of Turner Financial Group returned to Wealth Transparency to work through the competing forces influencing today's investment landscape, from interest rates and oil prices to global growth forecasts, international markets, and the expanding role of AI.

In my experience, the strongest investment themes rarely arrive one at a time. More often, they emerge where economic, geopolitical, and technological shifts overlap.

Drop the data point, trend, or market signal you're watching most closely, then send this episode to the person whose outlook challenges your own.

Chapwood Investments, LLC, is a partner of Ethos Financial Group, LLC, a Securities and Exchange Commission registered investment advisor. No mention, opinion, or omission of a particular security, index, derivative, or other instrument in this webcast or video constitutes an opinion on suitability of any security. The information and data in this video were obtained from sources deemed reliable. Their accuracy and completeness are not guaranteed. At any given time, principals at Chapwood Investments, LLC may or may not have a financial interest in any or all of the securities or instruments discussed in this webcast or video. The guests appearing on videos do not receive compensation or provide endorsements or testimonials. Past performance is not indicative of any future results.

All investing involves risk, including the possible loss of principal. Past performance is no guarantee of future results. 
No mention, opinion, or omission of a particular security, index, derivative, or other instrument in this webcast or video constitutes an opinion on suitability of any security. The information and data in this video were obtained from sources deemed reliable. Their accuracy and completeness are not guaranteed. The guests appearing on videos do not receive compensation or provide endorsements or testimonials. 
Securities are offered through Innovation Partners, LLC (member FINRA/SIPC). Ed Butowsky is a Registered Representative with Innovation Partners LLC. Ed Butowsky is licensed to business in: CA, FL, LA, TN, TX. 
Innovation Partners LLC and Chapwood Investments are not affiliated.

Transcript

SPEAKER_02 0:12

Hello, it's Ed Buchowski with another edition of Wealth Transparency. This is a podcast where we have two experts who are going to help us dissect some of the storylines and what we should do with our investment portfolios as a result of those. We have Michelle Connell from Porsche Capital Management in Fort Worth, and we have Andrew Tang with Turner Financial Group. And again, I really want you to focus in on the details of what these people have to say about different headlines that don't necessarily make it into the a mainstream conversation. I'm Ed Butowski. I'm with Chapwood Investments in Plano, Texas. And uh Michelle and Andrew, thanks for joining us today. So I want to I want to dive in. You know, I talk about us having storylines that don't make headlines, but with everything going on in the Middle East, the first meeting of the new Fed chair did not get as much publicity as I would have thought it would have, given how much attention Trump gave to changing the Fed chair. But uh Wars, who is now the Fed chairman, uh came out and held rates steady. And I find this very interesting because Trump had initially said he wanted somebody to come in and reduce rates. And you would have thought that Warsh would have done that initially, but he didn't. Michelle, you want to kind of address that issue?

SPEAKER_00 1:36

Well, as much as Walsh is feeling the pressure to follow Trump's path, that's really difficult to do because he's not alone. He's got a committee of other governors, Fed governors. And a lot of them are really concerned about the level of inflation that we currently have. So I just don't even think it would have been a possibility to lower rates here. And uh, we're lucky that they're considering raising rates in the future. And hopefully by the time that when in the future comes, inflation will have come down because we will have found some sort of peace in the Middle East.

SPEAKER_02 2:14

Yes, and Andrew, can you explain to everybody how interest rates rising hurts equities in the long run?

SPEAKER_01 2:24

Sure. It's basically about cost of financing. If cost of capital is going to go up, then businesses are going to struggle, especially smaller companies. Now, larger companies, of course, they have a uh a larger cash holding and they can most likely withstand, you know, lots of volatilities in this particular space. The smaller businesses you know live from the cashier to paychecks, you know. So a lot of times uh they do suffer more. And when interest rate goes up, the longer term or longer duration growth companies are gonna be struggled because the market will or the environment will favor companies that have steady cash flow and steady uh healthy balance sheets, and companies that are has no revenue and very low cash flow, those sort of companies are going to suffer.

SPEAKER_02 3:15

So, Michelle, you talked about inflation going higher. What's the reason for that? And how long do you think that's gonna continue?

SPEAKER_00 3:23

Well, we were close to this last print, by some measures, we are close to uh four percent, but you know, that's based on the fact that we've felt pressure at, you know, in terms of energy costs, which then ripple through for trans transportation costs, for food and transportation also of other goods. And so it just trickles through the system. At this point, we've been lucky, and a lot of the bigger uh corporations have hate or absorbed that those costs, but we'll have to see if they're able to do that for the long term.

SPEAKER_02 4:00

Yeah, and and inflation is probably the number one driver for why interest rates will go higher. Andrew, can you address the GDP in this relationship to interest rates?

SPEAKER_01 4:12

Yeah, uh the Fed recently just lowered the growth forecast in the US from 2.4% to 2.2. It might not be a lot, but uh and also nobody will originally when the dot plot came out, the investor environment or the market was really looking for another rate cut, right? This year or later this year. But because of the surprise oil shock that we have gotten, the higher prices caused by oil, it's causing the Fed to to pause this rate cut environment. And that's the reason why, you know, the uh market originally sold off. And looking at growth, with the oil shock causing inflation at this rate, the Fed projected inflation to be 3.3 to 3.4%, and that is quite high. But there is one thing that I do want to mention that is good, and that is the new sheriff in town at the Fed is actually going to overhaul the entire data collection system on inflation, because the Fed is still currently using methods dated back in the 1970s in collecting data. And when it comes to comparing it to private companies, they're all using methods that are more inline and more real time. So, in my opinion, once the Fed upgrades its data collecting system, this is just my opinion, I believe the inflation data that the Fed gets will actually become milder. Okay. So therefore, the targets are there, 3.6%, 3.3%, whatever it is. But in my opinion, that we're gonna get some surprise to the upside or on a positive side when it comes to inflation going forward towards the end of the year.

SPEAKER_02 5:55

So let's go back to interest rates and talk about inflation versus GDP. Because if you have inflation going higher, then you can't have rates get cut. But if you have GDP going lower, then you want a rate cut to stimulate the economy. Which one is more important, Michelle? The GDP or the inflation number?

SPEAKER_00 6:17

Depends on what central bank you're uh listening to, in my opinion. I mean, recently uh you had the you raise rates because of inflation. And this past meeting with uh yesterday with the Federal Reserve, I think they're kind of leaning that way as well, that inflation is more on their mind. Maybe that to some degree is influenced by the fact that we've got in you know midterm elections coming up very shortly. And so that may be a little bit political that they need to address those things because middle America is still absorbing these costs and being hit hard by them.

SPEAKER_02 7:01

Yeah, and and Andrew, oil prices are driving the uncertainty in the global markets. But recently we have a clear direction, and that is that oil prices are going lower, and that is going to stimulate, most likely, it's gonna stimulate the U.S. economy.

SPEAKER_01 7:19

I think the market and investors are starting to believe it. Meaning uh a lot of back and forth and rhetoric and not trusting and not signing and don't, you know, really don't have the exact detail. A lot of back and forth has been going around. But I believe the investors are trusting that the deal will be done. It's not a matter of if, it's a matter of when. And oil prices will start to go down. And what's also surprising that's not reporting is that the law there is actually a larger reserve of oil that will get us going until the traffic flows through again and until that the existing oil producers are producing at the current levels and transport flow freely. And so, therefore, when it comes to inflation caused by oil prices, you know, should we increase rates to slow down the economy or should we let the economy run hot? In my opinion, you really have to distinguish between is it inflation that is caused by supply? In this case it is, and we are looking at and deeming it as transitory or short term, or is it inflation that is caused by the demand side, where people have too much money chasing fewer goods? And so in this case, this is inflation caused by supply side. And therefore, I really don't believe we will raise rates. I really don't believe it. And the fact that Japan raised rates for the exact same reason, I believe is a positive mistake.

SPEAKER_02 8:44

Well, let's continue on with that, Andrew, because we were talking uh before the podcast began about the central banks are no longer moving in sync with each other. Why is European central bank moving so different than the Bank of England and the United States?

SPEAKER_01 8:59

Well, we have a situation where we have uncertainties at a level that no central banks can agree on. So we have Bank of Japan just recently raising rates 25 basis points to 1%. Meanwhile, their inflation is under its 1.5%. So I'm really baffled. I'm like, what are you talking about? Inflation, I thought Japan was actually wanting inflation because they want to devalue the yen. Savings rates were too high. So in this particular case, they're raising rates while inflation is not that high and is completely supply-side because they import almost 100% of the oil. And so this really doesn't make sense to me. Unless they really want to strengthen the yen. I don't know. It just doesn't make sense. Now Bank of England just recently put rates on hold. I think that's the right move. But prior to that, the ECB, you know, continue to look at inflation and they think it's the demon and they want to raise rates. But I believe that there's no more synchronization on a global scale when it comes to central bank because of the uncertainty from different parts of the world, different views.

SPEAKER_02 10:05

Michelle, I've always said that the US is the pie piper of the world economy. As the US goes, goes the rest of the world. And the US economy, you know, as Andrew said earlier, forecasts are gone from 2.4 GDP down to 2.2 GDP. Where do you see uh interest rates uh going uh as a result or the central banks making adjustments as a result of uh those forecasts?

SPEAKER_00 10:30

You know, it's interesting because you have some of the larger banks in the United States actually raising their GDP or growth rates for the second half of the year. I believe Goldman Sachs, and I know JP Morgan, Dr. Kelly took up his estimate to 4% in the second half of the year, based by basing that a lot on the momentum from the AI infrastructure. So maybe we're going to be surprised by that. In terms of us being the Pied Piper, I think we still are, but the more that you know you have Asia also participating or competing with us on the AI build-out, maybe, you know, we're that competition starts affecting currencies and bond markets. And I think you're probably going to see more volatility because of this race to build out the infrastructure and the amount of debt that all countries are going to have to use for the build out.

SPEAKER_02 11:31

But it also seems as though markets are looking for growth all around the world. And Michelle, do you what market other than the United States do you see that happening?

SPEAKER_00 11:41

Asia. I think they're the ones, especially now with the Strait of Harmuz opening up, hopefully, especially the fabrication facilities over in Taiwan and the growth that we've also been experiencing over in South Korea. I think those areas will continue to grow uh at a pace similar to our own. Today you're seeing those markets starting to bounce back along with semiconductors. Anything that's uh ETF that's related to Asia is doing quite well again.

SPEAKER_01 12:15

Yeah, I can attest to that, especially in South Korea, because they are the Mecca of producing memory chips and the necessary component to help finish the the AI hardware, you know, for compute. And the USA does not want to lose this AI race to anyone. So we know that this is going to be a continuous driver for quite some time. So, in my opinion, yeah, the growth is meaning the government or the Fed, it's gonna let the economy run hot. That's my opinion.

SPEAKER_02 12:48

The market is so expensive on a price earnings multiple, and every day we see futures prices rise. How can you justify that?

SPEAKER_01 12:58

Well, you have earnings. Earnings is also going up, don't forget. Even though it's not fair, because if you take the uh equal weight of SP, then the earnings come down quite a bit. But if you take include the top magnificent seven, then you can see that the earnings growth are keeping up with the multiples that is expanding. So as a matter of fact, from the most recent correction ending March, we actually start to see PE levels of the SP come down. And some say that with the growth of the earnings, uh, you know, we can actually see that you know the US equity undervalued because the growth is here. So I think Michelle, you and I talked about this as well. It's because the E that is continuing to grow, and that's why the valuation is in check.

SPEAKER_02 13:46

Michelle, how do you feel about what Andrew said?

SPEAKER_00 13:48

I agree with them. When I look, that's not the case for all stocks that they are inexpensive, but you still have a lot of technology stocks because the earnings estimates keep getting raised, you know, they're still cheap. Now, once those estimates start, you know, coming down, that's when we're gonna have issues. But right now, I think the market still sees the amount of growth that we have at least in the next three to three years or more. And they want to own these stocks. That's why you're continuing to see the SOCs or the semiconductor index continue to do better than the rest of the market.

SPEAKER_02 14:31

Yeah, that's uh I was amazed at applied materials. I wrote some covered calls on it and I got my butt kicked because it went up 43% in a month. Yeah, it got called away today. But so now as we conclude, each week we go through an individual stock that you would buy. What I don't want to hear is SpaceX. But Michelle, what stock would you buy based on everything we talked about today?

SPEAKER_00 15:01

Still like tech, still like chips, uh Broadcom and Taiwan Semiconductor and Dell, those are bouncing back quite nicely. They're not where they were a few weeks ago. But to balance that out, I think with the hopeful piece uh in the Middle East, travel and luxury is starting to bounce back. You have a lot of luxury stocks like Louis Vuitton and Bruno Concini. I can't pronounce the name, and Ryan in Ireland, those stocks were down like 30% in the last week or so, so they're starting to find some support.

SPEAKER_02 15:40

Those are good picks, Andrew. Yeah, yeah.

SPEAKER_01 15:43

Again, this is not investment advice, and I will stop talking about Tesla because I talked about it right now. But for a different spin on this, believe it or not, I do like the memory space because uh even though it has expanded quite a bit, it still has a lot more room to grow according to the model that uh you know we've been uh going after. And to make it simple, you don't have to buy one company or two, you can buy an ETF, and there is an ETF by the ticket D R A N. And that has a basket of memory companies out there, so that you get some level of diversity, but it is you know high growth, and that's what I like. And in terms of if we are going to have have higher rates for longer, financials would tend to do well, and I like to stay with the heavyweights. So the JP Morgan's the Goldman Sachs of the world, Morgan Stanley, Bank of America, these are the giants of the world. And when people start to understand that higher rates are gonna stay here for longer, they're not gonna wait for the rate cut to get that loan. Uh so I think it's going to stimulate the loan borrowing as well. And so I believe that financials are gonna do well under the higher rate environment.

SPEAKER_02 16:53

Well, I want to thank both of you. For those of you watching, our audience is growing and we want to have it continue to grow. So please share this link with anybody and sign up to be a subscriber to uh this podcast through YouTube. Uh, this is Michelle Connell with Portia Capital Management in Fort Worth. Reach out to her if you have any financial questions. Same thing with Andrew Tang uh with Turner Financial Group. Again, thank you very much to both of you, and we'll see you next week.

SPEAKER_01 17:23

Thanks for having us.