AI Rally Strengthens Eddie Ghabour's Bull Case, Sees Crude Topping & ETFs Rallying

SPEAKER_1 (0:00)

Eddie, great to have you back on. Now, last we talked, you were calling for a rally into the year's end. I just opened the show, saying we have a new record on the S&P and the NASDAQ this morning. How are you looking at this rally continuing, and what has changed since our last conversation? Anything in your thesis different now?

Eddie Ghabour (0:20)

Frankly, the only thing that's changed is we're getting confirmation that our outlook for year end is actually strengthening.

And this is when you kind of take a look at the setup going into the Fed meeting. The reason why we were so bullish was that was about as pessimistic and as hawkish as the overall sentiment was in the market. And normally when you get those inflection points, it's an overreaction. So we started to aggressively pivot out of our equal weight S&P. That was a defensive position we put on at the end of May, beginning of June. And we started to really go more offense and really concentrate in technology. And the reason why is, in the face of yield spiking and oil spiking in September, we started to see that technology was showing some really strong relative strength after about three months of underperformance. And now we're getting confirmation. The NASDAQ's at new highs. You're seeing some of the semis hit new highs. And we think tech now will continue its leadership that we're accustomed to and really take us through year end. And we have inflation next week. We expect the number that's probably going to be a little bit hot. That's probably going to cause a little volatility. But if you've missed this run to us, you're going to have to buy the dips sooner than later before the train completely leaves the station.

SPEAKER_1 (1:35)

Are you betting that this heavy concentration that we've seen, I mean, just yesterday, the Mags, Mag 7 ATF, hit a record. Are you betting that this concentration stays here in tech and that we don't see another rotation like we saw in the summertime outside of tech through year end?

Eddie Ghabour (1:55)

Well, I think the beauty of this is tech's already gone through what we've been calling rolling crashes that started last summer. Last July, the software took a big hit. This July and June, the semis, actually July, the semis took a big hit. And so these areas of momentum and growth over the last 14 to 16 months have had some pretty violent corrections. And now all the dots are starting to connect and go in line where I think you have a lot of people that are not positioned in tech because of these rolling crashes, and they're going to be forced to buy these positions. And that's going to cause the market and tech to go even higher. So we've been dealing with the concentration trade for a while. That's not new news. It continues to be something that the bears hang their hat on. Until the signals and technicals tell us something different, we're not going to fight the tape. We're going to go with the momentum and listen to what the market's telling us.

And a lot of times you'll make more right than wrong decisions if you follow that process.

SPEAKER_1 (2:55)

And the one thing the market has been at least signaling to us that many people are not wanting to acknowledge and perhaps trying to read in a different way than traditionally is what we're seeing in yields and in the bond market and what it's been signaling to us. And you mentioned the inflation report there. Are you viewing this upcoming CPI report as the potential catalyst to really put an end to this bond market sell-off and demonstrate to us that we are seeing what could be a peak in yields? Or is that not your expectation?

Eddie Ghabour (3:28)

I actually think this inflation print next week may cause yields to go up again because we're going to see a re-acceleration of inflation. That's simple math. But I think that's going to be the worst of it for the rest of this year.

So we do think we're in the eighth, ninth inning of the yields spiking. We should start to see some stabilization happening soon. And the reason why we say that also is it looks like oil has topped. And if oil has topped and that trends down and we get some favorable inflation for next month, which we will with oil down, that could put a cap to yields. And I think investors need to understand, we don't need yields to go down to the fours. We just need them to stop rising at the rate that they have been. If they just stabilize and stay where they are, the markets will continue to be bullish in our opinion, because we think part of the reason why yields are increasing also is because growth is accelerating under the hood.