Maria Llerena on Fed's Interest Rate Outlook & AI Sustainability

**SPEAKER_1** (0:00)
Welcome back to Opening Bell. Time for the very latest here from the floor of the New York Stock Exchange. Joining me right now, Maria Llerena, Director of Financial Research at Domini Impact Investments. So glad you're with us. I want to do a look back and a look ahead. Let's begin with your thoughts on August.

**Maria Llerena** (0:16)
Well, August was a strong month. So we've seen markets up about 3% since the beginning of the month, and it's been broad-based. So across the semiconductors, they've been positive to the tune of I think 1%.
We've also seen the AI trade do incredibly well. Obviously, NVIDIA helped with that. So August has been a pretty solid month so far.

**SPEAKER_1** (0:37)
Can that continue? The catalysts that gave us August, what about September?

**Maria Llerena** (0:43)
Yeah, very good question for sure. I mean, as we look back over history, September historically is the most difficult month for the market.
So we do have to think about what's ahead of us. But honestly, when we look back, we've had a really, really strong second quarter earning season once again, with earnings up about 30 percent. That's adjusted once you take out some exceptional items that companies such as Amazon had in their numbers, it's about 30 percent. So the market is really strong. We have solid unemployment numbers, inflation is relatively okay for now. I know everybody's watching us. But in general, I think the economy is pretty strong, and as Nvidia outlined last week, the AI trade appears to be intact.

**SPEAKER_1** (1:33)
So you said solid unemployment. We'll have a lot on jobs this week.

**Maria Llerena** (1:38)
We will.

**SPEAKER_1** (1:38)
Some of your thoughts on what we may see or expect. I mean, what do you think?

**Maria Llerena** (1:43)
Yeah. I mean, right now, the survey expects things to remain pretty steady.
We haven't really seen any significant concerns out there. So again, it's important and we know that the Fed will be watching both jobs and inflation as they make their decision in the middle of the month. So yeah, obviously, some important data coming.

**SPEAKER_1** (2:03)
And I mean, inflation, we saw some stickiness in the PCE in the last print. We had Treasury Secretary, I'm sorry, we had Jackson Hole and Kevin Warsh and he was talking about the PCE and how many components within the PCE were showing inflation that were above the certain threshold. I felt the takeaway that the conversation, if it were that day, he would have raised rates.
Does he raise rates September 16th? What do you think?

**Maria Llerena** (2:31)
I mean, it's definitely looking like it's likely. We have seen sort of the odds of that increase since his speech on Friday. And I think it was important that he come out and make a firm stand because there was a lot of uncertainty last time he spoke. So he's made it very clear that inflation is a really strong focus of his.

**SPEAKER_1** (2:49)
You know, and he also talked about the wild card of AI. It's something that he talked about, you know, can AI boost productivity and then bring inflation down. I guess that sort of remains to be seen. We just finished having a great conversation about deer and caterpillar, and those are now AI plays too because they are building data centers. What are your thoughts and opportunities on AI?

**Maria Llerena** (3:09)
Yeah. Well, you know, we're very focused on sort of, there's sort of three things we're really focused on. We're focused on the bottlenecks, which is where, you know, the building out of AI.
And so that's one area of focus. We're also focused on the risks of AI. That includes names like cyber security companies that have been doing very well since the market realized that they have an important part to play in this. And then, you know, we're also looking then at the beneficiary, as in, you know, how does our economy benefit from AI? And that's still where the question marks lie, you know, are lying a little bit. But I think we're all starting to incorporate it into our daily lives. We are seeing some companies talk about how they're, you know, enacting AI, they're starting to see benefits there. And I think we'll hear more of that as the year unfolds.

**SPEAKER_1** (3:57)
And I think about the being the beneficiary of AI, I mean, everybody's using ChatGPT and things like that.

**Maria Llerena** (4:03)
Yes.

**SPEAKER_1** (4:04)
You know, when you start to, but the one thing that, and the conversation I had throughout the last six months, is there have been layoffs, companies are doing layoffs, they're saying, we want to sort of turn our attention to AI, but they don't really explain why they're doing that. They don't really know how they're using the AI, right?