00:00 Speaker A
So, you say as we head into the summer, markets are really looking for that next macro narrative. And so far that’s been hard to pin down. What do you think that’s going to be?
00:14 Zach Hill
Yeah, I mean, you know, I think they’re two that that that are possible. I mean, one, um, you know, is on on the trade front. Um, that’s been really back burner for for markets. Um, you know, investors are just, quite frankly, exhausted with all the back and forth, and you see that in the market reaction. Um, things that would cause, you know, three, three, four percent move, um, you know, in April are now causing a 30 or 40 basis point move, um, in markets. And so, you know, that that’s one area where there’s been a lot of complacency, quite frankly. And so we do have, um, you know, that July 9th trade deadline coming up. Um, and we had the G7, um, meeting over the weekend with with no progress on deals. And so that’s something that could potentially come back to the four. Um, and the other one, and this is very much in the background, um, but the, you know, the fiscal concerns and the and the, um, actions in Washington around around the reconciliation bill. Again, that’s something that’s gone in and out of favor in terms of the way markets have been focusing on it. But, um, we are getting closer to that July 4th deadline that President Trump, um, set to have a bill on his desk. And so, you know, we do expect to see some news flow heat up around that.
02:27 Speaker A
And Zach, you named a lot of risks there, but one you didn’t was the Middle East conflict, and that has added a new layer of uncertainty. We’ve seen some moves in stock, especially oil. But do you think the market is underestimating some of those geopolitical risks?
02:52 Zach Hill
Yeah, I mean, I didn’t mention Middle East conflict, and you know, I think investors, um, default mode on these things is just to say they don’t really matter in the long term. Um, and you know, we’re not geopolitical risk analysts. Um, but we broadly agree with that. I mean, I think there’re two conditions where that’s where that’s a different story. One is if you have, um, you know, direct US involvement in the conflict. That would be a a material escalation, um, and something that is definitely going to have to be reflected, um, in risk pricing of of financial assets. Um, and the other one, um, that we haven’t seen, you know, really in any material way, but it would be a sustained spike in oil prices. Um, you know, we did see an initial pop, um, and now oil prices have come off, um, a good bit. You know, that that’s something that could potentially, um, really muddy that inflationary picture and just be a strain on consumers that are already, um, you know, more strained than they have been over the last two years. And so that’s some those are the two things that we’re watching. But broadly speaking, um, you know, we’re not it’s not a um a huge part of the way that we’re looking at the calculus right now.
04:43 Speaker A
And quickly when we take a look at some sectors, you mentioned in your notes to us that small caps could have a quick ketchup trade, which has been interesting because they’ve been pretty quiet so far this year. We’ve been waiting for something to happen with small caps. So what makes you a little bit more bullish?
05:04 Zach Hill
Yeah, I mean, you know, this is very much, um, one of those ketchup trades. I would say a rental, not, um, necessarily something, um, that you’re going to be looking for over the next three to six months. But, um, we do have an opportunity after this Fed meeting, um, you know, goes through. We’ve seen a lot of weakening in the data, and one thing that we’re going to be watching is do some of the more dovish, um, members on the Fed, uh, start to come out and make their case publicly, um, that they need to be cutting rates at some point. And so that’s another potential narrative that could catch fire. And if we see interest rates start to come down, um, especially in the long end of the curve, obviously, there’s some interaction with what’s going on in Washington, so you need to pay attention to that. Uh, but if you do see long-term interest rates come down, we do think that takes a lot of pressure off of small caps, which gives them an opportunity to work tactically. Um, but still broadly speaking, given the overall risk backdrop, um, it’s one where, you know, we need to be very nimble with that exposure.
06:37 Speaker A
Zach Hill, thank you so much. Appreciate your insights.
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