Opinions
Nick Mersch, CFA A Comment -- General Comments From an Expert A Commentary COMMENT Aug 21, 2025
You might be interested:
Too early to say. But he's lightened up a lot on the software side, mainly because the market has told him to lighten up. The likes of NOW, CRM, and ADBE -- the kings of the hill in the software sector.
The ones that are doing the best are the ones embracing AI.
No. The effect is going to carry on, as Trump's only 6 months into his tenure. So we have another 3.5 years, and his operating memorandum is all about tariffs. That's how he gains leverage and forces people to do what he wants them to do.
He started with INTC at 15%, and so he's making some money. That's pushing it a bit too far. The legal side is starting to weigh in and say that he's overstepped his authority. But he'll look for another way, same as he's doing with the Fed.
Premium contentYes. Over the last 2 quarters, he's been surprised by how much tech capex has driven GDP growth. In the last quarter, it was more important than personal consumption, which is a huge part of the economy. So we have a stock market that depends on tech capex, and an economy with increasing dependence on tech capex. He finds that a bit worrisome.
The one thing that doesn't matter in the short term for markets to go up is valuation. Greenspan talked about "rational exuberance" in late 1996. Markets continued to go up in 1997, 1998, and 1999, until it all went pear-shaped.
There's been a ton of AI investment. But the poster child for that, OpenAI, makes no money, though there are beneficiaries of that spend. Ultimately there has to be a return on investment. Without that, effectively we're in a bubble. History tells us that roughly 3/4 of innovations over the last 150 years have resulted in some sort of bubble. Why would we expect AI to be any different?
The narrative is still very strong, but we haven't seen a return on investment yet. Companies are throwing money at AI, and that will continue for a time, until it doesn't. At that point it could be quite nasty.
Last he saw, probability of a rate cut was ~80%. Almost a shoo-in for 25 bps cut. Last 3 months have seen a sea change with jobs market very poor and housing market moribund. Inflation seems to be under control.
This would be alongside the Fed Reserve doing the same, or maybe even more.
Banks give $$ away and hope to get it back. Insurance companies take $$ in and try not to give it back.
Bank valuations are right up there on both sides of the border. He likes and owns both. For new money he'd tilt towards insurance companies, but be selective. For banks, you might want to take some money off the table.
You have to look at the entire stack of all similar companies together. You have the hyperscalers, the semiconductors, the supporting infrastructure, and the power component. Across a particular stack, look for dislocations where you have these massive selloffs. A lot more air can come out of the market when it comes to multiples.
You will get opportunities to pick up some of these long-term growers, with very strong fundamentals, as they sell off and the multiples compress.