‘Weakening’ US economy will force the Fed to cut rates: Jay Hatfield

Welcome back this time now for the word on Wall Street, top investors watching your money. Joining me now is Infrastructure Capital Advisor CEO and I cap ETF portfolio manager, Jay Hatfield. Also with this is Mark Tepper this morning. Jay, good to see you. Thank you for joining the conversation. Thanks, Maria, for having me on. Mark, I want to kick things off with you with Amazon. Here we go, another $2 trillion club member. The company's stock reaching $2 trillion in market value yesterday for the first time ever joining Microsoft, Apple, NVIDIA, Alphabet, all those companies worth 2 and $3 trillion or more. Look at these numbers. Unbelievable. Microsoft is at 3.36 trillion, Apple's at 3.27 trillion, NVIDIA 3.1 trillion. Amazon's joining the club. The stock is up better than 27% so far this year. Mark. It also is hosting a closed door event for sellers in China. It's planning to launch this new discount store dedicated to low priced items to allow Chinese sellers to ship directly to US customers. They're trying to fend off Chinese e-commerce stores like Tamo and Sheehan. Mark, you say this Magnificent 7 is responsible for 100% of the SP500 earnings growth and 60% of the SPS returns year to date. If you take out Tesla, what about the second-half of the year? What do you think about Amazon joining the $2 trillion club and how do you see things playing out second-half? Look, I think the second-half is going to be strong. I think if we look over the course of the next few months, typically you know, July is OK, then August is a little weak, a little rough. And then as we move into, you know, the last 3-4 months of the year, I think we will finish with a, a rather strong stock market and, and tech continues to lead the way because of, you know, this is all an AI driven rally anyways. With regards to Amazon, I think Amazon actually should be part of the $3 trillion club, not the two trillion, the three trillion. And the reason for that is Amazon does so many different things like from e-commerce to AWS, their cloud business, which is the biggest cloud business in the world. If you actually were to, if Amazon were to say we're going to break ourselves up, we're we're going to separate into separate businesses. If I were to do a sum of the parts valuation on Amazon, I get to $3 trillion. So, you know, the fact that they, they have their fingers and so many different things is actually working against them from a valuation standpoint. With regards to this ultra discount business they're rolling out, it doesn't seem like it really fits their business model because when it comes to e-commerce, people like Amazon because you can buy something and it's on your, your doorstep later that day or the next day. They like it based on the convenience factor. This this ultra discount thing, they're looking to roll out everything would ship from China. So it's not going to get there later that day or the next day. It's going to take longer. So I don't think that actually fits. Of course Beijing is going to favor Taymu and Xi'an over Amazon. You know, these are Chinese retailers. These are Chinese discounters. Yeah, without a doubt. I mean, they're, they're definitely not going to roll out the red carpet for, for Amazon to compete with their companies. But yeah, I mean, look, Amazon, it's a great company. They just, they're, they do so many different things. And I like I said, if you were to apply that sum of the parts valuation, it should be closer to three trillion. Well, I would expect that that's where this is headed given the others. But but Jay, I want to get your take on this market. Mark's been talking about this narrow rally that we see and you know, it's all about the magnificent 7, Jay. And we wondered if in fact, this is going to broaden out and actually impact people's ET, you know, ETF, their 41K's. This very concerning new Prudential survey finds 67% of 55 year olds are critically under prepared for retirement. Fidelity's Building Financial Futures report finds the average 41K balance among all of its accounts is at nearly $126,000. The average balance for 44 to 59 year olds $158,000. What what do you make of these numbers? Well, I think that's obviously concerning. It's important to start savings early. You know, I put very little into my IRA and if you look at just the compounding effect is pretty profound. So that's unfortunate. We do all of our ETFs are income focused and retirees or near retirees do like that because they know what percentage of their expenses are covered by income. So we do think that the rod, the rally will broaden out, particularly during the summer as Mark indicated, that's usually a bullish time and we do think the economy is weakening for the first time in four years. We've been pretty bullish as you know. Now we think it's weakening. the Fed will be forced to cut rates and then the rally will broaden out. That's why I have A6000 target on the S&P. Well, you were so spot on about the ECB being first, you know, before the Fed in terms of recognizing rate cuts and and needing rate cuts. Now you've got this ECB member Ollie Wren saying that he sees these expectations for more rate cuts this year as reasonable. European markets are looking ahead to the highly anticipated French elections next week. Jay and I want to know what you think about these elections. Do you think this is going to be a market mover for European stocks? Suddenly I'm I'm looking at research reports from Wall Street and they're talking about the potential for Frexit, right? Frexit, France, France moving out of the EU. What do you say? Well, we're, as you know, we've been pretty negative about the European economy. They have, they have a failed energy transition. So they're very super high energy costs. They're uncompetitive on the industrial side. They're being propped up by the USI just got back from vacation. It was mostly Americans in Greece. So if the, if we're right and the US is weakening, then they're going to weaken even more. So they absolutely need to keep cutting and our Fed will be forced to follow because the dollar is going to get very strong, which detracts from our growth. So we would avoid Europe. We don't think it's going to be a disaster, but we would avoid Europe. It's way riskier than the US market. So the so the economy there is a lot weaker than the US, Jay, absolutely. If you look at Germany, for instance, if if it were not for X net exports, which is the US really there, they would have a 1% recession over the last year. So domestic they have a normal recession where housing is crashing, industrial production drops, the consumers weak. The only thing propping them up really is net exports. And the rest of Europe is benefiting from tourism, not just from the US, but China. And you mentioned a minute ago. Thank you for that. By the way, you mentioned a minute ago all your ETFs are income related. Are you saying that they they their dividend payers, dividend growers, Jay, absolutely. And those stocks have been, you know, what people have been selling to buy NVIDIA and Amazon and the MAG 7. So what they need, though, is a catalyst. They're not going to just magically take off like a rocket. They do need lower rates. They need Fed rate cuts. We think that the employment report, well, first of all, PC kind of obviously is likely to print at .1. That's just mechanical. We think the labor reports likely to be weak, although it is volatile the following week. And then the Fed will eventually figure out they're always behind the curb, but eventually figure out they have to cut rates probably by September. Interesting. A September rate cut, I think 68% think that according to the futures market. Real quick, Mark, how much of A priority is income to you? I know you're a growth guy. You've been spot on in some of these growth names. But do you also favor income that being dividend payers like Jay's talking about? Yes, yes. I mean, a lot of our clients, they're either approaching retirement or recently retired. And we are actually rolling out our very first ETF as well based off of our dividend growth strategy whereby we invest in, in, you know, in order for the stock to be considered for that universe, it has to be, it has to pay a dividend, right? So yes, I think that that will certainly provide income, but also make sure the quality of the companies you're adding to that strategy are going to be higher quality. I like that. I, I, I like dividend payers. Jay, thanks for bringing that up. Great to see you, Jay. Thank you. Thanks, Maria. Jay Hatfield joining us this morning. Mark, you're with us all morning and we're grateful for that quick break.