Brian Jacobsen, chief economist with Annex Wealth Management, joined Cheddar News to discuss the positive sessions for the stock market as investors were optimistic of a debt ceiling deal ahead of the June 1 deadline.

<div class="block">Brian Jacobsen, chief economist with Annex Wealth Management, joined Cheddar News to discuss the positive sessions for the stock market as investors were optimistic of a debt ceiling deal ahead of the June 1 deadline.</div>

Closing Bell

Hopes Rise on Debt Ceiling Deal, Prompting Another Positive Day on Wall Street

Turn back to the major indexes, decent gains across the board for the stock market today with the major indexes finishing at their session. Highs joining me now is Brian Jacobson, chief economist at Annex Wealth Management. Brian, thanks for coming on the show. Thanks for having me. So two days of decent gains with the hope that we will avoid a default come June 1st, what do you make of the market? You know, it's really interesting watching the market action. Like today, we were down a little bit and then we had a rally into the close. So I think it shows that some investors are really thinking that they've been misjudging the resiliency of the financial markets. Corporate America is doing all right, especially after a very difficult year. A lot of people I think forget that the S and P 500 earnings per share fell 26% over the course of 2022. So in a way, the earnings recession has already been upon us and maybe we're beginning to emerge from it. So it is quite impressive, right that the overall stock market I think has held up as well has given the recent bank failures. 2nd, 3rd, 4th biggest banking collapses that we've seen in us, history all happening in just the past few months or so. Is that a risk that could come to root in this market later on? You know, there could be. So at an, when I'm sitting on the investment policy committee and we're discussing the various risks, we also have to think about what can go right. It's really easy to fixate on what can go wrong because there's such a myriad of things. But that's one of the reasons why the old maxim is that the equity markets, bull markets tend to climb wall of worry. It's not to say we're in a bull market, but we think that we are going to have a little bit of tough going but eventually emerge from it and a lot of money on the sidelines. I'm sure that plays a factor as well. It does. You know, if you look at the various sentiment indicators, Bank of America, the ai soury all show that investors are very pessimistic. Now, positioning can be a very different thing as far as what people say versus what they're doing and how they're positioned. But there's still a lot of that cash on the sidelines and higher yielding money market accounts and such. I think people are kind of chomping at the bit to try to find that entry point. Ok. So what would you advise investors do in this scenario, you know, I think that I think of it in terms of three types of themes, right? You can either have these kind of tough going markets, you can hard time markets and good time markets. So those three kinds, this might be a little tough, but it doesn't mean it's going to be hard. So that means focusing more on quality kind of the proverbial cash cows and not necessarily getting too defensive. When I look at market history, I see that periods of time when we have high market concentration. So the biggest five stocks driving the markets that tends to give way fairly quickly to a broader based rally. So we would be looking more at trying to say, go with an equally weighted exposure to the broad market as opposed to a market cap, weighted exposure and growth versus defensive. I think that's always kind of right growth versus it's always a big debate right now. And even though I think some of the risks will cause people to stay focus on value. We've seen these growth names, outperform the past four weeks or so. Do you think that can continue? You know, we actually have been positioned a little bit more towards the smaller cap value mainly for the longer term growth. Stocks tend to do very well when growth is scarce. And we think that we are kind of in that period where people think growth is scarce as it looks like growth is getting a little bit more abundant, maybe getting a little bit more traction. That's where small cap value, emerging markets can really begin to shine. What about international stocks outside of emerging markets, other developed markets? Knowing that the US dollar has been weakening. Yes, that's one of our big themes that we think in terms of regimes, themes and positioning. And if we're entering a regime where the US dollar is on a downward trend weakening, not necessarily falling off a cliff. But if it's weakening, there can be a big benefit to investing outside of the United States. Because when you translate those returns back, the US dollars, you get a boost from the currency effects. So if you consider that the valuations look a little bit more attractive possibility of a downward trending dollar, we think there's a lot to be said for more of that international exposure. How long does the regime like that last? Is this a long term trade or a long term investment for people? That's a great point. So oftentimes you have to think is this regime going to be very short lived or play out over a longer period? We think it could be a longer period of time to talk on the terms of say three years. If you think of 2004 to 2000 6, 2015, maybe to 2018, you did see multiple years where the dollar declined, we're off the back of multiple years of dollar strength. It's almost that three year kind of cycle. We're probably entering that third, the beginning of that cycle for a weaker dollar and the bank crisis certainly that's impacted some of these US banks and some of the European banks as well. Is there any concern about financials, broadly speaking around the country and some of these other developed markets? We don't think that there's a lot of risk as far as the weakness in the US financial spreading to other countries. But banks around the world are having to deal with higher short term interest rates and to the extent that they make money off of, you know, borrowing short term and lending long term that spread is beginning to narrow. Now, thankfully, sentiment has really shifted against financials, but we still think it's a little bit too early to really kind of find some good opportunities in financials to get back in. All right, Brian Jacobson, chief economist at Annex Wealth Management. Brian. Thank you. Thank you.