The tech sector has become ‘more horizontal than vertical’

Following the June FOMC meeting on Wednesday, the Federal Reserve left interest rates unchanged, now forecasting one rate cut by the end of the year as inflation continues to decline. Citizens JMP Securities CEO Mark Lehmann joins Market Domination Overtime to discuss the movement and current state of the market (^DJI, ^IXIC, ^GSPC).

Lehmann is overly concerned about technology, explaining that “technology has become more horizontal than vertical. We see that people benefiting from this and multiple expansions, in semiconductors and elsewhere, are alive and well.” He explains that as AI begins to permeate all kinds of sectors, companies will see their multiples and profitability increase.

As Wall Street waits for an interest rate cut, Lehmann explains, “The Fed has a really difficult job to do, and I always say hindsight is 20/10. That’s a lot better than 20/20. So we’ll talk about these six in a few months and either way you’ll say, “I told you so.”

He adds: “I just don’t expect them not to think long and hard about the right time to make these cuts and the right number of these cuts, because the last thing you want to do is move too quickly. That being said, I think the market corrects much more quickly on its own, and we’ve seen these types of gains provide longer-term comfort for investors.”

For more expert insights and the latest market action, click here to watch the full episode of Market Domination Overtime.

This post was written by Melanie Riehl

Video transcription

Technology-heavy NASDAQ closes with new record high.

Meanwhile, investors are weighing the two-way impact of cooling inflation, with the feds rolling back interest rate cuts to further satisfy investor appetite.

Let’s go straight to the lemon symbol, the head symbol of the citizens of J MP Securities.

Good to see you.

So, as you’ve noticed, technology is leading the way.

Do you expect he will continue to be a leader?

Do you want to be overweight?

Technician here?

We are overweight.

Hmm. And I think that has led the way because I think the definition of technology has improved from the basic definition that we remember even 5, 10 years ago.

So technology has become more horizontal than vertical, and people taking advantage of that and the multiple expansion, we see that, of course, in semiconductors and other places, it’s alive and well. Mark, I think this concept is interesting here.

So expand on that a little bit.

What do you mean that technology has kind of advanced here?

What, what’s under the tech umbrella now?

I think you’re looking at the healthcare domain, you’re looking at, honestly, real estate, what you’re seeing in the data center world, where there used to be a kind of valuation, valuations were more like real estate companies or healthcare valuation.

The story continues

Rather, it’s a health care company that’s a little bit smaller than the technology multiples that we’ve seen in the past, and a company that has more of that technology in it, gets a bigger and bigger technology multiple, and you see it over and over again, “I see it in the media that again, they did not achieve the result that we would expect from technology companies, but the more technology they have, the greater their multitude, and I think this will not change in the near future.

And this specter of artificial intelligence that will enhance this, will increase the multiples, will increase the profitability, and those who win will win much more.

Mark, you saw the Fed yesterday, what they did and said something surprising.

You, Mark No, II, I’m listening, I think you’ll continue to have the debate, and I think one day at some point, no one will take a pulse and say, now we’ve got it all figured out and everything’s fine.

Um, I’m actually at a citizen-led conference with a lot of venture capital funds and a lot of other funds, and they’re all talking optimistically about their potential to put more money to work.

I haven’t heard from anyone at this conference yet.

We have over 100 people here saying things are not looking good, slowing down, saying they don’t see stretched valuations, that most people are optimistic, and the interest rate situation obviously helps with all of that.

Do you think they missed any of the available economic signals, or do you think that, more than ever, we live in an economy that is in different tranches?

Look, I think the feds have a really difficult job to do, and I always say that with hindsight, it’s 2010.

It’s much better than 2020.

So we’ll talk about it in six months and we’ll say that anyway, I said, and I think the worst thing they can do is probably overcut the markets, kind of take care of it themselves, in terms of the way interest rates have dropped over the last few weeks.

So you’re going to see a lot of this, but I don’t expect that they won’t really think long and hard about the right timing of these cuts and the right number of these cuts, because the last thing you want to do is go fast too.

That being said, I think the market itself corrects much faster.

Hmm. And we’ve seen this kind of growth over an extended period of time to keep investors comfortable.

And I think when we see a change down for rates.

I think the market is already pricing in some of this for Mark.

We talked about some of the sectors that, you know, you find attractive right now.

What are the sectors you are less enthusiastic about in the US stock market?

Look, I think the consumer is, is, is resilient here.

I think high-end consumers are doing well, but some lower-end consumers will have a harder time.

I think because, um, we’ve seen some of their savings get a little bit of a boost and I think we’ve seen that in the valuations of some of the consumer discretionary stocks and some of the other consumer stocks.

Um, I also think that real estate, um, uh, especially in advertising, takes more time than people want.

We would like to take our medicines here.

We like quick solutions here in the stock market and here in the States, and this won’t be quick.

I think it’s well put.

I think people are leaving, time rates will help if they go down.

So I think the rapid, as you saw today, this rapid increase in the re index and some of those that are so far behind, it’s just going to take more time.

Um, but I think it’s, it’s, I’m one of the few people who think it’s mastered.

I think what’s going to happen is that people who have told you what they’re seeing will, um, get slightly better and as long as it doesn’t get worse, I think that’s as positive as you can say about it.