Episode summary
Investors should think about diversifying their exposure beyond AI, says Neuberger's Joe Amato
Summary
Joe Amato said October had been “a bit of a mess” in markets and explained that Neuberger had pulled back risk because the economy is entering a rate-hike cycle. He argued that higher rates have already pressured interest-sensitive areas like housing and could force a bigger de-risking if the tightening cycle becomes more aggressive.
He said broad equity indices have held up because earnings are still strong, with energy and tech driving results, but underneath the surface there has been a lot of churn. Neuberger is no longer overweight global equities, small and mid-caps, or emerging markets, though it still favors U.S. large caps and views the Mag-7 as reasonable value with strong earnings growth.
Amato’s main warning was that investors have concentrated too heavily on AI. He said the direct AI beneficiaries may already represent 30% to 40% of the market, with many second- and third-derivative beneficiaries layered on top, and he urged diversification beyond AI. He also flagged rising Treasury yields, fiscal deficits, and AI infrastructure spending as forces to watch, along with possible policy risk if data center resistance becomes a bigger political issue.
Key takeaways
- Joe Amato said Neuberger has pulled back risk because higher rates could mean a more extensive tightening cycle than markets expect.
- He said U.S. large caps still look like a safe haven, while global equities, small and mid-caps, and emerging markets have been scaled back.
- Amato argued the Mag-7 still offer reasonable value because earnings growth should remain strong this quarter.
- He warned that AI exposure is crowded, saying direct AI beneficiaries may account for 30% to 40% of the market.
- He said rising Treasury yields reflect stronger nominal growth and heavy capital demand from deficits and AI infrastructure buildout.
Notable quotes
“CERTAINLY OCTOBER HAS BEEN A BIT OF A MESS IN MARKETS. AND AND I THINK WHAT THE PREVIOUS SEGMENT TALKED ABOUT IS ONE OF THE REASONS WHY WE'VE PULLED BACK OUR RISK A BIT”
“IF IT'S AN EXTENSIVE RATE HIKE CYCLE THAT WOULD LEAD TO, I THINK, AN EVEN BIGGER RISK RISK PULLBACK”
“ENERGY AND TECH HAS REALLY BEEN THE DRIVER OF EARNINGS. NOW OVERALL EARNINGS WHICH WERE WERE IN THE MIDDLE OF RIGHT NOW ARE GOING TO BE QUITE STRONG”
“WE HAD BEEN OVERWEIGHT GLOBAL EQUITIES. WE'VE BEEN OVERWEIGHT SMALL MID-CAP. WE'VE BEEN OVERWEIGHT. EM WE'VE PULLED THAT BACK”
“I DO THINK INVESTORS SHOULD THINK ABOUT DIVERSIFYING THEIR EXPOSURES BEYOND AI, RIGHT? THE EXPOSURE THEY HAVE TO AI IS QUITE SIGNIFICANT IN”
How the episode opens
Money for the down payments. The builders, of course, we've seen them get hit hard in the stocks. And I don't think these numbers are going to help today. Guys, back to you. — Okay diana. Thank you for that. Meantime, Joe Amato is here, president and chief investment officer at neuberger which has $616 billion in assets under management. Your thoughts on this situation. I don't know if we're calling this a mess or not.
Certainly october has been a bit of a mess in markets. And and I think what the previous segment talked about is one of the reasons why we've pulled back our risk a bit. We're beginning a rate hike cycle.
The question is how significant is that going to be? You know, we think this economy can take a couple of soft taps on the brake, if you will. But if it's an extensive rate hike cycle that would lead to, I think, an even bigger risk risk pullback.
And so whether it's the housing example that you were just talking about, interest sensitives have certainly seen some pressure given the move in rates over the course of the last six weeks.
What what though. — Do you make. We were talking about energy this morning. I mean, you look at where energy prices are. It's sort of shockingly high. And yet the stock market has remained very resilient hasn't hit earnings yet. Yet. I don't know if you think it does. We have a whole slew of earnings reports both coming out this morning. But all week long what do you think is happening here.
Well the broad index level things have remained relatively calm below the surface. There's a lot of churning going on. Right. So you know, those segments of the of the market that are more interest rate sensitive have seen a pullback pretty significantly in prices over the course of the last six weeks.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- ai trade
- portfolio diversification
- market trends
- cnbc pro subscription
Companies and tickers mentioned
- Neuberger Berman
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Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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