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It's great to welcome you back to halftime, Kathy. Nice to see you. Thank you, Scott. Yeah, great to see you. Thank you so much. So, I've read through your outlook in which you lay out some specific themes that you like, but let me just ask you, you call the US economy a coiled spring for many reasons.
I'm wondering how you think that translates into what the markets may do this year. Yes. Uh well, we think that uh we've been through a rolling recession. We've seen it in housing, manufacturing, small business, consumer sentiment, and that thanks to tax cuts, big refunds this first quarter, but corporate tax cuts as well.
So, big investment cycle ahead, uh as well as deregulation, which I think is highly underestimated in terms of its impact. Uh and lower interest rates and lower inflation. sounds like Goldilocks. Uh that that is all going to play out this year and be very good for the financial markets. You know, I I I thought it was interesting in reading your outlook when you talk about multiples which are at great debate.
I think right now whether 22 times is too rich for stocks, whether you will get multiple compression, but earnings are going to be strong enough that it's not going to matter, if you want to use that word, uh to the market. You in fact do think that multiples will compress because of productivity gains, but that stocks are still going to return double digits this year and that some of the best bull markets have happened in times of multiple compression.
Is that correct? That is correct. We've we saw it in the '9s, big multiple compression, and the market did extremely well. We saw it in the early 2000s and even ARC in 2017 and 18. our multiple multiples compressed significantly and we uh outperformed the markets significantly in 2017 a big up market but even in 2018 that was a down market and uh we were up which many people didn't expect.
It's curious to me, I think, that of your five themes for 2026, AI is at the the top of the list, but you do not own any large positions in any of the hyperscalers. You have 1% pos 1% positions in Meta and Nvidia and Amazon, and we can get into Nvidia specifically in a moment because there are things I want to ask you uh about that.
But why is that? If AI is such a big theme of yours, why don't you have bigger stakes in any of the so-called hyperscalers, right? Uh so one of the reasons is we think the shareholder base of those companies is changing and will and will continue to change. uh because shareholders uh in the last cycle who got used to huge cash flow uh and cash positions building uh very little M&A because the I mean FTC had shut down M&A.
All of that is changing with AI now and with a new FTC. So, we're seeing huge capital spending uh and returns on invested capital probably coming down for a while. Uh and the shareholder base in those companies uh has really uh has really stayed with them because returns on invested capital had been moving up.
I think this is a bit of a shock to their system. Uh and as you know we are very focused on you know more pure play uh future winners. I'm not saying the mag six won't win. uh in many ways they will uh but they certainly any company that is in the broad-based benchmarks and has risen to the top has has gotten there because of past performance and a certain DNA that worked uh during the last 20 years or so.
We think there's so much disruption happening now technologically enabled disruption uh some that will benefit some that will not benefit uh the mag six. So um we are much more focused on you know the the companies that are not as well known but are going to benefit enormously from uh from the year ahead and uh the years ahead and and I will say last year the market starting to broaden out away from the mag six uh we outperformed we're in the top 5% I think four of our uh five uh four of the top five ETFs by Morning Star And even for the last three years, we're in the top 5%.
So, I think the market is beginning to understand what we've been trying to say for for for a long time now.
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