Dan Niles: I have a simple rule, and that is don't fight the Fed
Speakers
Dan Niles
— Founder & Portfolio Manager, Niles Investment Management
Summary
Dan Niles argues investors should not fight the Fed as rate-hike odds rise, favoring large-cap and specific cloud-infrastructure names as hiding places. He expects a market correction into early November due to bipartisan data-center opposition, shifting political winds, and weak polling for the sitting party. He is positioned with more shorts than longs and targets lower-cap, higher-valuation stocks.
- Fed rate hike expectations rise after Jackson Hole, with September hike odds above 50%.
- Niles sees Magnificent Seven and big-cap names as a relative hiding place due to earnings growth and modest year-to-date gains.
- He highlights Google, Amazon, and Microsoft cloud revenue growth accelerating to 43% with margin expansion.
- He expects a market correction between now and early November.
- Political pushback against data centers and weak polling are key headwinds.
- He is positioned with more shorts than longs and is concerned about smaller-cap, higher-valuation stocks.
Ideas
Magnificent Seven offers relative hideout.
He argues investors should not fight the Fed with rate hikes likely coming, so money is hiding in big-cap names; the Magnificent Seven are up only about 5.5% this year and offer good relative earnings growth, making them a reasonable place to hide.
Expect market correction by early November.
He expects some kind of market correction between now and early November because of bipartisan political pushback against data centers, shifting political winds, and historically weak polling for the sitting party.
Cloud giants show accelerating profitable growth.
He is focused on Google, Amazon, and Microsoft because their cloud infrastructure revenue growth accelerated from 35% in the March quarter to 43% in the June quarter and their operating margins expanded by about two percentage points, showing return on invested capital.
