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Earning season is underway, and so far technology results have failed to live up to investor expectations. An index tracking the magnificent seven fell last week as heavy AI spending clouded profit outlooks for the companies. Joining us now, we want to bring Young Juma. He's BMO Wealth Management's chief investment officer. Young Ju, it's great to have you back. So let's start with earning season, maybe more so focus on the reaction that we've seen because when you take a look at a lot of these larger cap companies, their earnings are strong. When you take a look at revenue, that's also coming in better than expected. Yet we are seeing a more negative reaction than we have in the past. What do you attribute that to, and what that really tells us about current valuations?

Yeah, thanks Sean. It's great to be here. Uh, the earning season has been interesting. I think what the reaction is really keying off of is just a very high amount of spending that's going into AI and the very uncertain payoffs and far out potential payoffs that would be coming from those from the mega cap tech companies that have such a large waiting in the index, we have to remember. But we do think the spending is going to continue. We do think there will be payoffs even if they are very far down the line, but when we hear some of the discussion and commentary around the payoffs, it does sound rather vague and rather distant. So we think the market's keying off of that in the face of strong run-ups, high valuations, and a lot of uncertainty. So that's the environment that we face today and it makes sense that the market isn't going to get enthusiastic about that.

So where does that place your earnings growth expectations for not just this quarter, but even as you're hearing and getting more of a sense about where this spending is either going to continue to be aggressive versus where it will finally be accretive to these businesses and how that factors into your kind of longer run projections?

Well, we do think 2025 is going to be a healthy year for earnings growth. We actually think that what's going to drive earnings growth in 2025 is business spending broadly, and and part of that is certainly AI and what goes into it, data centers, uh, upgrades to the electricity grid, other infrastructure, uh, that will drive spending technology spending. We think businesses are really going to open up their purse strings more as interest rates come down and and as a need for investment and gain efficiency gains start to become more and more important. Now, what are some of the headwinds? Uh, some of the headwinds, as you mentioned, is that the payoff for uh, some of the spending might not come for some time still. We think that's probably a very late 2025 story, 2026 story, and whether or not they're going to be bumps along the way or some choppiness or waves of enthusiasm for AI is probably, uh, something to be expected here as we go throughout the next year.

The inclusion of Nvidia in the Dow, it's going to happen later this week or be official later this week. Just the significance of that, how you're looking at that from a strategy portfolio management standpoint.

Well, I think a lot of investors are probably saying finally this is happening. Nvidia has been front and center for so long and the Dow is somewhat slow moving to make changes, uh, and that's that's part of their approach. Uh, you know, I think for more people are going to find it in their portfolios when they're tracking the Dow or if they have ETFs that follow the Dow. Uh, we're not seeing this as something that we expect to be a big shift in terms of, uh, in terms of where funds are allocated, uh, by individual investors, but we do think it does certainly raise the profile of Nvidia even further. And it is something that's noteworthy in today's market, just the waiting of the mega cap tech companies when we look at their earnings or we look at what's driving the markets, a very small subset of companies is really having an outsized weight here.

And so with that outsized waiting, you know, how would you be positioning towards further towards the thesis that's that's already kind of proven itself from an investment standpoint and now it's going to be more of the companies growing into some of the valuations that the street has given them.

Yeah, I think I think there is going to be somewhat of a growth into the valuations for for several of these companies. Uh, what I think we want to look at is who are the companies that are really going to be the next level down that are benefiting from the spending, which is taking place? Uh, certainly these mega cap tech companies are very deep pocketed and they seem very committed to not just continuing, but even accelerating this AI spending. So that's going to create just a continuing ecosystem of who's going to benefit. Uh, and it's not just tech companies. It's also the nuts and bolts of the economy, the infrastructure plays, the brick and mortar, uh, you know, roads, bridges, data centers, uh, electricity, grid enhancements, all of these areas are are going to benefit from the spending indirectly. So that's those are areas that we also want to focus on.

So we have earnings, we also have the Fed meeting, we have the election. What is the biggest test in your view for the markets this week?

Well, probably I would say the election. The Fed is more or less on autopilot, we think, with a 25 basis point cut coming up. Uh, in terms of the election, it's anything goes right now. Uh, you see what's happening in polling, you see what's happening in prediction markets. Uh, there are a lot of scenarios in play, and and whether when we get results is also another large question mark. So I think there's a lot of uncertainty just looming over the markets and how people perhaps have been positioned and how hot money could shift around after the election could cause some volatility.

Young Juma of BMO. Thank you so much for taking the time here with us just after the market opened today.

Thank you.