Lance Glinn:

Welcome into another episode of our Markets in Focus series here on the Inside the ICE House podcast. And joining us as always every month to talk market trends and market movements is Phil Rosen. Phil, thanks so much for joining us Inside the ICE House. Happy to have you here.

Phil Rosen:

Thank you for having me.

Lance Glinn:

So let's start with NYSX component Micron after they just reported their Q3 earnings. When you look at their latest results specifically, especially with how they're framing AI-driven memory demand, what just stood out to you the most?

Phil Rosen:

Micron is the new NVIDIA. I mean, if you look at the anticipation building up to earnings and then how they absolutely destroyed expectations on earnings, I think they made $41 billion in the quarter and then they guided to 50 plus billion in the next quarter. Both numbers beat expectations. This is the same thing we've seen every quarter with NVIDIA. The AI bears get very nervous and jittery ahead of the earnings call and they say, "Look, we're going to find out that the AI trade is over today." That has happened for the last eight quarters with NVIDIA and now Micron survived that test and they've extended the AI trade for at least another quarter until they report earnings again, but is an unbelievable number.

Phil Rosen:

And Micron has come out and said, "Look, we expect 2027, 2028 memory is still going to be supply constrained and demand is still going to outpace all these numbers here." So generally when you zoom out, that's very bullish for anyone exposed to AI, which is at this point, everybody who's in the S&P 500. And you're still going to have these doubters that come out and say, "Look, this is a cyclical business and historically it has been."

Phil Rosen:

But again, I look at the generational technology that we are being absorbed by from every corner of the economy right no. And to me, that gives me more hope and bullishness that maybe, maybe Micron's run will extend further than anyone thinks because it's much less cyclical than maybe in 2018, what we saw when prices got cut in half and the stock dropped so severely. I still am very bullish. I continue to personally own the stock Micron and I don't know if the bears have enough ammo to grasp onto right now.

Lance Glinn:

So the memory trade specifically I think has been one of the most powerful undercurrents in tech really over the past year, even if it doesn't always get the same headlines as like GPUs or the hyperscaler, so be it. When you step back and think about memory, right, you think about memory, how should investors be thinking about that trade specifically today?

Phil Rosen:

I think what's interesting to me is we are going to see increasingly a K-shaped divergence stemming from the memory trade. So investors will do very well who are exposed to the memory trade, something like Micron, SK Hynix, Samsung. These are the three names that everyone points to and everyone's made a lot of money on, if they've been in them for the last year and a half or so. But then within 24 hours of Micron's earnings report where they had their best quarter ever, blew away all expectations, Apple and Microsoft came out and said, "We have to raise prices on our laptops, Xbox's, consoles." And that to me was really the first red flag about how rising demand for memory and AI chips, that is going to start trickling down in a negative way to everyday consumers. You and I will have to pay more for our laptops next time we go, pay more for our iPhones next time we go, or I don't know if you're a gamer, but we're going to have to get-

Lance Glinn:

Sure.

Phil Rosen:

More expensive Xbox's moving forward too because of the same catalyst that has made Micron boatloads of money. So you have this K-shaped divergence already emerging in earnings and in consumer goods that are in the tech sector. That's probably going to start trickling out beyond just Apple and Microsoft. And we're going to see more and more companies either using memory prices as a reason or an excuse to raise prices or actually saying, "Hey, we have to raise prices, we don't have a choice, to maintain our profit margins." That's going to be one big thing to watch and I think it's going to eventually make AI less and less popular as well as a technology and as a trade. Investors will talk about it still, but outside Wall Street, it's going to be not so kosher to be praising AI.

Lance Glinn:

Now, I want to shift the conversation to what we've seen as a late. We've got a notable tech sell-off recently, especially in some of the names that obviously had been leading the rally. When you see that kind of move, do you interpret it as just sort of a healthy reset that happens in a typical market cycle, or does it feel like a more meaningful shift beneath the surface and something that people really need to keep an eye on?

Phil Rosen:

Yeah, it's a great question. Any jitters or sell-offs you see in a generational bull run, they're going to spook a lot of people and they're probably going to be more severe than a typical pullback if the bull market hadn't been so strong. But what we saw in the most recent tech sell-off that gave me more confidence in the market at large, we didn't see investors leaving the market. We saw them rotating into more defensive sectors. You saw stocks like Walmart or Procter & Gamble doing very well the same day that memory names like Micron were selling off. So to me, that's actually a pretty healthy signal. And when you think about a crash, if we really had a crash, all stocks across the board would be going down, not just a specific sector or a specific theme. And we really saw a theme sell-off rather than the whole market sell-off.

Phil Rosen:

So to me, if you look at the rotation and you look at the advancers and decliners in the market, things still look pretty resilient. And to me, this is a very normal and expected bump in volatility and we're probably going to see more and more volatility as this bull market goes on. It's maturing, it's aging. But again, I don't think this is a reason to necessarily take your chips off the table or fully exit the market, get into cash, because I think if you do that, you're leaving so much on the table as far as the potential upside with the memory trade, the AI trade, even other sectors like energy. These are all, I think, going to do very well for the rest of the year. And if we look at Micron's earnings as sort of an indicator of what's to come, their whole executive team, I know they're incentivized to say it, but they do not expect things to slow down for several years.

Lance Glinn:

Yeah. Away from that, we've now had Kevin Warsh's first meeting unfold, for Fed decision meeting unfold with obviously rates holding steady, which was largely to be expected for this first meeting. Of course, just as important as the ultimate decision was, which again was expected, were his comments after the fact. So when you think back to that first meeting, his press conference afterwards, was there anything specifically that he said, that he maybe even indicated with his words that stood out to you?

Phil Rosen:

Kevin Warsh is an enigma right now to markets. Markets don't really have a clear read on if he's going to be dovish or hawkish, and he was brought in by President Trump in theory to lower interest rates. Right now it's up in the air if he's going to be able to do that, if he can convince his committee to do that. I am actually in the camp that we'll probably see either no cuts or at least one rate cut before the end of the year, even though right now the market is pricing in multiple rate hikes. I think that's not going to happen. I don't think Warsh was brought in to do that. I think there are political pressures for him-

Lance Glinn:

Sure.

Phil Rosen:

To lower rates, but I also think he genuinely believes that AI will be a disinflationary force and a big productivity boon for the economy, which will open the door to rate cuts, but he may not be able to say that explicitly right now based on the macro backdrop, some of the inflation pressures. We might see some mix-ups in the labor market in the coming months. But what's interesting to me about Warsh, he has set forth a few different task forces for the Fed. And on one hand you could say, okay, that's great because it means he wants to initiate change, hopefully make data-driven changes, and he has essentially specific roles reserved to make those changes for him or on his behalf.

Phil Rosen:

On the other hand, you could say, especially in the government, task forces are where responsibilities go to die. Nothing really gets done. In many cases, when you assign a task force in the government to make change, and I think we maybe had our best and most hopeful example with DOGE when Elon Musk was involved and they came in with very lofty ambitions and you see a entrepreneur like Elon Musk come into the government and you would expect a guy that built SpaceX and Tesla should be able to make some good progress in the government.

Phil Rosen:

It was really hard to say whether he was able to do that. And he has himself come out and said, "Look, the government is such a difficult, large moving ship that it's pretty much impossible to make really meaningful changes budget-wise or wasteful spending wise." I don't know if Warsh will be able to make that material changes at the Fed. I think it's a good signal that he wants to and that he's assigned these individuals in the task forces to make change. But again, I'd be more skeptical of the task forces making actual change than Warsh being able to cut rates before the end of the year.

Lance Glinn:

Got it. So you are still anticipating, at least at some point, either rates to hold steady or a rate cut to happen at some point.

Phil Rosen:

This year, yes, because I think the market will be wrong in their expectations. I think Bank of America just said they're going to see two or three rate hikes this year. I don't think that's right. I just think there's a lot of bullish factors with the AI trade and the macro headwinds that will be able to push Warsh to cut or at least open the door for him to cut this year.

Lance Glinn:

So if that base case on rates plays out, and let's say we see a cut, excuse me, before the end of the year, or let's say early in 2027, where do you think the biggest market implications show up first?

Phil Rosen:

I mean, I think it extends the bull market, right? If you have lower borrowing costs, asset prices will go up. The risk would be that inflation doesn't get as close to the 2% target as the Fed might want. But I think what Warsh would be betting on is that AI as a technology and as a productivity tool, let's say, is so effective and it delivers on its promises that all the bulls think it will, that it's actually disinflationary. So we need lower borrowing costs just to counter that AI macro force. I don't know if we'll see that play out in the near term. I think if you zoom out long-term, AI will be disinflationary. Hard to say whether we'll see that happen in the next 12 months. I don't know, but we're also in a technological boom that is happening faster than any other technological change in history.

Phil Rosen:

I think these tools and the repercussions of AI, they are pervading society way faster than we've ever seen, even compared to the internet. We're going to encounter a lot of variables that we can't necessarily anticipate and a lot of those are going to be on the macro level, market level. Maybe I think what Warsh is betting on is that those things will all add up to the result of him being able to lower borrowing costs.

Lance Glinn:

Well, Phil, I always appreciate the conversations we do each and every month. Thanks so much for joining us Inside the ICE House.

Phil Rosen:

Thank you for having me.