AI's Deflationary Impact and Sector Beneficiaries

Fed Rate Decisions and AI's Influence

• ⚠️ The Fed's decision to cut rates this month is not a lock, despite a 90% probability, due to inflation remaining above their target.
• 📈 A backward-looking, data-dependent Fed might hesitate to cut rates if they don't yet see the deflationary trend from AI supporting price stability.
• 💡 The base case is still a rate cut followed by a pause, which could reaccelerate investments in areas like housing and increase return on invested capital through capex.

Identifying AI Beneficiaries

• 🎯 While large-cap tech companies have been early winners, investors should diversify into second-effect AI winners.
• 🏭 The industrials and materials sectors are poised to benefit significantly from the AI buildout.
• 🏗️ Increased AI infrastructure utilization and nearshoring/onshoring policies are expected to drive a capex cycle benefiting these sectors.
• 📉 The strategy suggests shifting capital from tech into industrials and materials as the next phase of the AI trade.