Markets are experiencing 'optimism fatigue,' strategist says

The Nasdaq Composite (^IXIC) recorded its worst weekly performance since April. Prime Capital Financial deputy chief investment officer Will McGough credits the downturn to "optimism fatigue." Watch the video above to hear more from the strategist.

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Video Transcript

00:00 Speaker A

Uh, so you write here, uh, well, we're entering this final stretch of the year. You say balancing optimism with fatigue. Walk me through that. What what what is driving that tension?

00:08 Will

Well, right now, we're pushed almost 20% up on the year. As you mentioned, we've pulling back a pretty bad week right now. We had a 20% plus year in 2023, 20% year in 2024. So that to me is peak optimism, right? Three back-to-back 20% years. And so it's natural for the markets to ebb and flow, can't go up forever. And we're just, you know, we're not looking for any type of downside catalyst here, but can things really get that much better to the upside from an optimism standpoint, which is in my opinion, fatigue. So you can approach it in different ways with regards to like equity exposure, asset allocation and such, but I think we're at a crossroads here which again, you see with the markets all over the place even today, that there's a little bit of optimism and fatigue going on.

00:54 Speaker A

But if I am willing to bet Will, listen, I think earnings are going to continue to expand. Prices, should I just bet will continue to follow?

01:03 Will

Uh so that's one thing. earnings seasons actually being met. So we've had three quarters of 6 to 8, 9% earnings growth and you're starting to see forward guidance not being met with optimism on prices going higher. We're seeing a pullback. So again, that that again screams fatigue to me, which we're also have some seasonality at play too. So you typically see November and December as positive months. So I think it's just a a moment where the market's kind of battling back and forth with regards to the direction of where it's going to go.

01:31 Speaker A

Yeah. Let me ask you this. One big theme this week, maybe it was the theme, was these concerns about the great AI trade, concerns about AI valuations. How as an investor do you think through that?

01:43 Will

So you have to have AI exposure in your portfolios in my opinion. It's the fourth of nine innings. It's going to go higher, but again, the froth just needs to come off a little bit in my opinion. These companies are fundamentally changing the way that the American economy is run. We're a tech service economy here in the states. You look abroad, you don't have the tech service economy. It's the old economy and it's completely changing productivity. Companies are getting more productive. Margins are better than they've ever been. Uh the downside to that is the consumer, right? We're seeing layoffs because of tech and sentiment is being pretty bad. I think we had the second lowest consumer sentiment reading ever today, which is not that great.

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