Why these market watchers say the AI play has yet to unfold, but inflation will still be key in 2026

Contessa Brewer (Correspondent) 00:00.070

gina let me begin with you set the scene for us as we come into the final trading week of twenty twenty five what are you expecting

Gina Sanchez (Chief Market Strategist) 00:08.510

well obviously we have had a bang up year and that looks to continue the i think this next week is just going to continue that trend it has been driven by AI despite concerns that it might be overvalued the reality is is that the infrastructure play and so much of that story has

Gina Sanchez (Chief Market Strategist) 00:28.950

yet to continue to unfold so i think that that continues to power us through the the end of the year you know i think as we look into twenty twenty six our big is around inflation which has been moderating but we think that there's sort of a limit to that and some of the things

Gina Sanchez (Chief Market Strategist) 00:45.390

that you described are inflationary i mean you know oil will potentially be inflationary if we get into any kind of contracted you know anything around that but the reality is is that the the the stage is set for a lot of inflationary pressure that have been bubbling on the

Gina Sanchez (Chief Market Strategist) 01:05.510

backdrop of a consumer that has gotten weaker and weaker over the years so even though we're going to end the year strong i think we have some caution going into twenty twenty six so

Contessa Brewer (Correspondent) 01:15.110

i hear some concerns about inflation some questions over the AI trade justin does that match what you're how you're setting up for twenty twenty six

Justin Bergner (VP & Senior Analyst) 01:26.350

thank you contessa for two thousand twenty six i think there's a wide range of possible market outcomes i think that inflation is probably more contained and i'm more concerned about the strength of the consumer and the job market i could see inflation constraining the market

Justin Bergner (VP & Senior Analyst) 01:42.510

multiple as we look into two thousand twenty seven and so i'm investing more based on an expectation i should say an average expectation of a flat market plus dividend returns after you know the strong run in the last few years the

Contessa Brewer (Correspondent) 01:58.150

the fact that you're looking so much at the consumer here are is it a bifurcated consumer again like the this this tale of two consumers justin where you've got the affluent just cruising along and spending and perhaps propping up what we're seeing in terms of corporate results

Contessa Brewer (Correspondent) 02:16.630

and then that that lower end consumer who's really feeling the pinch potentially from tariffs as well one of the things that we haven't been diving into quite yet

Justin Bergner (VP & Senior Analyst) 02:27.830

yeah it certainly is a bifurcated consumer but the overall job market isn't that strong and of course the spending by the higher income you know consumers is somewhat tied to the overall market level so that creates another cake if the market should you know sell off modestly or

Justin Bergner (VP & Senior Analyst) 02:46.630

moderately as we tend to see in midterm election years at some point in the year even if the overall you know year ends up pretty well gina

Contessa Brewer (Correspondent) 02:55.240

we've seen these corporate balance sheets looking fairly strong how much of that is is due to the strength of the consumer so

Gina Sanchez (Chief Market Strategist) 03:03.550

i think if you look at what's been driving consumer i want to go back to your question about the bifurcated the K shape this we we see definitely AK shaped economy and we see that actually resulting in different companies experiencing you know different outcomes and so yes i i

Gina Sanchez (Chief Market Strategist) 03:21.070

agree that the consumer has been powering balance sheets but that has also been a lot of business spending as well and the consumer meanwhile has racked up credit card balances to levels we haven't seen in a very long time which is to say that they can only do that for so long

Gina Sanchez (Chief Market Strategist) 03:39.830

especially you know even if we see some you know some further rate cuts this year i don't think it's going to be enough to deal with the carrying cost of what the consumer has amassed so while that has been a twenty twenty five experience i think the twenty twenty six experience

Gina Sanchez (Chief Market Strategist) 03:56.350

is going to be moderating spending OK

Contessa Brewer (Correspondent) 03:59.310

so given that where are you looking to put your money at work yeah

Gina Sanchez (Chief Market Strategist) 04:04.150

we are actually very focused on the AI infrastructure play because even though we feel like we are unquestionably in you know a bit of a bubble just like the internet the internet had a bubble but it didn't go away it became a part of our lives and we think that that AI and

Gina Sanchez (Chief Market Strategist) 04:23.110

continued machine learning is going to be a part of our lives and the spending that is going into the infrastructure side of that that part of the market isn't actually as overpriced as let's say applied AI or other segments of the market that are just sort of on you know

Gina Sanchez (Chief Market Strategist) 04:41.310

working on top of these innovations but if you look at the cloud computing components the anybody selling chips anybody making chips anybody designing chips that whole segment of the market is actually still not as overpriced and and so and we see that spending and that spending

Gina Sanchez (Chief Market Strategist) 05:01.630

is not as on the consumer and is really more a business infrastructure decision over the next twenty twenty six we think that continues and that's a big component of what we're focused on and

Contessa Brewer (Correspondent) 05:12.110

justin i see that one of your focuses here is a company called belden which is more about automation and robotics as a play on AI sure

Justin Bergner (VP & Senior Analyst) 05:23.870

yeah so we are bottoms up value based stock pickers and a name that we like is belden which is saint louis based five billion market cap it's a beneficiary of north american automation spending getting two thirds of its ebitda and half its revenue from automation spend but it's

Justin Bergner (VP & Senior Analyst) 05:40.030

also making inroads into solutions for data centers and agentic AI in the industrial manufacturing setting trades you know quite inexpensively at eleven and a half times two thousand twenty six ebitda in fifteen and a half times earnings and certainly can we rate upwards versus

Justin Bergner (VP & Senior Analyst) 05:58.990

other automation names that you know are more standard automation names that trade at significant higher multiples so you know you put a thirteen times multiple in a high teens EPS on the stock and you're probably looking at a hundred and sixty dollar stock out two years with

Justin Bergner (VP & Senior Analyst) 06:15.710

good long term trends