AI productivity boost will be a key economic driver: Strategist

The tech industry has been driving market (^DJI,^GSPC, ^IXIC) growth this year as the AI race heats up. John Hancock Investment Management co-chief investment strategist Matt Miskin joins Morning Brief to discuss the sector's outperformance.

"These companies are printing money in terms of profits. They've got great profit margins. They've got great balance sheets. They're the highest quality stocks. Right now, the market is being driven by the quality factor and the momentum factor being married together," Miskin explains.

He believes that AI will continue to be a powerful force for the economy, explaining that "productivity is going to be the key engine of growth." He adds that the technology is going to help find efficiencies across all sectors to ultimately get more accomplished with less work.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Melanie Riehl

Video transcript

And here we are just about three minutes into the open of the trading day.

You do have stocks slipping just a bit.

But really the story of the last several months in the market has been this massive out performance that we've seen in just a small handful of tech stocks here, really largely driving the direction of the markets here since the start of the year.

NVIDIA, of course, leading the way a lot riding on the sector's rally here to break it all down.

We wanna bring in Matt Miskin, he is John Hancock Investment Management's Co Chief Investment Strategist.

Great to see you here.

So when we talk about the massive out performance in tech, we've got the 10 for one stock split from NVIDIA here today.

And I think there really has been this refocus on the A I trade.

Are you at all concerned just about the concentration that we're seeing in the market and what risk that might pose here over the coming weeks and coming months.

Well, it is certainly historic in nature.

The market has never been this more, this concentrated ever before.

Uh So the 33% or so of the S and P 500 is just in the top 10 stocks.

Things could be worse though.

Right, because these companies are printing money in terms of profits.

They've got great profit margins, they've got great balance sheets.

They're the high quality stocks.

Right now.

The market is being driven from the quality factor and the momentum factor being married together.

That isn't the worst thing, you know, in the tech bubble, these companies weren't making money, they did not have solid profit margins.

Um But for us, they are getting rich, they are getting expensive.

We are moving down in cap.

You don't have to go far midcap or been $100 billion market cap nowadays feels more like midcap because these trillion dollar companies, but we're looking for cheaper options a little bit down a cap.

We're still avoiding small, but there's valuation opportunities.

You just don't have to go far to find them.

Even when you look at the valuations and some of these uh trillion dollar tech giants and apple over three trillion on video, close to three trillion.

Can the argument be made given how much potential they have in in free cash flow and earnings over the next decade, these stocks still might be very cheap.

Yeah, they're gonna grow into it, you know, over time and the, the A I uh you know, narrative we think actually is, is the one that is going to be a powerful force for the economy, the US economy just can't grow through government uh fiscal stimulus forever.

We can't just, you know, provide more and more stimulus.

And the FED also is relatively restrictive, but it's gonna be hard for the economy to grow without such a great support.

And we, I think productivity is gonna be the key engine of growth.

So how, what is productivity?

It's basically GDP divided by number of hours worked of employees.

Well, A I helps people work less.

It's all about getting more done with less work.

And we think A I is gonna be a huge part of that as a secular theme.

We believe the earn the best earnings engine in the world is technology.

We've been overweight that for the last five years, we are still overweight it as we go throughout the course of 2024.