Expect volatility in next 2 weeks till Trump takeover; IT services cos like Infosys promising: Matt Orton

Matt Orton, Chief Market Strategist, Raymond James Investment, says Electrical equipment firms are at the top of his list. Cybersecurity firms also seem appealing. For instance, IT services in India have performed well. This sector has the potential to keep thriving since it is linked to the recovery of US and global companies, especially in finance and asset management. Companies like Infosys, which earn a significant portion of their revenue from global asset managers, appear promising as their profits are on the rise. They also benefit from the global AI trend. There are many opportunities to explore this theme both globally and in India.

We are calling it the ‘welcome back Donald Trump’ rally. The point is how long will this warm welcome continue?
Matt Orton: I think the welcome for the Trump rally really ended in December. Most of the gains you had especially in the cyclical parts of the US market, particularly those related to smallcaps, reshoring financials and deregulation – nearly all of those gains if not all. Then some of those gains have been given back in the month of December in the first couple of trading days right now. I think what the market is focused on going forward is what is the likelihood some of those Trump policies actually get enacted.

It is unlikely that everything that was talked about or promised on the campaign trail is actually going to come to fruition. There is a lot of uncertainty in the market, particularly with social media being used as a bargaining chip as well as you know what tariff policy is going to look like going forward.


So, I would expect that we are going to see a lot more volatility over the next couple of weeks until we get to inauguration day. Once we are there on January 20th, on January 21st we will see what those day one executive orders look like and that will set the tone in terms of whether some of these deregulatory trades, the energy trade if a lot of that can pick back up some momentum. So, we are going to be range bound in the near term.

The other question is with the dollar index at an eight-month high and pretty much sticking with that and the continuous dollar strength. What would it mean for flows to emerging markets and especially India, because we have seen the FIIs turn their back completely.
Matt Orton: Yes, the dollar is a headwind to the entire international complex both international developed and emerging markets, in particular US investor returns when you invest overseas, but particularly for emerging markets it is a headwind for domestic economies and financing as well. So, the onus on investors looking at emerging markets given an elevated dollar is going to be selectivity.

Is the dollar rally going to continue the way it has so far? I think a lot of the worst news with respect to US rate rises, has already been priced into the market. I would expect a little bit of weakening of the dollar but not substantially. So that is going to be a headwind for the broad emerging market complex. But there are definitely good opportunities beneath the surface and a lot of that is then going to be idiosyncratic growth factors, particularly related to earnings and earnings momentum.

So, as long as the AI trade can continue you are likely going to see Taiwan and really the semiconductor chip trade continue to move. Countries like Vietnam benefit from friendshoring and India also has benefits of that friendshoring, having a good relationship with Donald Trump and the US being a supply chain alternative from China as investors and companies alike continue to pull out assets.

If we do see an earnings reacceleration going forward as we head into the first half of the year and into the second half, a lot of that is going to get FII money to come back. I do not think the dollar is the headwind for FII money; it is the uncertainty with respect to the global economic outlook and just not wanting to put new capital to work until there is a little bit more clarity with respect to where performance and outperformance is going to be driven.

In your note you have talked about a whole host of sectors which you think are going to do well. So, the technology names will continue to ride high especially in the US as has been the case, especially the ones with an AI flavour to them?
Matt Orton: Yes, information technology and the communication services, consumer discretionary names that are tied to artificial intelligence – are going to continue to do well and software in particular is set up very nicely in the US to ride the wave of AI spending.

When I talk to clients, I not only tell them to continue to add more money to the hyperscalers which are very good investments to own going forward, but also to look at the chain of where those capex dollars are being spent by those big companies and look to invest in the companies where the earnings momentum is not baked into the transparency and the visibility with respect to earnings because of the capex.

So, electrical equipment companies are top on my list. Cybersecurity companies also look very attractive. Coming to India, for example IT services has done well. It is an area that can continue to do well because they are tied to the success of the US and global companies where the economies are recovering, particularly financials and asset managers. So, companies like Infosys that have a large part of the revenue tied to asset managers on a global scale look attractive because their earnings continue to pick up and they also have leverage to the AI trade on a global scale. So, there is a lot of ways to play that theme from a global perspective and in India as well.