‘Confident’ the Fed Can Manufacture Growth; Case for AMZN, MSFT, V

back to Opening Bell U.S. stock Index futures jumping this morning. Yields coming down on the jobs report. We're breaking that down as well in this hour. Gerald Sparrow, CIO of the Sparrow Growth Fund, is joining me right now. Stocks have seen new highs Gerald. We saw the S&P the Russell and the Dow all clock in some sort of new record high. And this morning the jobs report now giving a boost to U.S. stock index futures. Before we get to the jobs report specifically how have you been feeling about the markets. Well firstly thank you for having me back. We we're very confident in the fed with their ability and tools to somewhat manufacture growth in this economy. Their dual mandate of stable prices and jobs growth is doable. And it looks like they're doing a good job. Save this most recent report. But the inflation is in check. Consumers are spending. They're paying back their debts which is good for the banks. So we we like the market going forward, especially into year end. So you think the fed has been doing a good job. You just said we had three dissenters who were leaning toward a hike. Lisa Cook has also talked about a hike. What now? Do you expect a hike in September? We have a 42% likelihood of a hike. What do you think the fed should do going forward so that by the end of the year you say the same sentence. The fed is doing a good job. Yeah. Well, I have confidence and a lot of investors have confidence in their ability to keep interest rates stable. And this morning rates dropped. So half the fed wants to the FOMC wants to raise rates. Half of them want to lower rates. So I think that's a good balance. But we are confident in their ability to produce decent results through year end. And keep an eye on what's going on. Steer the ship in the market should do well. And we're expecting good markets going into year end. How do you think today's jobs report plays into the Fed's interpretation of what they should do, particularly on inflation? When the hourly earnings came in lighter than expected, in fact the lightest of the year and the 3.2% year over year number goes way back to May of 2021, showing wages are not inflationary. What did you think of today's jobs report and what do you think the fed is saying now? I think I think maybe what we're seeing is some productivity improvements. So if you look at the the CapEx spending with the hyperscalers and the companies able to use the AI to get more productivity out of the current employment base is a positive for interest rates. And. Jobs growth and steady jobs growth. So we're very confident in the Fed's ability to produce good results going into year end. So feeling pretty confident about the overall, what we just saw in the jobs and a believer of the fed. Not really clear whether or not the fed should hike or not. You're going to leave it to them and let them decide. That being said here, what about the U.S. economy overall? You said it was on an upward trajectory. Tell me more about that. What's the catalyst? What's driving it? Is it the AI spend you just referred to? Yes. The consumer. Well, consumer spending is two thirds of the economy. So if you keep a close eye on on unemployment in particular. And that went down a little bit today, most people that are looking for work are getting work, and that's a positive for interest for paying back loans in terms of consumer loans, bank loans, we like that credit spreads are really tight. So I think the the economy is on a good trajectory and inflation is stable. Look at oil prices. They're going lower. So we think the low inflation and with interest rates dropping today will be a good catalyst for the stock market going into the next quarter. And when we look at the mag seven names, I know that several of your stock picks. We have three stock picks today, two of which are actually mag seven names. Your thoughts on the earnings season. Was there a takeaway in your opinion whether it was on be a believer in AI spending or CapEx is good or the consumer is strong. What did you think about earnings season? Well, if you listen to the call, the the quarterly calls, I listened to all three of those calls, visa, Amazon and Microsoft. The management teams there are very confident in their CapEx spending and a lot of their their, their expected sales and return on invested capital is coming quicker. It's coming earlier. So for example, AWS, they had the fastest growth over 30% in their sales for that segment, which is 18. You have to go back 18 quarters to get that type of growth for AWS. So they're putting up data centers. They're they're putting in networking equipment servers, and these things are going to pay off and they think they're going to pay off sooner rather than later. And I'm talking about soon the 36 month cycles here. So that's why the stock was up. They had a really decent actually a blowout quarter in terms of sales and return on invested capital at Amazon. Right. Amazon Web Services with significant growth. And of course AWS makes up a good portion of the overall sales and numbers of Amazon. We saw that now crossing the 3 trillion mark. We've seen Apple crossing the 5 trillion mark. There was a lot of fanfare on Microsoft after it came out with its CapEx spend and return on investment showing that. And that brought some optimism to folks. What were your thoughts on Microsoft as you saw the strength and growth in cloud and AI overall? Microsoft, they had a really good quarter. I mean, there was the growth rate was 14% on top line and their, their, their different tools that they're rolling out in the AI space. And also their legacy business in terms of like, well, copilot is, is doing very well. And there are 365 tools are doing well. So they're buying their stock back. What surprised the market, I believe, is there is there transition from a lot of legacy businesses to this new AI trend and their ability to produce results in terms of return on invested capital and cash flow? And that's what I think drove the stock higher. Recently. You mentioned AI several times in our conversation. Now, as a driver, I know GDP is two thirds of consumer spend, but AI being a big story, and you have Amazon and Microsoft as your picks. How long does this continue? We think about what are the projections. You said you listened to management sounding so confident on expected sales and return on investment going forward. How positive are you on AI tech? The markets overall now this year, next year? Is this a long term story? I think there's I think there's visibility for the at least the next three years. So you get the bill out of the data centers. Again, you put the servers in there, the networking equipment, and then the companies, all different businesses from ExxonMobil all the way down to smaller businesses. They're really incorporating this into their into their operations. And in like when you, when you listen to visa, they were talking about new addressable markets. So Agentic AI, financial transactions, Visa's doing that business. They're doing stablecoin business. So the management teams are on top of these trends. They're investing in them. And shareholders are getting rewarded for their patients. Gerald Sparrow, CIO, Sparrow Growth Fund Gerald, thank you so