Joining us now is Tom Lee. He's Funst Strat's head of research and a CNBC contributor. It's good to see you joining us from the nation's capital today.So, what's your take on everything that we are talking about now daily. Uh, well, I I heard the earlier segment, Scott, and I I do think I'm kind of more in the Jamie Diamond camp, you know, that uh the in Steve Leeman's point that there's opacity in private credit. And that's the problem that investors are going to grapple with for some time. And I think tha ...

Market Trends - Small caps are hitting record highs, indicating a shift in investor interest towards cheaper alternatives compared to mega-cap tech stocks, suggesting potential for gains [1][2] - Small caps are more sensitive to interest rates, and lower rates could provide momentum for sustained growth, especially if further rate cuts occur [3] Inflation and Consumer Spending - Recent reports indicate that tariffs are increasing prices, with high-income consumers spending on luxury items while lower-income consumers seek discounts [4][5] - There is concern about inflation impacting profit margins, as companies may either absorb tariff costs or pass them onto consumers, which could hurt revenues [5][6][7] - Despite inflation concerns, revenue growth remains strong, particularly among high-end consumers, as evidenced by positive results from luxury brands [8][9][10] Corporate Credit and Investment Sentiment - Notable investors are shorting corporate credit in developed markets, citing tight spreads, which raises questions about market stability [11][12] - The sentiment among banks remains bullish on the economy, with reports of healthy consumer spending and zero loss provisions from major banks [14][15] - While there are red flags such as tariffs and narrow spreads, there are also positive indicators driving the economy forward, suggesting a mixed outlook [16]

Group 1 - BlackRock is actively involved in a data center deal, indicating strong performance across passive, active, and alternative investment strategies [1] - Small-cap stocks are expected to experience volatility until the end of the month, but a potential catch-up trade is anticipated post-Fed meeting and China trade deal discussions [1] Group 2 - Victoria's Secret is undergoing a long-term turnaround with the involvement of activist investors, suggesting potential for future growth [2] - There is interest in semi-equipment companies, with existing investments in Lamb and KLA, and developments noted in Pterodine [2]

Core Insights - Small caps are experiencing a resurgence, with significant potential for dividends, specifically a 7.1% payout being highlighted as an opportunity [2][8] Small Cap Performance - Small caps have historically underperformed compared to large caps, but recent trends indicate they are now matching or even surpassing large caps in performance, as evidenced by the iShares Russell 2000 ETF [3] Advantages of Small Caps - Small firms maintain strong client relationships, benefiting from customer loyalty and directly profiting from the strength of the US economy, providing a hedge against global economic issues [4] Dividend Challenges - Many small caps are in early growth stages and may not be able to offer dividends while funding their expansion, contrasting with larger companies that typically provide more consistent dividends [5][6] Investment Strategy - The focus has been on closed-end funds (CEFs) that invest in large caps and high-yield bonds, which have historically provided higher returns and dividends compared to small caps [7] Exception in Small Caps - The Royce Small-Cap Trust (RVT) is noted as an exception, offering a 7.1% dividend while closely tracking small cap performance [8] Fund Structure and Holdings - RVT invests in a diverse portfolio of 488 small caps, with top holdings including IES Holdings, Assured Guaranty, and SEI Investments, all showing strong revenue growth [9][10] Dividend Flexibility - RVT's dividend is not fixed but floats based on the net asset value (NAV), allowing for potential increases in payouts as NAV rises, which has been consistent over the past five years [11][12] Market Position - RVT is currently available at a 9.2% discount to NAV, indicating potential for upside as the discount has decreased from higher levels earlier in the year [12][13]

Core Insights - The article introduces "The Undercovered Dozen," a selection of twelve actionable investment ideas focusing on tickers with less coverage, which can include both large caps and small caps [1] Group 1: Inclusion Criteria - Tickers must have a market cap greater than $100 million [1] - Tickers must have received more than 800 symbol page views in the last 90 days on Seeking Alpha [1] - Tickers must have fewer than two articles published in the past 30 days [1] Group 2: Purpose and Benefits - The initiative aims to highlight investment opportunities that may be overlooked by the market [1] - Following this account will provide a weekly review of these undercovered ideas from analysts [1]

Core Viewpoint - The current market environment is favorable for small-cap stocks and financials, particularly with the Federal Reserve's anticipated rate cuts, which are expected to drive performance in these sectors [1][11][14]. Financial Sector Insights - The financial sector is experiencing a rally, with major banks like JP Morgan, Goldman Sachs, and Bank of America reaching record highs [13][14]. - The financial sector is currently trading at the same price-to-earnings (PE) multiple as in January, indicating no multiple expansion, which suggests potential for growth without increased valuation pressure [6][12]. - There is a strong emphasis on regional banks and small-cap financials, which are seen as attractive investments due to their performance and lack of resistance above current trading levels [5][6][12]. Small-Cap Stocks - The Russell 2000 index is on the verge of closing at an all-time high, marking a significant breakout after 967 consecutive days without such a close, indicating strong momentum in small-cap stocks [4][3]. - Small-cap stocks are expected to benefit from the Fed's supportive stance and the ongoing rate-cutting cycle, making them a key focus for investors [7][11]. Investment Strategies - Investors are encouraged to overweight positions in financials and small-cap stocks, as these sectors are poised for performance gains in the current economic climate [10][11]. - There is a discussion around the potential for mergers and acquisitions (M&A) and regulatory relief, which could further benefit the financial sector [12][14]. - Some investors express a preference for fintech companies over traditional banks, citing higher upside potential and less sensitivity to interest rate changes [19][21].

Market Performance & Economic Outlook - S&P 500 earnings are up 10% year-over-year, and NASDAQ 100 earnings are up 34% year-over-year, indicating strength in the US market [1] - Concerns about Fed independence are causing a slight sell-off at the long end of the curve [2] - The Fed's influence is strongest on the two-year rate, which has decreased by approximately 7-8 basis points [3] Monetary Policy & Interest Rates - The Fed only controls the short-term lending rate, and excessive cuts could lead to a steepening of the yield curve, potentially resulting in higher longer-term interest rates [3] - There is potential for the Fed to implement two or three rate cuts without significantly impacting the long end of the curve, even with inflation around 3% [4] - Lower rates on money markets and challenges in generating income from interest rates and bonds make equity income more attractive [5] Investment Strategy - The ITWO ETF, a Russell 2000 high-income ETF focused on small caps, is highlighted as a pick [4] - Small caps are more leveraged and have shorter maturity, making them more sensitive to and potentially benefiting more from rate cuts compared to large caps [5]

Interest Rate Expectations & Market Impact - The market has largely priced out the possibility of a 50 basis point rate cut in September, with the conversation shifting to either a 25 basis point cut or no cut at all [1][2][3] - Expectations for multiple rate cuts in 2024 are diminishing, with some suggesting only one or two cuts by the end of the year [2][15] - The potential for a "hawkish cut" is being considered, where the Federal Reserve cuts rates but maintains a hawkish stance [3] - The market's optimism, particularly in sectors like biotech, small caps, and homebuilders, is being re-evaluated in light of the hotter-than-expected PPI data [2] Sector Performance & Investment Strategies - Small-cap stocks have been significantly influenced by the prospect of rate cuts, and their performance may be hindered if rate cut expectations are scaled back [6][7][8] - Homebuilder stocks, which had been performing well, may see their "sizzle" diminish due to the changing rate cut narrative [4][5] - Wells Fargo Investment Institute has downgraded small caps to unfavorable, citing concerns about slowing economic growth and high borrowing costs [12] - An equal-weight strategy (RSP) is being considered as an alternative to mega-cap and small-cap investments, offering diversification without the risks associated with small caps [17] Economic Outlook & Fed Policy - The Producer Price Index (PPI) data has introduced uncertainty into the "no inflation" narrative and the likelihood of significant rate cuts [1][6][14] - The Federal Reserve is likely aiming for a consistent rate-cutting approach, avoiding the "stop-start" pattern of the 1970s and 1980s [15] - There's a risk that the Chairman of the Federal Reserve might temper expectations for a guaranteed 25 basis point rate cut at Jackson Hole [19] - Structurally higher interest rates are anticipated compared to the past decade, which will impact sectors like homebuilders [16]

Market Overview & Outlook - The AI trade is seen as justifying the current market rally and bull market [1] - The market is considered a strong bull market with record earnings and new cycle highs in profit margins [1] - The dual tailwinds of record earnings and new cycle highs in profit margins are supporting the bull market [1] - The industry suggests remaining overweight equities with a diversified portfolio [5] - The industry favors large-cap stocks over small-cap stocks [5] August Historical Trends & Potential Risks - Historically, August has been negative in post-election years under a second-term president, with the last six occurrences being down [2] - August is associated with unexpected turbulence and random events [3][6] - A potential 4% pullback is possible but considered part of the process [6] Investment Opportunities - Cyclical areas within the US market, such as industrials, financials, and technology, are favored [5] - Opportunities exist globally [5]