Bond markets signaling inflation still an issue, says Payne's Courtney Garcia

But first, let's get straight to today's market action with Courtney Garcia, Payne Capital Management Senior Wealth Advisor and a CNBC contributor, and Daniel Skelly, Morgan Stanley Wealth Management Executive Director. It's great to have you both here, especially as we did have the S&P basically eke out a gain, albeit barely, a similar situation for the Dow and the Nasdaq. But Courtney, just in terms of how important yields are to the equity picture, is that really what's driving things right now? Or is this a situation where there's a lot of sitting on your hands and awaiting earnings and other key catalysts like jobs later this week? It's probably a little of both. But I think when you're looking at the markets, especially today, a lot of that is due to what's happening with the Treasury. And inflation is absolutely going to continue to be one of the headlines that markets are looking for. Right. So we actually saw the 10-year Treasury spiked. It did come off of some of those highs. You're seeing now the markets have actually kind of recovered as that Treasury has come down. But really, what the bond markets are continuing to tell you is that inflation is likely going to be an issue. You're starting to see this peak in when you see it like goods deflation is actually slowing. You're starting to see like these inklings of inflation continuing to peak its head here. And that's where the markets are really starting to see where those things are going, because if interest rates keep rising, inflation is a problem. That's absolutely going to be a story here in 2025. Dan, how do you see 2025 shaping up? I know you've talked about this idea of a Goldilocks view, but you've also written about widening tail risks. So where do you see those risks and how do you prepare for them? Sure. Morgan, we're looking at a bit of a paradox this year within markets in terms of a unstoppable force, which is the idea of U.S. exceptionalism that everyone wants to invest here. And we've got some of the leading secular themes meeting an unstoppable object of U.S. valuations and potential earnings and interest rate and inflation challenges. And so the net effect of that paradox is just a choppier first half to this year. And so as you were talking about earlier, we need to see more clarity on earnings expectations being met or exceeded and more information around the nature of tariffs. Are they going to be universal or select? And what's going to be the sequencing of tariffs vis-a-vis some of these other, we would argue, pro-growth policies like deregulation? OK, so, Courtney, you say that investors can buy cheaper valuations than the mega caps in the mag seven with high earnings growth. You also say you see opportunities in Europe. Talk to me about how to approach Europe when, you know, as Dan mentioned, there's a lot of focus on the U.S. economy and U.S. stocks as being attractive. What kind of value do you see in Europe? Yeah, and don't get me wrong here. We absolutely still want to own the U.S. And the question is, is the magnificent seven going to continue to lead with the same kind of outperformance that it has been? And that's where I'm not sure that it is. So we're absolutely going to continue to own those things. But those things have done really well. So it's a good time to start to take some of your profits and bring it back to your target. And that's where with those profits, what areas do you want to look at? So that's where you can look at things like industrials and materials both had negative to flat earnings growth in 2024. Look at 2025. The earnings growth expectations are expected to be upwards of 18 percent and are obviously much cheaper than those mag seven. So that's where taking some of that extra money, putting it there can absolutely be an opportunity. And Europe also is significantly cheaper than the U.S. trades about 13 times versus 22 times here in the U.S. The energy specifically in Europe is even more dramatic. It's about a 50 percent discount to U.S. So like Shell, for example, trades about eight times forward earnings versus Exxon is like 14 times forward earnings. And Shell also has a lot of liquid natural gas exposure. So I think a lot of those same themes you're seeing here in the U.S. are still in some of those companies in Europe. And I think you can absolutely take advantage of the lower valuations as we look forward to next year.