Susan Shoemaker and Bob Graham – Riggs Asset Management Company

Susan Shoemaker:
Hi, this is Susan Shoemaker, and I’m here with Bob Graham, President of Riggs Asset Management. Today we’re talking about the month of January.

Although we’re only one month into the new year, a lot of important things have already happened. We’ve seen a majority of corporate earnings reports, and January can also provide some clues about what the rest of the year might look like—especially in an election year.

Bob, maybe we can start by discussing what we’ve heard from companies so far this earnings season.

Bob Graham:
Sure. At this point we’re probably about 80% of the way through earnings season, and overall the results have been quite strong.

In fact, certain sectors are performing very well—particularly industrials.

Many of those companies are benefiting from trends such as:

• Infrastructure investment

• Reshoring and nearshoring of manufacturing

• The massive buildout of data centers

Right now, we’re seeing an enormous expansion of data centers across the United States.

Susan Shoemaker:
Bob, if I can interrupt you for a moment—I think it’s helpful to talk about data centers, because we often refer to the “cloud.” People sometimes imagine their data floating somewhere in the sky.

But the reality is a little different, isn’t it?

Bob Graham:
Exactly. The “cloud” isn’t really in the sky—it’s physical infrastructure.

For example, right now there are dozens of large data centers being built across the United States, and the same thing is happening in Europe and Asia.

To put this in perspective, imagine a facility built on 300, 400, or even 600 acres of land. These massive buildings are filled with thousands of servers and computing systems.

They require extremely reliable:

• Electricity

• Cooling systems

• Clean water

• High-speed connectivity

I recently read about two major data centers under construction in Phoenix. One is being built on roughly 600 acres, and another right next to it is on about 400 acres.

These are enormous facilities.

Susan Shoemaker:
And the reason these data centers are expanding so rapidly is largely because of artificial intelligence, correct?

Bob Graham:
That’s exactly right.

With the development of artificial intelligence, the demand for what we call computing power—or “compute”—has expanded dramatically.

As AI systems become more sophisticated, they require more processing power and more energy.

For example, AI programs often reanalyze data repeatedly to find new patterns or improved outcomes.

Think about how this could affect industries like biotechnology.

There are huge databases of research on potential drugs that may have never reached the market. With AI, those datasets can now be reanalyzed with new technology to discover whether there might be useful applications that were previously overlooked.

So the demand for data processing and storage is growing rapidly, and we expect that demand to continue expanding—likely at an exponential rate.

Susan Shoemaker:
And of course that growth also drives demand for infrastructure, which is something we’ve talked about frequently.

Bob Graham:
Exactly.

Data centers require all the components you would expect in a large industrial facility—and often more advanced versions of them.

They require:

• Advanced HVAC systems

• Extremely clean air and water systems

• Highly reliable electricity supplies

In many cases, power must be completely uninterrupted.

This demand for energy is also contributing to increased interest in nuclear power, which is one reason we’re seeing strong demand for uranium.

All of these elements are interconnected.

Susan Shoemaker:
And of course, the data stored in these facilities also has to be protected, which means cybersecurity companies play a role as well.

Bob Graham:
Absolutely.

Companies that provide data security and protection software are also benefiting from these trends.

So when we look across the economy, we see a network of industries connected to this technological transformation—and many of those areas are also represented in our portfolios.

Susan Shoemaker:
So January has been a strong month so far, and we’ve heard encouraging things from companies.

Let’s talk about January’s significance in an election year.

Bob Graham:
Historically, there’s an interesting statistic.

Whenever we’ve had a presidential election year where the stock market finished January positive, the full year has also ended positive for the stock market.

So based on that indicator, I’m pretty optimistic about this year.

Of course, election years can be turbulent. There will certainly be a lot of political debate and uncertainty.

But overall, I think the environment could still be positive for both the stock market and the bond market—and supportive of the broader economy.

Susan Shoemaker:
Did the Federal Reserve provide any clues about what we might expect regarding interest rates this year?

Bob Graham:
Yes, they did.

The Federal Reserve indicated that interest rate cuts are likely coming, although they suggested they may prefer not to begin those cuts as early as March.

Right now, the Fed has indicated the possibility of three rate cuts this year, and I think that’s a reasonable expectation—possibly even more depending on how the economy develops.

Interestingly, the bond market has already been rallying, which suggests that investors believe rate cuts will likely begin sooner rather than later.

Susan Shoemaker:
And those rate cuts can have a significant impact on everyday financial decisions.

Lower rates can help areas like:

• Housing

• Auto financing

• Consumer borrowing

Bob Graham:
Exactly.

When interest rates decline, the cost of borrowing money decreases.

That means people can afford larger mortgages, finance vehicles more easily, and businesses can invest more in expansion.

While it can take time for those effects to work through the economy, lower borrowing costs generally provide a positive boost to economic activity.

Susan Shoemaker:
Great. I think we covered everything.

Bob Graham:
Great. Thank you, Susan.